As filed with the Securities and Exchange
Commission on April 5, 2011
Registration
No. 333-155296
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 5
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Alon Brands, Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
(State or other jurisdiction
of
incorporation or
organization)
|
|
5412
(Primary Standard
Industrial
Classification Code
Number)
|
|
74-2966583
(I.R.S. Employer
Identification Number)
|
Alon Brands, Inc.
7616 LBJ Freeway, 3rd Floor
Dallas, Texas 75251
(972) 367-3900
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Kyle McKeen
President and Chief Executive Officer
Alon Brands, Inc.
7616 LBJ Freeway, 3rd Floor
Dallas, Texas 75251
(972) 367-3900
(Name, address, including
zip code, and telephone number, including area code, of agent
for service)
Copies to:
|
|
|
W. Stuart Ogg, Esq.
Jones Day
555 South Flower Street
Fiftieth Floor
Los Angeles, California 90071
Telephone:
(213) 489-3939
Facsimile:
(213) 243-2539
|
|
Kris F. Heinzelman, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Telephone: (212) 474-1336
Facsimile: (212) 474-3700
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer o
|
|
Non-accelerated
filer þ
(Do not check if a smaller reporting company)
|
|
Smaller reporting
company o
|
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
|
SUBJECT
TO COMPLETION, DATED APRIL 5, 2011
Shares
Alon Brands,
Inc.
Common
Stock
This is an initial
public offering of shares of common stock of Alon Brands, Inc.
Prior to this
offering, there has been no public market for our common stock.
The initial public offering price of our common stock is
expected to be between $ and
$ per share. We intend to apply to
list our common stock on the New York Stock Exchange under the
symbol ABO.
Investing in our
common stock involves risks. See Risk Factors
beginning on page 12.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
|
|
Proceeds,
Before
|
|
|
|
|
Discounts and
|
|
Expenses, to
|
|
|
Price to
Public
|
|
Commissions
|
|
Alon Brands,
Inc.
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The underwriters
have an option to purchase a maximum
of
additional shares from the selling stockholder at the offering
price less the underwriting discount, within 30 days from
the date of this prospectus, to cover over-allotments of shares.
If the underwriters exercise the option in full, the total
underwriting discounts and commissions payable by the selling
stockholder will be $ and the
total proceeds to the selling stockholder, before expenses, will
be $ . We will not receive any
proceeds from the sale of shares by the selling stockholder.
Delivery of the
shares of common stock will be made on or
about
.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this
prospectus
is ,
2011.
TABLE OF
CONTENTS
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document may only
be accurate on the date of this document.
Dealer
Prospectus Delivery Obligation
Until ,
2011 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
i
Industry
and Market Data
In this prospectus, we rely on and refer to information and
statistics regarding our industry, the size of certain markets
and our position within the sectors in which we compete. Some of
the market and industry data contained in this prospectus are
based on information from independent industry trade
associations such as the Association for Convenience and
Petroleum Retailing, or NACS, or other publicly available
information, while other information is based on our good faith
estimates, which are derived from our review of internal
surveys, and our managements knowledge and experience in
the markets in which we operate. Our estimates have also been
based on information obtained from our customers, suppliers and
other contacts in the markets in which we operate.
We own and use the Alon Brands,
Skinnys and Alon names and logos
as our trademarks. This prospectus also refers to brand names,
trademarks, service marks and trade names of other companies and
organizations, and these brand names, trademarks, service marks
and trade names are the property of their respective owners.
Notice to
Israeli Residents
This prospectus has not been approved by the Israeli
Securities Authority. The securities are being offered to a
limited number of sophisticated investors, in all cases under
circumstances that will fall within the private placement or
other exemptions set forth in the Israeli Securities Law 1968 or
the Joint Investment Trust Law 1994. This prospectus may
not be reproduced or used for any other purpose nor be furnished
to any other person other than those to whom copies have been
sent. Any prospective purchaser who purchases securities is
purchasing such for its own benefit and account and not with the
aim or intention of distributing or offering such interest to
other parties. This prospectus does not constitute an offer to
sell or the solicitation of an offer to buy, in Israel, to any
person to whom it is unlawful to make such offer or solicitation
in the State of Israel. Nothing in this Prospectus should be
considered as investment advice as defined in the Israeli
Regulation of Investment Advice, Investment Marketing and
Investment Portfolio Management Law 1995.
ii
PROSPECTUS
SUMMARY
This summary highlights significant aspects of our business
and this offering that appear later in this prospectus, but it
is not complete and does not contain all of the information that
you should consider before making your investment decision. You
should read this entire prospectus carefully, including the
risks discussed under Risk Factors and the financial
statements and related notes included elsewhere in this
prospectus. In this prospectus, all references to Alon
Brands, we, us and our
refer to Alon Brands, Inc. and its subsidiaries except where the
context otherwise requires or where otherwise indicated. All
references to Alon Energy refer to Alon USA Energy, Inc., our
indirect parent company, and its consolidated subsidiaries,
including Alon USA, LP, our direct parent company. Unless
otherwise indicated, the information contained in this
prospectus assumes the completion of the corporate
reorganization transactions we expect to consummate immediately
prior to the consummation of this offering. See Corporate
Reorganization Transactions for a description of these
transactions. EBITDA is a financial measure that is not
calculated in accordance with generally accepted accounting
principles, or GAAP, but we believe EBITDA is useful to help
investors understand our results of operations. However, EBITDA
has limitations and should not be considered as a substitute for
net income or as a better indicator of our operating performance
than measures that are presented in accordance with GAAP. See
Summary Historical Combined and Unaudited Pro
Forma Condensed Combined Financial and Operating Data and
Selected Historical Combined Financial and Operating
Data for a discussion of our use of EBITDA in this
prospectus and reconciliations of EBITDA to net income for the
periods presented. Unless otherwise indicated, the pro forma
financial information in this prospectus gives effect to this
offering and the corporate reorganization transactions we expect
to consummate immediately prior to the consummation of this
offering.
Our
Company
We are the largest 7-Eleven licensee in the United States and we
are a leading marketer and supplier of motor fuels in the South
Central and Southwestern United States. Our business consists of
two operating segments: retail and wholesale marketing. As of
December 31, 2010, our retail segment operated 304
convenience stores in Central and West Texas and New Mexico,
substantially all of which are branded
7-Eleven.
Through our 7-Eleven licensing agreement, we have the exclusive
right to operate 7-Eleven stores in substantially all of our
existing retail markets and many surrounding areas. Our
wholesale marketing segment markets and supplies motor fuels
under the FINA brand and provides brand support and payment card
processing services to distributors supplying approximately
633 retail locations, including our company-owned stores
that sell motor fuel. In certain markets outside of our supply
network, we also
sub-license
the FINA brand and provide the same brand support and payment
card processing services to distributors representing
approximately 261 additional retail locations. We believe our
leading brand offerings, advantageous fuel supply agreement,
strong market positions and complementary business model provide
us with competitive advantages and position us well for
continued growth.
Historically, our business was accounted for as an operating
segment of Alon USA Energy, Inc. (Alon Energy),
an independent refining company listed on the New York Stock
Exchange, or NYSE, under the symbol ALJ. Alon Energy
owns and operates crude oil refineries located in Texas,
California, Louisiana and Oregon. After completion of this
offering, Alon Energy, through its subsidiary, Alon USA, LP,
will continue to own
approximately % of our common stock
( % if the underwriters
over-allotment option is exercised in full). Alon Energy is
majority-owned by Alon Israel Oil Company, Ltd., or Alon Israel,
an Israeli limited liability company and one of the largest
operators of retail gasoline and convenience stores in Israel.
Our ongoing relationships with Alon Energy and Alon Israel
provide us with secure fuel supply and retail operating
expertise, which we believe provide us with a competitive
advantage.
Our 7-Eleven convenience stores offer well-known proprietary
products, including
Slurpee®
frozen carbonated beverages, Big
Gulp®
beverages and Big
Bite®
hot dogs, as well as a variety of other food products, tobacco
products, alcoholic and non-alcoholic beverages, general
merchandise and convenience services, such as ATMs, lottery
tickets, money orders, prepaid telephone cards and gift cards.
We believe customer recognition of the 7-Eleven brand provides
us with a competitive advantage and its proprietary
1
products have contributed to our merchandise margin, which is
in excess of the industry average. We are currently test
marketing additional 7-Eleven offerings, such as private label
products, and are evaluating the latest 7-Eleven hot food
programs. We sell motor fuels in 292 of our convenience stores,
which are supplied by our wholesale marketing segment. For the
year ended December 31, 2010, our retail segment generated
revenues of $665.8 million and gross profit of
$108.0 million.
We have entered into a strategic,
20-year fuel
supply and licensing agreement with Alon USA, LP, our corporate
parent, which allows us to purchase motor fuels produced by its
refineries. This agreement provides us with cost-advantaged
pricing, a secure fuel supply, access to distribution terminals
in our primary markets and a platform for growth into existing
and new markets where Alon Energy owns and operates refineries.
Our wholesale marketing segment sells to third-party
distributors, predominantly from Alon USA, LPs
high-conversion
refinery located in Big Spring, Texas, who take possession of
their motor fuels directly from Alon Energys and other
third-party terminals. As a result, our wholesale marketing
segment holds no motor fuel inventory and is not subject to
inventory valuation and transportation risks. In addition to
motor fuels, we offer our wholesale distributors a number of
ancillary services and incentives, including payment card
processing, branding and construction incentives, and signage
and marketing incentives, designed to support both their retail
fuel operations and the FINA brand. We also provide these
services and incentives and
sub-license
the FINA brand for motor fuels in certain markets outside of our
supply network. Our payment card processing and
sub-licensing
activities, in particular, provide us with additional sources of
consistent revenue. For the year ended December 31, 2010,
our wholesale marketing segment sold 318.9 million gallons
of branded motor fuel, and generated revenues of
$385.4 million to our third-party distributors and gross
profit of $22.8 million.
Our total revenues for the year ended December 31, 2010,
were $1,051.2 million. We had net income for the year ended
December 31, 2010 of $10.6 million. Our net income
before net interest expense, income tax expense and
depreciation, amortization and accretion (EBITDA)
for the year ended December 31, 2010, was
$33.6 million.
Industry
Trends
Convenience Stores. Our retail segment
operates within the large and growing U.S. convenience
store industry. According to the Association for Convenience and
Petroleum Retailing (NACS), sales in the industry
have grown from $234.0 billion in 1999 to
$511.1 billion in 2009. This industry is highly fragmented,
with the 10 largest convenience store operators controlling
approximately 9.1% of the total convenience stores in 2009.
Furthermore, convenience store operators with 50 or fewer stores
accounted for approximately 75% of all convenience stores in
2009. We believe we will continue to benefit from several key
industry trends and characteristics, including:
|
|
|
|
|
Continuing shift of consumer food and general merchandise
purchases away from traditional supermarkets to convenience
stores and other alternative formats;
|
|
|
|
Increasing size and complexity of the big box retail format
(i.e., superstores), driving consumers to small box retailers,
such as convenience stores, to meet their demand for speed and
convenience in daily shopping needs;
|
|
|
|
Changing consumer demographics and eating patterns resulting in
more
ready-to-eat
food being purchased at convenience stores;
|
|
|
|
Increasing significance of the advantages of scale given the
highly fragmented nature of the industry; and
|
|
|
|
Continuing opportunities to grow through acquisitions given
industry fragmentation and continued divestitures of retail
convenience stores by major oil companies.
|
2
Motor Fuel Marketing and Supply. In recent
years, the market for wholesale distribution of motor fuel
products has experienced a number of changes we believe provide
opportunities to grow our wholesale marketing segment, including:
|
|
|
|
|
Consolidation among major petroleum product producers has
resulted in fewer recognizable brands available to distributors
and convenience store operators;
|
|
|
|
|
|
A 46% reduction in the number of operating crude oil refineries
over the last 28 years as well as a number of recent
temporary facility closures, which has resulted in less access
to product and increased the importance of obtaining a secure
fuel supply source; and
|
|
|
|
Increased scrutiny by oil companies and refiners in selecting
distributors, with a preference for larger distributors capable
of handling higher volumes, limiting smaller distributors
access to product.
|
Our
Competitive Strengths
We believe the following competitive strengths differentiate us
from our competitors:
Leading 7-Eleven Convenience Store
Brand. 7-Eleven is the worlds largest
convenience store retailer and operates, franchises or licenses
approximately 8,200 7-Eleven stores in North America and more
than 39,000 7-Eleven stores around the world. We are the largest
7-Eleven licensee in the United States and have a perpetual and
exclusive license to use the 7-Eleven brand in substantially all
of our retail markets and many surrounding areas. Our licensing
arrangement allows, but does not require, us to offer well-known
proprietary products, including
Slurpee®
frozen carbonated beverages, Big
Gulp®
beverages and Big
Bite®
hot dogs. These products are significant contributors to our
merchandise margin, which exceeds the industry average.
Additionally, we benefit from access to 7-Elevens
successful and innovative new product development, marketing
techniques, national advertising campaigns and proprietary
retail information.
Leading Market Position in Attractive
Markets. We believe we are the largest
convenience store operator by number of stores in the cities of
Abilene, Big Spring, El Paso, Lubbock, Midland, Odessa and
Wichita Falls, Texas. We also have a significant presence in
Albuquerque, New Mexico. A majority of our stores are located in
counties where the population and employment growth rates
exceeded the national average over the last five years based on
U.S. Census Bureau and Bureau of Labor Statistics
information. We believe we will continue to benefit from the
regional economys focus on energy and agriculture and the
stability provided by military bases in the region.
Attractive Wholesale Marketing Segment. Our
wholesale marketing segment supplies our retail convenience
stores as well as branded distributors with motor fuel and
provides brand support services such as payment card processing,
branding and construction incentives, customer loyalty programs,
innovative mobile marketing initiatives, a proprietary private
label credit card offering, signage and traditional marketing
incentives. Given the relatively low operating costs and capital
requirements of our wholesale marketing segment, we believe this
segment will continue to generate free cash flow in the future,
which can be utilized to fund our growth strategy.
Advantageous Long-Term Fuel Supply
Agreement. We have entered into a long-term
supply agreement with our parent to secure substantially all of
our motor fuel requirements following the consummation of this
offering. This new agreement will provide cost-advantaged
pricing and a secure fuel supply. This agreement will also
provide a platform for growth in existing and new markets, such
as Louisiana and Southern California, where Alon Energy owns and
operates refineries.
Complementary Business Model. We believe our
wholesale marketing operations and related brand
sub-licensing
provide us with a diverse source of revenues to complement our
retail operations. In addition to increasing our overall scale
and providing us with additional sales and income opportunities
over other convenience store operators, our wholesale operations
minimize certain risks facing convenience store-only operators,
such as higher payment card expenses and volatility in retail
motor fuel margins. For example, our wholesale marketing
segments payment card processing services revenues
3
partially offset our retail segments payment card
expenses. Furthermore, we believe our complementary operations
enhance our flexibility to grow in existing and new markets and
enhance the overall stability of our business.
Experienced Management with Significant Operating
Expertise. Our senior management team averages
more than 20 years of relevant experience in the retail and
fuel marketing industries. We believe our management teams
experience and accomplishments position us well for continued
growth. We also benefit from the management and transactional
expertise provided through our relationships with Alon Energy
and Alon Israel, which has grown since its formation in 1989 to
become one of the largest operators of retail gasoline and
convenience stores in Israel.
Our
Growth Strategy
We believe there are significant opportunities to continue to
expand our businesses and increase our sales and profitability
through implementation of the following strategies:
Optimize Our Retail Operations. Following our
separation from Alon Energy and this offering, we believe we
will have access to sufficient capital to invest in and optimize
our retail operations. We have already improved our fuel
offering through installation of modern fuel dispensers at a
majority of our locations. Additionally, at a number of
locations we have installed digital pricing signs and
implemented fuel pricing optimization strategies. We have found
these improvements have resulted in increases in same-store fuel
sales as well as merchandise sales. Our plan is to continue to
improve our fuel offering and to take advantage of the expected
increase in inside traffic with a more inviting store
presentation, new products and services, more effective
positioning of high-margin, high-volume product categories and
improved utilization of our
point-of-sale
systems.
Increase Sales of Higher Margin Foodservice
Products. We believe there is a significant
opportunity to increase our sales of higher margin foodservice
products, especially hot-dispensed, frozen and fountain
beverages. Our 7-Eleven license agreement gives us access to
7-Elevens entire program of proprietary foodservice
products and also allows us to offer third-party foodservice
products. After completion of this offering, we intend to take
advantage of both options and to accelerate implementation of a
network-wide foodservice expansion program. This expansion will
focus initially on beverage categories with additions to
equipment and foodservice area remodels.
Enhance Our Wholesale Marketing Operations. We
have implemented and continue to implement changes to our
wholesale marketing programs to increase the ratability, or
consistency, of our distributors purchases of motor fuel
products, which further enhances our profitability. We plan to
continue to grow our distributor network in our current markets
through our offering of branded motor fuel, reliable fuel
supply, brand support, innovative direct marketing campaigns and
payment card processing services. In addition, we intend to
expand our branded fuel supply offering into new markets,
including markets in which Alon Energy now operates, or in the
future may acquire, refineries.
Grow Our Retail Store Base. Over the last five
years, we have increased our retail store count from 167 to 304
by completing and integrating two significant acquisitions of
distributors serviced by our wholesale marketing segment. We
have improved the profitability of these acquired stores through
rebranding them to the 7-Eleven brand, realizing the benefits of
increased scale and improved offerings based on local consumer
tastes. We believe our acquisition experience, our scalable
infrastructure and the immediate opportunity for sales growth
resulting from rebranding to the 7-Eleven brand form a strong
platform for future growth. Acquisitions of additional stores
provide us the opportunity to increase our overall profitability
and also allow us to generate incremental revenues from fuel
supplied by our wholesale marketing segment. We expect to
continue to grow our retail store base after completion of this
offering, primarily through acquisitions of stores that will
complement our existing operations. Such acquisitions would
allow us the opportunity to realize the benefits of increased
scale, improved store profitability from rebranding to 7-Eleven
and the generation of incremental wholesale fuel sales volume.
4
Risks
Related to Our Business and Strategy
Despite the competitive strengths and our growth strategy
described above, our business remains subject to numerous risks,
uncertainties and challenges that may affect our financial and
operating performance and our ability to execute on these
strategies or realize the benefits of our competitive strengths.
Some of the principal competitive challenges and risks that we
face include, but are not limited to:
|
|
|
|
|
the volatility of motor fuel prices, where significant changes
in prices can materially and adversely affect our profitability
in both our wholesale marketing and retail segments;
|
|
|
|
our dependence on our parent company to supply substantially all
of our motor fuel requirements under a fuel supply agreement,
which contains minimum and maximum volume purchase terms and a
change of control provision, each of which could limit or
terminate altogether our ability to receive the favorable
pricing terms and certainty of supply provided by that agreement;
|
|
|
|
|
|
the importance of our 7-Eleven license agreement for branding
and marketing initiatives, the loss of which could materially
adversely affect our business;
|
|
|
|
|
|
the highly competitive markets in which we compete for motor
fuel distribution and retail merchandising;
|
|
|
|
|
|
changes in consumer spending behavior or travel trends in our
markets, as well as declines in general or local economic
conditions, any of which could result in a decrease in our motor
fuel and retail merchandise sales; and
|
|
|
|
|
|
the costs of compliance with federal, state and local
regulations, including environmental, economic, safety and other
laws, policies and regulation that could increase our operating
costs or result in declining sales.
|
These risks and others are described in more detail under the
caption Risk Factors included elsewhere in this
prospectus and could materially adversely affect our business,
prospects, financial condition, cash flows and results of
operations.
Recent
Developments
Preliminary Results for First Quarter Ended March 31,
2011. We are in the process of finalizing our
results of operations and other financial and operating data for
the three months ended March 31, 2011. While full financial
information and operating data as of and for such period is not
available, based on managements preliminary estimates from
currently available information, we expect that for the three
months ended March 31, 2011 our operating income (loss) was
between $ million and
$ million, compared to
$(1.9) million for the three months ended March 31,
2010, and depreciation, amortization and accretion was between
$ million and
$ million for the three
months ended March 31, 2011 compared to $3.4 million
for the three months ended March 31, 2010.
Additionally, total cash and cash equivalents on hand and in
banks as of March 31, 2011 was
$ million and amounts due
under all credit facilities and capital lease obligations
totaled $ million as of that
date, including the current portion of our amended credit
facilities of $ million.
Because the three months ended March 31, 2011 has recently
ended, the unaudited financial information presented above for
the 2011 first quarter is based only upon preliminary
information available to us as of the date of this prospectus,
and is not a comprehensive statement of our financial results or
position as of or for the three months ended March 31,
2011, and has not been reviewed by our independent registered
public accounting firm. Our combined financial statements and
operating data as of and for the three months ended
March 31, 2011 will not be available until after this
offering is completed and may vary from the preliminary
financial information we have provided. Accordingly, you should
not place undue reliance on these preliminary estimates. The
estimates as of and for the three months ended March 31,
2011 are not necessarily indicative of any future period and
should be read together with Risk Factors,
Forward Looking Statements, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Selected
5
Historical Combined Financial and Operating Data,
Unaudited Pro Forma Condensed Combined Financial
Data and our combined financial statements and related
notes included elsewhere in this prospectus.
2011 Loan Transactions. On February 21, 2011,
we entered into loan agreements with a group of investors,
including Alon Israel, pursuant to which the investors loaned an
aggregate of $30.0 million to us for general corporate
purposes. In connection with these loans, Alon Energy, our
indirect parent company, issued to the investors warrants to
purchase up to an aggregate of 3,092,783 shares of Alon
Energys common stock for an aggregate purchase price of up
to $30.0 million, subject to adjustment. In March 2011, we
used $30.0 million of the proceeds from these loans to make
a cash distribution to Alon USA, LP, our parent company.
The loans mature in March 2016 and bear interest at a rate of 7%
per annum, payable semi-annually; provided, that in the event
the warrants are not exercised in full by maturity, the interest
rate will be increased to 9% per annum retroactively with
respect to the same portion of the loans for which the warrants
were not exercised. The principal amounts of the loans are
payable in four equal annual installments beginning in March
2013, provided that each scheduled principal payment will
automatically be deferred until maturity unless an investor
notifies us in writing of its election to receive the scheduled
principal payment at least 30 days prior to the scheduled
payment date. In the event an investor elects not to defer the
principal payment on any scheduled principal payment date, the
number of warrants associated with the loan and aggregate
purchase price will be reduced by the corresponding amount of
such principal payment made.
Pursuant to the warrant agreements, in the event of an
underwritten initial public offering of our common stock
(including the offering contemplated by this prospectus), the
investors may elect to exchange all or any portion of their
warrants to purchase Alon Energy common stock for warrants to
purchase a pre-determined number of shares of our common stock
at an exercise price based on the offering price. The election
to exchange the Alon Energy warrants for warrants to purchase
our common stock must be made prior to the commencement of this
offering.
We refer to these loan agreements and the use of proceeds
therefrom as the 2011 loan transactions in this
prospectus.
Principal
Executive Offices
Alon Brands, Inc. was converted from a Texas limited liability
company, formed in September 2002, to a Delaware corporation in
November 2008. Our principal executive offices are located at
7616 LBJ Freeway, 3rd Floor, Dallas, Texas 75251, and our
telephone number at this address is
(972) 367-3900.
Our website is www.alonbrands.com. Information on, or
accessible through, our website is not a part of, and is not
incorporated into, this prospectus.
6
The
Offering
|
|
|
Common stock offered by us |
|
shares |
|
|
|
Common stock offered by the selling stockholder if the
underwriters exercise their over-allotment option to purchase
additional shares of common stock in this offering in full |
|
shares |
|
|
|
Common stock to be outstanding immediately after this offering |
|
shares |
|
|
|
Use of proceeds |
|
We estimate that our net proceeds from this offering, after
deducting underwriting discounts, commissions and estimated
offering expenses, will be approximately
$ million. |
|
|
|
|
|
We intend to use these net proceeds: |
|
|
|
|
|
to accelerate our growth strategy, including,
without limitation, planned store remodels and the acquisition
of additional retail locations; and
|
|
|
|
|
|
for general corporate purposes.
|
|
|
|
|
|
We will not receive any proceeds from the sale of shares of
common stock offered by the selling stockholder if the
underwriters exercise their over-allotment option to purchase
shares of common stock from the selling stockholder in this
offering. See Use of Proceeds. |
|
|
|
Dividend policy |
|
We intend to pay quarterly cash dividends on our common stock at
an initial annual rate of $ per
share commencing in the second quarter following the completion
of this offering. 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 and other factors our board of directors deems
relevant. |
|
Risk factors |
|
You should carefully read and consider the information set forth
under Risk Factors, together with all of the other
information set forth in this prospectus, before deciding to
invest in shares of our common stock. |
|
Proposed NYSE symbol |
|
ABO |
|
|
|
Directed Share Program |
|
At our request, the underwriters have reserved up
to % of shares for sale at the
initial public offering for our employees, directors, officers
and other persons associated with us See Underwriting |
Unless we indicate otherwise, the number of shares of common
stock shown to be outstanding after this offering gives effect
to our corporate reorganization transactions, including
the -for-1 stock split of our common stock
outstanding prior to this offering, and
excludes shares
of our common stock reserved for issuance under our equity
incentive plan.
7
Summary
Historical Combined and Unaudited Pro Forma
Condensed Combined Financial and Operating Data
The following tables set forth our summary historical combined
and unaudited pro forma condensed combined financial and
operating data as of and for the periods indicated. The summary
historical combined financial data for the years ended
December 31, 2008, 2009, and 2010 and as of
December 31, 2010 have been derived from our audited
combined financial statements, which are included elsewhere in
this prospectus.
During the periods covered by our historical financial and
operating data, our business was accounted for as an operating
segment of Alon Energy. Our combined financial statements
include allocations of certain corporate functions provided to
us by Alon Energy, including general corporate expenses, where
allocations are based on estimates of effort or resources
incurred on our behalf. Certain other costs incurred by Alon
Energy for our direct benefit, such as rent, salaries and
benefits, have also been included in our combined financial
statements. However, our combined financial statements do not
purport to represent and may not necessarily reflect what our
financial position, results of operations and cash flows
actually would have been if we had operated as a stand-alone
company during the periods presented. Accordingly, our
historical financial data also do not purport to represent, and
may not be indicative of, our results of operations or cash
flows for any future period or financial position as of any
future date.
The summary pro forma condensed combined balance sheet data as
of December 31, 2010 are derived from the pro forma
condensed combined balance sheet set forth under Pro Forma
Condensed Combined Financial Data. The summary pro forma
condensed combined balance sheet data as of December 31,
2010 give effect to the corporate reorganization transactions,
including
the -for-1
stock split of our common stock outstanding prior to this
offering, the 2011 loan transactions, this offering, and the
application of net proceeds thereof as if they had occurred as
of December 31, 2010.
The pro forma condensed combined balance sheet and financial
data are included for informational purposes only and do not
purport to reflect our financial position or operations that
would have occurred had the transactions referenced above
occurred on the date indicated. In addition, the pro forma
adjustments described herein are based on available information
and upon assumptions that our management believes are reasonable
in order to reflect, on a pro forma basis, the impact of the
above transactions on our historical combined financial data.
The pro forma financial data also do not purport to represent,
and may not be indicative of our financial position or
operations as of any future date.
The information presented below should be read in conjunction
with Use of Proceeds, Capitalization,
Selected Historical Combined Financial and Operating
Data, Pro Forma Condensed Combined Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
audited and unaudited combined financial statements and related
notes included elsewhere in this prospectus.
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except share and per share and
percentage data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel retail
|
|
$
|
315,756
|
|
|
$
|
276,951
|
|
|
$
|
384,148
|
|
Merchandise retail
|
|
|
253,295
|
|
|
|
261,920
|
|
|
|
274,264
|
|
Other, net retail(1)
|
|
|
7,850
|
|
|
|
6,867
|
|
|
|
7,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
576,901
|
|
|
|
545,738
|
|
|
|
665,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel wholesale
|
|
|
663,126
|
|
|
|
263,679
|
|
|
|
382,276
|
|
Other, net wholesale(2)
|
|
|
2,029
|
|
|
|
2,123
|
|
|
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale
|
|
|
665,155
|
|
|
|
265,802
|
|
|
|
385,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,242,056
|
|
|
|
811,540
|
|
|
|
1,051,239
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel retail
|
|
|
20,267
|
|
|
|
16,772
|
|
|
|
18,377
|
|
Merchandise retail
|
|
|
71,607
|
|
|
|
75,629
|
|
|
|
82,248
|
|
Other, net retail
|
|
|
7,850
|
|
|
|
6,867
|
|
|
|
7,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
99,724
|
|
|
|
99,268
|
|
|
|
108,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel wholesale
|
|
|
7,551
|
|
|
|
14,511
|
|
|
|
19,629
|
|
Other, net wholesale
|
|
|
2,029
|
|
|
|
2,123
|
|
|
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale
|
|
|
9,580
|
|
|
|
16,634
|
|
|
|
22,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
109,304
|
|
|
|
115,902
|
|
|
|
130,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and selling expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling and administrative(3)
|
|
|
97,105
|
|
|
|
95,291
|
|
|
|
98,112
|
|
Depreciation, amortization and accretion
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and selling expenses
|
|
|
110,809
|
|
|
|
108,883
|
|
|
|
111,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,505
|
)
|
|
|
7,019
|
|
|
|
19,143
|
|
Interest expense
|
|
|
5,097
|
|
|
|
3,893
|
|
|
|
3,176
|
|
Rental, interest and other income
|
|
|
554
|
|
|
|
559
|
|
|
|
594
|
|
Gain (loss) on sale of assets
|
|
|
(317
|
)
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
(6,365
|
)
|
|
|
3,685
|
|
|
|
16,847
|
|
Income tax expense (benefit)(4)
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Weighted-average shares outstanding(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Pro forma earnings per share(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Pro forma weighted-average shares outstanding(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)(6)
|
|
$
|
12,410
|
|
|
$
|
21,164
|
|
|
$
|
33,571
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
35,596
|
|
|
|
17,354
|
|
|
|
31,779
|
|
Investing activities
|
|
|
(3,519
|
)
|
|
|
(5,199
|
)
|
|
|
(5,434
|
)
|
Financing activities
|
|
|
(39,890
|
)
|
|
|
(12,741
|
)
|
|
|
(171
|
)
|
Capital expenditures(7)
|
|
|
3,888
|
|
|
|
5,199
|
|
|
|
6,029
|
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of retail stores (end of period)
|
|
|
306
|
|
|
|
308
|
|
|
|
304
|
|
Number of motor fuel stores (end of period)
|
|
|
295
|
|
|
|
296
|
|
|
|
292
|
|
Retail fuel gallons sold
|
|
|
96,974
|
|
|
|
120,697
|
|
|
|
142,155
|
|
Average gasoline retail price (dollars per gallon sold)
|
|
$
|
3.26
|
|
|
$
|
2.29
|
|
|
$
|
2.70
|
|
Average per retail store(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail merchandise sales
|
|
$
|
827
|
|
|
$
|
856
|
|
|
$
|
896
|
|
Retail fuel gallons sold
|
|
|
328
|
|
|
|
410
|
|
|
|
483
|
|
Comparable merchandise store sales growth(9)
|
|
|
1.1
|
%
|
|
|
3.3
|
%
|
|
|
4.9
|
%
|
Retail merchandise gross margin(10)
|
|
|
30.4
|
%
|
|
|
30.7
|
%
|
|
|
31.8
|
%
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except share and per share and
percentage data)
|
|
|
Retail fuel margin (cents per gallon)(11)
|
|
|
20.9
|
¢
|
|
|
13.9
|
¢
|
|
|
12.9
|
¢
|
Number of stores supplied through wholesale distributor network
(end of period)(12)
|
|
|
475
|
|
|
|
343
|
|
|
|
341
|
|
Wholesale fuel gallons sold
|
|
|
339,099
|
|
|
|
274,101
|
|
|
|
318,935
|
|
Sold to our retail convenience stores
|
|
|
92,677
|
|
|
|
120,013
|
|
|
|
141,814
|
|
Sold to unrelated parties
|
|
|
246,422
|
|
|
|
154,088
|
|
|
|
177,121
|
|
Wholesale fuel margin unrelated parties (cents per gallon)
|
|
|
1.7
|
¢
|
|
|
4.8
|
¢
|
|
|
5.6
|
¢
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma(14)
|
|
|
As of
|
|
|
As of
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
(Dollars in thousands, except as noted)
|
|
|
|
|
|
|
Balance Sheet Data (unaudited):
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,153
|
|
|
|
$
|
106,603
|
|
Working capital
|
|
|
20,225
|
|
|
|
|
113,225
|
|
Adjusted working capital(13)
|
|
|
(7,928
|
)
|
|
|
|
6,622
|
|
Total assets
|
|
|
212,448
|
|
|
|
|
290,898
|
|
Total liabilities
|
|
|
156,531
|
|
|
|
|
171,981
|
|
Total stockholders equity
|
|
|
55,917
|
|
|
|
|
118,917
|
|
|
|
|
(1) |
|
Includes revenues from, lottery, money orders, money wire and
ATM commissions, and other commissions earned on gift cards and
ancillary services. |
|
(2) |
|
Includes payment card processing fees, broadband and equipment
rents, and other marketing and trade agreement fees. |
|
|
|
(3) |
|
Includes allocated costs and expenses for administrative and
shared services provided by Alon Energy to Alon Brands
(2008 - $3,438, 2009 - $2,811, and 2010 - $2,479). |
|
|
|
(4) |
|
Reflects current and deferred taxes for the periods presented.
See Note 2(r) and Note 16 to our audited combined
financial statements included elsewhere in this prospectus for a
detailed explanation of the components of income taxes. |
|
|
|
(5) |
|
Please see Note 2(x) to our audited combined financial
statements for the year ended December 31, 2010 appearing
elsewhere in this prospectus, for an explanation of the method
used to calculate basic and diluted earnings per share and the
number of shares used in the computation of the per share
amounts for the periods presented. The pro forma earnings per
share and weighted-average shares outstanding also give effect
to
the -for-1
stock split of our common stock outstanding prior to this
offering and the sale
of shares
of common stock in this offering at the assumed public offering
price of $ per share (the
midpoint of the range set forth on the cover page of this
prospectus). |
|
|
|
(6) |
|
We define EBITDA as net income (loss) before net interest
expense, income tax expense (benefit) and depreciation,
amortization and accretion. We believe EBITDA is useful to
investors in evaluating our operating performance because: |
|
|
|
securities analysts and investors often use such
calculations as a measure of financial performance and debt
service capabilities;
|
|
|
|
it facilitates managements ability to measure
operating performance of our business on a consistent basis
since it removes the impact of items not directly resulting from
our retail and wholesale marketing operations; and
|
|
|
|
it is used by our management for internal planning
purposes, including aspects of our consolidated operating
budget, capital expenditures, as well as for segment and
individual site operating targets.
|
|
|
|
EBITDA is not a recognized term under accounting principles
generally accepted in the United States of America (US
GAAP) and does not purport to be an alternative to net
income as a measure of operating performance. EBITDA has
limitations as an analytical tool, and you should not consider
it in isolation or |
10
|
|
|
|
|
as a substitute for an analysis of our results as reported under
US GAAP. Some of these limitations include: |
|
|
|
it does not reflect our cash expenditures, or future
requirements, for capital expenditures or contractual
commitments;
|
|
|
|
it does not reflect changes in, or cash requirements
for, working capital;
|
|
|
|
it does not reflect significant interest expense, or
the cash requirements necessary to service interest or principal
payments on our credit facilities;
|
|
|
|
it does not reflect payments made or future
requirements for income taxes;
|
|
|
|
although depreciation, amortization and accretion
are non-cash charges, the assets being depreciated and amortized
may be replaced in the future, and EBITDA does not reflect cash
requirements for such replacements; and
|
|
|
|
because not all companies use identical
calculations, our presentation of EBITDA may not be comparable
to similarly titled measures of other companies.
|
The following table presents a reconciliation of net income
(loss) to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Net income (loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Depreciation, amortization and accretion
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
Interest expense, net
|
|
|
5,071
|
|
|
|
3,887
|
|
|
|
3,174
|
|
Income tax expense (benefit)
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
12,410
|
|
|
$
|
21,164
|
|
|
$
|
33,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) |
|
Excludes capital assets acquired in business acquisitions and
includes expenditures for brand image enhancement. |
|
(8) |
|
Average retail merchandise sales and motor fuel gallons sold are
based on total merchandise sales or motor fuel gallons sold
divided by total store months. |
|
(9) |
|
Includes merchandise and in-store revenue identified in footnote
(1) only for stores operated in both periods. Excludes
motor fuel sales. |
|
(10) |
|
Retail merchandise gross margin represents the difference
between (a) merchandise sales revenues and other retail
sales and services revenues and (b) the delivered cost of
merchandise purchases, net of rebates and commissions, expressed
as a percentage of merchandise sales revenues. Retail
merchandise gross margins, also referred to as in-store margins,
are commonly used in the retail industry to measure in-store, or
non-fuel, operating results. |
|
(11) |
|
Retail fuel margin represents the difference between motor fuel
revenues and 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. |
|
|
|
(12) |
|
Excludes convenience stores we own and operate and stores that
sub-license our branded motor fuel. |
|
|
|
(13) |
|
Adjusted working capital is defined as total current assets,
excluding cash and cash equivalents, less total current
liabilities. |
|
|
|
(14) |
|
The pro forma balance sheet data as of December 31, 2010
reflects (i) payment of $14.6 million on affiliated
accounts payable (ii) the corporate reorganization
transactions,
including shares
of common stock issued resulting from the transfer of assets and
liabilities associated with the wholesale marketing segment and
the -for-1
stock split of our common stock outstanding prior to this
offering, (iii) the 2011 loan transactions and
(iv) the sale
of shares
of common stock in this offering at the assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover page of this
prospectus), after deducting estimated underwriting discounts
and commissions of $7.0 million. |
11
RISK
FACTORS
An investment in our common stock involves various risks.
Before making an investment in our common stock, you should
carefully consider the following risks, as well as the other
information contained in this prospectus. Any of the risk
factors described below could materially adversely affect our
business, prospects, financial condition, cash flows and results
of operations. As a result, the trading price of our common
stock could decline and you may lose part or all of your
investment.
Risks
Relating to Our Business
Historical
prices for motor fuel have been volatile and significant changes
in such prices in the future may materially adversely affect our
business.
Over the past several years, crude oil prices have risen and
fallen dramatically, resulting in unprecedented volatility in
the wholesale and retail prices of motor fuels. Sustained high
prices for motor fuel products can cause a decrease in gasoline
demand which can negatively influence our motor fuel sales
volumes, fuel margins and retail merchandise sales. Conversely,
sharp declines in retail fuel prices can also reduce our retail
margins per gallon if we sell inventory purchased at higher
wholesale costs at lower retail prices. In addition, because our
wholesale marketing segment sells motor fuels to distributors on
credit, our credit risk increases as wholesale prices increase.
A significant amount of our retail segments sales are made
with payment cards, which result in fees being charged to us.
Payment card fees are made up of two components, a fixed fee per
transaction and a variable processing fee that ranges from 1.0%
to 4.0% of the total amount charged. As a result, higher retail
prices of motor fuel cause us to recognize a higher expense
associated with variable processing fees, which increases our
expenses on a per gallon basis. Additionally, when fuel prices
increase some customers purchase fewer gallons per visit. This
causes the fixed amount of the transaction fee to be allocated
across a smaller number of gallons, which further increases our
overall payment card expenses on a per gallon basis.
We
depend on our parent company to supply substantially all of our
motor fuel. Any disruption in supply or any change in our
relationship with our parent company could materially adversely
affect our business.
We have entered into a new
20-year fuel
supply agreement with our parent company to supply substantially
all of the motor fuel. Accordingly, in the event that our motor
fuel needs exceed the maximum contracted for volume, or our
parent company is unable to fulfill its obligations under this
agreement or otherwise fails to provide us with motor fuel, we
may be unable to replace this supply through third parties or we
may need to pay significantly greater costs for such motor fuel.
For example, on February 18, 2008, our parent company
experienced an extended outage following a major fire at its Big
Spring refinery. In the event of another disruption in supply
from our parent company, motor fuel supply from alternative
sources may be unavailable or inadequate to meet our
requirements, and our wholesale marketing segment and retail
convenience stores may experience decreased sales volumes or
increased procurement costs, which could materially adversely
affect our business.
Our
fuel supply agreement with our parent company contains minimum
purchase requirements and a change of control provision that, if
we fail to meet or comply with, may result in termination of the
agreement or less favorable pricing arrangements, and either
such event could materially adversely affect our
business.
Our fuel supply agreement requires us to purchase minimum
quantities of motor fuel each month. In the event that we fail
to purchase such minimum motor fuel volume in any month, our
parent company has the right to withdraw the favorable pricing
arrangement under the agreement for that months purchases,
which could result in a material increase in our motor fuel
costs. Additionally, in the event that we fail to purchase the
minimum monthly fuel quantity for three consecutive months, our
parent company may terminate the fuel supply agreement.
12
In the event that our parent company ceases to own, directly or
indirectly, a majority of our outstanding shares of common
stock, our parent company has the option to terminate the fuel
supply agreement. If our parent company were to terminate our
fuel supply agreement, we may be unable to find adequate supply
from third party suppliers and may be required to purchase our
requirements at higher prices. After giving effect to this
offering, our parent company will own
approximately % of our outstanding
common stock ( % if the
underwriters over-allotment option is exercised in full).
Any such increases in costs under our fuel supply agreement or
the termination of that agreement could materially adversely
affect our business.
Substantially
all of our convenience stores conduct their operations under a
license agreement with
7-Eleven,
and the loss of this license or the diminution of
7-Elevens brand and marketing initiatives could materially
adversely affect our business.
As of December 31, 2010, we operated 281 of our convenience
stores under the 7-Eleven name pursuant to our perpetual license
agreement with 7-Eleven, Inc. 7-Eleven may terminate the license
if we default on our obligations under the agreement, including
compliance with minimum operating standards required of all
7-Eleven stores. Termination of the license agreement would
result in our convenience stores losing the use of the 7-Eleven
brand name, the benefits accompanying 7-Elevens
advertising and certain brand names and products used
exclusively by 7-Eleven, including
Slurpee®
and Big
Gulp®
beverages and Big
Bite®
hot dogs. Additionally,
7-Eleven
provides our retail convenience stores with various promotional
and marketing initiatives for our in-store merchandise
offerings. Any diminution of the national brand image or decline
in marketing support initiatives made available to us by
7-Eleven could materially adversely affect our retail segment.
In order for our retail segment to use the 7-Eleven brand in
markets not currently covered under our existing license
agreement, we will need to amend the license agreement to
provide us the right to use the 7-Eleven brand in these
additional markets. Such an amendment may not be obtainable if
existing franchisees or licensees are operating in those markets.
We
sub-license
the FINA brand from our parent company under our fuel supply
agreement. Our parent companys rights to the FINA brand
are provided under a license agreement with Total S.A., and the
loss of this license could materially adversely affect our
business.
We
sub-license
the FINA brand from our parent company under our fuel supply
agreement. Our parent company has the exclusive rights to use
the FINA brand for motor fuels marketing in the States of Texas,
Oklahoma, New Mexico, Arizona, Arkansas, Louisiana, Colorado and
Utah under a license agreement with a subsidiary of Total S.A.
The license agreement expires in August 2012 and is collateral
under one of our parent companys credit facilities. We own
substantially all of the trade dress that accompanies the FINA
brand and logo. The expiration of the license agreement with
FINA would cause our retail and wholesale marketing segments to
lose the use of the FINA brand name and logo, which would
require us to change our signage and rebrand our motor fuel
products, which changes would require significant capital
expenditures by us. Also, even if we rebrand our motor fuel
products, there can be no assurance that a new brand will
effectively replace the FINA brand, and our business could be
materially adversely affected.
The
motor fuel marketing and supply industry is characterized by
intense competition, and our failure to effectively compete
could materially adversely affect our business.
The market for distribution of wholesale motor fuel is highly
competitive. Some of our competitors have significantly greater
resources and name recognition than we do. We rely on our
pricing, brand offerings, ability to provide reliable supply,
brand support and payment card processing services to maintain
our competitive position. If we fail to maintain the quality of
our services, customers could choose alternative sources, and
our competitive position could be materially adversely affected.
Furthermore, we compete against major oil companies with
integrated marketing segments. Through their greater resources
and access to crude oil, these companies may be better able to
compete on the basis of price, which could materially adversely
affect our fuel margins.
13
The
convenience store industry is highly competitive and affected by
new entrants. An increase in competition in the markets in which
our stores operate could materially adversely affect our
business.
The geographic areas in which we operate are highly competitive
and marked by ease of entry and constant change in the number
and type of retailers offering products and services of the type
we sell in our convenience stores. We compete with other
convenience stores, gasoline service stations, supermarket
chains, discounters, wholesale clubs, drug stores, fast food
operations and other retail outlets. Increasingly, national
high-volume grocery and dry-goods retailers have entered the
gasoline retailing business. These non-traditional motor fuel
retailers have captured a significant share of the motor fuel
market, and we expect their market share will continue to grow.
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 their retail business. In addition, these
retailers may use promotional pricing or discounts, both at the
pump and in the store, to encourage in-store merchandise sales.
Covenants
in our retail subsidiaries debt instruments could limit
our ability to undertake certain types of
transactions.
The Second Amended and Restated Wells Fargo Credit Facility
contains negative operating covenants and events of default that
may limit our financial flexibility and ability to undertake
certain types of transactions. For example, our retail
subsidiaries are subject to negative covenants that restrict
their activities, including restrictions on creating liens,
engaging in mergers, consolidations, sales of assets and
change-of-control
transactions, incurring additional indebtedness, entering into
certain lease obligations and making certain restricted
payments. Should we desire to undertake a transaction that is
limited by the negative covenants in our retail
subsidiaries credit agreement, we may need to obtain the
consent of those lenders or refinance the credit facility. Such
refinancings may not be possible or may not be available on
commercially acceptable terms, or at all.
We
compete with other businesses in our market to attract and
retain qualified employees. A failure to attract or retain such
qualified employees could materially adversely affect our
business.
Our continued success depends on our ability to attract and
retain qualified personnel in all areas of our business.
Convenience store operations require a substantial number of
employees and generally experience high employee turnover. We
compete with other businesses in our market to attract and
retain qualified employees. A tight labor market, increased
overtime and a higher full-time employee ratio may cause labor
costs to increase. A shortage of qualified employees may require
us to enhance wage and benefits packages in order to compete
effectively in the hiring and retention of qualified employees,
to hire more expensive temporary employees or to reduce store
hours. No assurance can be given that our labor costs will not
increase or that such increases can be recovered through
increased prices charged to customers.
Our
payment card processing services are subject to compliance with
the extensive rules and regulations under the Payment Card
Industry (PCI) Data Security Standard, and failure to comply
with the applicable standards may subject us to substantial
fines and penalties.
A significant portion of our sales and those of our branded
sub-licensee
distributors are made with payment cards and processed by our
wholesale marketing segment. We are subject to quarterly network
security scans and annual
on-site
audits to ensure that we are protecting confidential customer
information and bank card data in accordance with the applicable
PCI standards, and continuing compliance with such standards may
require us to devote substantial time and incur additional costs
to ensure we maintain our ability to process payment card
transactions. Additionally, in the event that the card
associations or our sponsoring bank determine that the manner in
which we process payment card transactions is not in compliance
with existing rules and regulations, or if the card associations
adopt new rules or regulations, we may be subject to substantial
penalties and fines or forced to modify the manner in which we
process payment card transactions, which may increase our
overall costs.
14
Wholesale
cost increases in tobacco products, including excise tax
increases on cigarettes, or a reduction in the use of
manufacturer rebates offered to retailers on tobacco products
could materially adversely affect our business.
Sales of tobacco products account for a significant portion of
our retail segments merchandise sales. Significant
increases in wholesale costs of tobacco products and tax
increases on cigarettes could materially adversely affect the
demand for tobacco products. Cigarettes are subject to
substantial and increasing excise taxes at both a state and
federal level. As recent examples, the Texas legislature
increased cigarette taxes by $1.00 per pack effective
January 1, 2007, the U.S. Congress increased federal
cigarette taxes by $0.62 per pack effective April 1, 2009,
and the New Mexico legislature increased cigarette taxes by
$0.75 per pack in March 2010. Further significant increases in
cigarette-related taxes and fees have been proposed and are
likely to continue to be proposed or enacted at the federal
level. Increased excise taxes may result in declines in overall
sales volume, as well as reduced gross profit margin due to
lower consumption levels, a shift in consumer purchases from
premium to non-premium or discount cigarettes or to other
low-priced or low-taxed tobacco products, or to the import of
cigarettes from territories, states or countries with lower, or
no, excise taxes on such items. Moreover, regulations reducing
display allowances for cigarettes may also reduce sales of
cigarettes.
Currently, major manufacturers of tobacco products offer rebates
to retailers. We include these rebates as a component of our
gross margin from sales of tobacco products. In the event these
rebates are no longer offered, or decreased, our costs of
tobacco products will increase accordingly. In general, we
attempt to pass price increases on to our customers; however,
due to competitive pressures in our markets, we may not be able
to do so. These factors could materially adversely affect our
retail price of tobacco products, tobacco product unit volume
and revenues, merchandise gross profit and overall customer
traffic.
Future
legislation and campaigns to discourage smoking could materially
adversely affect our business.
Future legislation and national, state and local campaigns to
discourage smoking have had, and may continue to have, a
substantial effect on cigarette sales. Reduced demand for
cigarettes could materially adversely affect sales of, and
margins for, the cigarettes we sell.
Decreases
in consumer spending resulting from changes in local economic
conditions or travel in our markets could materially adversely
affect our business.
In the convenience store industry, customer traffic is generally
driven by consumer preferences and spending trends, growth in
automobile and commercial truck traffic and trends in local
economies, travel and weather. Changes in economic conditions
generally or in markets in which we operate could materially
adversely affect consumer spending patterns and travel in our
markets.
The local economies where we have our convenience stores may be
adversely affected by the recent broader general economic
decline in the United States or if the current trend continues
or gets worse. A weak economy could affect the purchasing
patterns of consumers which could materially adversely affect
our business.
Our
business is subject to seasonal trends, which may cause our
results of operations to fluctuate, affecting our cash
flow.
We experience more demand for our merchandise, food and motor
fuel during the late spring and summer months than during the
fall and winter. Travel and recreation are typically higher in
these months in the geographic areas in which we operate,
increasing the demand for the products that we sell and
distribute. Therefore, our volumes and related traffic are
typically higher in the second and third quarters of our year.
As a result, our results from operations may vary widely from
period to period, affecting our cash flow.
15
Any
devaluation of the Mexican peso, or imposition of restrictions
on the access of citizens of Mexico to the United States, could
adversely affect our business by reducing sales at our stores
located near the
U.S.-Mexico
border.
Even though we do not accept the Mexican peso for purchases made
at our convenience stores, a devaluation of the Mexican peso
could negatively affect the exchange rate between the Mexican
peso and the U.S. dollar, which would result in reduced
purchasing power on the part of our customers who are citizens
of Mexico. Approximately 28% of our convenience stores, which
accounted for approximately 28% of our 2010 retail
segments revenues, are located in El Paso, Texas,
which is on the border with Mexico. In the event of a
devaluation in the Mexican peso, revenues attributable to those
stores could be reduced.
In recent years, there have been a variety of legislative
proposals to limit immigration to the United States. If one
or more proposals were to be adopted that had the effect of
curtailing the ability of citizens of Mexico to cross the border
into the United States, revenues of our convenience stores in E1
Paso could be reduced.
Our
growth depends in part on our ability to identify profitable new
retail convenience store acquisitions and to successfully
integrate acquired sites and businesses in the
future.
We may not be able to identify and successfully acquire new
convenience stores, as discussed in our growth strategy, and any
new stores we do acquire may be unprofitable. Additionally,
acquiring sites and businesses in the future involves risks that
could cause our actual growth or operating results to differ
adversely from expectations. There are several factors that
could affect our ability to successfully identify and integrate
new acquisitions. These factors include:
|
|
|
|
|
competition in targeted market areas and limitations on
re-branding acquired stores under our existing 7-Eleven and FINA
license agreements;
|
|
|
|
difficulties during the acquisition process in identifying all
the liabilities of the businesses we acquire;
|
|
|
|
difficulties associated with the expansion of our existing
financial controls, information systems, management resources
and human resources needed to support retail store growth;
|
|
|
|
difficulties with hiring, training and retaining skilled
personnel, including store managers;
|
|
|
|
difficulties in adapting distribution and other operational and
management systems to an expanded retail store network;
|
|
|
|
difficulties in obtaining adequate financing to fund our
expansion;
|
|
|
|
difficulties in obtaining governmental and other third-party
consents, permits and licenses needed to operate additional
stores;
|
|
|
|
difficulties in realizing the anticipated cost savings and
financial improvements from acquired stores;
|
|
|
|
diversion of our senior management from our core business due to
an increased focus on acquisitions; and
|
|
|
|
other challenges associated with the consummation and
integration of any future acquisitions.
|
We
depend on one wholesaler for a significant portion of our
convenience store merchandise, and a disruption in supply by our
wholesaler or change in our relationship with it could
materially adversely affect our business.
For the year ended December 31, 2010, we purchased
approximately 48% of our general merchandise for our retail
stores, including most tobacco products and grocery items, from
a single wholesale grocer, McLane Company, Inc., or McLane. We
currently have a supply agreement with McLane that expires in
December 2011. A change of merchandise suppliers, including as a
result of our inability to renew our contract with McLane on
terms acceptable to us or at all, a disruption in supply or a
significant change in our relationship with McLane could lead to
an increase in our cost of goods sold or a reduction in the
reliability of timely deliveries.
16
In addition, we receive merchandise rebates on certain items
from McLane. If these merchandise rebates were discontinued, we
may incur higher costs that we may not be able to pass on to our
customers resulting in a reduction in sales volume and gross
profit on these merchandise offerings.
We
rely substantially on third-party providers of information
technology in our retail operations, and any material failure,
inadequacy, interruption or security failure of our technology
systems could materially disrupt our retail operations and could
materially adversely affect our business.
We rely substantially on information technology systems across
our retail operations, including for management of
point-of-sale
processing in our stores, pump control, daily operations
reporting, inventory management and various other processes and
transactions. These technology systems are provided to and
supported by third-party service providers. Our ability to
effectively manage our retail business depends significantly on
the reliability and capacity of these systems. The failure of
these systems to operate effectively, problems with
transitioning to upgraded or replacement systems, a dispute with
or failure to perform by our third-party providers or a breach
in security of these systems could materially disrupt our retail
motor fuel and merchandise sales, and significant capital
investments could be required to remediate the problem.
Compliance
with or liability under the Petroleum Marketing Practices Act
could materially adversely affect our business.
The Petroleum Marketing Practices Act, or PMPA, is a federal law
that governs the relationship between a supplier and a
distributor pursuant to which the supplier 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
sub-license
the FINA brand to our distributors in connection with their
distribution and sale of motor fuels. Under the PMPA, we may not
terminate or fail to renew these distributor contracts unless
certain enumerated preconditions or grounds for termination or
nonrenewal are met and we comply with the prescribed notice
requirements. The PMPA provides that our distributors may
enforce its provisions through civil actions against us. If we
terminate or fail to renew one or more of our distributor
contracts without complying with the PMPA, those distributors
may file lawsuits against us to compel continuation of their
contracts or to recover damages from us. See
Business Governmental Regulation and
Environmental Matters.
Compliance
with and/or liability under state and federal environmental
regulations, including those that require investigation and
remediation activities, may require significant expenditures
that could materially adversely affect our
business.
Our business is subject to various federal, state and local
environmental laws and regulations, including those relating to
underground storage tanks, the release or discharge of regulated
materials into the air, water and soil, the generation, storage,
handling, use, transportation and disposal of hazardous
materials, the exposure of persons to hazardous materials, the
remediation of contaminated soils and groundwater and the health
and safety of our employees. For example, we store motor fuel in
underground storage tanks at our retail locations and are
required to make financial expenditures to comply with federal,
state and local regulations governing the operation and closure
of such tanks and the remediation of any leaks therefrom. In
addition, the federal Clean Air Act and similar state laws
regulate emissions to the air from motor fueling activities in
certain areas of the country, including those that do not meet
state or national ambient air quality standards. We could incur
substantial costs, including cleanup costs, fines and civil or
criminal sanctions, third-party property damage or personal
injury claims and capital expenditures for equipment upgrades,
as a result of compliance with, violations of or liabilities
under applicable environmental laws and regulations. Such costs
could materially adversely affect our business. Furthermore, new
laws, new interpretations of existing laws, increased
governmental enforcement of existing laws or other developments,
including legislative, regulatory and other legal developments
in various phases of discussion or implementation that may limit
greenhouse gas emissions or increase fuel economy standards,
could require us to make additional capital expenditures, incur
additional liabilities or negatively affect the demand for motor
fuel. See Business Governmental Regulation and
Environmental Matters.
17
Certain environmental laws, including the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), impose strict, and under certain
circumstances, joint and several, liability on current and
former owners and operators of properties for the costs of
investigation, removal or remediation of contamination and also
impose liability for any related damages to natural resources,
without regard to fault. In addition, under CERCLA and similar
state laws, as persons who arrange for the transportation,
treatment or disposal of hazardous materials, we also may be
subject to similar liability at sites where such hazardous
materials come to be located. We may also be subject to
third-party claims alleging property damage
and/or
personal injury in connection with releases of or exposure to
hazardous materials at, from or in the vicinity of our current
or former properties or off-site waste disposal sites. The costs
associated with the investigation and remediation of
contamination, as well as any associated third-party claims,
could be substantial and could have a material adverse effect on
our business and results of operations. In addition, the
presence or failure to remediate identified or unidentified
contamination at our properties could potentially materially
adversely affect our ability to sell or rent such property or to
borrow money using such property as collateral.
The
dangers inherent in the storage and transportation of motor fuel
could cause disruptions and could expose us to potentially
significant losses, costs or liabilities.
We store motor fuel in underground storage tanks at our retail
locations and provide or arrange for transportation for
distribution to our retail locations. Our operations are subject
to significant hazards and risks inherent in handling,
transporting and storing motor fuel. These hazards and risks
include, but are not limited to, fires, explosions, traffic
accidents, spills, discharges and other releases, any of which
could result in distribution difficulties and disruptions,
environmental pollution, governmentally-imposed fines or cleanup
obligations, personal injury or wrongful death claims and other
damage to our properties and the properties of others.
Our
motor fuel operations are subject to inherent risk, and
insurance, if available, may not adequately cover any such
exposure, which could materially adversely affect our
business.
We sell motor fuel to our wholesale customers and operate retail
outlets that sell refined petroleum products. The presence of
flammable and combustible products at our facilities provides
the potential for fires and explosions that could destroy both
property and human life. These products also have the potential
to cause environmental damage if improperly handled or released.
It is not always possible to obtain insurance on commercially
reasonable terms against all operational risks, especially
environmental risks, and there is no assurance that insurance
will be available or adequate in the future. In addition, as a
result of factors affecting insurance providers, insurance
premiums with respect to renewed insurance policies may increase
significantly compared to what we currently pay.
Pending
or future consumer or other litigation could materially
adversely affect our business.
We are periodically party to individual personal injury claims,
claims of fuel being contaminated or off-specification, product
liability claims and other legal actions in the ordinary course
of our business. If any such action or actions shall ultimately
be determined adversely to us in a material way, our business
could be materially adversely affected. Additionally, we are
occasionally exposed to industry-wide or
class-action
claims arising from the products we carry or industry-specific
business practices. For example, various petroleum marketing
retailers, distributors and refiners are currently defending
class-action
claims alleging that the sale of unadjusted volumes of fuel at
temperatures in excess of 60 degrees Fahrenheit violates various
state consumer protection laws due to the expansion of the fuel
with the increase of fuel temperatures. While industry-specific
or class action litigation of this type is less frequent in
occurrence than claims of individuals, the cost of defense and
ultimate disposition could be significant.
18
Litigation
and publicity concerning food quality, health and other related
issues could result in significant liabilities or litigation
costs and cause consumers to avoid our convenience stores, which
could materially adversely affect our business.
Convenience store businesses and other foodservice operators can
be adversely affected by litigation and complaints from
customers or government agencies resulting from food quality,
illness or other health or environmental concerns or operating
issues stemming from one or more locations. Adverse publicity
about these allegations may negatively affect us, regardless of
whether the allegations are true, by discouraging customers from
purchasing gasoline, merchandise or foodservice at one or more
of our convenience stores. We could also incur significant
liabilities if a lawsuit or claim results in a decision against
us or substantial litigation costs regardless of results and may
divert time and money away from our operations and hurt our
performance.
If a food-borne illness or other food safety issue occurs at one
of our convenience stores, we may receive negative publicity, be
required to temporarily cease foodservice at that location or
become subject to litigation. The occurrence of food-borne
illnesses or food safety issues regarding one or more
ingredients in our food products could materially adversely
affect the price and availability of the affected ingredients.
Failure
to comply with state laws regulating the sale of alcohol and
cigarettes may result in the loss of necessary licenses and the
imposition of fines, penalties or forfeitures on
us.
State laws regulate the sale of alcohol and cigarettes. A
violation or change of these laws could materially adversely
affect our business because state and local regulatory agencies
have the power to approve, revoke, suspend or deny applications
for, and renewals of, permits and licenses relating to the sale
of these products or to seek other remedies.
Failure
to comply with state and federal regulations may result in
penalties or costs that could materially adversely affect our
business.
Our business is subject to various state and federal regulations
including, but not limited to, employment laws and regulations,
minimum wage requirements, overtime requirements, working
condition requirements, citizenship requirements and other laws
and regulations. Any appreciable increase in the statutory
minimum wage rate or overtime pay, adoption of mandated health
benefits or changes to immigration laws and citizenship
requirements would likely result in an increase in our labor
costs and such cost increase, or the penalties for failing to
comply with such statutory minimums or regulations, could
materially adversely affect our business. State or federal
lawmakers or regulators may also enact new laws or regulations
applicable to us that could materially adversely affect our
business.
If we
lose any of our key personnel, our ability to manage and grow
our business could be materially adversely
affected.
Our future performance depends to a significant degree upon the
continued contributions of our senior management team which
includes Messrs. McKeen, Lipman, Potter and Dobrient. We
have entered into an employment agreement with Mr. McKeen
and Lipman and, prior to this offering, we expect to enter into
employment agreements with the other members of our senior
management team. 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 could significantly harm us. We face
competition for these professionals from our competitors, our
wholesale customers and other companies operating in our
industry. To the extent the services of members of our senior
management team 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 we would be able to locate or employ such
qualified personnel on acceptable terms, or at all.
19
We
depend on cash flows generated by our subsidiaries, and a
failure to receive distributions from our subsidiaries may mean
we are unable to meet our financial obligations.
We are a holding company with no material assets other than the
equity interests of our subsidiaries. Our subsidiaries conduct
substantially all of our operations and own substantially all of
our assets. Our ability to pay cash dividends to stockholders in
the future, if any, is dependent on the generation of cash flows
by our subsidiaries and their ability to make such cash
available to us, by dividend, debt repayment or otherwise. Each
of our subsidiaries is a distinct legal entity. Under certain
circumstances, legal and contractual restrictions may limit our
ability to obtain cash from our subsidiaries, and our
subsidiaries may not be able to, or be permitted to, make
distributions to us.
It may
be difficult to serve process on or enforce a United States
judgment against certain of our directors.
A number of our directors reside in Israel. 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.
Risks
Relating to Our Ownership by Alon Energy
Alon
Energy controls the direction of our business, and the
concentrated ownership of our common stock and certain
governance arrangements will prevent you and other stockholders
from influencing significant decisions.
After the completion of this offering, our parent, a subsidiary
of Alon Energy, will own % of the
outstanding shares of our common stock
( % if the underwriters exercise
their over-allotment option in full). As long as our parent owns
a majority of our common stock, Alon Energy will be able to
control any corporate action requiring a stockholder vote
irrespective of the vote of, and without prior notice to, any
other stockholder. As a result, Alon Energy will have the
ability to control significant corporate activities, including:
|
|
|
|
|
the election of our board of directors and, through our board of
directors, decision-making with respect to our business
direction and policies, including the appointment and removal of
our officers;
|
|
|
|
acquisitions or dispositions of businesses or assets, mergers or
other business combinations;
|
|
|
|
our capital structure;
|
|
|
|
payment of dividends; and
|
|
|
|
the number of shares available for issuance under our equity
incentive plan for our prospective and existing employees.
|
This voting control or influence may discourage transactions
involving a change of control of our company, including
transactions in which you as a holder of our common stock might
otherwise receive a premium for your shares. Furthermore, Alon
Energy generally has the right at any time to sell common stock
owned by our parent or to sell a controlling interest in us to a
third party after the expiration of the
180-day
lock-up
period, in either case without your approval and without
providing for a purchase of your shares. See
Shares Eligible for Future Sale.
Even if our parents ownership interest is reduced to less
than a majority of the outstanding shares of our common stock,
so long as our parent remains our largest shareholder, Alon
Energy will have the ability to substantially influence these
significant corporate activities.
20
We
have provided an unconditional guarantee of payment under Alon
USA, LPs revolving credit agreement and have agreed to
pledge certain receivables generated by our wholesale marketing
segment to secure borrowings under such agreement, and any
default on the obligations of Alon USA, LP may allow the lenders
under such agreement to foreclose on our receivables and require
us to pay Alon USA, LPs outstanding borrowings or other
obligations, which could materially adversely affect our
business.
Our parent corporation is a party to an Amended Revolving Credit
Agreement, dated as of June 22, 2006, as amended to the
date hereof (the Parent IDB Revolving Credit
Agreement), by and among our parent, its subsidiary
guarantors thereunder (including Alon Brands and Alon Marketing,
LLC, or Alon Marketing), Israel Discount Bank of New York, as
administrative and collateral agent thereunder, and the other
lenders parties thereto, providing for revolving credit
borrowings and letters of credit available to our parent up to
the lesser of the credit limit of $240 million or the
amount of the borrowing base calculated under the agreement.
Additionally, the accounts receivable generated by our wholesale
marketing segment will be pledged as collateral under the Parent
IDB Revolving Credit Agreement.
In the event that our parent fails to make payments due under
the Parent IDB Revolving Credit Agreement, the lenders under
that agreement may demand that we pay all such amounts
immediately. Additionally, those lenders may take action to
foreclose on our outstanding receivables generated by our
wholesale marketing segment that are pledged under that facility
and take payment directly from our distributors for motor fuels
sold to them. Although we may have certain rights and remedies
against our parent for reimbursement for some or all of such
amounts, we have agreed to waive or delay the assertion of such
remedies until the lenders under the Parent IDB Revolving Credit
Agreement have been paid in full, and it is unlikely in such
event that our parent would have the resources to fulfill any
such obligations to us. In such event, we may incur significant
obligations to the lenders under that agreement that we are
unable to pay timely, if at all, which would have a material
adverse affect on our business, results of operations and
liquidity. We have not and do not expect to receive any proceeds
from the borrowings of our parent under the Parent IDB Revolving
Credit Agreement.
In addition, the receivables that we have pledged to the lenders
under the Parent IDB Revolving Credit Agreement are not
available for us to use to secure other financing sources for
our business in the future, including any working capital
revolving credit or similar facility. If we are unable to
generate sufficient cash from our operations to fund our working
capital needs, the inability to use those receivables to secure
additional financing could have a material adverse affect on our
results of operations and liquidity in the future.
The
historical and pro forma financial information as a business
segment of Alon Energy included in this prospectus may not be
representative of our results as an independent public
company.
The historical and pro forma financial information we have
included in this prospectus may not necessarily reflect what our
financial position, results of operations or cash flows would
have been had we been an independent entity during the
historical periods presented. The historical costs and expenses
reflected in our combined financial statements include an
allocation for certain corporate functions historically provided
by Alon Energy, including tax, accounting, treasury, legal and
human resources services. We have not adjusted our historical or
pro forma financial information to reflect all of the
significant changes that will occur in our cost structure,
funding and operations as a result of our transition to becoming
a public company, including changes in our employee base,
potential increased costs associated with reduced economies of
scale and increased costs associated with being a
publicly-traded, stand-alone company, subject to the reporting
and other requirements of the SEC and NYSE. Therefore, our
historical and pro forma financial information may not be
indicative of our results of operations, financial position or
cash flows in the future.
21
Our
ability to operate our business effectively may suffer if we are
unable to cost-effectively establish our own administrative and
other support functions in order to operate as a stand-alone
company after the expiration of our transitional services
agreements with Alon Energy.
As a subsidiary of Alon Energy, we have relied on administrative
and other resources of Alon Energy to operate our business. In
connection with this offering, we will enter into various
service agreements to retain the ability for specified periods
to use these Alon Energy resources. See Certain
Relationships and Related Party Transactions. These
services may not be provided at the same level as when we were a
subsidiary of Alon Energy, and we may not be able to obtain the
same benefits that we received prior to this offering. These
services may not be sufficient to meet our needs, and after our
agreements with Alon Energy expire, we may not be able to
replace these services or obtain these services at prices and on
terms as favorable as we currently have with Alon Energy. We
will need to create our own administrative and other support
systems or contract with third parties to replace Alon
Energys systems. In addition, we have received informal
support from Alon Energy, which may not be addressed in the
agreements we will enter into with Alon Energy. The level of
this informal support may diminish as we become a more
independent company. Any failure or significant downtime in our
own administrative systems or in Alon Energys
administrative systems during the transitional period could
result in unexpected costs, materially adversely affect our
results or prevent us from paying our suppliers or employees and
performing other administrative services on a timely basis.
We may
not be able to favorably resolve potential disputes with Alon
Energy that may arise with respect to our past and ongoing
relationships.
Disputes may arise between Alon Energy and us in a number of
areas relating to our ongoing relationships, including:
|
|
|
|
|
the terms of the fuel supply and trademark licensing agreement;
|
|
|
|
labor, tax, employee benefit, indemnification and other matters
arising from our separation from Alon Energy;
|
|
|
|
employee retention and recruiting;
|
|
|
|
business combinations involving us;
|
|
|
|
sales or dispositions by Alon Energy of all or any portion of
its ownership interest in us; and
|
|
|
|
the nature, quality and pricing of services Alon Energy has
agreed to provide us.
|
We may not be able to resolve any potential conflicts, and even
if we do, the resolution may be less favorable than if we were
dealing with an unaffiliated party.
The agreements we will enter into with Alon Energy may be
amended upon agreement between the parties. While we are
controlled by Alon Energy, we may not have the leverage to
negotiate amendments to these agreements on terms as favorable
to us as those we would negotiate with an unaffiliated third
party.
Some
of our directors and executive officers own common stock of Alon
Energy and Alon Israel and, in some cases, their other
subsidiaries, and options or other instruments, the value of
which is related to the value of stock of Alon Energy or Alon
Israel, as applicable, and, in some cases, their other
subsidiaries, and hold management positions with Alon Energy and
Alon Israel, which could cause conflicts of interests that
result in our not acting on opportunities we otherwise may
have.
Some of our directors and executive officers own Alon Energy and
Alon Israel common stock and options or other instruments the
value of which is related to the value of common stock of Alon
Energy or Alon Israel, as applicable, and, in some cases, their
other subsidiaries. In addition, some of our directors are
executive officers and directors of Alon Energy and Alon Israel.
The direct and indirect interests of our directors and officers
in common stock of Alon Energy and Alon Israel and their other
subsidiaries and the presence of executive officers or directors
of Alon Energy and Alon Israel on our board of directors could
create, or appear to create, conflicts of interest with respect
to matters involving both us and Alon Energy or Alon Israel
22
that could have different implications for Alon Energy or Alon
Israel than they do for us. Our board of directors intends to
consider any transactions or potential conflicts of interest
with Alon Energy and Alon Israel on a case by case basis and in
a manner consistent with its fiduciary obligations under
applicable Delaware law. However, we cannot assure you that the
agreements we enter into with Alon Energy and Alon Israel will
adequately address potential conflicts of interest or that
potential conflicts of interest will be resolved in our favor or
that we will be able to take advantage of corporate
opportunities presented to individuals who are officers or
directors of both us and Alon Energy or Alon Israel. As a
result, we may be precluded from pursuing certain growth
opportunities.
We
will be a controlled company within the meaning of
the NYSE rules, and, as a result, will rely on exemptions from
certain corporate governance requirements that provide
protection to stockholders of other companies.
After the completion of this offering, Alon USA, LP will own
more than 50% of the total voting power of our common shares and
we will be a controlled company under the NYSE
corporate governance standards. As a controlled company, we will
not be required to comply with certain NYSE corporate governance
requirements, including the requirements:
|
|
|
|
|
that a majority of our board of directors consists of
independent directors;
|
|
|
|
that we have a corporate governance and nominating committee
that is composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities;
|
|
|
|
that we have a compensation committee that is composed entirely
of independent directors with a written charter addressing the
committees purpose and responsibilities; and
|
|
|
|
for an annual performance evaluation of the nominating and
governance committee and compensation committee.
|
As a result, you will not have the same protection afforded to
stockholders of companies that are subject to all of the NYSE
corporate governance requirements.
Risks
Related to this Offering
There
is no existing market for our common stock, and we do not know
if one will develop to provide you with adequate
liquidity.
Prior to this offering, there has not been a public market for
our common stock. We cannot predict the extent to which investor
interest in our company will lead to the development of an
active trading market on the NYSE or otherwise or how liquid
that market might become. If an active trading market does not
develop, you may have difficulty selling any of our common stock
that you buy. The initial public offering price for the shares
of our common stock will be determined by negotiations between
us and the representative of the underwriters and may not be
indicative of prices that will prevail in the open market
following this offering.
If our stock price decreases after this offering, you could lose
a significant part or all of your investment. The market price
of our common stock may be influenced by many factors, some of
which are beyond our control, including those decisions
described under Risks Relating to Our
Business and the following:
|
|
|
|
|
general economic and stock market conditions;
|
|
|
|
risks relating to our business and our industry, including those
discussed above;
|
|
|
|
strategic actions by us or our competitors;
|
|
|
|
announcements by us or our competitors of significant contracts,
acquisitions, joint marketing relationships, joint ventures or
capital commitments;
|
|
|
|
the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
|
23
|
|
|
|
|
variations in our quarterly results of operations;
|
|
|
|
future sales of our common stock or other securities by us or
Alon USA, LP; and
|
|
|
|
investor perceptions of the investment opportunity associated
with our common stock relative to other investment alternatives.
|
As a result of these factors, investors in our common stock may
not be able to resell their shares at or above the initial
offering price. In addition, the stock market in general has
experienced extreme price and volume fluctuations that have
often been unrelated to, and disproportionate to, the operating
performance of publicly-traded companies. These broad market and
industry factors may materially reduce the market price of our
common stock, regardless of our operating performance.
We
will face new challenges, increased costs and administrative
responsibilities as an independent public company.
As a public company with listed equity securities, we will need
to comply with additional laws, regulations and requirements,
certain provisions of the Sarbanes-Oxley Act of 2002, related
regulations of the SEC and the Public Company Accounting
Oversight Board (PCAOB) and NYSE requirements.
Complying with these laws, regulations and requirements will
occupy a significant amount of the time of our board of
directors and management and will increase our costs and
expenses.
We will need to:
|
|
|
|
|
institute a more comprehensive compliance function;
|
|
|
|
design, establish, evaluate and maintain a system of internal
controls over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002 and the related rules and regulations of the SEC and the
PCAOB;
|
|
|
|
prepare and distribute periodic public reports in compliance
with our obligations under the federal securities laws;
|
|
|
|
establish new internal policies, such as those relating to
disclosure controls and procedures and insider trading;
|
|
|
|
involve and retain to a greater degree outside counsel and
accountants in the above activities; and
|
|
|
|
enhance our investor relations function.
|
If we do not implement such measures in a timely manner or with
adequate compliance, we might fail to comply with these
additional rules and regulations, which in turn could subject us
to sanctions or investigation by regulatory authorities, such as
the SEC. Any such action could harm our reputation and investor
confidence in the accuracy and completeness of our financial
reports, which could materially adversely affect our stock price.
In addition, we also expect that being a public company subject
to these rules and regulations will make it more expensive for
us to obtain director and officer liability insurance, and we
may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These factors
could also make it more difficult for us to attract and retain
qualified members of our board of directors, particularly to
serve on our audit and compensation committees, and qualified
executive officers.
24
We
will be required to report the effectiveness of the internal
controls over financial reporting of our business in our annual
report on
Form 10-K
for the year ended December 31, 2012. As a result, we will
need to improve our internal controls in connection with this
offering in order to timely meet our reporting requirements as a
public company. The failure to effectively improve our internal
controls through hiring of qualified personnel and other
remediation efforts may result in a failure to timely file our
public reports or a finding of a material weakness in our
internal controls, either of which could result in lower
investor confidence and have an adverse effect on the market
price of our common stock.
Section 404 of the Sarbanes-Oxley Act of 2002 and the rules
of the SEC promulgated thereunder require our annual reports to
contain a report of managements assessment of the
effectiveness of internal controls over financial reporting and
an attestation report of our independent registered public
accounting firm, including its opinion on the effectiveness of
our internal control over financial reporting. These reports
will be required to be included in our annual reports on
Form 10-K
commencing with our annual report on
Form 10-K
for the year ended December 31, 2012. The evaluation of our
systems and the documentation of such systems that we will need
to comply with Section 404 will be both costly and
time-consuming. We cannot estimate at this time how long this
process will take nor how much additional expense we will incur
in completing the process necessary to comply with
Section 404. We will need to improve our internal controls
in connection with this offering in order to timely meet our
reporting requirements as a public company. As we prepare for
the completion of this offering, we are in the process of
addressing these issues by hiring additional personnel with the
necessary expertise. However, these and other remediation
efforts may not enable us to avoid significant deficiencies or
material weaknesses in our internal controls over financial
reporting in the future. If we are unable to conclude that our
internal control over financial reporting is effective as of the
end of 2012 (or if our auditors are unable to opine that our
internal control over financial reporting is effective), we
could lose investor confidence in the accuracy and completeness
of our financial reports, which could, in turn, have an adverse
effect on our stock price.
You
will incur immediate and substantial dilution as a result of
this offering.
The initial public offering price per share of our common stock
is substantially higher than the net tangible book value per
share of our outstanding common stock immediately after the
offering. As a result, you will pay a price per share that
substantially exceeds the tangible book value of our assets
after subtracting our liabilities. Based on the issuance and
sale
of million
shares of common stock by us at an assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this
prospectus), you will incur immediate dilution of approximately
$ in the net tangible book value
per share if you purchase shares in this offering. See
Dilution.
Shares
eligible for future sale could materially adversely affect our
common stock price.
Sales of substantial amounts of our common stock in the public
market, or the perception that these sales may occur, could
cause the market price of our common stock to decline. This
could also impair our ability to raise additional capital
through the sale of our equity securities. Under our certificate
of incorporation, we are authorized to issue up to
100,000,000 shares of common stock, of
which shares
of common stock will be outstanding following this offering. Of
these shares, the shares of common stock sold in this offering
will be freely transferable without restriction or further
registration under the Securities Act by persons other than
affiliates, as that term is defined in Rule 144
under the Securities Act.
We, our officers and directors and Alon USA, LP have agreed,
subject to certain exceptions, not to sell or transfer, directly
or indirectly, any shares of our common stock for a minimum
period of 180 days from the date of this prospectus,
subject to certain extensions, without the prior consent
of .
However, after the
lock-up
period expires, Alon USA, LP will be able to register the common
stock it owns under the Securities Act pursuant to a
registration rights agreement with us. Furthermore, although
there is no present intention to do
so,
may, in its sole discretion and without notice, release all or
any portion of the shares subject to these
lock-up
agreements. See Underwriting.
25
Following completion of this offering, we intend to register an
aggregate number of shares of our common stock that are reserved
for issuance upon the exercise of options granted or reserved
for grant under our equity incentive plan. Stockholders will be
able to sell these shares in the public market upon issuance,
subject to restrictions under the securities laws, any
applicable
lock-up
agreements, any stock option vesting requirements or the lapsing
of restrictions on restricted stock.
Also, in the future we may issue securities in connection with
investments and acquisitions. The amount of our common stock
issued in connection with an investment or acquisition could
constitute a material portion of our then outstanding common
stock.
We cannot predict the size of future issuances of our common
stock or the effect, if any, that future sales and issuances of
shares of our common stock would have on the market price of our
common stock. See Shares Eligible for Future
Sale.
Provisions
of our amended and restated certificate of incorporation, our
amended and restated bylaws and Delaware law may impede or
discourage a takeover, which could materially adversely affect
the value of our common stock.
Provisions of Delaware law and our amended and restated
certificate of incorporation and amended and restated bylaws may
have the effect of discouraging a change of control of our
company or deterring tender offers for our common stock. The
anti-takeover provisions of Delaware law impose various
impediments to the ability of a third party to acquire control
of us, even if a change of control would be beneficial to our
existing stockholders. Additionally, provisions of our amended
and restated certificate of incorporation and amended and
restated bylaws will impose various procedural and other
requirements, which could make it more difficult for
stockholders to effect some corporate actions. For example, our
amended and restated certificate of incorporation will authorize
our board to determine the rights, preferences and privileges
and restrictions of unissued shares of preferred stock without
any vote or action by our stockholders. Thus, our board will be
able to authorize and issue shares of preferred stock with
voting or conversion rights that could materially adversely
affect the voting or other rights of holders of our common
stock. Moreover, stockholders will not be permitted to call a
special meeting or to require the board of directors to call a
special meeting or to take action by written consent. These
rights and provisions may have the effect of delaying or
deterring a change of control of our company and may limit the
price that investors might be willing to pay in the future for
shares of our common stock. See Description of Capital
Stock.
Our
board of directors and management have broad discretion in using
the proceeds from this offering, which may not be used in ways
that improve our results of operation or increase our market
value. Investors will rely on the judgment of our board of
directors and management regarding the application of the net
proceeds of this offering.
We intend to use the net proceeds of this offering:
|
|
|
|
|
to accelerate our growth strategy, including, without
limitation, planned store remodeling and the acquisition of
additional retail locations; and
|
|
|
|
|
|
for general corporate purposes.
|
However, our board of directors and management will have broad
discretion in applying the net proceeds we will receive in this
offering and may spend the net proceeds for corporate purposes
that do not necessarily improve our results of operation or
enhance the value of common stock or allocate the net proceeds
in a manner with which you do not agree. As part of your
investment decision, you will not be able to access or direct
how we apply these net proceeds. See Use of Proceeds.
There
is no assurance that we will declare dividends or have the
available cash to make dividend payments.
Although we will have a policy of paying dividends on our common
stock, there can be no assurance that funds will be available
for this purpose in the future. The declaration and payment of
dividends will be subject to the sole discretion of our board of
directors, will not be cumulative and will depend upon our
profitability,
26
financial condition, capital needs, future prospects and other
factors deemed relevant by our board of directors at the time.
If we
are, or become, a U.S. real property holding corporation,
special tax rules may apply to a sale, exchange or other
disposition of common stock by
non-U.S.
holders, and those holders may be less inclined to invest in our
stock as they may be subject to U.S. federal income tax in
certain situations.
We have not determined whether or not we currently are a
U.S. real property holding corporation, or a
USRPHC for U.S. federal income tax purposes. A
non-U.S. holder
will be subject to U.S. federal income tax with respect to
gains recognized on the sale, exchange or other disposition of
our common stock if we are, or were, a USRPHC, at any time
during the shorter of the five-year period ending on the date of
the sale or other disposition and the period such
non-U.S. holder
held our common stock (such applicable shorter period, the
lookback period). In general, we would be a USRPHC
if the fair market value of our U.S. real property
interests, as such term is defined for U.S. federal
income tax purposes, equals or exceeds 50% of the sum of the
fair market value of our worldwide real property interests and
our other assets used or held for use in our trade or business.
However, because the determination of whether we are a USRPHC is
fact-specific and depends on the composition of our assets and
other factors, some of which may be beyond our control
(including, for example, fluctuations in the value of our
assets), it is difficult to determine or predict whether we are
or will become a USRPHC. If we are or become a USRPHC, so long
as our common stock is regularly traded on an established
securities market (such as the NYSE), only a
non-U.S. holder
who, actually or constructively, holds or held during the
lookback period more than 5% of our common stock will be subject
to U.S. federal income tax on the disposition of our common
stock.
We
have entered into a tax matters agreement with Alon Energy
pursuant to which we may be required to indemnify Alon Energy
for certain tax liabilities.
Prior to the completion of this offering, we and Alon Energy
will enter into a tax matters agreement to allocate the
responsibility of Alon Energy and its subsidiaries, on the one
hand, and we and our subsidiaries, on the other, for the payment
of taxes resulting from filings prior to the separation of tax
returns on a combined, consolidated or unitary basis. Under the
tax matters agreement, we will be obligated to indemnify Alon
Energy for certain tax liabilities resulting from an adjustment
under a final resolution of tax matters or an adjustment under
Section 482 of the Internal Revenue Code of 1986, as amended or
similar authority under applicable tax law. See Certain
Relationships and Related Party Transactions
Transactions with Management and Others Relationship
with Alon Energy Tax Matters Agreement.
27
FORWARD-LOOKING
STATEMENTS
This prospectus includes forward-looking statements in addition
to historical information. These forward-looking statements are
included throughout this prospectus, including in the sections
entitled Prospectus Summary, Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations,
Business and Corporate Reorganization
Transactions and relate to matters such as our industries,
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 in this prospectus.
Forward-looking statements reflect our current expectations
regarding future events, results or outcomes. These expectations
may or may not be realized. Some of these expectations may be
based upon assumptions or judgments that prove to be incorrect.
In addition, our business and operations involve numerous risks
and uncertainties, many of which are beyond our control, which
could result in our expectations not being realized or otherwise
materially affect our financial condition, results of operations
and cash flows.
Actual events, results and outcomes may differ materially from
our expectations due to a variety of factors. Although it is not
possible to identify all of these factors, they include, among
others, the following:
|
|
|
|
|
volatility in crude oil and wholesale fuel costs;
|
|
|
|
volatility in retail fuel prices;
|
|
|
|
loss of our 7-Eleven and FINA licenses;
|
|
|
|
loss or adverse effect on our supplier relationships for motor
fuel and merchandise;
|
|
|
|
competition in the retail and wholesale marketing industries;
|
|
|
|
our ability to attract and retain qualified employees;
|
|
|
|
changes in economic conditions, generally, and in the markets we
serve, consumer behavior and travel trends;
|
|
|
|
seasonal trends in the industries in which we operate;
|
|
|
|
inability to identify, acquire and integrate new stores or grow
our wholesale marketing operations;
|
|
|
|
|
|
the costs of compliance with current and future state and
federal environmental, economic, safety and other laws, policies
and regulations that could increase our operating costs or
result in declining sales;
|
|
|
|
|
|
dangers inherent in storing and transporting motor fuel;
|
|
|
|
our ability to insure our motor fuel operations;
|
|
|
|
litigation or adverse publicity concerning food quality, food
safety or other health concerns related to our convenience
stores;
|
|
|
|
operating hazards, natural and man-made disasters, casualty
losses and other matters beyond our control; and
|
|
|
|
the other factors discussed in more detail under Risk
Factors.
|
Many of these factors are described in greater detail under
Risk Factors. Potential investors are urged to
consider these factors and the other factors described under
Risk Factors carefully in evaluating any
forward-looking statements and are cautioned not to place undue
reliance on these forward-looking statements. The
forward-looking statements included herein are made only as of
the date of this prospectus, and we undertake no obligation to
update any information contained in this prospectus or to
publicly release the results of any revisions to any
forward-looking statements that may be made to reflect events or
circumstances that occur, or that we become aware of, after the
date of this prospectus, except as may be required by any
applicable securities laws.
28
USE OF
PROCEEDS
Based on an assumed initial public offering price of
$ per share (the midpoint of the
range set forth on the cover of this prospectus), we estimate
that the proceeds we will receive from the sale of common stock
in this offering will be approximately
$ million, after deducting
underwriting discounts and commissions and estimated offering
expenses. We will not receive any proceeds from the sale of
shares of common stock offered by the selling stockholder if the
underwriters exercise their over-allotment option to purchase
shares of common stock from the selling stockholder in this
offering.
We intend to use the net proceeds:
|
|
|
|
|
to accelerate our growth strategy, including, without
limitation, planned store remodels and the acquisition of
additional retail locations; and
|
|
|
|
|
|
for general corporate purposes.
|
As of the date of this prospectus, the expected use of net
proceeds of this offering represents our current intentions
based upon our present plans and business conditions. We cannot
predict with all certainty all of the particular uses for the
net proceeds of this offering or the amount that we will
actually spend on the uses set forth above. The amount and
timing of actual expenditures may vary significantly depending
on a number of factors, such as the amount of cash used by our
operations and capital expenditures. Accordingly, our board of
directors and management will have significant flexibility in
applying the net proceeds, and investors will be relying on the
judgment of our management and board of directors regarding the
application of the net proceeds of this offering.
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this prospectus)
would increase (decrease) the net proceeds to us from this
offering by $ , assuming the number
of shares offered by us, as set forth on the cover of this
prospectus, remains the same and after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses.
DIVIDEND
POLICY
We intend to pay quarterly cash dividends on our common stock at
an initial annual rate of $ per
share, commencing in
the
quarter of 2011. However, the declaration and payment of future
dividends to holders of our common stock is at the discretion of
our board of directors and will depend upon many factors,
including our financial condition, earnings, legal requirements,
prior payments of preferred stock dividends, if any, and other
factors our board of directors deems relevant.
In March 2011, we paid a special cash distribution of
$30.0 million to Alon USA, LP, our parent company.
Investors who purchase shares of our common stock in this
offering will not receive this distribution in respect of any
shares they purchase in this offering.
29
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of December 31, 2010 on an actual
basis, on a pro forma basis to give effect to the corporate
reorganization transactions,
including shares
of common stock issued to our parent company as a result of the
transfer of assets and liabilities associated with the wholesale
marketing segment,
the -for-1
stock split of our common stock outstanding prior to this
offering, and the 2011 loan transactions, and on a pro forma
basis to give further effect to the sale by us
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share (the midpoint of the range set forth on the cover of this
prospectus). You should read this table in conjunction with
Use of Proceeds, Selected Historical Combined
Financial and Operating Data, Unaudited Pro Forma
Condensed Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Corporate Reorganization
Transactions and our audited and unaudited combined
financial statements and related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
Pro Forma for
|
|
|
|
|
|
|
|
|
|
the Corporate
|
|
|
|
|
|
|
|
|
|
Reorganization
|
|
|
|
|
|
|
|
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
and the 2011
|
|
|
|
|
|
|
Historical
|
|
|
Loan Transactions(2)
|
|
|
Pro Forma(3)
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(Dollars, in millions, except per share amounts)
|
|
|
Cash and cash equivalents
|
|
$
|
28.2
|
|
|
$
|
13.6
|
|
|
$
|
106.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Wells Fargo Credit Facility and
other indebtedness(1)
|
|
$
|
94.1
|
|
|
$
|
124.1
|
|
|
$
|
124.1
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 25,000,000 shares
authorized; no shares issued and outstanding, historical, as
adjusted and as further adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 1,000 shares
authorized; 1,000 shares issued and outstanding,
historical; 100,000,000 shares authorized
and shares
issued and outstanding, as adjusted; shares
issued and outstanding, as further adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
44.7
|
|
|
|
14.7
|
|
|
|
107.7
|
|
Accumulated other comprehensive loss
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Retained earnings
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
55.9
|
|
|
|
25.9
|
|
|
|
118.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
150.0
|
|
|
$
|
150.0
|
|
|
$
|
243.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010 (a) $93.4 million was
outstanding under the Second Amended and Restated Wells Fargo
Credit Facility and there were no further amounts available for
borrowing and (b) $0.7 million was outstanding under
mortgage loans and capital lease obligations. |
|
|
|
(2) |
|
Pro forma for the corporate reorganization transactions and the
2011 loan transactions: |
|
|
|
(a) |
|
Reflects payment of $14.6 million to parent on affiliated
accounts payable. |
|
|
|
(b) |
|
Reflects borrowing of $30.0 million in 2011 loan
transaction. |
|
|
|
(c) |
|
Reflects cash distribution of $30.0 million to parent from
proceeds of 2011 loan transaction. |
|
|
|
(d) |
|
Reflects the issuance
of shares
of common stock to parent in connection with the corporate
reorganization. |
|
|
|
(3) |
|
Reflects gross offering proceeds of $100.0 million less
estimated underwriting discounts and commissions of
$7.0 million. |
30
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this prospectus)
would increase (decrease) each of cash and cash equivalents,
additional paid-in capital, total stockholders equity and
total capitalization by $ ,
assuming the number of shares offered by us, as set forth on the
cover of this prospectus, remains the same and after deducting
the estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
31
DILUTION
Dilution is the amount by which the offering price paid by the
purchasers of the common stock to be sold in this offering will
exceed the net tangible book value per share of common stock
after this offering. If you invest in our common stock, your
investment will be diluted to the extent of the difference
between the initial public offering price per share of our
common stock and the net tangible book value per share of our
common stock after this offering. We calculate net tangible book
value per share by calculating our total assets less intangible
assets and total liabilities, and dividing it by the number of
outstanding shares of common stock.
As of December 31, 2010, our net tangible book value was
approximately $(33.0) million, or approximately
$ per share of common stock, after
giving pro forma effect to the corporate reorganization
transactions, including
the -for-1
stock split of our common stock outstanding prior to this
offering, and the 2011 loan transactions. After giving effect to
the sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this prospectus)
and after deduction of the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our
net tangible book value as of December 31, 2010, which we
refer to as our pro forma net tangible book value, would have
been approximately $55.1 million, or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to our existing
stockholders and an immediate dilution of
$ per share to purchasers of
common stock in this offering. The following table illustrates
this dilution on a per share basis:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share as of December 31, 2010
after giving pro forma effect to the corporate reorganization
transactions and the 2011 loan transactions
|
|
$
|
|
|
|
|
|
|
Increase in net tangible book value per share attributable to
new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after the offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Each $1.00 increase (decrease) in the assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this prospectus)
would increase (decrease) our net tangible book value after this
offering by $ per share and the
dilution in net tangible book value to new investors in this
offering by $ per share.
The following table summarizes as of December 31, 2010, as
adjusted to give effect to the corporate reorganization
transactions, the 2011 loan transactions and this offering, the
differences between the number of shares of common stock
purchased from us, the aggregate cash consideration paid to us
and the average price per share paid by existing stockholders
and new investors purchasing shares of common stock in this
offering. The calculation below is based on an offering price of
$ per share (the midpoint of the
range set forth on the cover of this prospectus) before
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us (after giving effect
to the payment made to parent in connection with this offering):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing stockholders(1)
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
If the underwriters over-allotment option is exercised in
full, the percentage of shares of common stock held by existing
stockholders after this offering would be reduced
to ,
or % of the total number of our
shares of common stock outstanding after this offering, and the
number of shares of common stock held by new investors would
increase
to ,
or % of the total number of our
shares of common stock outstanding after this offering. |
32
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this prospectus)
would increase (decrease) total consideration paid by new
investors in this offering and by all investors by
$ million, and would increase
(decrease) the average price per share paid by new investors by
$ , assuming the number of shares
of common stock offered by us, as set forth on the cover of this
prospectus, remains the same.
33
SELECTED
HISTORICAL COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth our selected historical combined
financial and operating data as of and for the periods indicated
below. The selected historical combined financial data for the
years ended December 31, 2008, 2009, and 2010 and the
selected historical combined balance sheet data as of
December 31, 2009 and 2010, have been derived from our
audited combined financial statements, which are included
elsewhere in this prospectus.
The selected historical combined financial data for the years
ended and as of December 31, 2006 and 2007 and the selected
historical combined balance sheet data as of December 31,
2006, 2007 and 2008 have been derived from our audited combined
financial statements, which are not included in this prospectus.
In June 2007 we acquired Skinnys, Inc., or Skinnys,
a privately-held company that operated 102 stores in Central and
West Texas. The operations of Skinnys have been included
in our combined statements of operations since the acquisition
date.
In July 2006 we purchased 40 retail stores from Good
Time Stores, Inc., or Good Times, in El Paso, Texas. The
operations of these stores have been included in our combined
statements of operations since the purchase date.
During the periods covered by our historical financial data,
most of our business was accounted for as an operating segment
of Alon Energy. Our combined financial statements include
allocations of certain corporate functions provided to us by
Alon Energy, including general corporate expenses. Allocation
estimates are made at the beginning of the year and applied
consistently throughout the year unless there is a significant
change in the allocation base. The estimates are based on
managements estimate of overall resources that we utilize.
Certain other costs incurred by Alon Energy for our direct
benefit, such as rent, salaries and benefits, also have been
included in our financial statements and are reflected under
operating, selling and administrative expense. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Description of
Revenues and Expenses Costs Associated with
Corporate Services Agreement. However, our financial
statements do not purport to represent and may not necessarily
reflect what our financial position, cash flows and results of
operations actually would have been if we had operated as a
stand-alone company during the periods presented. Accordingly,
our historical financial data also do not purport to represent
and may not be indicative of our cash flows and results of
operations for any future period or our financial position at
any future date.
34
The following selected historical combined financial and
operating data should be read in conjunction with Use of
Proceeds, Capitalization,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our audited and
unaudited combined financial statements and related notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except as noted)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel retail
|
|
$
|
194,025
|
|
|
$
|
259,287
|
|
|
$
|
315,756
|
|
|
$
|
276,951
|
|
|
$
|
384,148
|
|
Merchandise retail
|
|
|
150,899
|
|
|
|
213,433
|
|
|
|
253,295
|
|
|
|
261,920
|
|
|
|
274,264
|
|
Other, net retail(1)
|
|
|
6,255
|
|
|
|
7,374
|
|
|
|
7,850
|
|
|
|
6,867
|
|
|
|
7,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
351,179
|
|
|
|
480,094
|
|
|
|
576,901
|
|
|
|
545,738
|
|
|
|
665,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel wholesale
|
|
|
910,959
|
|
|
|
792,273
|
|
|
|
663,126
|
|
|
|
263,679
|
|
|
|
382,276
|
|
Other, net wholesale(2)
|
|
|
2,455
|
|
|
|
2,149
|
|
|
|
2,029
|
|
|
|
2,123
|
|
|
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale
|
|
|
913,414
|
|
|
|
794,422
|
|
|
|
665,155
|
|
|
|
265,802
|
|
|
|
385,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,264,593
|
|
|
|
1,274,516
|
|
|
|
1,242,056
|
|
|
|
811,540
|
|
|
|
1,051,239
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel retail
|
|
|
14,555
|
|
|
|
19,478
|
|
|
|
20,267
|
|
|
|
16,772
|
|
|
|
18,377
|
|
Merchandise retail
|
|
|
42,500
|
|
|
|
61,113
|
|
|
|
71,607
|
|
|
|
75,629
|
|
|
|
82,248
|
|
Other, net
|
|
|
6,254
|
|
|
|
7,375
|
|
|
|
7,850
|
|
|
|
6,867
|
|
|
|
7,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
63,309
|
|
|
|
87,966
|
|
|
|
99,724
|
|
|
|
99,268
|
|
|
|
108,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel wholesale
|
|
|
13,898
|
|
|
|
26,141
|
|
|
|
7,551
|
|
|
|
14,511
|
|
|
|
19,629
|
|
Other, net wholesale
|
|
|
2,455
|
|
|
|
2,149
|
|
|
|
2,029
|
|
|
|
2,123
|
|
|
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale
|
|
|
16,353
|
|
|
|
28,290
|
|
|
|
9,580
|
|
|
|
16,634
|
|
|
|
22,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
79,662
|
|
|
|
116,256
|
|
|
|
109,304
|
|
|
|
115,902
|
|
|
|
130,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and selling expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling and administrative(3)
|
|
|
64,256
|
|
|
|
81,933
|
|
|
|
97,105
|
|
|
|
95,291
|
|
|
|
98,112
|
|
Depreciation, amortization and accretion
|
|
|
6,205
|
|
|
|
10,245
|
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and selling expenses
|
|
|
70,461
|
|
|
|
92,178
|
|
|
|
110,809
|
|
|
|
108,883
|
|
|
|
111,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
9,201
|
|
|
|
24,078
|
|
|
|
(1,505
|
)
|
|
|
7,019
|
|
|
|
19,143
|
|
Interest expense
|
|
|
5,864
|
|
|
|
5,202
|
|
|
|
5,097
|
|
|
|
3,893
|
|
|
|
3,176
|
|
Rental, interest and other income
|
|
|
229
|
|
|
|
484
|
|
|
|
554
|
|
|
|
559
|
|
|
|
594
|
|
Gain (loss) on sale of assets
|
|
|
(30
|
)
|
|
|
68
|
|
|
|
(317
|
)
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
3,536
|
|
|
|
19,428
|
|
|
|
(6,365
|
)
|
|
|
3,685
|
|
|
|
16,847
|
|
Income tax expense (benefit)(4)
|
|
|
1,336
|
|
|
|
7,543
|
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,200
|
|
|
$
|
11,885
|
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)(5)
|
|
$
|
15,575
|
|
|
$
|
34,810
|
|
|
$
|
12,410
|
|
|
$
|
21,164
|
|
|
$
|
33,571
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
14,860
|
|
|
|
10,143
|
|
|
|
35,596
|
|
|
|
17,354
|
|
|
|
31,779
|
|
Investing activities
|
|
|
(38,280
|
)
|
|
|
(85,841
|
)
|
|
|
(3,519
|
)
|
|
|
(5,199
|
)
|
|
|
(5,434
|
)
|
Financing activities
|
|
|
23,547
|
|
|
|
81,429
|
|
|
|
(39,890
|
)
|
|
|
(12,741
|
)
|
|
|
(171
|
)
|
Capital expenditures(6)
|
|
|
10,902
|
|
|
|
11,027
|
|
|
|
3,888
|
|
|
|
5,199
|
|
|
|
6,029
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except as noted)
|
|
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of retail stores (end of period)
|
|
|
207
|
|
|
|
307
|
|
|
|
306
|
|
|
|
308
|
|
|
|
304
|
|
Number of motor fuel stores (end of period)
|
|
|
203
|
|
|
|
297
|
|
|
|
295
|
|
|
|
296
|
|
|
|
292
|
|
Retail fuel gallons sold
|
|
|
75,969
|
|
|
|
91,945
|
|
|
|
96,974
|
|
|
|
120,697
|
|
|
|
142,155
|
|
Average gasoline retail price (dollars per gallon sold)
|
|
$
|
2.55
|
|
|
$
|
2.82
|
|
|
$
|
3.26
|
|
|
$
|
2.29
|
|
|
$
|
2.70
|
|
Average per retail store(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail merchandise sales
|
|
$
|
806
|
|
|
$
|
831
|
|
|
$
|
827
|
|
|
$
|
856
|
|
|
$
|
896
|
|
Retail fuel gallons sold
|
|
|
414
|
|
|
|
368
|
|
|
|
328
|
|
|
|
410
|
|
|
|
483
|
|
Comparable merchandise store sales growth(8):
|
|
|
4.8
|
%
|
|
|
3.1
|
%
|
|
|
1.1
|
%
|
|
|
3.3
|
%
|
|
|
4.9
|
%
|
Retail merchandise gross margin(9)
|
|
|
32.3
|
%
|
|
|
32.1
|
%
|
|
|
30.4
|
%
|
|
|
30.7
|
%
|
|
|
31.8
|
%
|
Retail fuel margin (cents per gallon)(10)
|
|
|
19.2
|
¢
|
|
|
21.2
|
¢
|
|
|
20.9
|
¢
|
|
|
13.9
|
¢
|
|
|
12.9
|
¢
|
Number of stores supplied through wholesale distributor network
(end of period)(11)
|
|
|
952
|
|
|
|
717
|
|
|
|
475
|
|
|
|
343
|
|
|
|
341
|
|
Wholesale fuel gallons sold
|
|
|
543,788
|
|
|
|
458,581
|
|
|
|
339,099
|
|
|
|
274,101
|
|
|
|
318,935
|
|
Sold to our retail convenience stores
|
|
|
72,176
|
|
|
|
88,320
|
|
|
|
92,677
|
|
|
|
120,013
|
|
|
|
141,814
|
|
Sold to unrelated parties
|
|
|
471,612
|
|
|
|
370,261
|
|
|
|
246,422
|
|
|
|
154,088
|
|
|
|
177,121
|
|
Wholesale fuel margin unrelated parties (cents per gallon)
|
|
|
3.0
|
¢
|
|
|
4.5
|
¢
|
|
|
1.7
|
¢
|
|
|
4.8
|
¢
|
|
|
5.6
|
¢
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,647
|
|
|
$
|
10,378
|
|
|
$
|
2,565
|
|
|
$
|
1,979
|
|
|
$
|
28,153
|
|
Working capital
|
|
|
27,553
|
|
|
|
38,788
|
|
|
|
5,899
|
|
|
|
2,820
|
|
|
|
20,225
|
|
Adjusted working capital(12)
|
|
|
22,906
|
|
|
|
28,410
|
|
|
|
3,334
|
|
|
|
841
|
|
|
|
(7,928
|
)
|
Total assets
|
|
|
141,465
|
|
|
|
237,015
|
|
|
|
195,892
|
|
|
|
186,424
|
|
|
|
212,448
|
|
Total liabilities
|
|
|
90,970
|
|
|
|
136,335
|
|
|
|
134,666
|
|
|
|
128,113
|
|
|
|
156,531
|
|
Total members interest and stockholders equity
|
|
|
50,495
|
|
|
|
100,680
|
|
|
|
61,226
|
|
|
|
58,311
|
|
|
|
55,917
|
|
|
|
|
(1) |
|
Includes revenues from lottery, money orders, money wire and ATM
commissions, and other commissions earned on gift cards and
ancillary services. |
|
(2) |
|
Includes payment card processing fees, broadband and equipment
rents, and other marketing and trade agreement fees. |
|
|
|
(3) |
|
Includes allocated costs and expenses for administrative and
shared services provided by Alon Energy to us (2006 -
$4,230, 2007 - $4,100, 2008 - $3,438, 2009 -
$2,811, and 2010 - $2,479. |
|
|
|
(4) |
|
Reflects current and deferred taxes for the periods presented.
See Note 2(r) and Note 16 to our audited combined
financial statements included elsewhere in this prospectus for a
detailed explanation of the components of income taxes. |
|
|
|
(5) |
|
We define EBITDA as net income (loss) before net interest
expense, income tax expense (benefit) and depreciation,
amortization and accretion. We believe EBITDA is useful to
investors in evaluating our operating performance because: |
|
|
|
|
|
securities analysts and investors often use such calculations as
a measure of financial performance and debt service capabilities;
|
|
|
|
it facilitates managements ability to measure operating
performance of our business on a consistent basis since it
removes the impact of items not directly resulting from our
retail and wholesale marketing operations; and
|
|
|
|
it is used by our management for internal planning purposes,
including aspects of our operating budget, capital expenditures,
as well as for segment and individual site operating targets.
|
EBITDA is not a recognized financial measure under US GAAP and
does not purport to be an alternative to net income as a measure
of operating performance. EBITDA has limitations as an
analytical tool, and
36
you should not consider it in isolation or as a substitute for
an analysis of our results as reported under US GAAP. Some of
these limitations include:
|
|
|
|
|
it does not reflect our cash expenditures, or future
requirements, for capital expenditures or contractual
commitments;
|
|
|
|
it does not reflect changes in, or cash requirements for,
working capital;
|
|
|
|
it does not reflect significant interest expense, or the cash
requirements necessary to service interest or principal payments
on our credit facilities;
|
|
|
|
it does not reflect payments made or future requirements for
income taxes;
|
|
|
|
although depreciation, amortization and accretion are non-cash
charges, the assets being depreciated and amortized may be
replaced in the future, and EBITDA does not reflect our cash
expenditures or future cash requirements for replacing such
assets; and
|
|
|
|
because not all companies use identical calculations, our
presentation of EBITDA may not be comparable to similarly titled
measures of other companies.
|
The following table presents a reconciliation of net income
(loss) to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Net income (loss)
|
|
$
|
2,200
|
|
|
$
|
11,885
|
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Depreciation, amortization and accretion
|
|
|
6,205
|
|
|
|
10,245
|
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
Interest expense, net
|
|
|
5,834
|
|
|
|
5,137
|
|
|
|
5,071
|
|
|
|
3,887
|
|
|
|
3,174
|
|
Income tax expense (benefit)
|
|
|
1,336
|
|
|
|
7,543
|
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
15,575
|
|
|
$
|
34,810
|
|
|
$
|
12,410
|
|
|
$
|
21,164
|
|
|
$
|
33,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
|
Excludes capital assets acquired in business acquisitions and
includes brand image enhancement expenditures. |
|
(7) |
|
Average retail merchandise sales and motor fuel gallons sold are
based on total merchandise sales or motor fuel gallons sold
divided by total store months |
|
(8) |
|
Includes merchandise and in-store revenue identified in footnote
(1) only for stores operated in both periods. Excludes
motor fuel sales. |
|
(9) |
|
Retail merchandise gross margin represents the difference
between (a) merchandise sales revenues and other retail
sales and services revenues and (b) the delivered cost of
merchandise purchases, net of rebates and commissions, expressed
as a percentage of merchandise sales revenues. Retail
merchandise gross margins, also referred to as in-store margins,
are commonly used in the retail industry to measure
in-store, or
non-fuel, operating results. |
|
(10) |
|
Retail fuel margin represents the difference between motor fuel
revenues and 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. |
|
|
|
(11) |
|
Excludes convenience stores we own and operate and stores that
sub-license our branded motor fuel. |
|
|
|
(12) |
|
Adjusted working capital is defined as total current assets,
excluding cash and cash equivalents, less total current
liabilities. |
37
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following pro forma condensed combined financial data as of
December 31, 2010 are based upon our historical combined
financial statements included elsewhere in this prospectus,
adjusted to give pro forma effect to certain transactions. The
pro forma condensed combined balance sheet data as of
December 31, 2010 give effect to the corporate
reorganization transactions,
including shares
of common stock issued to our parent company as a result of the
transfer of assets and liabilities associated with the wholesale
marketing segment,
the -for-1
stock split of our common stock outstanding prior to this
offering, the 2011 loan transactions and this offering as if
they had each occurred as of December 31, 2010.
The pro forma adjustments in the column labeled Corporate
Reorganization Transactions and 2011 Loan Transactions
Adjustments give effect to (i) the corporate
reorganization transactions we expect to consummate with Alon
Energy immediately prior to the consummation of this offering
and (ii) the 2011 loan transactions consummated in
February 2011. Following completion of the corporate
reorganization, the retail and wholesale marketing segments will
both be conducted by subsidiaries of Alon Brands. See
Corporate Reorganization Transactions.
The pro forma condensed combined financial data is included for
informational purposes only and does not purport to represent
what our financial position would actually have been had the
transactions referenced above occurred on the date indicated. In
addition, the pro forma adjustments described herein are based
on available information and upon assumptions that our
management believes are reasonable. The pro forma financial data
also do not purport to represent and may not be indicative of
our financial position at any future date.
The following pro forma condensed combined financial data should
be read in conjunction with Use of Proceeds,
Capitalization, Selected Historical Combined
Financial and Operating Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Corporate Reorganization
Transactions, Certain Relationships and Related
Party Transactions and our audited and unaudited combined
financial statements and related notes included elsewhere in
this prospectus.
38
ALON
BRANDS, INC.
PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Corporate
|
|
|
Pro Forma for
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
|
|
|
Reorganization
|
|
|
|
|
|
|
|
|
|
|
|
|
and 2011 Loan
|
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
|
|
|
and 2011 Loan
|
|
|
Offering
|
|
|
Pro
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Transactions
|
|
|
Adjustments
|
|
|
Forma
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,153
|
|
|
$
|
(14,550
|
)(a)
|
|
$
|
13,603
|
|
|
$
|
93,000
|
(e)
|
|
$
|
106,603
|
|
|
|
|
|
|
|
|
30,000
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and short-term notes receivable, net of allowance for
doubtful accounts
|
|
|
23,598
|
|
|
|
|
|
|
|
23,598
|
|
|
|
|
|
|
|
23,598
|
|
Inventories
|
|
|
21,008
|
|
|
|
|
|
|
|
21,008
|
|
|
|
|
|
|
|
21,008
|
|
Deferred income taxes
|
|
|
423
|
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
423
|
|
Prepaid expenses and other current assets
|
|
|
1,142
|
|
|
|
|
|
|
|
1,142
|
|
|
|
|
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
74,324
|
|
|
|
(14,550
|
)
|
|
|
59,774
|
|
|
|
93,000
|
|
|
|
152,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
74,065
|
|
|
|
|
|
|
|
74,065
|
|
|
|
|
|
|
|
74,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
50,256
|
|
|
|
|
|
|
|
50,256
|
|
|
|
|
|
|
|
50,256
|
|
Intangible assets, net
|
|
|
8,651
|
|
|
|
|
|
|
|
8,651
|
|
|
|
|
|
|
|
8,651
|
|
Other assets
|
|
|
5,152
|
|
|
|
|
|
|
|
5,152
|
|
|
|
|
|
|
|
5,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Other Non-Current Assets
|
|
|
64,059
|
|
|
|
|
|
|
|
64,059
|
|
|
|
|
|
|
|
64,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
212,448
|
|
|
$
|
(14,550
|
)
|
|
$
|
197,898
|
|
|
$
|
93,000
|
|
|
$
|
290,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable and capital lease obligation
|
|
$
|
7,012
|
|
|
$
|
|
|
|
$
|
7,012
|
|
|
$
|
|
|
|
$
|
7,012
|
|
Accounts payable
|
|
|
14,562
|
|
|
|
|
|
|
|
14,562
|
|
|
|
|
|
|
|
14,562
|
|
Accounts payable, affiliates
|
|
|
14,550
|
|
|
|
(14,550
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and expenses
|
|
|
17,975
|
|
|
|
|
|
|
|
17,975
|
|
|
|
|
|
|
|
17,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
54,099
|
|
|
|
(14,550
|
)
|
|
|
39,549
|
|
|
|
|
|
|
|
39,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
87,020
|
|
|
|
30,000
|
(b)
|
|
|
117,020
|
|
|
|
|
|
|
|
117,020
|
|
Capital lease obligation
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
Deferred income taxes
|
|
|
11,851
|
|
|
|
|
|
|
|
11,851
|
|
|
|
|
|
|
|
11,851
|
|
Other non-current liabilities
|
|
|
3,535
|
|
|
|
|
|
|
|
3,535
|
|
|
|
|
|
|
|
3,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
156,531
|
|
|
|
15,450
|
|
|
|
171,981
|
|
|
|
|
|
|
|
171,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
44,691
|
|
|
|
(30,000
|
)(c)(d)
|
|
|
14,691
|
|
|
|
93,000
|
(e)
|
|
|
107,691
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(202
|
)
|
|
|
|
|
|
|
(202
|
)
|
|
|
|
|
|
|
(202
|
)
|
Retained earnings
|
|
|
11,428
|
|
|
|
|
|
|
|
11,428
|
|
|
|
|
|
|
|
11,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
55,917
|
|
|
|
(30,000
|
)
|
|
|
25,917
|
|
|
|
93,000
|
|
|
|
118,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
212,448
|
|
|
$
|
(14,550
|
)
|
|
$
|
197,898
|
|
|
$
|
93,000
|
|
|
$
|
290,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Reflects payment of
$14.6 million to parent on affiliated accounts payable.
|
|
|
|
(b)
|
|
Reflects borrowing of
$30.0 million in 2011 loan transactions.
|
|
|
|
(c)
|
|
Reflects cash distribution of
$30.0 million to parent from proceeds of 2011 loan
transactions.
|
|
|
|
(d)
|
|
Reflects the issuance
of shares
of common stock to parent in connection with the corporate
reorganization transactions.
|
|
|
|
(e)
|
|
Reflects gross offering proceeds of
$100.0 million less estimated underwriting discounts and
commissions of $7.0 million.
|
39
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our
audited combined financial statements and related notes included
elsewhere in this prospectus. This discussion contains
forward-looking statements that are based on managements
current expectations, estimates and projections about our
business and operations. See Forward-Looking
Statements. The cautionary statements made in this
prospectus should be read as applying to all related
forward-looking statements wherever they appear in this
prospectus. Our actual results may differ materially from those
currently anticipated and expressed in such forward-looking
statements as a result of a number of factors, including those
we discuss under Risk Factors and elsewhere in this
prospectus. EBITDA is a non-GAAP financial measure of
performance that has limitations and should not be considered as
a substitute for net income. See Prospectus
Summary Summary Historical Combined and Unaudited
Pro Forma Condensed Combined Financial and Operating Data
and Selected Historical Combined Financial and Operating
Data for a discussion of our use of EBITDA in this
prospectus and a reconciliation of EBITDA to net income for the
periods presented.
Overview
We are the largest 7-Eleven licensee in the United States and we
are a leading marketer and supplier of motor fuels in the South
Central and Southwestern United States. Our business consists of
two operating segments: retail and wholesale marketing. As of
December 31, 2010, our retail segment operated 304
convenience stores in Central and West Texas and New Mexico,
substantially all of which are operated under the 7-Eleven and
FINA brands. Through our 7-Eleven licensing agreement, we have
the exclusive right to operate 7-Eleven convenience stores in
substantially all of our existing retail markets and many
surrounding areas. Our wholesale marketing segment markets and
supplies motor fuels under the FINA brand and provides brand
support and payment card processing services to distributors
supplying approximately 633 retail locations, including all
company-owned stores that sell motor fuel. In certain markets,
we also
sub-license
the FINA brand and provide the same brand support and payment
card processing services to distributors outside of our supply
network representing approximately 261 additional retail
locations.
Historically, our business was accounted for as an operating
segment of Alon USA Energy, Inc. (Alon Energy), an
independent refining company listed on the New York Stock
Exchange under the symbol ALJ. Alon Energy owns and
operates crude oil refineries located in Texas, California,
Louisiana and Oregon.
Corporate
Reorganization Transactions
In November 2008, Alon Brands was converted from a Texas limited
liability company to a Delaware corporation. Alon Brands
historically operated as a holding company for the retail
business of Alon Energy. Prior to the effectiveness of the
registration statement associated with this offering, Alon
Energy and Alon Brands will undertake a corporate reorganization
transaction, which will result in the assets and liabilities of
the wholesale marketing segment being contributed to Alon Brands
from Alon USA, LP, and Alon Brands will effect
a -for-1
stock split of its outstanding common stock. See Corporate
Reorganization Transactions. The contribution was
accounted for as a contribution of entities under common control
using as-if pooling-of-interests accounting. Under
this method of accounting, the assets and liabilities of Alon
USA, LP were carried forward to Alon Brands at their historical
costs. In addition, all prior period financial statements were
restated to include the combined results of operations,
financial position, and cash flows of Alon Brands.
Our audited combined financial statements included elsewhere in
this prospectus, which are discussed below, reflect the
historical financial position, cash flows and results of
operations of the business that will be transferred to us from
Alon USA, LP pursuant to the corporate reorganization
transaction. Although our combined financial statements include
direct operating costs incurred by our operating segments and
certain allocated and shared service costs provided by Alon USA
LP, our financial statements do not purport to represent, and
may not necessarily reflect, what our financial position,
results of operations and cash flows actually would have been if
we had operated as a stand-alone company during the periods
presented. Accordingly, our historical financial data also do
not purport to represent and may not be indicative of our
40
financial position, results of operations or cash flows for any
future period or our financial position at any future date.
Basis of
Presentation
Prior to the effectiveness of the registration statement of
which this prospectus forms a part, Alon Energy intends to
carve out and cause the assets and liabilities
associated with its branded wholesale marketing segment,
operated by Alon USA, LP, to be contributed to Alon Brands. The
historical financial statements contained in this prospectus
reflect the combined financial position, results of operations
and cash flows of the wholesale marketing and retail segments
that will be owned and operated by Alon Brands at the time of
this offering.
We conduct our business in two primary business segments, retail
and wholesale marketing. The retail segment operates
304 convenience store sites located in Central and West
Texas and New Mexico. These convenience stores typically offer
various grades of gasoline, diesel fuel, general merchandise and
food and beverage products to the general public, primarily
under the 7-Eleven brand name. Substantially all of the motor
fuels sold through the retail segment are purchased from our
wholesale marketing segment.
The wholesale marketing segment markets motor fuels through a
network of approximately 633 locations under the FINA brand
name, including our retail convenience stores that sell motor
fuel. A majority of the fuel marketed is purchased through the
physically integrated system associated with Alon Energys
Big Spring, Texas refinery. This segment also provides its
network of branded customers with brand support and payment card
processing services.
Sales of motor fuels to our retail segment from our wholesale
marketing segment, payment card processing fees and other fees
charged or sales to our retail segment by our wholesale
marketing segment are eliminated through combination of our
financial statements.
Material
Business and Industry Trends
Although increasing fuel prices and demand have a positive
impact on revenues, our retail fuel margin, the difference
between the cost to acquire motor fuel and the retail price at
which it is sold, has a more significant effect to our overall
profitability. During 2010 consistent with the economic
recovery, we saw steady increases in consumer demand for fuel
despite rising retail fuel prices. However, wholesale fuel
prices also rose during that period, and our retail fuel margins
were negatively impaired. While we have historically been able
to maintain our targeted retail fuel margins during periods in
which retail fuel prices fluctuate, there can be no assurance
that we will be able to do so in the future. At present, there
is significant uncertainty concerning future fuel prices,
particularly in light of recent political unrest in the Middle
East. We are unable to predict what effect increasing or
persistently high fuel prices might have on consumer demand for
fuel, and subsequently, our revenues and profitability.
Our retail segment operates within the highly fragmented
U.S. convenience store industry, with the 10 largest
convenience store retailers accounting for approximately 9.1% of
total convenience stores in 2009. Furthermore, operators with 50
or fewer stores accounted for approximately 75% of all
convenience stores operated by retailers in 2009. In recent
years, the convenience store industry has experienced many
important consumer trends, including changing consumer
demographics and eating patterns that have resulted in more food
consumed away from home, and a shift of consumer food and
general merchandise purchases away from traditional supermarkets
to convenience stores and other alternative formats, including
big box retailers. Additionally, the increasing size and
complexity of the big box retail format (i.e., superstores) has
driven many consumers to smaller retailers, such as convenience
stores, to meet their demand for speed and convenience in daily
shopping needs. We also believe the highly-fragmented nature of
the convenience store industry provides larger chain operators
significant scale advantages and opportunities to grow through
acquisitions. The continued divestiture of retail operations by
major oil companies may transfer advantages to medium to large
retail convenience store chain operators, as we believe the
presence of major refiner operators in the industry may have
depressed retail gasoline margins and this trend may reverse as
major oil companies exit direct retail operations. Given the
relatively low operating costs and capital requirements of our
wholesale marketing
41
segment, we believe this segment will continue to generate free
cash flow in the future, which can be utilized to fund our
growth strategy.
In recent years, the market for wholesale distribution of motor
fuel products has also experienced a number of changes,
including the consolidation among major petroleum product
producers, which has resulted in fewer recognizable brands
available to consumers, and a 46% reduction in the number of
operating crude oil refineries in the last 28 years, which
has resulted in less access to product and increased the
importance of obtaining a secure fuel supply source. In
addition, an increased scrutiny by oil companies and refiners in
selecting distributors, with a preference for larger
distributors capable of handling higher volumes, has limited
smaller distributors access to product.
Description
of Revenues and Expenses
Increases and decreases in the retail and wholesale prices of
motor fuels can cause our retail segments revenues and
cost of sales to vary significantly from period to period even
though our gross profit per gallon may be relatively unchanged.
As a result, our management focuses on fuel margins and sales
volume on a per gallon basis rather than revenues and cost of
sales when evaluating our performance.
Retail
Revenues. Revenues in our retail segment
consist primarily of motor fuels, merchandise sale, and other
in-store revenues. In-store retail revenues consist of
merchandise sales, commissions earned on the sale of gift cards,
lotteries, money orders and wire transfer fees, car wash and
other miscellaneous in-store revenues. Retail motor fuel sales
include federal and state motor fuel taxes. Retail merchandise
sales are driven by convenience, branding and competitive
pricing. Our convenience store volumes are seasonal and
generally peak in the second and third quarters of the year.
Cost of Sales. Cost of sales for our retail
segment include cost of sales for motor fuels and 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.
Gross Profit. Retail merchandise gross profit
is equal to retail merchandise sales less the delivered cost of
the retail merchandise, net of vendor discounts and rebates, and
is expressed in dollars and measured as a percentage of total
retail merchandise sales and other in-store revenues. Our goal
is to enhance overall store profitability through new fuel
pricing strategies designed to increase fuel sales volumes which
are expected to generate higher customer traffic that will
increase sales of higher margin retail merchandise.
Operating, Selling and Administrative
Expenses. Operating, selling and administrative
expenses in our retail segment consist primarily of costs
relating to the operations of our convenience stores, including
payment card fees, labor, utilities, maintenance and retail
corporate overhead expense.
Wholesale
Marketing
Increases and decreases in the wholesale and acquisition cost of
motor fuel can cause our wholesale marketing segments
revenues and cost of sales to vary significantly from period to
period, even though our gross profit per gallon may be
relatively unchanged. As a result, our management focuses on
fuel margins and sales volume on a per gallon basis rather than
revenues and cost of sales when evaluating our performance.
Revenues. Wholesale marketing revenues consist
primarily of motor fuel sales, net of early payment discounts,
and payment card processing fees, net of payment card processing
expenses. Revenues for our wholesale marketing segment excludes
sales of motor fuels to our retail segment, which are eliminated
through combination of our financial statements.
Cost of Sales. Wholesale marketing segment
cost of sales consists of the cost of motor fuel purchased for
resale.
42
Gross Profit. Motor fuel gross profit is equal
to motor fuel 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.
Operating, Selling and Administrative
Expenses. Operating, selling and administrative
expenses in our wholesale marketing segment consist primarily of
overhead and marketing expenses.
Our earnings and cash flows from our wholesale marketing segment
are primarily affected by the motor fuel sales volumes and
margins recognized on the sale of motor fuels to our
distributors, payment card processing fee revenue and licensing
fees. The margins recognized on sales of motor fuel are the
price at which fuel is sold to our branded distributors less our
delivered cost, net of any early payment discounts. Payment card
processing fee revenue is the fees assessed on our wholesale
customers and licensees, net of the costs we incur in providing
such payment card processing services.
Costs
Associated with Corporate Services Agreement
Alon Energy currently provides us with corporate and shared
services functions. Our historical financial statements in this
prospectus reflect an allocation of these costs within
operating, selling and administrative expenses. These
allocations include costs related to treasury, payroll and other
financial-related services, human resources and employee
benefits, legal, information systems, investment services,
corporate services and procurement and sourcing support.
Following our corporate reorganization transactions, we expect
Alon Energy to continue to provide many of the services
related to these functions. These services will be provided
under the Corporate Services Agreement described in
Certain Relationships and Related Party
Transactions. We believe the allocated costs are
substantially equivalent to the costs that would be incurred by
us if we were to obtain such services from third parties or hire
additional personnel to perform such functions. Although
allocated costs have declined significantly over the past
several years due to Alon Energys total costs being
allocated among a larger number of business units, we do not
expect further reductions of any significance in the future. In
addition to the costs of these services, we may incur other
corporate and operational costs that may be greater than
historically allocated levels. For example, as a public company,
we will incur costs relating to our public reporting and
compliance obligations. Also, we will incur certain
non-recurring expenses in connection with the corporate
reorganization transactions. The costs and expenses described
above are allocated among our two operating segments. Any
out-of-pocket
costs and expenses incurred by Alon Energy on our behalf will be
reimbursed without markup.
For a description of the costs of corporate and shared services
included in our historical financial statements, see
Note 14 to our audited financial statements included
elsewhere in this prospectus.
Influences
on Results of Operations
During 2008, Alon USA, LP, our primary supplier, suffered a
major fire at its refinery located in Big Spring, Texas. As
a result, a number of our wholesale marketing segments
distributors were supplied through terminals that were
inconvenient to them and our fuel sales volumes decreased. Fuel
margins were also negatively affected because we purchased fuel
for resale in order to honor contractual commitments to these
distributors. We have entered into a long-term supply agreement
with Alon USA, LP to secure substantially all of our motor fuel
requirements following the consummation of this offering. We
believe the benefits associated with this supply agreement will
exceed the risk of experiencing similar disruptions in the
future. We are also in the process of allowing fuel supply
agreements to expire in accordance with their terms in markets
that are not integrated with Alon USA, LPs Big Spring
refinery, which has resulted in declining fuel sales volumes
over the past several years.
Over the past several years, wholesale motor fuel costs have
continued to be extremely volatile. The periods of higher motor
fuel costs resulted in increases in our retail segments
payment card expenses, since these fees are calculated as a
percentage of the sales amount rather than gallons sold. We are
able to partially mitigate these higher costs for our retail
segment due to the payment card processing services offered by
our wholesale segment, such that we are able to recoup a portion
of those increased costs on a combined basis, as well as benefit
from the increased fees received from third-party purchasers.
43
Results
of Operations
The following table sets forth summary financial data from our
financial statements as a percentage of total revenues for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel
|
|
|
78.8
|
%
|
|
|
66.6
|
%
|
|
|
72.9
|
%
|
Merchandise
|
|
|
20.6
|
|
|
|
32.5
|
|
|
|
26.1
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel
|
|
|
2.3
|
%
|
|
|
3.9
|
%
|
|
|
3.6
|
%
|
Merchandise
|
|
|
5.9
|
|
|
|
9.6
|
|
|
|
7.8
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
8.8
|
|
|
|
14.4
|
|
|
|
12.4
|
|
Operating, selling and administrative expenses
|
|
|
7.8
|
|
|
|
11.7
|
|
|
|
9.3
|
|
Depreciation, amortization and accretion
|
|
|
1.1
|
|
|
|
1.7
|
|
|
|
1.3
|
|
Other expense
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income tax expense (benefit)
|
|
|
(0.5
|
)
|
|
|
0.5
|
|
|
|
1.6
|
|
Income tax expense (benefit)
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(0.4
|
)%
|
|
|
0.3
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
The following tables provide summary financial and operating
data for us and our two operating segments.
Alon
Brands, Inc. Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Statement of Operations Data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,242,056
|
|
|
$
|
811,540
|
|
|
$
|
1,051,239
|
|
Cost of sales
|
|
|
1,132,752
|
|
|
|
695,638
|
|
|
|
920,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,304
|
|
|
|
115,902
|
|
|
|
130,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and selling expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling and administrative
|
|
|
97,105
|
|
|
|
95,291
|
|
|
|
98,112
|
|
Depreciation, amortization and accretion
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and selling expenses
|
|
|
110,809
|
|
|
|
108,883
|
|
|
|
111,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,505
|
)
|
|
|
7,019
|
|
|
|
19,143
|
|
Interest expense
|
|
|
5,097
|
|
|
|
3,893
|
|
|
|
3,176
|
|
Rental, interest and other income
|
|
|
554
|
|
|
|
559
|
|
|
|
594
|
|
Gain (loss) on sale of assets
|
|
|
(317
|
)
|
|
|
|
|
|
|
286
|
|
Income tax expense (benefit)
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)(2)
|
|
$
|
12,410
|
|
|
$
|
21,164
|
|
|
$
|
33,571
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
35,596
|
|
|
|
17,354
|
|
|
|
31,779
|
|
Investing activities
|
|
|
(3,519
|
)
|
|
|
(5,199
|
)
|
|
|
(5,434
|
)
|
Financing activities
|
|
|
(39,890
|
)
|
|
|
(12,741
|
)
|
|
|
(171
|
)
|
Capital expenditures(3)
|
|
|
3,888
|
|
|
|
5,199
|
|
|
|
6,029
|
|
|
|
|
(1) |
|
Excludes inter-company sales and expenses that are eliminated in
the combined financial statements. |
|
(2) |
|
We define EBITDA as net income (loss) before net interest
expense, income tax expense (benefit) and depreciation,
amortization and accretion. We believe that EBITDA is useful to
investors in evaluating our operating performance because: |
|
|
|
securities analysts and investors often use such
calculations as a measure of financial performance and debt
service capabilities;
|
|
|
|
it facilitates managements ability to measure
operating performance of our business on a consistent basis
since it removes the impact of items not directly resulting from
our retail and wholesale marketing operations; and
|
|
|
|
it is used by our management for internal planning
purposes, including aspects of our operating budget, capital
expenditures, as well as for segment and individual site
operating targets.
|
|
|
|
EBITDA is not a recognized term under US GAAP and does not
purport to be an alternative to net income as a measure of
operating performance. EBITDA has limitations as an analytical
tool, and you should not consider it in isolation or as a
substitute for an analysis of our results as reported under US
GAAP. Some of these limitations include: |
|
|
|
it does not reflect our cash expenditures, or future
requirements, for capital expenditures or contractual
commitments;
|
45
|
|
|
|
|
it does not reflect changes in, or cash requirements
for, working capital;
|
|
|
|
it does not reflect significant interest expense, or
the cash requirements necessary to service interest or principal
payments on our credit facilities;
|
|
|
|
it does not reflect payments made or future
requirements for income taxes;
|
|
|
|
although depreciation, amortization and accretion
are non-cash charges, the assets being depreciated and amortized
may be replaced in the future, and EBITDA does not reflect cash
requirements for such replacements; and
|
|
|
|
because not all companies use identical
calculations, our presentation of EBITDA may not be comparable
to similarly titled measures of other companies.
|
The following table presents a reconciliation of net income
(loss) to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Net income (loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Depreciation, amortization and accretion
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
Interest expense, net
|
|
|
5,071
|
|
|
|
3,887
|
|
|
|
3,174
|
|
Income tax expense (benefit)
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
12,410
|
|
|
$
|
21,164
|
|
|
$
|
33,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Excludes capital assets acquired in business acquisitions and
includes brand image enhancement expenditures. |
Retail
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except as noted)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(l)
|
|
$
|
576,901
|
|
|
$
|
545,738
|
|
|
$
|
665,821
|
|
Cost of sales(2)
|
|
|
477,177
|
|
|
|
446,470
|
|
|
|
557,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
99,724
|
|
|
|
99,268
|
|
|
|
108,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and selling expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling, and administrative(3)
|
|
|
91,955
|
|
|
|
89,563
|
|
|
|
92,228
|
|
Depreciation, amortization and accretion
|
|
|
12,214
|
|
|
|
11,906
|
|
|
|
11,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and selling expenses
|
|
|
104,169
|
|
|
|
101,469
|
|
|
|
104,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(4,445
|
)
|
|
|
(2,201
|
)
|
|
$
|
3,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of motor fuel stores (end of period)
|
|
|
295
|
|
|
|
296
|
|
|
|
292
|
|
Fuel sales (thousands of gallons)
|
|
|
96,974
|
|
|
|
120,697
|
|
|
|
142,155
|
|
Fuel sales (thousands of gallons per site per month)(4)
|
|
|
27.3
|
|
|
|
34.2
|
|
|
|
40.3
|
|
Fuel margin (cents per gallon)(5)
|
|
|
20.9
|
¢
|
|
|
13.9
|
¢
|
|
|
12.9
|
¢
|
Number of retail stores (end of period)
|
|
|
306
|
|
|
|
308
|
|
|
|
304
|
|
Merchandise sales
|
|
$
|
253,295
|
|
|
$
|
261,920
|
|
|
$
|
274,264
|
|
Merchandise sales (per site per month)(6)
|
|
|
68.9
|
|
|
|
71.3
|
|
|
|
74.6
|
|
Merchandise margin
|
|
|
30.4
|
%
|
|
|
30.7
|
%
|
|
|
31.8
|
%
|
Comparable merchandise store sales growth(7)
|
|
|
1.1
|
%
|
|
|
3.3
|
%
|
|
|
4.9
|
%
|
|
|
|
(1) |
|
Includes motor fuel sales, including federal and state excise
tax, merchandise sales, and other commissions earned. |
|
(2) |
|
Excludes intercompany fuel rebates from our wholesale marketing
segment. Intercompany fuel rebates are eliminated in our
combined financial statements. |
46
|
|
|
(3) |
|
Excludes intercompany payment card processing fees from our
wholesale marketing segment. Intercompany payment card
processing fees are eliminated in our combined financial
statements. |
|
(4) |
|
Motor fuel gallons sold on a per site, per month basis is
calculated by the total gallons sold divided by total store
months. |
|
(5) |
|
Retail fuel margin represents the difference between motor fuel
revenues and cost of purchased fuel, net of rebates and
discounts allowed, plus 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. |
|
(6) |
|
Merchandise sales per site, per month is calculated by
merchandise sales divided by total store months. |
|
(7) |
|
Includes only stores operated in the current and prior periods. |
Wholesale
Marketing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except as noted)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(l)
|
|
$
|
665,155
|
|
|
$
|
265,802
|
|
|
$
|
385,418
|
|
Cost of sales(2)
|
|
|
655,575
|
|
|
|
249,168
|
|
|
|
362,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,580
|
|
|
|
16,634
|
|
|
|
22,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and selling expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling, and administrative
|
|
|
4,976
|
|
|
|
5,525
|
|
|
|
5,644
|
|
Depreciation, amortization and accretion
|
|
|
1,490
|
|
|
|
1,686
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and selling expenses
|
|
|
6,466
|
|
|
|
7,211
|
|
|
|
7,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
3,114
|
|
|
$
|
9,423
|
|
|
$
|
15,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel volume
|
|
|
339,099
|
|
|
|
274,101
|
|
|
|
318,935
|
|
Sold to our retail convenience stores
|
|
|
92,677
|
|
|
|
120,013
|
|
|
|
141,814
|
|
Sold to unrelated parties
|
|
|
246,422
|
|
|
|
154,088
|
|
|
|
177,121
|
|
Fuel margin unrelated parties (cents per gallon)
|
|
|
1.7
|
¢
|
|
|
4.8
|
¢
|
|
|
5.6
|
¢
|
Distributor count (end of period)(3)
|
|
|
76
|
|
|
|
76
|
|
|
|
70
|
|
Retail outlet count (end of period)(4)
|
|
|
1,011
|
|
|
|
939
|
|
|
|
906
|
|
Average wholesale rack fuel price(5)
|
|
$
|
2.65
|
|
|
$
|
1.71
|
|
|
$
|
2.18
|
|
|
|
|
(1) |
|
Includes motor fuel sales, net of rebates and discounts allowed,
payment card processing fees and other marketing and trade
agreement program revenues less intercompany sales. |
|
(2) |
|
Excludes cost of intercompany motor fuel sales to our retail
segment. Intercompany motor fuel cost of sales are eliminated in
our combined financial statements. |
|
(3) |
|
Includes all active branded distributors with retail outlets,
whether or not supplied by us with motor fuels, excluding our
retail subsidiaries. |
|
|
|
(4) |
|
Includes all active branded retail outlets operating under a
distributor sales agreement or a distributor license agreement,
including the convenience stores operated by our retail segment. |
|
|
|
(5) |
|
Average wholesale rack fuel price is calculated as the branded
gasoline and diesel rack sales price per gallon, prior to any
early payment discounts given to FINA-branded distributors. |
47
Year
Ended December 31, 2010 Compared to the Year Ended
December 31, 2009
Revenues
Combined. Revenues for the year ended
December 31, 2010 were $1,051.2 million, compared to
$811.5 million for the year ended December 31, 2009,
an increase of $239.7 million or 29.5%. This increase was
primarily due to higher motor fuel volumes, higher motor fuel
prices and increased retail merchandise sales, commissions and
other net revenues.
Retail Segment. Revenues for our retail
segment were $665.8 million for the year ended
December 31, 2010, compared to $545.7 million for the
year ended December 31, 2009, an increase of
$120.1 million or 22.0%. The increase was primarily
attributable to higher average retail motor fuel prices and
increased motor fuel volumes, as well as increased in
merchandise sales, commissions and other net revenues.
Wholesale Marketing Segment. Revenues for our
wholesale marketing segment were $385.4 million for the
year ended December 31, 2010, compared to
$265.8 million for the year ended December 31, 2009,
an increase of $119.6 million or 45.0%. This increase was
primarily attributable to an increase in wholesale motor fuel
prices and increases in sales volumes to both our retail-owned
stores as well as to our third-party distributors.
Cost
of Sales
Combined. Cost of sales was
$920.4 million for the year ended December 31, 2010,
compared to $695.6 million for the year ended
December 31, 2009, an increase of $224.8 million or
32.3%. This increase was primarily attributable to cost
associated with the increase in wholesale and retail motor fuel
prices and sales volumes and, to a lesser extent, the increase
in merchandise sales.
Retail Segment. Cost of sales for our retail
segment was $557.8 million for the year ended
December 31, 2010, compared to $446.5 million for the
year ended December 31, 2009, an increase of
$111.3 million or 24.9%. The increase is primarily
associated with increased retail motor fuel prices and sales
volumes and cost of sales associated with increased merchandise
sales.
Wholesale Marketing Segment. Cost of sales for
our wholesale marketing segment was $362.6 million for the
year ended December 31, 2010, compared to
$249.2 million for the year ended December 31, 2009,
an increase of $113.4 million or 45.5%. The increase is
primarily attributable to costs associated with the increased
motor fuel prices and sales volumes.
Operating,
Selling and Administrative Expense
Combined. Operating, selling and
administrative expenses for the year ended December 31,
2010 were $98.1 million, compared to $95.3 million for
the year ended December 31, 2009, an increase of
$2.8 million or 2.9%. The increase was primarily due to
increased personnel costs associated with increased motor fuel
and merchandise sales volumes, higher royalties associated with
increased merchandise sales and increased credit card fees.
Operating and selling expenses, excluding depreciation,
amortization and accretion, for the year ended December 31,
2009 included a $0.7 million expense associated with a fire
at one of our retail locations. Allocated costs and expenses for
administrative and shared services provided by Alon Energy
totaled $2.5 for the year ended December 31, 2010, compared
to $2.8 million for the year ended December 31, 2009,
a decrease of $0.3 or 10.7%.
Retail Segment. Operating, selling and
administrative expenses for our retail segment for the year
ended December 31, 2010 were $92.2 million, compared
to $89.6 million for the year ended December 31, 2009,
an increase of $2.6 million or 2.9%. The increase was
primarily due to increased personnel costs associated with
increased motor fuel and merchandise sales volumes, higher
royalties on increased merchandise sales and higher credit card
fees. Operating and selling expenses, excluding depreciation,
amortization and accretion for the year ended December 31,
2009 included a $0.7 million expense associated with a fire
at one of our retail locations.
48
Wholesale Marketing Segment. Operating,
selling and administrative expenses for our wholesale marketing
segment for the year ended December 31, 2010 were
$5.6 million, compared to $5.5 million for the year
ended December 31, 2009, an increase of $0.1 million
or 1.8%. The increase was due to additional personnel cost,
taxes and benefits.
Depreciation,
Amortization and Accretion
Depreciation, amortization and accretion was $13.6 million
for each of the years ended December 31, 2010 and
December 31, 2009. There were no significant additions to
or retirements from our property and equipment for the year
ended December 31, 2010.
Operating
Income (Loss)
Combined. Operating income was
$19.1 million for the year ended December 31, 2010,
compared to operating income of $7.0 million for the year
ended December 31, 2009, an increase of $12.1 million
or 172.9%. The increase was primarily attributable to improved
wholesale and retail motor fuel volumes, somewhat offset by
slightly lower retail motor fuel margins, improved in-store
margins on our retail merchandise sales and commissions and
continuing operating expense controls.
Retail Segment. Operating income for our
retail segment was $3.9 million for the year ended
December 31, 2010, compared to operating loss of
$2.2 million for the year ended December 31, 2009, an
increase of $6.1 million. This increase was primarily due
to an increase in motor fuel sales volumes, somewhat offset by
lower retail motor fuel margins, increased in-store revenues,
improved in-store retail margins and continuing control of
operating expenses.
Wholesale Marketing Segment. Operating income
for our wholesale marketing segment was $15.5 million for
the year ended December 31, 2010, compared to operating
income of $9.4 million for the year ended December 31,
2009, an increase of $6.1 million or 64.9%. This increase
was primarily due to higher motor fuel sales volumes to our
retail-owned stores as well as increased motor fuel volumes to
our third-party distributors and slightly higher wholesale
margins for the year ended December 31, 2010.
Interest
Expense, Net
Net interest expense was $3.2 million for the year ended
December 31, 2010, compared to $3.9 million for the
year ended December 31, 2009, a decrease of
$0.7 million. This decrease was due to lower interest rates
applied to amortized principal balances and the expiration of a
fixed rate interest hedge in October 2010.
Income
Tax Expense (Benefit)
Income tax expense was $6.3 million for the year ended
December 31, 2010, compared to $1.3 million for the
year ended December 31, 2009, an increase of
$5.0 million or 384.6%. This increase resulted from our
income before tax of $16.8 million for the year ended
December 31, 2010, compared to income before tax of
$3.7 million for the year ended December 31, 2009. Our
effective tax rate was 37.2% for the year ended
December 31, 2010, compared to an effective tax rate of
34.4% for the year ended December 31, 2009.
Net
Income (Loss)
As a result of the foregoing, net income was $10.6 million
for the year ended December 31, 2010, compared to net
income of $2.4 million for the year ended December 31,
2009, an increase of $8.2 million or 341.7%.
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Revenues
Combined. Revenues in 2009 were
$811.5 million, compared to $1,242.1 million in 2008,
a decrease of $430.6 million or 34.7%. This decrease was
primarily attributable to lower motor fuel price per gallon and
a
49
decrease in motor fuel products sold to third-party
distributors, partially offset by an increase in motor fuel
gallons sold to our owned stores. The decrease in sales to
third-party distributors resulted from a net decline of 72
retail outlets in our third-party distributor network, which was
the result of allowing fuel supply agreements to expire in
accordance with their terms in non-integrated markets.
Retail Segment. Revenues for our retail
segment were $545.7 million in 2009, compared to
$576.9 million in 2008, a decrease of $31.2 million or
5.4%. Although retail motor fuel sales volumes increased, motor
fuel revenues declined as a result of lower price per gallon.
Revenues in our retail segment were also affected by an increase
in merchandise sales and a decrease in commissions and other
revenues.
Wholesale Marketing Segment. Revenues for our
wholesale marketing segment were $265.8 million in 2009,
compared to $665.2 million in 2008, a decrease of
$399.4 million or 60.0%. This decrease was primarily
attributable to a decrease in motor fuel products sold to
third-party distributors, partially offset by an increase in
motor fuel gallons sold to our owned stores. The decrease in
sales to third-party distributors resulted from a net decline of
72 retail outlets in our third-party distributor network, which
was the result of allowing fuel supply agreements to expire in
accordance with their terms in non-integrated markets.
Cost
of Sales
Combined. Cost of sales was
$695.6 million in 2009, compared to $1,132.8 million
in 2008, a decrease of $437.2 million or 38.6%. This
decrease was primarily attributable to lower wholesale motor
fuel sales volumes and lower average cost per gallon pricing.
The decrease was partially offset by an increase in retail cost
of goods sold associated with higher merchandise sales.
Retail Segment. Cost of sales for our retail
segment was $446.5 million in 2009, compared to
$477.2 million in 2008, a decrease of $30.7 million or
6.4%. Although our retail motor fuel sales volumes increased,
lower average motor fuel costs contributed to a decrease in cost
of motor fuel sales, partially offset by a higher merchandise
cost of sales resulting from increased merchandise sales.
Wholesale Marketing Segment. Cost of sales for
our wholesale marketing segment was $249.2 million in 2009,
compared to $655.6 million in 2008, a decrease of
$406.4 million or 62.0%. The decrease was primarily
attributable to a decrease in motor fuel products sold to
third-party distributors, partially offset by an increase in
motor fuel gallons sold to our owned stores and lower average
wholesale motor fuel cost per gallon. The decrease in sales to
third-party distributors resulted from a net decline of 72
retail outlets in our third-party distributor network, which was
the result of allowing fuel supply agreements to expire in
accordance with their terms in non-integrated markets.
Operating,
Selling and Administrative Expense
Combined. Operating and selling expenses,
excluding depreciation, amortization and accretion in 2009 were
$95.3 million, compared to $97.1 million in 2008, a
decrease of $1.8 million or 1.9%. This decrease was
primarily attributable lower credit card fees on lower average
retail price of motor fuel, improved cash and inventory
management costs, partially offset by store labor increases
based on additional in-store sales and a mid-2009 minimum wage
increase that impacted labor cost during the second half of 2009
and the recognition of $0.7 million expense associated with
a fire at one of our retail locations. Allocated costs and
expenses for administrative and shared services provided by Alon
Energy totaled $2.8 million for the year ended
December 31, 2009 compared to $3.4 million for the
year ended December 31, 2008, a decrease of
$0.6 million or 17.6%. This decrease was primarily due to
an acquisition of an additional refinery by Alon Energy in 2008
that decreased the retail and wholesale marketing segments
portion of the allocation base.
Retail Segment. Operating and selling
expenses, excluding depreciation, amortization and accretion for
our retail segment in 2009 were $89.6 million, compared to
$92.0 million in 2008, a decrease of $2.4 million or
2.6%. Increased personnel costs, taxes, and benefits of
$2.3 million, primarily as a result of increased
merchandise sales and a mid-year minimum wage increase, were
partially offset by lower store utilities costs, lower credit
card fees based on much lower retail motor fuel gasoline pricing
during 2009, improved cash and inventory management resulting in
less shortages and lower maintenance cost. A portion of these
cost
50
reductions were offset by the recognition of $0.7 million
loss associated with a fire at one of our retail locations.
Wholesale Marketing Segment. Operating and
selling expenses, excluding depreciation, amortization and
accretion for our wholesale marketing segment in 2009 were
$5.5 million, compared to $5.0 million in 2008, an
increase of $0.5 million or 10.0%. This increase was
primarily attributable to increased personnel costs and
additional lease and utilities.
Depreciation,
Amortization and Accretion
Depreciation, amortization and accretion in 2009 was
$13.6 million, compared to $13.7 million in 2008, a
decrease of $0.1 million or 0.7%. This decrease was
primarily attributable to minimal capital expenditures recorded
in 2009 not offsetting current depreciation cost.
Operating
Income (Loss)
Combined. Operating income was
$7.0 million in 2009, compared to operating loss of
$1.5 million in 2008, an increase of $8.5 million.
This increase was primarily attributable to much improved
wholesale motor fuel margins, improved retail motor fuel
volumes, offset somewhat by lower average retail motor fuel
margins, and improved merchandise margins on higher merchandise
sales.
Retail Segment. Operating loss for our retail
segment was $2.2 million in 2009, compared to operating
loss of $4.4 million in 2008, an improvement of
$2.2 million. This improvement was primarily due to
reductions to operating and selling expenses that were partially
offset by lower retail gross profit. Merchandise gross profit
improved while retail motor fuel gross profit decreased on
significantly lower retail motor fuel margins. These lower
retail motor fuel margins were offset by 23.7 million
additional motor fuel gallons sold in 2009 compared to 2008.
Wholesale Marketing Segment. Operating income
for our wholesale marketing segment was $9.4 million in
2009, compared to operating income of $3.1 million in 2008,
an increase of $6.3 million or 203.2%. This increase was
primarily attributable to much improved wholesale motor fuel
margins, partially offset by 65.0 million fewer gallons
sold in 2009 compared to 2008. Of the decreased wholesale motor
fuel gallons, 92.3 million gallons are attributable to a
decrease in motor fuel products sold to third-party
distributors, partially offset by an increase in motor fuel
gallons sold to our owned stores. The decrease in sales to
third-party distributors resulted from a net decline of 72
retail outlets in our third-party distributor network, which was
the result of allowing fuel supply agreements to expire in
accordance with their terms in non-integrated markets.
Interest
Expense, Net
Interest expense was $3.9 million in 2009, compared to
$5.1 million in 2008, a decrease of $1.2 million or
23.5%. This decrease was primarily attributable to a lower
interest rate under our First Amended Wells Fargo Credit
Facility and decreasing amounts outstanding under our credit
facilities.
Income
Tax Expense (Benefit)
Income tax expense was $1.3 million in 2009, compared to
income tax benefit of $1.6 million in 2008, an increase of
$2.9 million. This increase resulted from our net loss in
2008, compared to net income in 2009. Our effective tax rate was
34.4% for 2009, compared to an effective tax benefit rate of
24.4% for 2008. This increase was primarily attributable to
higher taxable income and increased state taxes in Texas.
Net
Income (Loss)
As a result of the foregoing, net income was $2.4 million
in 2009, compared to net loss of $4.8 million in 2008, an
increase of $7.2 million.
51
Liquidity
and Capital Resources
Our primary sources of liquidity have historically included cash
on hand, cash generated from operating activities, credit
facilities, parent company investments and trade credit for fuel
purchases provided by our parent company. After giving effect to
the corporate reorganization transactions and this offering, our
future sources of liquidity will primarily consist of cash on
hand, cash generated from operating activities, our open trade
credit for fuel purchases provided by our parent company and the
revolving component of the Second Amended and Restated Wells
Fargo Credit Facility, which we believe will be sufficient to
satisfy our anticipated cash requirements associated with
operating our business during the next 12 months. Following
the offering, we do not expect any further investments from our
parent company.
We have entered into a fuel sales and licensing agreement with
our parent company. Under this agreement our parent provides us
with motor fuels on net
10-day
payment terms. Our average time to turn our retail motor fuel
inventory is approximately five days, resulting in approximately
five days of float on the amounts collected from retail
customers. Sales made through our wholesale marketing segment to
distributors are made on net
10-day
payment terms and, therefore, are not a source of significant
liquidity. Our parent has not placed a limit on the amount of
trade credit that we may utilize under this agreement.
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. Accordingly, we may require
additional capital to meet our longer term liquidity and future
growth requirements. Although we believe that we have adequate
sources of near-term liquidity, future weakening of economic
conditions could adversely affect our business, results of
operations and cash flow. In addition, instability in the
capital markets could adversely affect our ability to obtain
additional capital from external sources to grow our business
and would affect the cost and terms of such capital, if
available at all.
Depending upon conditions in the capital markets and other
factors, we may consider the issuance of debt or equity
securities, or other possible capital markets transactions, the
proceeds of which could be used to refinance current
indebtedness or for other corporate purposes. Pursuant to our
growth strategy, we will also consider acquisitions of, and
investments in, assets or businesses that complement our
existing assets and businesses. Such transactions, if any, are
expected to be financed through cash on hand and from
operations, bank borrowings, the issuance of debt or equity
securities or a combination of two or more of those sources.
Substantially all of the assets owned by our retail subsidiaries
are pledged under the Second Amended and Restated Wells Fargo
Credit Facility. Additionally, we have pledged the receivables
generated by our wholesale marketing segments fuel sales
to secure obligations of Alon USA, LP under the Parent IDB
Revolving Credit Agreement. As a result, substantially all of
our assets are unavailable for us to use to secure our own
working capital credit or similar facility. See
Summary of Indebtedness Parent
Credit Facility Guarantee.
Cash
Flows
The following table sets forth our combined cash flows for the
years ended December 31, 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
35,596
|
|
|
$
|
17,354
|
|
|
$
|
31,779
|
|
Investing activities
|
|
|
(3,519
|
)
|
|
|
(5,199
|
)
|
|
|
(5,434
|
)
|
Financing activities
|
|
|
(39,890
|
)
|
|
|
(12,741
|
)
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(7,813
|
)
|
|
$
|
(586
|
)
|
|
$
|
26,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Cash Flows Provided By Operating
Activities. Net cash provided by operating
activities for the year ended December 31, 2010 totaled
$31.8 million, compared to $17.4 million for the year
ended December 31, 2009. Net cash provided by operating
activities for the year ended December 31, 2010 includes
net income of $10.6 million, $16.0 million provided by
adjustments for non-cash charges to depreciation, amortization
and accretion and deferred income taxes, $7.7 million net
working capital generated from operating activities,
$1.1 million consumed in additional other non-current
assets and $1.4 million used in the reduction of other
non-current liabilities.
Net cash provided by operating activities for the year ended
December 31, 2009 was $17.4 million compared to
$35.6 million for the year ended December 31, 2008.
Operating cash flows in 2009 were provided from net income of
$2.4 million, $19.4 million provided by non-cash
adjustments for depreciation, amortization and accretion, loss
from fire and deferred income taxes, $1.6 million consumed
by net changes in working capital components, $1.6 million
used in the additions of other non-current assets and
$1.2 million consumed in the reduction of other non-current
liabilities for the year.
Cash Flows Used In Investing Activities. Net
cash used in investing activities was $5.4 million for the
year ended December 31, 2010 compared to $5.2 million
in the year ended December 31, 2009. The investing
activities during the year ended December 31, 2010 and year
ended December 31, 2009 were primarily associated with
additions to store property and equipment and expenditures for
brand image enhancement.
For the year ending December 31, 2008, net cash used in
investing activities was $3.5 million, primarily associated
with additions to property and equipment.
Cash Flows Used In Financing Activities. Net
cash used in financing activities totaled $0.2 million for
the year ended December 31, 2010 compared to
$12.7 million net cash used in financing activities during
the year ended December 31, 2009. On December 30,
2010, $20.0 million cash was provided by advances on the
Second Amended and Restated Wells Fargo Credit Facility.
Commitment fees and other issuance cost under the Second Amended
and Restated Credit Facility totaled $0.2 million. During
the year ended December 31, 2010, net payments to parent
and decreases from the change in net assets contributed from
Alon Energy totaled $13.7 million and $6.2 million of
cash was used to repay long-term debt and capital lease
obligations. During the year ended December 31, 2009, net
cash payments to parent and net changes in assets contributed
from Alon Energy totaled $6.3 million, and
$6.4 million of cash was used to pay long-term debt and
capital lease obligations.
Net cash used in financing activities was $39.9 million for
the year ended December 31, 2008. Uses of financing funds
included $6.4 million for repayment of long-term debt and
capital lease obligations and net changes in assets contributed
from Alon Energy and payments to parent of $33.5 million.
53
Summary
of Indebtedness
The following table sets forth summary information related to
our Second Amended and Restated Wells Fargo Credit Facility and
other material indebtedness as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
Amount
|
|
|
Total
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Facility
|
|
|
Availability
|
|
|
|
(Dollars in thousands)
|
|
|
Note payable, including current portion:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Wells Fargo Credit Facility,
refinancing term loan
|
|
$
|
73,361
|
|
|
$
|
73,361
|
|
|
$
|
|
|
Second Amended and Restated Wells Fargo Credit Facility,
additional term loan
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
Second Amended and Restated Wells Fargo Credit Facility,
revolving credit loan
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
Other mortgage indebtedness
|
|
|
634
|
|
|
|
634
|
|
|
|
|
|
Capital lease
|
|
|
63
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,058
|
|
|
$
|
94,058
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo Credit Facility. On
December 30, 2010, Southwest Convenience Stores, LLC
(SCS), our subsidiary, entered into a credit
agreement (the Second Amended and Restated Wells Fargo
Credit Facility) that, as amended, matures on
December 30, 2015. This amendment increased the amount
outstanding under the original facility from $73.4 million
(the Refinancing Term Loan) by $10.0 million
(the Additional Term Loan) and also included a
revolving credit loan (the Revolving Credit Loan)
with a maximum loan amount of the lesser of the borrowing base
or $10.0 million.
Borrowings under the Refinancing Term Loan bear interest at a
Eurodollar rate (0.307% at December 31, 2010) plus 2.00%
per annum with principal payments made in quarterly installments
based on a
15-year
amortization schedule.
Borrowings under the Additional Term Loan bear interest at a
Eurodollar rate plus 2.75% per annum with principal payments
made in quarterly installments based on a
5-year
amortization schedule.
Borrowings under the Revolving Credit Loan bear interest at a
Eurodollar rate plus 2.75% per annum.
The obligations under the Second Amended and Restated Wells
Fargo Credit Facility are secured by a pledge of substantially
all of the assets of SCS and Skinnys, LLC and each of
their subsidiaries, including cash, accounts receivable and
inventory.
The Second Amended and Restated Wells Fargo Credit Facility
contains certain restrictive covenants including financial
maintenance covenants.
At December 31, 2010 and 2009, the term loans under the
Second Amended and Restated Wells Fargo Credit Facility and the
original facility had an outstanding balance under the term
loans of $83.4 million and $79.7 million,
respectively. At December 31, 2010, the Revolving Credit
Loan had an outstanding balance of $10.0 million.
Other Indebtedness. In 2003, we obtained
$1.5 million in mortgage loans to finance the acquisition
of new retail locations. The interest rates on these loans
ranged between 5.5% and 9.7%, with 5- to
15-year
payment terms. In September 2007, SCS entered into a lease for
$0.2 million in connection with the purchase of retail
store equipment. This capital lease is amortized over
60 months with title transferring for one dollar upon
termination. The outstanding balance of the mortgage loans and
capital lease totaled $0.7 million at December 31,
2010.
54
Parent
Credit Facility Guarantee
Our parent is the borrower under the Parent IDB Revolving Credit
Agreement, providing for revolving credit borrowings and letters
of credit available to our parent up to the lesser of the credit
limit of $240 million or the amount of the borrowing base
calculated under the agreement. Alon Brands and Alon Marketing,
our subsidiary, have provided an unsecured unconditional
guarantee of all of our parents obligations under the
Parent IDB Revolving Credit Agreement. Additionally, the
accounts receivable generated by our wholesale marketing segment
are pledged as collateral under the Parent IDB Revolving Credit
Agreement.
As of December 31, 2010 and December 31, 2009, there
was $122.0 million and $88.0 million, respectively, of
borrowings outstanding under the Parent IDB Revolving Credit
Agreement, and there were $117.0 million and
$129.0 million, respectively, of letters of credit
outstanding.
Alon Brands has not recorded any liability on its historical
financial statements related to its guarantee of the Parent IDB
Revolving Credit Agreement or the pledge of receivables
thereunder.
Capital
Spending
Our capital expenditures spent, primarily on the image
conversion of additional wholesale locations and sustaining
retail capital projects for 2010 totaled $6.0 million.
Capital expenditures in 2009 and 2010 have been funded by cash
on hand and cash generated from operations. In the event that we
are required to install new signage in 2012 as a result of the
expiration of the FINA license, we estimate that it would
require $5.0 $7.0 million in capital
expenditures.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual
Obligations and Commitments
Information regarding our known contractual obligations of the
types described below as of December 31, 2010 is set forth
in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
|
Contractual Obligations(1)(2)
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Note payable obligations
|
|
$
|
6,975
|
|
|
$
|
13,960
|
|
|
$
|
72,792
|
|
|
$
|
268
|
|
|
$
|
93,995
|
|
Interest obligation(3)
|
|
|
2,531
|
|
|
|
4,716
|
|
|
|
3,884
|
|
|
|
169
|
|
|
|
11,300
|
|
Capital lease obligation
|
|
|
37
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Fuel supply agreement(4)
|
|
|
595
|
|
|
|
1,190
|
|
|
|
1,190
|
|
|
|
8,925
|
|
|
|
11,900
|
|
Operating lease obligation
|
|
|
6,622
|
|
|
|
12,015
|
|
|
|
8,660
|
|
|
|
34,678
|
|
|
|
61,975
|
|
Pension benefit obligation(5)
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
16,760
|
|
|
$
|
32,323
|
|
|
$
|
86,526
|
|
|
$
|
44,040
|
|
|
$
|
179,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes royalty fees relating to our license agreement with
7-Eleven. Although we currently plan to continue using the
7-Eleven trademark until circumstances require a change, royalty
payments would cease immediately upon termination of the
agreement. Using our 2010 royalty payment of $3.3 million
to 7-Eleven
as an estimate, royalty fees over the next five years would
total $16.5 million. The actual royalty fees paid to
7-Eleven in the future will vary based on the gross merchandise
sales of our 7-Eleven stores and the continuation of the license
agreement. |
|
|
|
(2) |
|
Excludes costs and expenses related to the services provided to
us by Alon Energy pursuant to our corporate services agreement
due to our ability to terminate the services at any time. Using
the costs and expenses of $2.5 million related to these
services provided by Alon Energy in 2010 as an estimate, the
costs and expenses over the next five years would total
$12.5 million. |
55
|
|
|
(3) |
|
Represents an estimate of the interest payable under our Second
Amended and Restated Wells Fargo Credit Facility. This interest
obligation is based on an estimate of variable interest rates
based on forecasted three-month LIBOR rates plus 2.0% to 2.75%. |
|
|
|
(4) |
|
Represents an estimate of motor fuel purchased under our fuel
sales and licensing agreement based on annual minimum purchases
of 248 million gallons at five-year historical average cost
per gallon. |
|
|
|
(5) |
|
Represents an estimate of future expected funding requirements
related to our unfunded defined benefit pension plan for an
executive of the retail segment. See Note 13 to our audited
financial statements included elsewhere in this prospectus. |
Quantitative
and Qualitative Disclosures About Market Risk
Changes in motor fuel prices and interest rates are our primary
sources of market risk. Our board of directors oversees all
activities associated with the identification, assessment and
management of our market risk exposure.
Motor
Fuel Price Risk
We are exposed to market risks related to the volatility of
motor fuel prices in our retail segment. Our financial results
can be affected significantly by fluctuations in these prices,
which depend on many factors, including demand for crude oil,
gasoline, diesel and other refined products, changes in the
economy, worldwide production levels, worldwide inventory levels
and governmental regulatory initiatives.
Our retail segment maintains inventories of motor fuels, 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, 2010, we held approximately 1.9 million
gallons of motor fuel at our retail convenience stores. The
inventory cost of our motor fuel inventories is determined under
the
first-in,
first-out (FIFO) method.
Interest
Rate Risks
As of December 31, 2010 outstanding borrowings under the
Second Amended and Restated Wells Fargo Credit Facility
Refinancing Term Loan bear interest at the Eurodollar rate
(LIBOR) plus 2.0% per annum. Outstanding borrowings
under the Second Amendment and Restated Wells Fargo Credit
Facilitys Additional Term Loan and Revolving Credit Loan
bear interest at Eurodollar (LIBOR) plus 2.75%. An
increase of 1% in LIBOR would result in an increase in our
interest expense of approximately $0.9 million per year.
Critical
Accounting Policies
We prepare our combined financial statements in conformity with
US GAAP. In order to apply these principles, we must make
judgments, assumptions and estimates based on the best available
information at the time that affect the reported amount of
revenues and expenses during the reporting period and the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the
financial statements. 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
adversely affect the amounts recorded in our combined financial
statements.
Critical accounting policies are those we believe are both most
important to the portrayal of our financial condition and
results of operations, and require our most difficult,
subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are
inherently uncertain. Judgments and uncertainties affecting the
application of those policies may result in materially different
amounts being reported under different conditions or using
different assumptions. Our accounting policies are described in
the notes to our audited combined financial statements included
elsewhere in this prospectus. We believe the following policies
to be the most critical in understanding the judgments involved
in preparing our combined financial statements.
56
Inventory. Our inventories are stated at the
lower of cost or market. Materials and supplies are stated at
average cost. Cost for our motor fuels inventory is determined
under the FIFO method. Our convenience store merchandise
inventory is determined under the retail inventory method.
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 and applicable laws and
regulations.
Goodwill and Intangible Assets. Goodwill
represents the excess of the cost of an acquired entity over the
fair value of the assets acquired less liabilities assumed.
Intangible assets are assets that lack physical substance
(excluding financial assets). Intangible assets with finite
useful lives are amortized on a straight-line basis over one to
40 years. Goodwill acquired in a business combination and
intangible assets with indefinite useful lives are not
amortized. Goodwill and intangible assets not subject to
amortization are tested for impairment annually or more
frequently if events or changes in circumstances indicate the
asset might be impaired. We use December 31 of each year as our
valuation date for annual impairment testing purposes.
Impairment 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 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.
Recent
Accounting Pronouncements
In March 2008, the FASB issued new disclosure requirements for
derivative instruments and hedging activities. These new
disclosure requirements are intended to improve financial
reporting by requiring transparency about the location and
amounts of derivative instruments in an entitys financial
statements, how derivative instruments and related hedged items
are accounted for, and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance and cash flows. These new disclosure
requirements are effective for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008 and had no impact on our combined balance
sheets, statements of operations, statement of members
interest and equity or statements of cash flows but require
disclosure in the notes to the combined financial statements.
In April 2008, the FASB issued guidance that amends the factors
that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. This guidance is effective for fiscal years
beginning after December 15, 2008. Early adoption is
prohibited. The adoption of this guidance did not have a
material effect on our financial position, results of
operations, or cash flows.
In December 2008, the FASB issued a new accounting pronouncement
that requires additional disclosures about transfers of
financial assets and involvement with variable interest
entities. The requirements apply to transferors, sponsors,
servicers, primary beneficiaries, and holders of significant
variable interests in a variable interest entity or qualifying
special purpose entity. It is effective for financial statements
issued for interim or
57
annual periods ending after December 15, 2008. We adopted
the pronouncement on January 1, 2009. Because it affects
disclosures only, it had no impact on our financial position,
results of operations, or cash flows.
In April 2009, the FASB issued a new accounting pronouncement
that requires, on an interim basis, disclosures about the fair
value of financial instruments for public entities. It is
effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. We adopted this pronouncement
on June 30, 2009. The adoption of this pronouncement did
not have a material effect on our financial position, results of
operations, or cash flows.
In June 2009, the FASB issued a new accounting standard for
variable interest entities, which improves financial reporting
by enterprises involved with variable interest entities and
addresses (1) the effects on certain provisions of previous
accounting standards, as a result of the elimination of the
qualifying special-purpose entity concept and
(2) constituent concerns about the application of certain
key provisions of previous accounting standards, including those
in which the accounting and disclosures do not always provide
timely and useful information about an enterprises
involvement in a variable interest entity. This standard is
effective as of the beginning of the first annual reporting
period beginning after November 15, 2009 and for interim
periods within that annual reporting period. Early adoption is
prohibited. The adoption of this standard did not have a
material effect on our combined financial statements.
58
BUSINESS
Our
Company
We are the largest 7-Eleven licensee in the United States and we
are a leading marketer and supplier of motor fuels in the South
Central and Southwestern United States. Our business consists of
two operating segments: retail and wholesale marketing. As of
December 31, 2010, our retail segment operated 304
convenience stores in Central and West Texas and New Mexico,
substantially all of which are operated under the 7-Eleven and
FINA brands. Through our 7-Eleven licensing agreement, we have
the exclusive right to operate 7-Eleven convenience stores in
substantially all of our existing retail markets and many
surrounding areas. Our wholesale marketing segment markets and
supplies branded motor fuels and provides brand support and
payment services to distributors supplying approximately
633 locations, including all 292 company-owned stores
that sell motor fuel. In markets where we choose not to supply
fuel products we also
sub-license
the FINA brand and provide the same brand support and payment
services to distributors supplying approximately
261 additional locations in these regions. We believe our
leading brand offerings, advantageous fuel supply agreement,
leading market position and complementary business model provide
us with competitive advantages and position us well for
continued growth.
Historically, our business was accounted for as an operating
segment of Alon Energy, an independent refining company listed
on the New York Stock Exchange, or NYSE, under the symbol
ALJ. Alon Energy owns and operates four crude oil
refineries located in Texas, California, Louisiana and Oregon.
After completion of this offering, Alon USA, LP, a subsidiary of
Alon Energy, will continue to own
approximately % of our common stock
( % if the underwriters
over-allotment is exercised in full). Alon Energy is
majority-owned by Alon Israel Oil Company, Ltd., or Alon Israel,
an Israeli limited liability company and one of the largest
operators of retail gasoline and convenience stores in Israel.
Our ongoing relationships with Alon Energy and Alon Israel
provide us with secure fuel supply and retail operating
expertise, which we believe provide us with a competitive
advantage.
Our
History
In November 2008 Alon Brands, Inc., a Delaware corporation, was
formed as a result of the conversion of Alon USA Interests, LLC,
which was formed as a Texas limited liability company in
September 2002. See Corporate Reorganization
Transactions. Prior to this offering, we have operated our
businesses as a segment of Alon Energy. In June 2007 we acquired
Skinnys, a privately held company that owned and operated
102 convenience stores in Central and West Texas, and in July
2006 we acquired 40 retail convenience stores from Good Time
Stores, Inc. in El Paso, Texas. Prior to the corporate
reorganization transactions to be completed immediately prior to
this offering, we have not operated independently of Alon Energy.
Our
Industry
Convenience Stores. Our retail segment
operates within the large and growing U.S. convenience
store industry. According to NACS, sales in the industry have
grown from $234.0 billion in 1999 to $511.1 billion in
2009, which represents a CAGR of 13.1%. This industry is highly
fragmented, with the 10 largest convenience store operators
controlling approximately 9.1% of the total convenience stores
in 2009. Furthermore, convenience store operators with 50 or
fewer stores accounted for approximately 75% of all convenience
stores in 2009.
We believe we will continue to benefit from several key industry
trends and characteristics, including:
|
|
|
|
|
Continuing shift of consumer food and general merchandise
purchases away from traditional supermarkets to convenience
stores and other alternative formats;
|
|
|
|
Increasing size and complexity of the big box retail format,
driving consumers to small box retailers, such as convenience
stores, to meet their demand for speed and convenience in daily
shopping needs;
|
|
|
|
Changing consumer demographics and eating patterns resulting in
more food consumed away from home;
|
59
|
|
|
|
|
Increasing significance of the advantages of scale given the
highly fragmented nature of the industry; and
|
|
|
|
Continuing opportunities to grow through acquisitions given
industry fragmentation and continued divestitures of retail
convenience stores by major oil companies.
|
Motor Fuel Marketing and Supply. In recent
years, the market for wholesale distribution of motor fuel
products has experienced a number of changes which we believe
provide opportunities to grow our wholesale marketing segment,
including:
|
|
|
|
|
Consolidation among major petroleum product producers which has
resulted in fewer recognizable brands available to distributors
and convenience store operators;
|
|
|
|
|
|
A 46% reduction in the number of operating crude oil refineries
over the last 28 years as well as a number of recent
temporary facility closures, which has resulted in less access
to product and increased the importance of obtaining a secure
fuel supply source; and
|
|
|
|
Increased scrutiny by oil companies and refiners in selecting
distributors, with a preference for larger distributors capable
of handling higher volumes, limiting smaller distributors
access to product.
|
Our
Competitive Strengths
We believe the following competitive strengths differentiate us
from our competitors:
Leading 7-Eleven Convenience Store
Brand. 7-Eleven is the worlds largest
convenience store retailer and operates, franchises or licenses
approximately 8,200 7-Eleven stores in North America and more
than 39,000 7-Eleven stores around the world. We are the largest
7-Eleven licensee in the United States and have a perpetual and
exclusive license to use the 7-Eleven brand in substantially all
of our retail markets and many surrounding areas. Our licensing
arrangement allows, but does not require, us to offer well-known
proprietary products, including
Slurpee®
frozen carbonated beverages, Big
Gulp®
beverages and Big
Bite®
hot dogs. These products are significant contributors to our
merchandise margin which exceeds the industry average.
Additionally, we benefit from access to 7-Elevens
successful and innovative new product development, marketing
techniques, national advertising campaigns and proprietary
retail information.
Leading Market Position in Attractive
Markets. We believe we are the largest
convenience store operator by number of stores in the cities of
Abilene, Big Spring, El Paso, Lubbock, Midland, Odessa and
Wichita Falls, Texas. We also have a significant presence in
Albuquerque, New Mexico. A majority of our stores are located in
counties where the population and employment growth rates
exceeded the national average over the last five years based on
U.S. Census Bureau and Bureau of Labor Statistics
information. We believe we will continue to benefit from the
regional economys focus on energy and agriculture and the
stability provided by military bases in the region.
Attractive Wholesale Marketing Segment. Our
wholesale marketing segment supplies our retail convenience
stores as well as branded distributors with motor fuel and
provides brand support services such as payment card processing,
branding and construction incentives, customer loyalty programs,
innovative mobile marketing initiatives, a proprietary private
label credit card offering, signage and traditional marketing
incentives. Given the relatively low operating costs and capital
requirements of our wholesale marketing segment, we believe this
segment will continue to generate free cash flow in the future,
which can be utilized to fund our growth strategy.
Advantageous Long-Term Fuel Supply
Agreement. We have entered into a long-term
supply agreement with our parent to secure substantially all of
our motor fuel requirements following the consummation of this
offering. This new agreement will provide cost-advantaged
pricing and a secure fuel supply. This agreement will also
provide a platform for growth in existing and new markets, such
as Louisiana and Southern California, where Alon Energy owns and
operates refineries.
60
Complementary Business Model. We believe our
wholesale marketing operations and related brand
sub-licensing
provide us with a diverse source of revenues to complement our
retail operations. In addition to increasing our overall scale
and providing us with additional sales and income opportunities
over other convenience store operators, our wholesale operations
minimize certain risks facing convenience store-only operators,
such as higher payment card expenses and volatility in retail
motor fuel margins. For example, our wholesale marketing
segments payment card processing services revenues
partially offset our retail segments payment card
expenses. Furthermore, we believe our complementary operations
enhance our flexibility to grow in existing and new markets and
enhance the overall stability of our business.
Experienced Management with Significant Operating
Expertise. Our senior management team averages
more than 20 years of relevant experience in the retail and
fuel marketing industries. We believe our management teams
experience and accomplishments position us well for continued
growth. We also benefit from the management and transactional
expertise provided through our relationships with Alon Energy
and Alon Israel, which has grown since its formation in 1989 to
become one of the largest operators of retail gasoline and
convenience stores in Israel.
Our
Growth Strategy
We believe there are significant opportunities to continue to
expand our businesses and increase our sales and profitability
through implementation of the following strategies:
Optimize Our Retail Operations. Following our
separation from Alon Energy and this offering, we believe we
will have access to sufficient capital to invest in and optimize
our retail operations. We have already improved our fuel
offering through installation of modern fuel dispensers at a
majority of our locations. Additionally, at a number of
locations we have installed digital pricing signs and
implemented fuel pricing optimization strategies. We have found
these improvements have resulted in increases in same-store fuel
sales as well as merchandise sales. Our plan is to continue to
improve our fuel offering and to take advantage of the expected
increase in inside traffic with a more inviting store
presentation, new products and services, more effective
positioning of high-margin, high-volume product categories and
improved utilization of our
point-of-sale
systems.
Increase Sales of Higher Margin Foodservice
Products. We believe there is a significant
opportunity to increase our sales of higher margin foodservice
products, especially hot-dispensed, frozen and fountain
beverages. Our 7-Eleven license agreement gives us access to
7-Elevens entire program of proprietary foodservice
products and also allows us to offer third-party foodservice
products. After completion of this offering, we intend to take
advantage of both options and to accelerate implementation of a
network-wide foodservice expansion program. This expansion will
focus initially on beverage categories with additions to
equipment and foodservice area remodels.
Enhance Our Wholesale Marketing Operations. We
have implemented and continue to implement changes to our
wholesale marketing programs to increase the ratability, or
consistency, of our distributors purchases of motor fuel
products, which further enhances our profitability. We plan to
continue to grow our distributor network in our current markets
through our offering of branded motor fuel, reliable fuel
supply, brand support, innovative direct marketing campaigns and
payment card processing services. In addition, we intend to
expand our branded fuel supply offering into new markets,
including markets in which Alon Energy now operates, or in the
future may acquire, refineries.
Grow Our Retail Store Base. Over the last five
years, we have increased our retail store count from 167 to 304
by completing and integrating two significant acquisitions of
distributors serviced by our wholesale marketing segment. We
have improved the profitability of these acquired stores through
rebranding them to the 7-Eleven brand, realizing the benefits of
increased scale and improved offerings based on local consumer
tastes. We believe our acquisition experience, our scalable
infrastructure and the immediate opportunity for sales growth
resulting from rebranding to the 7-Eleven brand form a strong
platform for future growth. Acquisitions of additional stores
provide us the opportunity to increase our overall profitability
and also allow us to generate incremental revenues from fuel
supplied by our
61
wholesale marketing segment. We expect to continue to grow our
retail store base after completion of this offering, primarily
through acquisitions of stores that will complement our existing
operations. Such acquisitions would allow us the opportunity to
realize the benefits of increased scale, improved store
profitability from rebranding to
7-Eleven and
the generation of incremental wholesale fuel sales volume.
Risks
Related to our Business and Strategy
Despite the competitive strengths and our growth strategy
described above, our business remains subject to numerous risks,
uncertainties and challenges that may affect our financial and
operating performance and our ability to execute on these
strategies or realize the benefits of our competitive strengths.
Some of the principal competitive challenges and risks that we
face include, but are not limited to:
|
|
|
|
|
the volatility of motor fuel prices, where significant changes
in prices can materially and adversely affect our profitability
in both our wholesale marketing and retail segments;
|
|
|
|
our dependence on our parent company to supply substantially all
of our motor fuel requirements under a fuel supply agreement,
which contains minimum and maximum volume purchase terms and a
change of control provision, each of which could limit or
terminate altogether our ability to receive the favorable
pricing terms and certainty of supply provided by that agreement;
|
|
|
|
|
|
the importance of our 7-Eleven license agreement for branding
and marketing initiatives, the loss of which could materially
adversely affect our business;
|
|
|
|
|
|
the highly competitive markets in which we compete for motor
fuel distribution and retail merchandising;
|
|
|
|
|
|
changes in consumer spending behavior or travel trends in our
markets, as well as declines in general or local economic
conditions, any of which could result in a decrease in our motor
fuel and retail merchandise sales; and
|
|
|
|
|
|
the costs of compliance with federal, state and local
regulations, including environmental, economic, safety and other
laws, policies and regulation that could increase our operating
costs or result in declining sales.
|
These risks and others are described in more detail under the
caption Risk Factors included elsewhere in this
prospectus and could materially adversely affect our business,
prospects, financial condition, cash flows and results of
operations.
Retail
As of December 31, 2010, we operated 304 retail convenience
stores located in Central and West Texas and New Mexico. Our
convenience stores, substantially all of which operate under the
7-Eleven and FINA brands, typically offer motor fuel, food
products, tobacco products, non-alcoholic and alcoholic
beverages and general merchandise to our customers. We believe
we are the largest independent operator of retail convenience
stores in each of the cities of Abilene, Big Spring,
El Paso, Lubbock, Midland, Odessa and Wichita Falls, Texas.
We also have a significant presence in Waco, Texas and
Albuquerque, New Mexico. Our markets are characterized by high
population and employment growth, particularly in West and
Central Texas, and many of our geographic regions have remained
economically robust given the regional economies focus on
energy and agriculture and the presence of military bases.
Substantially all of our motor fuel sold at our retail
convenience stores is supplied by our wholesale marketing
segment. We are the largest independent licensee of the 7-Eleven
brand in the United States, and we have an exclusive license to
use the well-known FINA brand in Texas, Oklahoma, New Mexico,
Arizona, Arkansas, Louisiana, Colorado and Utah. In addition, we
operate 23 stores near Waco, Texas that are outside of our
7-Eleven license area and are operated under the Skinnys
brand.
62
For the year ended December 31, 2010, our retail segment
generated revenues of $665.8 million and gross profit of
$108.0 million. The following table sets forth revenues and
gross profits from our retail segment for those periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
Revenues
|
|
|
Gross Profit
|
|
|
|
(Dollars in thousands)
|
|
|
Motor fuel
|
|
$
|
384,148
|
|
|
|
57.7
|
%
|
|
$
|
18,377
|
|
|
|
17.0
|
%
|
Merchandise
|
|
|
274,264
|
|
|
|
41.2
|
|
|
|
82,248
|
|
|
|
76.1
|
|
Other, net
|
|
|
7,409
|
|
|
|
1.1
|
|
|
|
7,409
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
665,821
|
|
|
|
100.0
|
%
|
|
$
|
108,034
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
Locations
As of December 31, 2010, 281 of our 304 retail convenience
stores were located in Central and West Texas and 23 were
located in or near Albuquerque, New Mexico. 281 of our stores
are operated under the 7-Eleven and FINA brands, while the
remaining stores operate under the Skinnys and FINA
brands. Our stores are generally open 24 hours,
365 days a year, and substantially all of our stores sell
motor fuel. Our typical store sizes range from 2,000 to
2,500 square feet.
Merchandise
and Foodservice Sales
Our retail convenience stores typically offer a variety of food
products, tobacco products, carbonated and non-carbonated and
non-alcoholic and alcoholic beverages, snacks, groceries and
non-food merchandise. Our stores generally stock merchandise
that is tailored to local market preferences. Our 7-Eleven
branded stores carry products such as
Slurpee®
frozen carbonated beverages, Big
Gulp®
beverages and Big
Bite®
hot dogs, which are unique to the 7-Eleven brand. In addition,
we operate ATM and money order programs in each of our stores
and also provide other products and services such as lottery,
prepaid telephone cards and gift cards.
Our position as a 7-Eleven licensee allows Alon Brands full
access to 7-Elevens foodservice programs and consulting
and we are utilizing this benefit in the evaluation of
7-Elevens proprietary foodservice offerings. 7-Eleven has
prepared
on-site and
commissary distributed food programs that could be introduced in
many of our markets. We are also exploring third-party
foodservice offerings that may have more appeal in some regional
markets. We intend to tailor our foodservice offerings to the
local demographics in selected markets that we serve.
The following table sets forth the percentage by category of our
retail merchandise revenues based on available category sales
data for substantially all of our retail stores at the end of
period:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010(1)
|
|
|
Beer, wine and liquor
|
|
|
27
|
%
|
Cigarettes and tobacco
|
|
|
31
|
%
|
Package beverages
|
|
|
15
|
|
Foodservice, including fountain
|
|
|
7
|
|
Other merchandise
|
|
|
20
|
%
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Category sales are based on data from our retail stores
point-of-sale
checkout or back office systems.
|
Retail
Management, Merchandise Distribution and Supply
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 stores size,
sales volume and hours of operation. Typically, a geographic
group of six to ten stores is managed by a supervisor who
reports to a
63
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 directly to our retail management
headquarters in Odessa, Texas. We also maintain a regional
retail operations office in Abilene, Texas.
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 merchandise products. We purchase our
products from McLane at cost plus an
agreed-upon
percentage
mark-up. For
the year ended December 31, 2010, approximately 48% of our
retail merchandise sales were purchased from McLane. Our current
supply contract with McLane expires in December 2011. We
typically do not have contracts with our DSD vendors.
Retail
Motor Fuel Sales
We offer FINA-branded motor fuel at 292 of our retail
convenience stores. We purchase substantially all of our motor
fuel requirements for resale at our convenience stores from our
wholesale marketing segment, a majority of which is supplied
from Alon Energys Big Spring, Texas refinery. Fuel is
purchased as needed to replenish supply at each retail store
location.
The following table sets forth certain information regarding our
retail motor fuel sales for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Motor fuel sales (in thousands)(1)
|
|
$
|
315,756
|
|
|
$
|
276,951
|
|
|
$
|
384,148
|
|
Motor fuel gallons sold (in thousands)(3)
|
|
|
96,974
|
|
|
|
120,697
|
|
|
|
142,155
|
|
Average gallons sold per store (in thousands)(3)
|
|
|
328
|
|
|
|
410
|
|
|
|
483
|
|
Average retail price per gallon(1)(3)
|
|
$
|
3.26
|
|
|
$
|
2.29
|
|
|
$
|
2.70
|
|
Retail gross profit (cents per gallon)(2)(3)
|
|
|
20.9¢
|
|
|
|
13.9¢
|
|
|
|
12.9¢
|
|
Stores selling motor fuel(3)
|
|
|
295
|
|
|
|
296
|
|
|
|
292
|
|
|
|
|
(1) |
|
Includes excise tax. |
|
(2) |
|
Before payment card expense. |
|
(3) |
|
Unaudited. |
7-Eleven
and FINA License Agreements
We are party to a license agreement with 7-Eleven, Inc., which
gives us a perpetual license to use the
7-Eleven
trademark, service name and trade name in West Texas and a
majority of the counties in New Mexico in connection with our
retail store operations. 7-Eleven has advised us that we are the
largest 7-Eleven licensee in the United States based on number
of stores.
The FINA brand is a well-recognized trade name in the South
Central and Southwestern United States. We
sub-license
the right to use the FINA name and related trademarks within
Texas, Oklahoma, New Mexico, Arizona, Arkansas, Louisiana,
Colorado and Utah from Alon Energy, which has an exclusive
license through 2012 to use the FINA name and related trademarks
in connection with the sale (including resale by distributors)
of motor fuels in these areas. Prior to the expiration of this
license, we intend to review our alternatives for branding our
motor fuel, including seeking to extend our FINA
sub-license,
licensing a new brand or developing our own motor fuel brand.
Technology
We utilize a
point-of-sale
checkout system that includes merchandise scanning, pump
control, peripheral device integration, shortage-control tools
and daily operations reporting. This system enhances our ability
to offer a greater variety of promotions with a high degree of
flexibility regarding definition (by store, group of stores,
region or other subset of stores) and duration. We also are able
to receive enhanced management
64
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. We plan to use
this system as a platform to support other marketing technology
products, including interactive video and bar-code coupons at
the pump.
Wholesale
Marketing
Our wholesale marketing segment purchases motor fuel, primarily
from Alon Energy, and resells the motor fuel through various
terminals to supply approximately 633 locations, including both
our retail locations and other FINA-branded independent
locations. For the year ended December 31, 2010, our
wholesale marketing segment sold 318.9 million gallons of
branded motor fuel for distribution to our retail convenience
stores and other retail distribution outlets. Our branded
wholesale motor fuel is sold under the FINA brand, and we have
an exclusive license through 2012 to use the trademark in the
wholesale distribution of motor fuel within Texas, Oklahoma, New
Mexico, Arizona, Arkansas, Louisiana, Colorado and Utah.
The following table summarizes fuel gallons distributed to our
company-owned stores and to third-party distributors for the
periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
Gallons
|
|
|
%
|
|
|
Gallons
|
|
|
%
|
|
|
Gallons
|
|
|
%
|
|
|
|
(Gallons in thousands)
|
|
|
|
(unaudited)
|
|
|
Company-owned retail stores
|
|
|
92,677
|
|
|
|
27.3
|
%
|
|
|
120,013
|
|
|
|
43.8
|
%
|
|
|
141,814
|
|
|
|
44.5
|
%
|
Third-party distributors
|
|
|
246,422
|
|
|
|
72.7
|
|
|
|
154,088
|
|
|
|
56.2
|
|
|
|
177,121
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
339,099
|
|
|
|
100.0
|
%
|
|
|
274,101
|
|
|
|
100.0
|
%
|
|
|
318,935
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table highlights certain information regarding our
wholesale marketing motor fuel sales to third-party distributors
(excludes sales to retail segment) for the periods indicated
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Motor fuel sales (in thousands)
|
|
$
|
663,126
|
|
|
$
|
263,679
|
|
|
$
|
382,276
|
|
Motor fuel gallons sold (in thousands)(1)
|
|
|
246,422
|
|
|
|
154,088
|
|
|
|
177,121
|
|
Average wholesale price per gallon(1)
|
|
$
|
2.69
|
|
|
$
|
1.71
|
|
|
$
|
2.16
|
|
Wholesale gross profit cents per gallon(1)
|
|
|
1.7¢
|
|
|
|
4.8¢
|
|
|
|
5.6¢
|
|
Distribution
Network and Distributor Arrangements
We purchase our motor fuel from Alon Energy and then resell the
fuel to our retail locations and to approximately 23 third-party
distributors, who then supply and resell to other retail
outlets. The supply agreements we maintain with our distributors
are generally for three-year terms and usually include
10-day
payment terms. All supplied distributors comply with wholesale
marketings ratability program, which involves incentives
and penalties based on the consistency of their purchases.
Supply
Arrangement
We have entered into a long-term fuel supply agreement with Alon
Energy. Under this agreement, pricing terms are based on a
formula incorporating Platts and OPIS-based closing
prices. The agreements minimum volume requirements will
allow us to acquire a portion of our motor fuels from other
suppliers in order to take advantage of below-market or distress
pricing, although such purchases will not count against the
minimum volume requirements.
65
FINA
Brand
Sub-Licensing
Our wholesale marketing segment also
sub-licenses
the FINA brand and provides payment card processing services,
advertising programs and loyalty and other marketing programs to
49 distributors supplying approximately 261 additional stores.
We offer
sub-licensing
to distributors supplying geographic areas where we choose not
to supply motor fuels. This
sub-licensing
program allows us to expand the geographic footprint of the FINA
brand, thereby increasing its recognition. Each
sub-licensee
pays royalties on a per gallon basis and is required to comply
with the minimum standards program and utilize our payment card
processing services.
Alon
Brands Image Excellence and Clean Team Program
Alon Brands maintains an image consistency program that is
designed to enhance the image and customer appeal of our
wholesale and retail network of stores. The program consists of
quarterly site inspections performed by a third-party
organization. Each quarter every location in our wholesale and
retail network is graded against a specific set of criteria and
receives a score based upon their compliance with these
criteria. Store level incentives are provided for the highest
scoring locations and both retail and wholesale programs are
refreshed annually to keep the program vibrant.
Payment
Card Processing
We believe that offering payment card processing services to our
distributors and
sub-licensees
provides a significant advantage to our branded marketing
business. We provide these services through a third-party
provider, which acts as a clearinghouse with MasterCard, VISA,
American Express, Discover and debit card issuers. Our
customers payment card transactions are communicated
directly to the third-party provider, which then transmits those
transactions to the appropriate card issuers.
Our fees payable to MasterCard, VISA, American Express, Discover
and debit card issuers are contracted through the third-party
provider. Although our fees may vary by card type, we charge our
customers, including our retail convenience stores, a
percentage-based fee plus a transaction fee for each card type
to simplify the fee structure. Our rates are designed to provide
a margin on the difference between the fees paid by our
distributors and fees charged by the various card associations.
The fees are not designed to be a major profit center, but
rather to cover overhead and ancillary expenses of maintaining
the payment card network system.
For MasterCard, VISA, American Express, Discover and debit
cards, the third-party provider provides us with daily
settlement of transactions. We generally provide our customers
with payment or credit for transactions within five days. We
also generally retain the settlement funds for such payment and
transactions that we process as a credit against any payments
due to us from our distributors or
sub-licensees.
As a result, offering these payment services also reduces our
credit risk.
Technology
Our wholesale segment relies on technology to enhance our
operations and provide meaningful data and tools for management
to evaluate and manage the profitability of our motor fuel
distribution business. We have a licensing arrangement with a
third-party provider for payment card processing and
clearinghouse services for payment card purchases at many of our
retail segments stores, as well as all of the third-party
retail locations supplied by our wholesale distributors or the
sub-licensed
FINA stores for which we provided branded services. Under our
arrangement with the third-party provider, proprietary software
is provided to each of these retail locations to provide secure
data transfer of payment card transactions directly to the
third-party provider for daily processing of each payment card
transaction at these retail locations. We also license JD
Edwards enterprise software tailored for our wholesale business
that collects and analyzes the data from each of these payment
card transactions that we process, providing our management with
valuable information on consumer purchasing tendencies and
trends. Additionally, we use a proprietary software program to
further break-down and analyze our wholesale segments
payment card transactions.
66
Our wholesale segment also licenses pricing optimization
software that assists management in modeling and making timely
pricing decisions in order to maximize our gross margin in motor
fuel sales. In addition, we utilize licensed software to manage
our customers motor fuel purchases and delivery
arrangements.
Competition
The retail convenience store industry is highly competitive
given its relative ease of entry and frequently changing
competitors and offerings. Our retail segment competes not only
with other retail convenience store chains and independent store
operators, but also with motor fuel stations, supermarkets,
discount stores, drugstores, club stores and other merchandise
and motor fuel retailers. Major retail competitors in our
markets include Valero Energy Corporation, Chevron Corporation,
ConocoPhillips, Susser Holdings Corporation
(Stripes®
brand), Alimentation Couche-Tard Inc.
(Circle K®
brand), Western Refining, Inc. and various other independent
operators. The principal factors affecting competition among our
retail convenience stores are location and ease of access,
price, brand recognition, store appearance and cleanliness,
product quality and breadth of product offering. We expect to
continue to face competition from large, integrated oil
companies, as well as from other convenience stores that sell
motor fuels. Additionally, national grocery and dry goods
stores, such as Wal-Mart Stores, Inc., The Kroger Co. and Costco
Wholesale Corporation, as well as regional grocers and
retailers, are increasingly entering the motor fuel retailing
business. Many of these competitors are substantially larger
than we are and, because of their diversity, integration of
operations and greater resources, may be better able to
withstand adverse market conditions and competitive pricing.
Our wholesale marketing segment competes with major oil
companies and independent motor fuel distributors. The principal
competitive factors affecting our wholesale motor fuel marketing
segment are price, brand, quality of product, service quality,
reliability and availability of supply.
Trade
Names, Service Marks and Trademarks
Pursuant to our perpetual license agreement with 7-Eleven, Inc.,
we have contractual rights to use the 7-Eleven name and certain
7-Eleven-owned
trademarks, service marks and other intellectual property
related to the 7-Eleven brand and store concept. We also have
contractual rights pursuant to our FINA license agreement, which
expires in August 2012, to be the exclusive marketer of
motor fuel under the FINA brand in Texas, Oklahoma, New Mexico,
Arizona, Arkansas, Louisiana, Colorado and Utah, and use the
FINA trade name. We also own the proprietary trade dress used on
our retail convenience store motor fuel canopies and other
signage and own and use the Alon Brands and
Skinnys names and logos as our trademarks. We
believe the use of these trademarks and other intellectual
property is beneficial to our business operations and currently
provides us with a competitive advantage but is not material to
our operations.
Governmental
Regulation and Environmental Matters
We are subject to regulation under numerous federal, state and
local laws. The following description highlights what we believe
are the material regulatory and environmental compliance matters
affecting our operations.
Motor
Fuel Marketing
The Petroleum Marketing Practices 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
sub-license
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 preconditions or grounds for termination or
nonrenewal are met and notice requirements are satisfied. 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.
67
Environmental
Compliance
Our business is subject to various federal, state and local
environmental laws and regulations, including those relating to
underground storage tanks, the release or discharge of regulated
materials into the air, water and soil, the generation, storage,
handling, use, transportation and disposal of hazardous
materials, the exposure of persons to hazardous materials, the
remediation of contaminated soils and groundwater and the health
and safety of our employees. We have incurred and will continue
to incur capital and operating costs in order to comply with
applicable environmental requirements.
We store motor fuel in underground storage tanks at our retail
locations and are required to make financial expenditures to
comply with federal, state and local regulations governing the
operation and closure of such underground storage tanks.
Pursuant to the Resource Conservation and Recovery Act of 1976,
as amended, the Environmental Protection Agency, or EPA, has
established a comprehensive regulatory program for the
detection, prevention, investigation and cleanup of leaking
underground storage tanks. Compliance with existing and future
state and federal environmental laws regulating underground
storage tank systems of the kind we use may require significant
capital expenditures in the future. These expenditures may
include upgrades, modifications and the replacement of
underground storage tanks and related piping to comply with
current and future regulatory requirements designed to ensure
the detection, prevention, investigation and remediation of
leaks and spills.
In addition, the Federal Clean Air Act and similar state laws
impose requirements on emissions to the air from motor fueling
activities in certain areas of the country, including those that
do not meet state or national ambient air quality standards.
These laws may require the installation of vapor recovery
systems to control emissions of volatile organic compounds to
the air during the motor fueling process. The regulatory
requirements with respect to underground storage tank systems of
the kind we use may become more stringent or apply to an
increased number of underground storage tanks in the future,
which would require additional, potentially significant,
expenditures.
We are required to comply with federal and state financial
responsibility requirements to demonstrate that we have the
ability to pay for cleanups or to compensate third parties for
damages incurred as a result of a release of regulated materials
from our underground storage tank systems. We seek to comply
with these requirements by maintaining insurance, which we
purchase from private insurers, and in certain circumstances,
rely on applicable state trust funds, which are funded by
underground storage tank registration fees and taxes on
wholesale purchase of motor fuels. The coverage afforded by each
fund varies and is dependent upon the continued maintenance and
solvency of each fund. For example, in Texas, we meet our
financial responsibility requirements by state trust fund
coverage for claims asserted prior to December 1998 (claims
reported after that date are ineligible for reimbursement) and
meet such requirements for claims asserted after that date
through insurance purchased from a private insurance company. In
New Mexico, we meet our financial responsibility requirements by
participating in state trust fund coverage.
We are currently responsible for investigating and remediating
contamination caused by leaking underground storage tanks at a
number of our current and former properties. We are entitled to
reimbursement for certain of these costs under various
third-party contractual indemnities, state trust funds and
insurance policies, subject to eligibility requirements,
deductibles and per incident annual and aggregate caps. While we
are not currently aware of any contaminated properties as to
which material outstanding claims or obligations exist, the
discovery of additional or more extensive contamination or the
imposition of additional cleanup obligations at these or other
sites could result in significant liability. To the extent third
parties (including insurers and state trust funds) do not pay
for investigation and remediation, insurance is not available or
the state trust funds cease to exist or become insolvent, we
will be obligated to make additional payments.
We may not have identified all of the environmental liabilities
at all of our current and former locations. In the future, we
may incur substantial expenditures for remediation of
contamination that has not been discovered at existing locations
or that may exist at locations that we may acquire. Furthermore,
new laws, new interpretations of existing laws, increased
governmental enforcement of existing laws or other developments,
including legislative, regulatory and other legal developments
in various phases of discussion or implementation that may limit
greenhouse gas emissions or increase fuel economy standards,
could require us
68
to make additional capital expenditures, incur additional
liabilities or negatively affect the market for motor fuel.
Sale
of Alcoholic Beverages and Tobacco Products
Our retail convenience stores are subject to state and local
laws which restrict the sale of alcoholic beverages and tobacco
products to persons who meet legal age requirements and in some
circumstances limit the hours of operations for the sale of
alcoholic beverages. We are also subject to state and local
regulatory agencies which have authority to approve, revoke,
suspend or deny the renewal of permits and licenses required for
the sale of alcoholic beverages, as well as issue fines and
other penalties to stores and employees for the improper sale of
alcoholic beverages and tobacco products. Failure to comply with
these laws and regulations may result in the loss of licenses or
permits or imposition of fines and penalties on our retail
convenience stores or license holders, which could result in a
material adverse effect on our results of operations. In
addition, many states may impose liability on retailers of
alcoholic beverages for damages caused by intoxicated persons
who purchased alcoholic beverages from them. We seek to minimize
our risk for such liability or regulatory action through staff
training and company-wide policies and procedures, as well as
the maintenance of general liability insurance.
Safety,
Health and Employment
We are also subject to numerous federal, state and local safety
and health laws and regulations relating to the operation of
retail convenience stores and food preparation and sales. We are
required to comply with various record retention, inspection,
equipment maintenance, cleanliness and other standards in our
retail operations, as well as obtaining necessary occupation and
other permits, many of which vary by the jurisdiction in which
our stores are located. We are also required to comply with
federal and state laws regarding wage rates, overtime, working
conditions and citizen requirements with respect to our
employees.
Seasonality
We experience more demand for our merchandise and food during
the late spring and summer months than during the fall and
winter due to the increase in travel and recreation during these
periods. Therefore, our in-store merchandise revenues are
typically higher in the second and third quarters of the year.
For example, our in-store merchandise revenues for the second
and third quarters of 2010 were 15.8% and 18.6% higher,
respectively, than in-store merchandise revenues reported during
the first quarter. In addition, our retail stores located near
highways typically experience an increase in the number of motor
fuel gallons sold during the second and third quarters.
Employees
As of December 31, 2010, we had 2,011 employees. Of
these employees, 1,992 work in our retail segment and 19 in our
wholesale marketing segment. None of our employees are
represented by a labor union. We believe that our relation with
our employees is satisfactory.
69
Properties
We maintain our corporate offices in Dallas, Texas. As of
December 31, 2010, we operated 304 convenience stores
located in Central and West Texas and New Mexico. Our leased
stores typically have non-cancelable operating leases with
initial terms of 10 to 20 years and options that permit
renewals for additional periods. We believe that our facilities
are generally adequate for our operations in the ordinary course
of business. The following table shows our owned and leased
convenience stores by location:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Owned
|
|
|
Leased
|
|
|
Total
|
|
|
Big Spring, Texas
|
|
|
6
|
|
|
|
1
|
|
|
|
7
|
|
Wichita Falls, Texas
|
|
|
8
|
|
|
|
4
|
|
|
|
12
|
|
Waco, Texas
|
|
|
11
|
|
|
|
3
|
|
|
|
14
|
|
Midland, Texas
|
|
|
8
|
|
|
|
9
|
|
|
|
17
|
|
Lubbock, Texas
|
|
|
17
|
|
|
|
5
|
|
|
|
22
|
|
Albuquerque, New Mexico
|
|
|
12
|
|
|
|
11
|
|
|
|
23
|
|
Odessa, Texas
|
|
|
11
|
|
|
|
25
|
|
|
|
36
|
|
Abilene, Texas
|
|
|
33
|
|
|
|
8
|
|
|
|
41
|
|
El Paso, Texas
|
|
|
13
|
|
|
|
71
|
|
|
|
84
|
|
Other locations in Central and West Texas
|
|
|
29
|
|
|
|
19
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores
|
|
|
148
|
|
|
|
156
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
Proceedings
In the ordinary course of business, we are subject to 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 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.
70
MANAGEMENT
Directors
and Executive Officers
Prior to November 2008, we were organized as Alon USA Interests,
LLC, a Texas limited liability company, or Alon Interests. In
November 2008, Alon Interests was converted into a Delaware
corporation and the name was changed to Alon Brands, Inc. At the
time of this corporate conversion, certain members of the board
of managers of Alon Interests became the directors of Alon
Brands. Following the corporate reorganization transactions and
immediately prior to the consummation of this offering, we will
conduct our business through Alon Brands and its direct and
indirect subsidiaries. Our current board of directors will elect
the director nominees effective upon the consummation of this
offering.
The following table sets forth the names and ages of each of our
current directors, director nominees and executive officers and
certain of our other key employees, and the positions they hold
(ages as of April 1, 2011):
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Kyle McKeen
|
|
|
47
|
|
|
Director, President and Chief Executive Officer
|
Joseph Lipman
|
|
|
65
|
|
|
Director and Senior Vice President Retail
|
David Potter
|
|
|
55
|
|
|
Chief Financial Officer
|
Judge Dobrient
|
|
|
42
|
|
|
Senior Vice President Wholesale Marketing
|
Amir Wurzel
|
|
|
43
|
|
|
Vice President and Chief Information Officer
|
David Wiessman
|
|
|
56
|
|
|
Chairman of the Board of Directors
|
Shlomo Braun
|
|
|
55
|
|
|
Director
|
Shai Even
|
|
|
42
|
|
|
Director
|
Shlomo Even
|
|
|
54
|
|
|
Director
|
Jeff D. Morris
|
|
|
59
|
|
|
Director
|
Paul Eisman
|
|
|
55
|
|
|
Director
|
Snir Wiessman
|
|
|
29
|
|
|
Director
|
Yeshayahu Pery
|
|
|
77
|
|
|
Director Nominee
|
Boaz Biran
|
|
|
47
|
|
|
Director Nominee
|
Itzhak Bader
|
|
|
65
|
|
|
Director Nominee
|
Kyle McKeen has served as a director since November 2008
and was a member on the Board of Managers of Alon Interests from
May 2008 to November 2008. Mr. McKeen has also served as
President and Chief Executive Officer since May 2008. From 2005
to 2008, Mr. McKeen served as President and Chief Operating
Officer of Carter Energy, an independent energy marketer
supporting over 600 retailers by providing fuel supply,
merchandising and marketing support, and consulting services.
Prior to joining Carter Energy in 2005, Mr. McKeen was a
member of the Board of Managers of Alon Interests from September
2002 to 2005 and held numerous positions of increasing
responsibilities with Alon Energy, including Vice President of
Marketing. Mr. McKeen was selected to serve as a director
because of his position as President and Chief Executive
Officer, extensive experience in retail and fuel marketing,
detailed knowledge of our operations and assets and leadership
skills.
Joseph Lipman has served as a director since November
2008, Senior Vice President Retail since May 2008,
President and Chief Executive Officer from September 2002 to May
2008 and President and Chief Executive Officer of SCS since July
2001. Mr. Lipman was a member of the Board of Managers of
Alon Interests from August 2003 to November 2008 when he
became a director. From 1997 to July 2001, Mr. Lipman
served as General Manager of Cosmos, a chain of supermarkets in
Israel owned by Super-Sol Ltd., now known as Shufersal, where he
was responsible for marketing and store operations.
Mr. Lipman was selected to serve as a director because of
his retail experience, convenience store industry knowledge and
leadership skills.
David Potter has served as Chief Financial Officer since
May 2008, and Chief Financial Officer of SCS since October 2007.
From August 1994 to September 2007, Mr. Potter was Chief
Financial Officer of
71
Thriftway Marketing Corp., an independent privately-held retail
convenience store chain. Prior to joining Thriftway Marketing,
Mr. Potter worked in public accounting since 1977 and as an
audit partner in a public accounting firm since 1982. In
addition to his public accounting certification, Mr. Potter
is a certified valuation analyst and is a member of the American
Institute of Certified Public Accountants, and the Oklahoma,
New Mexico, and Texas Society of Certified Public
Accountants.
Judge Dobrient has served as Senior Vice
President Wholesale Marketing since May 2008. Prior
to joining us, Mr. Dobrient served as Alon Energys
General Manager of Marketing from October 2005 to May 2008 and
Manager of Unbranded Marketing & Pricing from July
2000 to October 2005. Prior to joining Alon Energy,
Mr. Dobrient held various positions at Atofina
Petrochemicals, Inc. from 1995 to 2000 including Manager of
Unbranded Marketing and Pricing.
Amir Wurzel has served as our Vice President and Chief
Information Officer since March 2009. Mr. Wurzel has also
served as a Director of Business Processes Management of Alon
Energy since May 2008 and as a Business Processes Analyst of
Alon Energy from September 2005 to April 2008. Prior to joining
Alon Energy, Mr. Wurzel was an Information Systems Analyst
with Seker Consulting, a consulting company specializing in
business process optimization and IT project management, from
2000 to 2005.
David Wiessman has served as Chairman of the Board of
Directors since November 2008 and was a member on our Board of
Managers from May 2008 to November 2008. Mr. Wiessman has
also served as Executive Chairman of the Board of Directors of
Alon Energy since July 2000 and served as President and Chief
Executive Officer of Alon Energy 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, Alon Energys parent company. In 1987,
Mr. Wiessman became Chief Executive Officer of, and a
stockholder in, Bielsol Investments (1987) Ltd., which
acquired a 50.0% interest in Alon Israel in 1992. 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 Executive Chairman of the
Board of Directors of Alon Holdings Blue Square-Israel, Ltd.,
which is listed on the New York Stock Exchange and the Tel Aviv
Stock Exchange, since 2003, Executive Chairman of Blue Square
Real Estate Ltd., which is listed on the Tel Aviv Stock
Exchange, since 2006 and Executive Chairman of the Board and
President of Dor-Alon Energy Israel (1988) Ltd., which is
listed on the Tel Aviv Stock Exchange, since 2005, and all of
which are subsidiaries of Alon Israel. Mr. Wiessman has
also been Executive Chairman of the Board of Directors of Alon
Refining Krotz Springs, Inc., or Krotz Springs, since 2008.
Krotz Springs is a subsidiary of Alon Energy through which Alon
Energy conducts its Louisiana refining business and which has
publicly traded debt in the United States. David Wiessman is the
father of Snir Wiessman, who is also a member of our board of
directors. Mr. Wiessman was selected to serve as a director
because of his vision, business expertise, industry experience,
leadership skills and devotion to community service.
Shlomo Braun has served as a director since November 2008
and was a member on the Board of Managers of Alon Interests from
May 2008 to November 2008. Mr. Braun is the owner and
manager of SAB Investment Group, LLC, an investment and
consultancy agency. Mr. Braun is also a director of
Hachsharat Hayishuv (I.L.D.) Insurance Company Ltd., a publicly
traded insurance company and Pilat Technologies International,
Ltd., a publicly traded human resource solution and software
company, each of which is listed on the Tel Aviv Stock Exchange.
Prior to joining Hachsharat Hayishuv (I.L.D.) Insurance Company
Ltd., Mr. Braun worked at Bank Hapoalim Ltd. There he
served as a member of the Board of Managers from 2003 to 2008,
as head of the banks business division from 2002 to 2003,
as executive Vice President and Manager of its New York branches
from 1997 to 2002 and as head of the banks retail business
for the Tel Aviv district from 1995 to 1997. Mr. Braun
was selected to serve as a director because of his extensive
financial education and expertise and his management and
directorship experience.
Shai Even has served as director since November
2008. Mr. Even has also served as a Senior Vice
President of Alon Energy since August 2008, Vice President of
Alon Energy from May 2005 to August 2008 and as Alon
Energys Chief Financial Officer since December 2004.
Mr. Even also served as Alon Energys Treasurer from
August 2003 until March 2007. Prior to joining Alon Energy,
Mr. Even served as the Chief
72
Financial Officer of DCL Technologies, Ltd. from 1996 to July
2003 and prior to that worked for KPMG from 1993 to 1996.
Mr. Even has also been a member of the board of directors
of Krotz Springs since 2008. Shai Even is the brother of Shlomo
Even, who is also a member of our board of directors.
Mr. Even was selected to serve as a director because of his
financial education and expertise, financial reporting
background, public accounting experience, management experience
and detailed knowledge of our operations.
Shlomo Even has served as a director since November 2008.
Mr. Even has been a certified public accountant and partner
of the certified public accounting firm of Tiroshi Even since
1986. Mr. Even also serves as a director of Alon Energy
since 2009, Alon Israel since 2002 (and previously from 1994 to
1999), Dor-Alon Energy in Israel (1988) Ltd. since
September 1999, Alon Holdings Blue Square-Israel Ltd. since July
2003, Rosebud Real Estate Ltd. since July 2000, and Alon Natural
Gas Ltd., which is listed on the Tel Aviv Stock Exchange,
since November 2009. Shlomo Even is the brother of Shai Even,
who is also a member of our board of directors. Mr. Even
was selected to serve as a director because of his public
accounting experience, knowledge of corporate financial
reporting and directorship experience.
Jeff D. Morris has served as a director since November
2008. Mr. Morris was a member of the Board of Managers of
Alon Interests from August 2003 to November 2008 when he became
a director. Mr. Morris has also served as a director of
Alon Energy since 2005, as Alon Energys Chief Executive
Officer since May 2005, as Alon Energys President from May
2005 to March 2010 and as the President and Chief Executive
Officer of Alon Energys subsidiary, Alon USA, Inc., since
its inception in August 2002 and of Alon Energys other
operating subsidiaries since July 2000 or their later inception.
Prior to joining Alon Energy, he held various positions at FINA,
where he began his career in 1974. Mr. Morris served as
Vice President of FINAs 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 FINAs Port Arthur
refinery and the crude oil gathering assets and marketing
activities for both business units. Mr. Morris has also
been a director of Krotz Springs since 2008. Mr. Morris was
selected to serve as a director because of his position as Chief
Executive Officer of Alon Energy, detailed knowledge of our
operations and assets, expertise in oil refining and marketing,
devotion to community service and management and leadership
skills.
Paul Eisman has served as a director since August 2010.
Mr. Eisman became President of Alon Energy in March 2010.
Prior to joining Alon Energy, Mr. Eisman was Executive Vice
President, Refining & Marketing Operations at Frontier
Oil Corporation from 2006 to 2009 and held various positions at
KBC Advanced Technologies from 2003 to 2006, including Vice
President of North American Operations. During 2002,
Mr. Eisman was Senior Vice President of Planning for Valero
Energy Corporation following Valeros acquisition of
Ultramar Diamond Shamrock. Prior to the acquisition,
Mr. Eisman had a
24-year
career with Ultramar Diamond Shamrock, serving in many technical
and operational roles including Executive Vice President of
Corporate Development and Refinery Manager at the McKee
refinery. Mr. Eisman has also been a director of Krotz
Springs since 2010. Mr. Eisman was selected to serve as a
director because of his position as President of Alon Energy,
extensive management experience, leadership skills and knowledge
of our operations
Snir Wiessman has served as our director since November
2008. Mr. Wiessman has served as a Business Development and
M&A Manager of Alon Israel since August 2007.
Mr. Wiessman has also served as a Director of Dor-Alon Fuel
Stations Operation Ltd., an Israeli gas station and convenience
store operator, from August 2003 to October 2010 and AM:PM, an
Israeli convenience store operator, from January 2008 to October
2010. AM:PM and Dor-Alon Fuel Station Operation Ltd. merged in
October 2010 and Mr. Wiessman has served as a director in
the merged entity,
Dor-Alon
Retail Sites Management, since this time.
Dor-Alon
Retail Sites Management is a subsidiary of Dor-Alon Energy in
Israel (1988) Ltd., which is listed on the Tel Aviv
Stock Exchange. Snir Wiessman is the son of David Wiessman, who
is also a member of our board of directors. Mr. Wiessman
was selected to service as a director because of his knowledge
of the convenience store industry, management experiences and
expertise of mergers and acquisition transactions.
Yeshayahu Pery has served as a director of Alon Energy
since August 2003. Mr. Pery has also served as a director
of Alon Israel since 1997. He is Chairman of MIGAL INC., a
technology institute in the biotechnology field, a position he
has held since 1998. From 1997 until 2004, Mr. Pery served
as Chairman
73
and Chief Executive Officer of Galilee Cooperative Organization,
a purchasing and finance organization of the Kibbutz movement.
In addition, Mr. Pery served as Chairman of Agricultural
Insurance Association and the Audit pension fund between 1995
and 2004. Mr. Pery was selected to serve as a director
because of his experience gained while serving as a director on
a number of companies boards, including several chairman
positions, and his knowledge of our operations.
Boaz Biran has served as director of Alon Energy since
May 2002. Mr. Biran has been a director of Bielsol
Investments (1987) Ltd., an investment company that owns
50.38% of Alon Israel, since 1998, and served as Chairman of the
Board of Directors of Rosebud Real Estate Ltd., an investment
company in Israel listed on the Tel Aviv Stock Exchange, since
November 2003. Mr. Biran was also a partner in Shraga F.
Biran & Co., a law firm in Israel, from 1999 to 2008.
Mr. Biran was selected to serve as a director because of
his broad business background and experience, legal expertise
and directorship experience.
Itzhak Bader has served as a director of Alon Energy
since August 2000. Mr. Bader has also served as Chairman of
the Board of Directors of Alon Israel since 1993. He is Chairman
of Granot Cooperative Regional Organization Corporation, a
purchasing organization of the Kibbutz movement, a position he
has held since 1995. In addition, he is also Chairman of Gat
Givat Haim Agricultural Cooperative for Conservation of
Agricultural Production Ltd., an Israeli beverage producer, a
position he has held since 1999. Mr. Bader has also been
the Co-chairman of Dor-Alon Energy in Israel (1988) Ltd.
since 2005 and a director of Blue Square-Israel, Ltd. since 2003
and Blue Square Real Estate Ltd. since 2005, each a subsidiary
of Alon Israel. Mr. Bader was selected to serve as a
director because of his experience gained while serving as a
director on a number of companies boards, including
several chairman positions, and his knowledge of our operations.
Committees
of the Board of Directors
Our board of directors does not have a nominating and corporate
governance committee or a committee performing the functions of
such a committee. Our board of directors has determined that we
are a controlled company for the purposes of
Section 303A of the NYSE Listed Company Manual because more
than 50% of the voting power for the election of directors is
held by Alon USA, LP. As such, we are relying on exemptions from
the provisions of Section 303A that would otherwise require
us, among other things, to have a board of directors composed of
a majority of independent directors, a compensation committee
composed of independent directors and a nominating and corporate
governance committee.
Audit Committee. Prior to completion of this
offering, our audit committee will be composed of Mr. Braun
and two additional directors to be determined prior to the
offering. Our board of directors has determined that
Mr. Braun is financially literate and has accounting or
related financial management expertise, in each case as
contemplated by applicable NYSE requirements. Our board of
directors has determined that Mr. Braun satisfies
applicable NYSE and SEC requirements relating to independence.
We will be required to have a majority of independent members of
this committee approximately 90 days after the date of this
prospectus. The audit committee must be composed entirely of
independent members within approximately one year from the date
of this prospectus. The audit committee will oversee our
accounting and financial reporting processes and the audits of
our financial statements.
Compensation Committee. Our compensation
committee is composed of David Wiessman and Jeff Morris. The
compensation committee establishes, administers and reviews our
policies, programs and procedures for compensating our executive
officers and directors.
74
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Introduction
This Compensation Discussion and Analysis provides a description
of the objectives of our executive compensation policies, a
description of the compensation committee and a discussion of
the material elements of the compensation of our executive
officers.
Prior to this offering, the elements of compensation of our
executive officers were determined or approved by Alon Energy.
Accordingly, certain elements of the compensation payable to our
employees for services rendered in periods prior to this
offering, including executive officers, relate to compensation
arrangements designed by Alon Energy. These compensation
arrangements, as well as the compensation arrangements we expect
to adopt prior to this offering and maintain in the future, are
discussed below. Our compensation committee may adopt new or
alternative arrangements following the completion of this
offering in addition to those discussed below.
None of our named executive officers were executive officers of
Alon Energy prior to this offering. Accordingly, decisions with
regard to compensation for those employees, except for Kyle
McKeen, our Chief Executive Officer, were made by recommendation
of our Chief Executive Officer and approved by Alon
Energys compensation committee in the same manner as all
other non-executive employees of Alon Energy. Kyle McKeen, our
Chief Executive Officer, joined Alon Energy in May 2008 and
entered into a Management Employment Agreement. See
Employment Agreements. The terms of
Mr. McKeens employment agreement and his subsequent
annual compensation were determined by David Wiessman and Jeff
Morris, members of Alon Energys compensation committee.
See Chief Executive Officer
Compensation. The elements of Mr. McKeens
annual compensation, as well as the compensation of each of our
other named executive officers described herein, were determined
on the basis of the same principles described below, which we
expect to continue after this offering and which are
substantially the same as those used by Alon Energy and its
subsidiaries for the year ended December 31, 2010.
Objectives
of Compensation Policies
The objectives of our compensation policies are to attract,
motivate and retain qualified management and personnel who are
highly talented, while ensuring that executive officers and
other employees are compensated in a manner that advances both
the short- and long-term interests of stockholders. In pursuing
these objectives, the compensation committee believes
compensation should reward executive officers and other
employees for both their personal performance and the
companys overall performance. In determining compensation
levels for our executive officers, the compensation committee
considers the scope of an individuals responsibilities,
external competitiveness of total compensation, an
individuals performance, prior experience and current and
prior compensation, the performance of the company and the
attainment of financial and strategic objectives.
Our management provides compensation recommendations to the
compensation committee; however, the final determination of a
compensation package (other than cash bonuses under the Annual
Cash Bonus Plan described below) is made solely by the
compensation committee. We do not currently engage any
consultants relating to executive
and/or
director compensation practices. The compensation committee may
consider the compensation practices of other companies when
making a determination; however, we do not benchmark our
compensation packages to any particular company or group of
companies.
Compensation
Program Elements
We compensate our employees and executive officers through a
combination of base salary and annual cash bonuses, and we
anticipate granting equity incentive awards pursuant to the
proposed 2011 Equity Incentive Compensation Plan. The
compensation committee considers each element of our overall
compensation program applicable to an employee or executive
officer when making any decision affecting that
75
employees or executive officers compensation. The
particular elements of our compensation program are explained
below.
Base Salaries. Base salary levels are designed
to attract and retain highly qualified individuals. In
establishing salary levels, the compensation committee takes
into account the scope of an individuals responsibilities
and experience and makes a subjective assessment of the nature
of each individuals performance and contribution to the
company. The compensation committee may also consider available
information on prevailing executive compensation at comparable
companies in our industry. Base salaries are reviewed annually
and adjustments are made based primarily on the
individuals performance in the prior annual period.
2011 Annual Cash Bonus Plan. After the
completion of this offering, we expect our Board to approve an
incentive cash compensation plan (the Annual Cash Bonus
Plan). Cash bonuses under the Annual Cash Bonus Plan are
anticipated to be distributed to eligible employees in the first
quarter of each year based on the previous years
performance, commencing in the first quarter of 2012 based on
performance during our 2011 fiscal year. Under the
newly-approved Annual Cash Bonus Plan, bonus payments to
eligible employees are anticipated to be based on our retail and
wholesale segments meeting or exceeding certain target
EBITDA or other performance measures. The plan targets and
components have not yet been determined by the compensation
committee and will be tailored to provide motivation for the
eligible employees to attain our operating segments
financial and other performance objectives.
2011 Equity Incentive Compensation Plan. Prior
to completion of this offering, we expect our board of directors
and our current stockholder to approve the 2011 Equity Incentive
Compensation Plan, or the Equity Incentive Plan, as a component
of our overall executive incentive compensation program. The
Equity Incentive Plan permits the granting of awards in the form
of options to purchase common stock, stock appreciation rights,
restricted shares of common stock, restricted stock units,
performance shares, performance units and senior executive plan
bonuses to our directors, officers and key employees. The
compensation committee believes that the grant of options, stock
appreciation rights, and similar equity-based awards aligns
executive and stockholder long-term interests by creating a
strong and direct link between executive compensation and
stockholder return. The grant of restricted stock and similar
equity-based awards also allows our directors, officers and key
employees to develop and maintain a long-term ownership position
in our company.
The Equity Incentive Plan is expected to be administered, in the
case of awards to participants subject to Section 16 of the
Securities Exchange Act, by the board of directors and, in all
other cases, by the compensation committee. Subject to the terms
of the Equity Incentive Plan, the compensation committee and the
board of directors have the full authority to select
participants to receive awards, determine the types of awards
and terms and conditions of awards, and interpret provisions of
the Equity Incentive Plan. Awards may be made under the Equity
Incentive Plan to eligible directors, officers and employees of
Alon Brands and its subsidiaries, provided that awards
qualifying as incentive stock options, as defined under the
Internal Revenue Code of 1986, as amended, or the Code, may be
granted only to employees.
In connection with this offering, we expect to grant shares
of restricted stock to certain executive officers under the
Equity Incentive Plan in an amount equal to approximately 4% of
our common stock outstanding after the offering.
Perquisites. Our use of perquisites as an
element of compensation is limited in scope and amount. We do
not view perquisites as a significant element of compensation,
but do believe that in certain circumstances they can be used in
conjunction with base salary to attract, motivate and retain
qualified management and personnel in a competitive environment.
For example, during 2010 our use of perquisites were limited to
housing, vehicle and relocation allowances and 401(k) matching.
Special Bonuses. From time to time, executive
officers and key employees may be awarded bonuses outside the
plans described herein based on individual performance and
contributions, special individual circumstances or extraordinary
performance and transactions. Any such special bonus would be
determined by the board of directors and at their discretion
given the circumstances, but are not an ordinary component of
the general compensation of our executive officers or other key
employees.
76
Retirement Benefits. Retirement benefits to
our senior management, including our executive officers, are
currently expected to be provided through a 401(k) plan. Subject
to certain qualifications, eligible employees may participate in
our 401(k) plan which provides company matching of employee
contributions up to 4.5% of such employees base salary.
Employment
Agreements
As discussed more fully below, we have entered into employment
agreements with Mr. McKeen and Mr. Lipman and,
following this offering, we expect to enter into employment
agreements with other members of our executive management team.
Our decision to enter into employment agreements and the terms
of those agreements are based on the facts and circumstances at
the time and an analysis of competitive market practices.
Methodology
of Establishing Compensation Packages
The compensation committee does not adhere to any specified
formula for determining the apportionment of executive
compensation between cash and non-cash awards. The compensation
committee attempts to design each compensation package to
provide incentive to achieve our performance objectives,
appropriately compensate individuals for their experience and
contributions and secure the retention of qualified employees.
This is accomplished through a combination of the compensation
program elements and, in certain instances, specific incentives
not generally available to all of our employees.
Chief
Executive Officer Compensation
In May 2008 we entered into a Management Employment Agreement
with Mr. McKeen in connection with his appointment as our
President and Chief Executive Officer. The Management Employment
Agreement provides for a term ending in May 2013, which
automatically renews for successive one-year terms unless
terminated by either party. Under the Management Employment
Agreement, Mr. McKeens annual base salary will be no
less than $300,000. Mr. McKeen is entitled to participate
in our annual cash bonus plan and incentive compensation plan.
Mr. McKeen will receive additional benefits, including life
insurance and disability, medical and retirement benefits.
Mr. McKeen is subject to a covenant not to compete during
the term of his employment and for one year after the date of
his termination. Mr. McKeen is also prohibited from
disclosing any proprietary information received as a result of
his employment. In the event that we terminate
Mr. McKeens employment without cause or
Mr. McKeen terminates his employment for good reason, he is
entitled to receive a cash severance payment equal to his
then-current annual base salary.
Stock
Ownership Policy
We do not require our directors or executive officers to own
shares of our common stock.
Section 162(m)
Under Section 162(m) of the Internal Revenue Code,
compensation paid to the Chief Executive Officer or any of the
other four most highly compensated executive officers in excess
of $1,000,000 may not be deducted by us in determining our
taxable income. This deduction limitation does not apply to
certain performance-based compensation. The board of
directors does not currently intend to award levels of
non-performance-based compensation that would exceed $1,000,000.
However, it may do so in the future if it determines that such
compensation is in the best interest of the company and our
stockholders.
Summary
Compensation Table
The following table provides a summary of the compensation
awarded to, earned by or paid to Messrs. McKeen and Potter,
our principal executive officer (PEO) and principal financial
officer (PFO), and Messrs. Lipman, Dobrient and Wurzel our
three most highly compensated executive officers in 2010. We
refer
77
to these individuals as our named executive officers for 2010.
The title for each individual represents the officers
current position with our company. Kyle McKeen, our President
and Chief Executive Officer, joined the company in May 2008 and
the information included in the executive compensation tables
for 2008 reflects compensation earned by Mr. McKeen from
this date until the end of 2008. In May 2008 David Potter
was appointed our Chief Financial Officer and the information
included in the executive compensation tables for 2008 includes
compensation earned for services performed as an executive of
our subsidiary, SCS, until May 2008. In May 2008 Joseph Lipman
was appointed our Senior Vice President Retail and
the information included in the executive compensation tables
for 2008 includes compensation earned for services performed as
an executive of our subsidiary, SCS, until May 2008. In May 2008
Judge Dobrient was appointed Senior Vice President
Wholesale Marketing and the information included in the
executive compensation tables for 2008 includes compensation
earned by Mr. Dobrient for services performed as Alon
Energys General Manager of Marketing until May 2008. In
March 2009 Amir Wurzel was appointed as our Vice President and
Chief Information Officer and the information included in the
executive compensation tables for 2009 includes compensation
earned for services performed as Alon Energys Director of
Business Processes Management of Alon Energy until March 2009.
The amounts and forms of compensation reported below do not
necessarily reflect the compensation our named executive
officers will receive following this offering, which could be
higher or lower, because historical compensation was determined
by Alon Energy and future compensation levels will be determined
by our compensation committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Awards(1)
|
|
Compensation(2)
|
|
Earnings(3)(4)
|
|
Compensation
|
|
Total
|
|
|
|
Kyle McKeen
|
|
|
2010
|
|
|
$
|
300,000
|
|
|
$
|
36,351
|
(5)
|
|
$
|
|
|
|
$
|
|
(4)
|
|
$
|
|
|
|
$
|
336,351
|
|
|
|
|
|
President and Chief Executive Officer (PEO)
|
|
|
2009
|
|
|
|
300,000
|
|
|
|
|
|
|
|
75,000
|
|
|
|
49,447
|
|
|
|
3,485
|
|
|
|
427,932
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
192,692
|
|
|
|
|
|
|
|
|
|
|
|
85,232
|
|
|
|
51,716
|
|
|
|
329,640
|
|
|
|
|
|
Joseph Lipman
|
|
|
2010
|
|
|
|
219,662
|
|
|
|
14,541
|
|
|
|
|
|
|
|
80,473
|
|
|
|
27,035
|
(7)
|
|
|
341,711
|
|
|
|
|
|
Senior Vice President Retail
|
|
|
2009
|
|
|
|
216,438
|
|
|
|
|
|
|
|
35,171
|
|
|
|
40,694
|
|
|
|
29,611
|
|
|
|
321,914
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
208,654
|
|
|
|
|
|
|
|
22,378
|
|
|
|
53,274
|
|
|
|
11,756
|
|
|
|
296,062
|
|
|
|
|
|
David Potter
|
|
|
2010
|
|
|
|
168,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,691
|
(6)
|
|
|
181,691
|
|
|
|
|
|
Chief Financial Officer (PFO)
|
|
|
2009
|
|
|
|
168,000
|
|
|
|
|
|
|
|
22,008
|
|
|
|
|
|
|
|
11,904
|
|
|
|
201,912
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
160,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,648
|
|
|
|
165,033
|
|
|
|
|
|
Judge Dobrient
|
|
|
2010
|
|
|
|
153,100
|
|
|
|
3,635
|
|
|
|
|
|
|
|
22,421
|
|
|
|
|
|
|
|
179,156
|
|
|
|
|
|
Senior Vice President Wholesale Marketing
|
|
|
2009
|
|
|
|
152,558
|
|
|
|
|
|
|
|
19,070
|
|
|
|
17,005
|
|
|
|
|
|
|
|
188,633
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
147,581
|
|
|
|
|
|
|
|
|
|
|
|
32,353
|
|
|
|
|
|
|
|
179,934
|
|
|
|
|
|
Amir Wurzel(8)
|
|
|
2010
|
|
|
|
146,500
|
|
|
|
1,818
|
|
|
|
|
|
|
|
18,216
|
|
|
|
535
|
(9)
|
|
|
167,069
|
|
|
|
|
|
Vice President and Chief Information Officer
|
|
|
2009
|
|
|
|
139,188
|
|
|
|
|
|
|
|
17,399
|
|
|
|
7,946
|
|
|
|
10,230
|
|
|
|
174,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This column reflects the value of the awards based on aggregate
grant date fair value determined in accordance with US GAAP and
does not reflect amounts the named executive officer has
actually realized during the fiscal year represented. |
|
|
|
|
|
Pursuant to Alon Energys Amended and Restated 2005
Incentive Compensation Plan (Alon Energy 2005 Plan),
on (i) March 7, 2007 Alon Energy made grants of 33,333
and 10,000 Stock Appreciation Rights (SARs) at a grant price of
$28.46 per share to each of Messrs. Lipman and Dobrient,
respectively, and (ii) on January 25, 2010 Alon Energy
made grants of 25,000, 10,000, 2,500 and 1,250 SARs at a grant
price of $16.00 per share to each of Messrs. McKeen,
Lipman, Dobrient and Wurzel, respectively. The SARs granted on
March 7, 2007 vest as follows: 50% on March 7, 2009,
25% on March 7, 2010 and 25% on March 7, 2011 and are
exercisable during the
3-year
period following the date of vesting. The SARs granted on
January 25, 2010 vest as follows: 50% on December 10,
2011, 25% on December 10, 2012 and 25% on December 10,
2013 and are exercisable during the
365-day
period following the date of vesting. |
|
|
|
|
|
When exercised, SARs are convertible into shares of Alon Energy
common stock, the number of which will be determined at the time
of exercise by calculating the difference between the closing
price of Alon |
78
|
|
|
|
|
Energy common stock on the date immediately prior to the
exercise date and the grant price of the SARs (the
Spread), multiplying the Spread by the number of
SARs being exercised and then dividing the product by the
closing price of Alon Energy common stock on the date
immediately prior to the exercise date. |
|
|
|
(2) |
|
The amounts shown under Non-Equity Incentive Plan Compensation
reflect earnings by the named executive officers under Alon
Energys Annual Incentive Cash Bonus Plan for the fiscal
year in which such amounts are earned, regardless of when paid.
Bonuses under Alon Energys Annual Incentive Cash Bonus
Plan were paid for performance in 2009 during the third fiscal
quarter of 2010. The amount of bonuses to be paid under Alon
Energys Annual Incentive Cash Bonus Plan to Alon
Brands named executive officers as a result of performance
in 2010, if any, cannot presently be determined. It is
estimated that such determination will be made in the second
quarter of 2011, at which time the bonus amounts, if any, will
be disclosed by us in a Current Report on Form 8-K. |
|
|
|
(3) |
|
Reflects the aggregate change in actuarial present value of the
named executive officers accumulated benefit under the SCS
SERP, Alon Energy Benefits Restoration Plan and Alon USA Pension
Plan (each described in the Pension Benefits table below)
calculated by (a) assuming mortality according to the
applicable mortality rates prescribed by the IRS for 2008 and
(b) applying a discount rate of 6.07% per annum to
determine the actuarial present value of the accumulated benefit
at December 31, 2008, and a discount rate of 5.93% per
annum to determine the actuarial present value of the
accumulated benefit at December 31, 2009. |
|
|
|
(4) |
|
Due to a correction in benefits resulting from a break in
employment with Alon Energy, Mr. McKeen had a decrease in
pension value of $3,606. |
|
|
|
(5) |
|
As described more fully in Note 1 above, on January 25, 2010,
Mr. McKeen was granted 25,000 SARs by Alon Energy. It is
anticipated that, in connection with the closing of this
offering, these SARs will be replaced with a grant to McKeen of
an equivalent value of SARs issued pursuant to the 2011 Equity
Incentive Compensation Plan. |
|
|
|
(6) |
|
Reflects a housing allowance in the amount of $5,141 and a
matching contribution to the Alon Energy 401(k) plan in the
amount of $8,550. |
|
|
|
(7) |
|
Reflects a housing allowance in the amount of $16,007 and a
matching contribution to the Alon Energy 401(k) plan in the
amount of $11,028. |
|
|
|
(8) |
|
Mr. Wurzel became a named executive officer of Alon Brands
in 2009. |
|
|
|
(9) |
|
Reflects a vehicle allowance in the amount of $535. |
79
Grants of
Plan-Based Awards
The following table provides a summary of the grants of
plan-based awards made to the named executive officers during
the last completed fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards:
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise or
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Base Price of
|
|
|
of Stock
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Option Awards
|
|
|
and Option
|
|
Name
|
|
Board Action Date
|
|
|
Grant Date
|
|
|
Options(1)
|
|
|
($/Sh)(2)
|
|
|
Awards(3)
|
|
|
Kyle McKeen
|
|
|
December 10, 2009
|
|
|
|
January 25, 2010
|
|
|
|
25,000
|
|
|
$
|
16.00
|
|
|
$
|
36,351
|
|
President and Chief Executive Officer (PEO)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Lipman
|
|
|
December 10, 2009
|
|
|
|
January 25, 2010
|
|
|
|
10,000
|
|
|
|
16.00
|
|
|
|
14,541
|
|
Senior Vice President Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Potter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer (PFO)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judge Dobrient
|
|
|
December 10, 2009
|
|
|
|
January 25, 2010
|
|
|
|
2,500
|
|
|
|
16.00
|
|
|
|
3,635
|
|
Senior Vice President Wholesale Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amir Wurzel
|
|
|
December 10, 2009
|
|
|
|
January 25, 2010
|
|
|
|
1,250
|
|
|
|
16.00
|
|
|
|
1,818
|
|
Vice President and Chief Information Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects SARs granted pursuant to the Alon Energy 2005 Plan to
each of Messrs. McKeen, Lipman, Dobrient and Wurzel on
January 25, 2010, as more fully described in Note 1 to
the Summary Compensation Table above. |
|
|
|
(2) |
|
Directors of Alon Energy determined that an exercise price above
the trading price of Alon Energys common stock at the time
of grant was appropriate to align long-term executive and
stockholder interests by creating a strong and direct link
between executive compensation and stockholder return. |
|
|
|
(3) |
|
This column reflects the value of the awards based on aggregate
grant date fair value determined in accordance with US GAAP and
does not reflect amounts the named executive officer has
actually realized during 2010. |
Outstanding
Equity Awards at Year-End
The following table provides a summary of equity awards to our
named executive officers that were outstanding at
December 31, 2010, including any unexercised stock options,
stock that has not vested and equity incentive plan awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable(1)
|
|
|
Price
|
|
|
Date
|
|
|
Kyle McKeen (PEO)
|
|
|
|
|
|
|
25,000
|
|
|
$
|
16.00
|
|
|
|
(2
|
)
|
Joseph Lipman
|
|
|
|
|
|
|
10,000
|
|
|
|
16.00
|
|
|
|
(2
|
)
|
|
|
|
24,999
|
|
|
|
8,334
|
|
|
|
28.46
|
|
|
|
(3
|
)
|
David Potter (PFO)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judge A. Dobrient
|
|
|
|
|
|
|
2,500
|
|
|
|
16.00
|
|
|
|
(2
|
)
|
|
|
|
7,500
|
|
|
|
2,500
|
|
|
|
28.46
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amir Wurzel
|
|
|
|
|
|
|
1,250
|
|
|
|
16.00
|
|
|
|
(2
|
)
|
80
|
|
|
(1) |
|
Reflects SARs granted pursuant to the Alon Energy 2005 Plan to
each of Messrs. Lipman and Dobrient on March 7, 2007
and Messrs. McKeen, Lipman, Dobrient and Wurzel on January 25,
2010, as more fully described in Note 1 to the Summary
Compensation Table above. |
|
|
|
(2) |
|
January 2010 SARs may be exercised during the 365-day period
following the date of vesting. |
|
|
|
(3) |
|
March 2007 SARs may be exercised during the
3-year
period following the date of vesting. |
Pension
Benefits December 31, 2010
The following table provides a summary of each plan that
provides for payments or other benefits at, following, or in
connection with retirement, for each of the named executive
officers as of December 31, 2010. Joseph Lipman
participates in a supplemental employee retirement plan with
SCS. Each of Kyle McKeen, Judge Dobrient and Amir Wurzel
currently participates in the Alon USA Pension Plan.
Mr. McKeen also participates in the Alon Energy Benefits
Restoration Plan. Upon effectiveness of the registration
statement, Alon Brands wholesale marketing employees,
including Messrs. McKeen, Dobrient and Wurzel, will cease
vesting in the Alon USA Pension Plan and Alon Energy Benefits
Restoration Plan, as appropriate, and their accumulated benefits
to such date will remain an obligation of Alon Energy. Alon
Brands does not intend to adopt a pension plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
|
|
Number of Years
|
|
Present Value of
|
|
During
|
Name
|
|
Plan Name
|
|
Credited Service
|
|
Accumulated Benefit
|
|
Last Year
|
|
Kyle McKeen (PEO)
|
|
Alon USA Pension Plan(1)
|
|
|
4.54
|
|
|
$
|
95,939
|
|
|
|
|
|
|
|
Alon Energy Benefits Restoration Plan(2)
|
|
|
4.54
|
|
|
|
35,134
|
|
|
|
|
|
David Potter (PFO)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Lipman
|
|
SCS SERP(3)
|
|
|
9.50
|
|
|
|
383,602
|
|
|
|
|
|
Judge Dobrient
|
|
Alon USA Pension Plan(1)
|
|
|
10.42
|
|
|
|
122,528
|
|
|
|
|
|
Amir Wurzel
|
|
Alon USA Pension Plan(1)
|
|
|
5.33
|
|
|
|
50,094
|
|
|
|
|
|
|
|
|
(1) |
|
Employees who participate in the Alon USA Pension Plan make no
contributions to the pension plan. A participating employee
becomes vested in the pension plan once that employee has
completed five full years of employment, assuming a minimum of
1,000 hours of service per year. After becoming vested, a
participating employee has a non-forfeitable right to his vested
retirement benefit. A participants compensation for
purposes of determining benefits under the Alon USA Pension Plan
includes salary, bonus and overtime pay. The normal retirement
age under the Alon USA Pension Plan is 65. |
|
(2) |
|
Alon Energy also provides additional pension benefits to its
highly compensated employees through the Alon Energy Benefits
Restoration Plan. If an employee is a participant in the Alon
USA Pension Plan and is subject to the limitation on
compensation pursuant to Section 401(a)(17) or 415 of the
Code, then the employee can participate in the benefits
restoration plan and is eligible for a benefit equal to the
benefit that would be payable under the pension plan but for the
limitations on compensation less the benefit actually payable
under the pension plan. The Alon Energy Benefits Restoration
Plan is unfunded and vests on the same schedule as the Alon USA
Pension Plan. |
|
|
|
(3) |
|
Pursuant to the Supplemental Retirement Income Agreement (the
SCS SERP) between Mr. Lipman and SCS,
Mr. Lipman makes no contributions to the SCS SERP.
Additionally, Mr. Lipman is fully vested in the SCS SERP
and has a non-forfeitable right to his vested retirement
benefit. Mr. Lipmans compensation for purposes of
determining benefits under the SCS SERP includes salary, bonus
and overtime pay. The SCS SERP is unfunded by SCS. |
81
The following table provides the estimated annual benefits
payable to eligible employees upon retirement under the Alon USA
Pension Plan, based on the eligible employees average
annual compensation level at retirement and credited years of
service. The average annual compensation level is based on
averaging the highest 36 months of pay out of the
10 years prior to the employee leaving Alon Energy. The SCS
SERP does not provide for the payment of annual benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Table(1)(2)
|
|
|
Years of Service
|
Compensation Level
|
|
15
|
|
20
|
|
25
|
|
30
|
|
35
|
|
$125,000
|
|
$
|
30,938
|
|
|
$
|
41,250
|
|
|
$
|
51,563
|
|
|
$
|
61,875
|
|
|
$
|
72,188
|
|
150,000
|
|
|
37,125
|
|
|
|
49,500
|
|
|
|
61,875
|
|
|
|
74,250
|
|
|
|
86,625
|
|
175,000
|
|
|
43,313
|
|
|
|
57,750
|
|
|
|
72,188
|
|
|
|
86,625
|
|
|
|
101,063
|
|
200,000
|
|
|
49,500
|
|
|
|
66,000
|
|
|
|
82,500
|
|
|
|
99,000
|
|
|
|
115,500
|
|
225,000
|
|
|
55,688
|
|
|
|
74,250
|
|
|
|
92,813
|
|
|
|
111,375
|
|
|
|
129,938
|
|
250,000
|
|
|
61,875
|
|
|
|
82,500
|
|
|
|
103,125
|
|
|
|
123,750
|
|
|
|
144,375
|
|
300,000
|
|
|
74,250
|
|
|
|
99,000
|
|
|
|
123,750
|
|
|
|
148,500
|
|
|
|
173,250
|
|
400,000
|
|
|
99,000
|
|
|
|
132,000
|
|
|
|
165,000
|
|
|
|
198,000
|
|
|
|
231,000
|
|
450,000
|
|
|
111,375
|
|
|
|
148,500
|
|
|
|
185,625
|
|
|
|
222,750
|
|
|
|
259,875
|
|
500,000
|
|
|
123,750
|
|
|
|
165,000
|
|
|
|
206,250
|
|
|
|
247,500
|
|
|
|
288,750
|
|
|
|
|
(1) |
|
Pension plan benefits are computed on a straight-line annuity
basis. |
|
(2) |
|
The benefits listed in the pension plan table above are subject
to a deduction for Social Security benefits. |
The compensation covered by the SCS SERP and Alon USA Pension
Plan and the credited years of service with respect to
Messrs. McKeen, Lipman, Dobrient and Wurzel as of
December 31, 2010 are set forth in the table below,
assuming retirement at the normal retirement age under the plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
Credit Years of
|
Name
|
|
Plan
|
|
Covered by Plan
|
|
Service
|
|
Kyle McKeen
|
|
Alon USA Pension Plan
|
|
$
|
315,953
|
|
|
|
4.54
|
|
Joseph Lipman
|
|
SCS SERP
|
|
|
246,702
|
|
|
|
9.50
|
|
Judge Dobrient
|
|
Alon USA Pension Plan
|
|
|
174,587
|
|
|
|
10.42
|
|
Amir Wurzel
|
|
Alon USA Pension Plan
|
|
|
142,140
|
|
|
|
5.33
|
|
Mr. Lipman is eligible for early retirement under the SCS
SERP. As of December 31, 2010, if Mr. Lipman were to
elect early retirement under the pension plan, he would be
eligible to receive a lump sum payment in the amount of
$417,122, which is actuarially equivalent to a single life
annuity benefit as determined by the Alon USA Pension Plan. This
benefit amount is calculated based on an average annual
compensation level of $246,702. Messrs. McKeen and Dobrient
are not eligible for early retirement.
Employment
Agreements
Kyle McKeen. We are party to a Management Employment
Agreement with Mr. McKeen to serve as our President and
Chief Executive Officer through May 2013, which automatically
renews for successive one-year terms unless terminated by either
party. Under the Management Employment Agreement,
Mr. McKeens annual base salary will be no less than
$300,000. Mr. McKeen is entitled to participate in our
annual cash bonus plan and incentive compensation plan.
Additionally, we are required to provide Mr. McKeen with
additional benefits to the extent such benefits are made
available to other management members at the level of Mr.
McKeen, including disability, hospitalization, medical and
retiree benefits and life insurance.
During the first year following the completion of this offering,
Mr. McKeen will be permitted to purchase shares of our
stock at the initial public offering price in an amount not to
exceed one percent of the total number of shares outstanding.
For each of the three years thereafter, Mr. McKeen will be
eligible to receive a grant of restricted shares up to the
number of shares purchased by him during the initial year. The
actual number of restricted shares granted in each year will be
determined by our performance in the prior calendar year, as
compared to predetermined performance goals established by the
compensation committee. All of the
82
restricted shares will vest on the earlier of May 1, 2013
or in the event that Alon Energy ceases to own, directly or
indirectly, at least 50.0% of the outstanding shares of our
common stock and Mr. McKeens employment with us
terminates for any reason.
Mr. McKeen is subject to a covenant not to compete during
the term of his employment and for one year after the date of
his termination. Mr. McKeen is also prohibited from
disclosing any proprietary information received as a result of
his employment. In the event that we terminate
Mr. McKeens employment without Cause (as defined in
the agreement) or Mr. McKeen terminates his employment upon
at least 30 days prior written notice for Good Reason (as
defined in the agreement), he is entitled to receive his base
salary through the termination date, a prorated share of his
annual bonus and a severance payment equal to his then-current
annual base salary.
Joseph Lipman. We are a party to an Executive Employment
Agreement with Mr. Lipman which automatically renews for
one-year terms unless terminated by either party.
Mr. Lipman currently receives a base salary of $225,200 per
year and is eligible for annual merit increases. Under his
employment agreement, Mr. Lipman is entitled to participate
in our annual cash bonus plan and incentive compensation plan.
Additionally, we are required to provide Mr. Lipman with
additional benefits to the extent such benefits are made
available to other management members at the level of
Mr. Lipman, including disability, hospitalization, medical
and retiree health benefits and life insurance.
Mr. Lipman is subject to a covenant not to compete during
the term of his employment. Mr. Lipman is also prohibited
from disclosing any proprietary information received as a result
of his employment. In the event that we terminate
Mr. Lipmans employment in good faith or
Mr. Lipman terminates his employment upon at least
30 days prior written notice for Good Reason (as
defined in the agreement), he is entitled to receive his base
salary through the termination date, a prorated share of his
annual bonus and a severance payment equal to nine months
base salary.
Following this offering, we expect to enter into employment
agreements with other members of our executive management team.
Potential
Payments Upon Termination or Change of Control
Pursuant to their employment agreements, Messrs. McKeen and
Lipman are entitled to receive payments equal to one years
salary and nine months salary, respectively, following
termination of employment for any reason other than
cause, as defined in their respective employment
agreements.
Director
Compensation
After completion of this offering, our non-employee directors
will receive an annual fee of $20,000, plus an additional fee of
$2,500 for each board meeting attended ($1,250 if attendance is
telephonic). Each member of a board committee will receive a fee
of $1,000 for each committee meeting attended and the committee
chairperson will receive an additional $1,000 for serving as
chair of the meeting. We reimburse all directors for expenses
incurred in attending board and committee meetings. In addition,
each non-employee director who is not affiliated with Alon
Israel will receive $20,000 per year in restricted stock.
One-third of these restricted stock awards will vest on each of
the first, second and third anniversaries of the grant date.
Compensation
Committee Interlocks and Insider Participation
We did not have a compensation committee prior to this offering.
In connection with this offering, we established a compensation
committee consisting of David Wiessman and Jeff Morris. See
Certain Relationships and Related Party Transactions
for information regarding relationships and transactions
involving Alon Brands in which Messrs. Wiessman and Morris
have interests.
83
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Review,
Approval or Ratification of Transactions with Related
Persons
The Board has not adopted and does not plan to adopt specific
policies or procedures for review or approval of related-party
transactions or potential conflicts of interest. The Board
intends to consider any related-party transactions or potential
conflict of interest on a case by case basis and in a manner
consistent with its fiduciary obligations under applicable
Delaware law. The Board has not taken specific steps to address
any potential conflicts of interest related to this offering or
the following transactions and relationships but believes that
this offering and the following transactions and relationships
are reasonable and in the best interest of Alon Brands.
Transactions
with Management and Others
Relationship
with Officers and Directors
Messrs. McKeen, Lipman, Dobrient, Wurzel, David Wiessman,
Shai Even, Morris and Eisman have ownership interests in the
common stock of Alon Energy. Mr. Morris has an ownership
interest in the common stock of our indirect parent, Alon USA
Operating, Inc. and Messrs. David Wiessman and Boaz Biran
(a director nominee) have ownership interests in the common
stock of Alon Israel. See Principal and Selling
Stockholders. These interests could create, or appear to
create, potential conflicts of interest when directors and
officers are faced with decisions that could have different
implications for us and Alon Energy or Alon Israel.
Relationship
with Alon Energy
Immediately prior to this offering, Alon USA, LP, a subsidiary
of Alon Energy, is our only stockholder. After this offering,
Alon USA, LP will own
approximately % of our outstanding
shares of common stock ( %, if the
underwriters exercise their over-allotment option in full). See
Principal and Selling Stockholders. For as long as
Alon Energy, through its ownership of Alon USA, LP, continues to
own a majority of our common stock, Alon Energy will have the
power to determine the outcome of matters submitted to a vote of
our stockholders, will have the power to prevent a change in
control of us and could take other actions that might be
favorable to Alon Energy. See Description of Capital
Stock.
Prior to the completion of this offering, we will enter into a
Master Agreement and a number of other agreements with Alon
Energy setting forth various matters governing our separation
from Alon Energy and our relationship with Alon Energy while it
remains a significant stockholder in us. These agreements will
govern our relationship with Alon Energy after this offering and
will provide for, among other things, the allocation of employee
benefit, tax and other liabilities and obligations attributable
to our operations.
Master Agreement. We will enter into a master
agreement with Alon Energy prior to the completion of this
offering. In this prospectus, we refer to this agreement as the
Master Agreement. The Master Agreement will set forth our
agreements with Alon Energy regarding the principal transactions
required to effect the transfer of assets and the assumption of
liabilities necessary to complete the separation of our company
from Alon Energy. It also will set forth other agreements
governing our relationship after the separation.
The Transfers. To effect the separation, Alon
USA, LP will contribute to us the branded wholesale business, as
described in this prospectus. We will assume and agree to
perform, discharge and fulfill the liabilities related to our
businesses for which Alon Energy or its affiliates are presently
obligated, other than liabilities associated with the branded
wholesale business arising prior to Alon USA, LPs
contribution to us. If any governmental approval or other
consent required to transfer any assets to us or for us to
assume any liabilities is not obtained prior to the completion
of this offering, we will agree with Alon Energy that such
transfer or assumption will be deferred until the necessary
approvals or consents are obtained. Alon USA, LP will continue
to hold the assets and be responsible for the liabilities for
our benefit and at our expense until the necessary approvals or
consents are obtained.
84
Except as expressly set forth in any transaction document, all
assets will be transferred on an as is, where is
basis, and we will agree to bear the economic and legal risks
that any conveyance was insufficient to vest in us good title,
free and clear of any security interest, and that any necessary
consents or approvals are not obtained or that any requirements
of laws or judgments are not complied with.
Auditors and Audits; Annual Financial Statements and
Accounting. The Master Agreement provides that,
for so long as Alon Energy is required to consolidate our
results of operations and financial position or account for its
investment in our company under the equity method of accounting,
we will:
|
|
|
|
|
maintain a fiscal year end and accounting periods the same as
Alon Energy;
|
|
|
|
conform our financial presentation with that of Alon Energy;
|
|
|
|
not change our independent auditors without Alon Energys
prior written consent (which will not be unreasonably withheld);
|
|
|
|
use commercially reasonable efforts to enable our independent
auditors to complete their audit of our financial statements in
a timely manner so as to permit timely filing of Alon
Energys financial statements;
|
|
|
|
provide to Alon Energy all information required for Alon Energy
to meet its schedule for the filing and distribution of its
financial statements;
|
|
|
|
make available to Alon Energy and its independent auditors all
documents necessary for the annual audit of our company as well
as access to the responsible personnel so that Alon Energy and
its independent auditors may conduct their audits relating to
our financial statements;
|
|
|
|
provide Alon Energy with financial reports, financial
statements, budgets, projections, press releases and other
financial data and information with respect to our business,
properties and financial positions;
|
|
|
|
adhere to certain specified disclosure controls and procedures
and Alon Energy accounting policies; and
|
|
|
|
notify and consult with Alon Energy regarding any changes to our
accounting principles and estimates used in the preparation of
our financial statements, and any deficiencies in, or violations
of law in connection with, our internal control over financial
reporting and certain fraudulent conduct and other violations of
law.
|
Exchange of Other Information. The Master
Agreement also provides for other arrangements with respect to
the mutual sharing of information between Alon Energy and us in
order to comply with reporting, filing, audit or tax
requirements, for use in judicial proceedings and in order to
comply with our respective obligations after the separation. We
will also agree to provide mutual access to historical records
relating to the others businesses that may be in our
possession.
Releases and Indemnification. Except for each
partys obligations under the Master Agreement, the other
transaction documents and certain other specified liabilities,
we and Alon Energy will release and discharge each other and
each of our affiliates, and their directors, officers, agents
and employees from all liabilities existing or arising between
us on or before the separation, including in connection with the
separation and this offering. The releases will not extend to
obligations or liabilities under any agreements between Alon
Energy and us that remain in effect following the separation.
We will indemnify, hold harmless and defend Alon Energy, each of
its affiliates and each of their respective directors, officers
and employees, on an after-tax basis, from and against all
liabilities relating to, arising out of or resulting from:
|
|
|
|
|
the failure by us or any of our affiliates (other than Alon
Energy) or any other person or entity to pay, perform or
otherwise promptly discharge any liabilities or contractual
obligations associated with our businesses, whether arising
before or after the separation;
|
85
|
|
|
|
|
the operations, liabilities and contractual obligations of our
retail business whether arising before or after the separation
and of our branded wholesale business arising after the
separation;
|
|
|
|
any guarantee, indemnification obligation, surety bond or other
credit support arrangement by Alon Energy or any of its
affiliates for our benefit;
|
|
|
|
any breach by us or any of our affiliates of the Master
Agreement, the other transaction documents or our amended and
restated certificate of incorporation or bylaws;
|
|
|
|
any untrue statement of, or omission to state, a material fact
in Alon Energys public filings to the extent the statement
or omission was as a result of information that we furnished to
Alon Energy or that Alon Energy incorporated by reference from
our public filings, if the statement or omission was made or
occurred after the separation; and
|
|
|
|
any untrue statement of, or omission to state, a material fact
in any registration statement or prospectus related to this
offering, except to the extent the statement was made or omitted
in reliance upon information provided to us by Alon Energy
expressly for use in any such registration statement or
prospectus or information relating to and provided by any
underwriter expressly for use in any such registration statement
or prospectus.
|
Alon Energy will indemnify, hold harmless and defend us, each of
our affiliates and each of our and their respective directors,
officers and employees, on an after-tax basis, from and against
all liabilities relating to, arising out of or resulting from:
|
|
|
|
|
the failure of Alon Energy or any of its affiliates (other than
us) or any other person or entity to pay, perform or otherwise
promptly discharge any liabilities of Alon Energy or its
affiliates, other than liabilities associated with our
businesses, whether arising before or after the separation;
|
|
|
|
the liabilities of Alon Energy and its affiliates
businesses, other than liabilities associated with our
businesses;
|
|
|
|
any breach by Alon Energy or any of its affiliates of the Master
Agreement or the other transaction documents;
|
|
|
|
any untrue statement of, or omission to state, a material fact
in our public filings to the extent the statement or omission
was as a result of information that Alon Energy furnished to us
or that we incorporated by reference from Alon Energys
public filings, if the statement or omission was made or
occurred after the separation; and
|
|
|
|
any untrue statement of, or omission to state, a material fact
contained in any registration statement or prospectus related to
this offering, but only to the extent the statement or omission
was made or omitted in reliance upon information provided by
Alon Energy expressly for use in any such registration statement
or prospectus.
|
Expenses of the Separation and Our Initial Public
Offering. The Master Agreement provides that Alon
Energy will pay or reimburse us for all
out-of-pocket
fees, costs and expenses (including all legal, accounting and
printing expenses) incurred prior to the completion of this
offering in connection with our separation from Alon Energy,
except that we shall be responsible for fees and expenses
attributable to this offering.
Other Provisions. The Master Agreement also
contains covenants between Alon Energy and us with respect to
other matters, including the following:
|
|
|
|
|
confidentiality of our and Alon Energys information;
|
|
|
|
our right to continue coverage under Alon Energys
insurance policies for so long as Alon Energy owns a majority of
our outstanding common stock;
|
|
|
|
restrictions on our ability to take any action or enter into any
agreement that would cause Alon Energy to violate any law,
organizational document, agreement or judgment;
|
86
|
|
|
|
|
our obligation to comply with Alon Energys policies
applicable to its subsidiaries for so long as Alon Energy owns a
majority of our outstanding common stock, except (i) to the
extent such policies conflict with our certificate of
incorporation or bylaws or any of the agreements between Alon
Energy and us, or (ii) as otherwise agreed with Alon Energy
or superseded by any policies adopted by our board of
directors; and
|
|
|
|
restrictions on our ability to enter into any agreement that
binds or purports to bind Alon Energy.
|
Corporate Services Agreement. We will enter
into a corporate services agreement with Alon Energy prior to
the completion of this offering to provide us certain
administrative and support services and other assistance
consistent with the services provided to us before this
offering. In this prospectus, we refer to this agreement as the
Corporate Services Agreement. The services Alon Energy will
provide us, as qualified in the agreement, include the following:
|
|
|
|
|
treasury, payroll and other financial-related services;
|
|
|
|
human resources and employee benefits;
|
|
|
|
legal and related services;
|
|
|
|
information systems, network and related services;
|
|
|
|
investment services;
|
|
|
|
corporate services; and
|
|
|
|
procurement and sourcing support.
|
The charges for the corporate services generally are intended to
allow Alon Energy to fully recover the allocated direct costs of
providing the services, plus all
out-of-pocket
costs and expenses, without markup over actual
out-of-pocket
costs. We believe that the allocated costs are substantially
equivalent to the cost that would be incurred by us if we were
to obtain such services from third parties or hire additional
personnel to perform such functions. In addition to the cost of
these services, we may incur other corporate and operational
costs which may be greater than historically allocated levels.
The allocation of cost will be based on various measures
depending on the service provided.
Under the Corporate Services Agreement, we will each have the
right to purchase goods or services, use intellectual property
licensed from third parties and realize other benefits and
rights under Alon Energys agreements with third-party
vendors to the extent allowed by such vendor agreements. The
Corporate Services Agreement also will provide for the lease or
sublease of certain facilities used in the operation of our
respective businesses and for access to Alon Energys
computing and telecommunications systems to the extent necessary
to perform or receive the corporate services.
The Corporate Services Agreement will require Alon Energy to
continue to make available to us the range of services provided
by Alon Energy prior to this offering, as qualified by such
agreement. The Corporate Services Agreement may be terminated by
mutual agreement of Alon Energy and us at any time, or upon no
less than six months prior notice. However, the Corporate
Services Agreement will require Alon Energy to provide certain
specified services, generally related to information technology,
for a period of time specified in the agreement after the
expiration of the six-month notice period. Under the terms of
the Corporate Services Agreement, Alon Energy will not be liable
to us for or in connection with any services rendered pursuant
to the Corporate Services Agreement or for any actions or
inactions taken by Alon Energy in connection with the provision
of services. However, Alon Energy will be liable for, and will
indemnify a receiving party for, liabilities resulting from its
gross negligence, willful misconduct, improper use or disclosure
of client information or violations of law. Additionally, we
will indemnify Alon Energy for any losses arising from the
provision of services, except to the extent the liabilities are
caused by Alon Energys gross negligence or material breach
of the Corporate Services Agreement.
Alon Energy Agreements with Third
Parties. Historically, we have received services
provided by third parties pursuant to various agreements that
Alon Energy has entered into for the benefit of its affiliates.
We
87
pay the third parties directly for the services they provide to
us or reimburse Alon Energy for our share of the actual costs
incurred under the agreements. After this offering, we intend to
continue to procure certain of these third-party services,
including services related to insurance, vehicle leases,
information technology and software, through contracts entered
into by Alon Energy, to the extent we are permitted and elect to
do so.
Registration Rights Agreement. For a
description of the registration rights agreement with, and the
registration rights granted to, Alon Energy, see
Shares Eligible for Future Sale
Registration Rights.
Tax Matters Agreement. Prior to the completion
of this offering, we and Alon Energy will enter into a tax
matters agreement to allocate the responsibility of Alon Energy
and its subsidiaries, on the one hand, and we and our
subsidiaries, on the other, for the payment of taxes resulting
from filings prior to the separation of tax returns on a
combined, consolidated or unitary basis. In this prospectus, we
refer to this agreement as the Tax Matters Agreement.
For U.S. federal income tax purposes, each member of an
affiliated group of corporations that files a consolidated
return is jointly and severally liable for the U.S. federal
income tax liability of the entire group. Similar principles may
apply with respect to members of a group that file a tax return
on a combined, consolidated or unitary group basis for foreign,
state and local tax purposes. Accordingly, the Tax Matters
Agreement will allocate tax liabilities between Alon Energy and
us during the periods in which we or any of our subsidiaries
were included in the consolidated group of Alon Energy or any of
its subsidiaries. The Tax Matters Agreement will provide that
Alon Energy will indemnify us and our subsidiaries to the extent
that, as a result of us or any of our subsidiaries being a
member of a consolidated group, we or our subsidiaries become
liable for the tax liability of the entire consolidated group
(other than the portion of such liability for which we and our
subsidiaries are liable under the Tax Matters Agreement).
Under Section 482 of the Code, the Internal Revenue Service
has the authority in certain instances to redistribute,
reapportion or reallocate gross income, deductions, credits or
allowances between Alon Energy and us. Other taxing authorities
may have similar authority under comparable provisions of
foreign, state and local law. The Tax Matters Agreement will
provide that we and Alon Energy will indemnify the other to the
extent that, as a result of the Internal Revenue Service
exercising its authority (or any other taxing authority
exercising a similar authority), the tax liability of one group
is reduced while the tax liability of the other group is
increased.
Fuel Sales and Licensing Agreement. We and
Alon USA, LP have entered into a fuel sales and licensing
agreement. Under this agreement, as amended to date Alon USA, LP
agrees to provide us with approximately 310 million gallons
of motor fuels annually, with flexibility to purchase up to 20%
more or less than this amount pro rated monthly. In the event
that we do not purchase at least 80% of the pro rated monthly
amount for three consecutive months, Alon USA, LP has the option
to terminate this agreement. The fuel sales and licensing
agreement also grants to us an exclusive, non-transferable
license to the use of the FINA brand at our convenience stores
and those of our distributors and sublicensees. Pricing for fuel
purchased under this agreement is based upon a formula
incorporating Platts and OPIS-based closing prices. The
pricing arrangement under this agreement is comparable to our
historical pricing arrangements. In the event that we do not
purchase 80% of the pro rated annual minimum in any given month,
Alon USA, LP may elect not to offer the contract pricing for
such purchases. Management believes that the contracted-for
volumes, as structured in the fuel sales and licensing
agreement, provide us with adequate supply to meet the expected
needs of our business.
Payment terms on motor fuels purchased are net 10 days. The
term of the fuel sales and licensing agreement ends on
December 31, 2030, although the license of the FINA brand
may be earlier terminated in the event that Alon USA, LP does
not extend its current license which expires in August of 2012.
Credit Facility Guarantees. SCS and
Skinnys are parties to a credit facility with Wells Fargo
Bank, N.A., the Second Amended and Restated Wells Fargo Credit
Facility. The obligations under the Second Amended and Restated
Wells Fargo Credit Facility are secured by a pledge of
substantially all of the assets of SCS and Skinnys and
each of their subsidiaries, including cash, accounts receivable
and inventory, and are
88
guaranteed by us and Alon Energy. See Liquidity and
Capital Resources Summary of
Indebtedness Wells Fargo Credit Facility.
Alon USA, LP is party to a credit agreement with Israel Discount
Bank of New York, the Parent IDB Revolving Credit Agreement. We
have provided an unsecured unconditional guarantee of all of
Alon USA, LPs obligations under the Parent IDB Revolving
Credit Agreement. Additionally, the accounts receivable
generated by our wholesale marketing segment are pledged as
collateral under the Parent IDB Revolving Credit Agreement. See
Liquidity and Capital Resources Parent Credit
Facility Guarantee.
Relationship
with Alon Israel
As of March 1, 2011 Alon Israel owned approximately 75% of
the outstanding shares of common stock of Alon Energy. Certain
of our directors and director nominees, including
Messrs. David Wiessman and Boaz Biran, have beneficial
ownership interests in Alon Israel as described in footnote 1 to
the Principal and Selling Stockholders table.
Loan
Agreement and Warrants
On February 21, 2011, we entered into a loan agreement with
Alon Israel pursuant to which Alon Israel loaned
$12 million to us for general corporate purposes. This loan
was part of the $30.0 million 2011 loan transactions in
which the other $18.0 million was provided by unaffiliated
third parties. In connection with this loan, Alon Energy issued
to Alon Israel warrants to purchase up to 1,237,113 shares
of Alon Energys common stock for an aggregate purchase
price of up to $12 million, subject to adjustment.
The loan matures in March 2016 and bears interest at a rate of
7% per annum, payable semi-annually; provided, that in the event
the warrants are not exercised in full by maturity, the interest
rate will be increased to 9% per annum retroactively with
respect to the same portion of the loans for which the warrants
were not exercised. The principal amount of the loan is payable
in four equal annual installments beginning in March 2013,
provided that each scheduled principal payment will
automatically be deferred until maturity unless Alon Israel
notifies us in writing of its election to receive the scheduled
principal payment at least 30 days prior to the scheduled
payment date. In the event Alon Israel elects not to defer the
principal payment on any scheduled principal payment date, the
number of warrants associated with the loan will be reduced by
the corresponding amount of such principal payment made.
Pursuant to the warrant agreement, in the event of an
underwritten initial public offering of our common stock
(including the offering contemplated by this prospectus), Alon
Israel may elect to exchange the warrants to purchase Alon
Energy common stock, or any portion thereof, for warrants to
purchase a pre-determined number of shares of our common stock
at an exercise price based on the offering price. The election
to exchange the Alon Energy warrants for warrants to purchase
our common stock must be made prior to the commencement of this
offering. On March 14, 2011 Alon Israel assigned all of its
interests in the warrants to certain shareholders of Alon Israel
and their affiliates, including (1) David Wiessman, our
Chairman of the Board of Directors, Alon Energys Executive
Chairman of the Board and a shareholder of Bielsol (a 50.38%
shareholder of Alon Israel), (2) Shebug Ltd., a shareholder
of Bielsol, and (3) five purchase organizations of the
Kibbutz Movement (each current shareholders of Alon Israel). The
beneficial ownership interests of these warrant holders in Alon
Israel are described in more detail in footnote 1 to the
Principal and Selling Stockholders table.
SCS
Beverage
On February 29, 2004, SCS sold 17 licenses for the sale of
alcoholic beverages at 17 stores in New Mexico to SCS Beverage,
Inc., a corporation treated as a pass-through entity that is
wholly owned by Jeff Morris, Alon Energys Chief Executive
Officer. Under rules and regulations of the New Mexico Alcohol
and Gaming Division, or AGD, a holder of a license to sell
alcoholic beverages in New Mexico must provide substantial
documentation in the application for and annual renewal of the
license, including detailed questionnaires and fingerprints of
the officers and directors of each entity beneficially owning
10% or more of the holder of the license. SCS engaged in this
transaction to expedite the process of renewing the licenses by
89
limiting the required disclosures to one individual stockholder.
The purchase price paid by SCS Beverage consisted of
approximately $2.6 million for the 17 licenses and
approximately $0.2 million for the inventory of alcoholic
beverages on the closing date. The purchase price was paid by
SCS Beverage issuing to SCS a demand promissory note in the
amount of $2.8 million. The demand note is payable solely
by transferring the licenses and inventory existing at the time
of payment back to SCS. The demand note is secured by a pledge
of the licenses and the inventory and a pledge of 100% of the
stock of SCS Beverage. Pursuant to the purchase and sale
agreement, SCS Beverage granted SCS an option to reacquire the
licenses at any time at a purchase price equal to the same
purchase price paid by SCS Beverage to acquire the licenses.
As the holder of the New Mexico licenses, SCS Beverage is the
only party entitled to purchase alcoholic beverages to be sold
at the locations covered by the licenses and to receive revenues
from the sale of alcoholic beverages at those locations.
Simultaneously with the transfer of the licenses, SCS Beverage
entered into a premises lease with SCS to lease space at each of
the locations covered by the licenses for the purpose of
conducting the alcoholic beverages concessions. To date, the
profits realized by SCS Beverage from the sale of alcoholic
beverages at these locations have not exceeded lease payments by
SCS Beverage to SCS and SCS anticipates that this will continue
to be the case in the future. As a result, Mr. Morris has
not received any economic benefit from the ownership of SCS
Beverage, and SCS does not anticipate that Mr. Morris will
derive any economic benefit from his ownership of SCS Beverage
in the future.
Following this offering, we expect to transfer sole ownership of
SCS Beverage to Mr. McKeen, our President and Chief
Executive Officer.
90
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of our common stock as
of ,
2011, on both a historical basis and as adjusted to reflect the
completion of this offering, for:
|
|
|
|
|
each person known by us to beneficially own more than 5% of our
common stock;
|
|
|
|
each executive officer named in the Summary Compensation Table
under Executive Compensation;
|
|
|
|
|
|
the selling stockholder (if the underwriters exercise the
over-allotment option);
|
|
|
|
|
|
each of our directors; and
|
|
|
|
all of our executive officers and directors as a group.
|
Beneficial ownership for the purposes of the following table is
determined in accordance with the rules and regulations of the
Securities and Exchange Commission. These rules generally
provide that a person is the beneficial owner of securities if
they have or share the power to vote or direct the voting
thereof, or to dispose or direct the disposition thereof or have
the right to acquire such powers within 60 days.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
|
Owned After this
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering (assuming
|
|
|
|
|
|
|
|
|
|
|
|
|
the underwriters
|
|
|
Shares Beneficially Owned
|
|
Number of
|
|
exercise their over-
|
|
|
Prior to this Offering
|
|
After this Offering
|
|
Shares being
|
|
allotment in full)(6)
|
Name and Address
|
|
Number
|
|
%
|
|
Number
|
|
%
|
|
Offered(6)
|
|
Number
|
|
%
|
|
5% or more Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alon USA, LP(1)
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kyle McKeen (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Lipman (2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Potter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judge Dobrient (2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amir Wurzel (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Wiessman (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shlomo Braun
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shai Even (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shlomo Even
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff D. Morris (2)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Eisman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snir Wiessman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and executive officers as a group
(12 persons) (2)(3)(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director Nominees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yeshayahu Pery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boaz Biran
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Itzhak Biran
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents less than 1%. |
|
|
|
(1) |
|
Alon USA, LP is a Texas limited partnership and an indirect
subsidiary of Alon Energy. As
of ,
2011 Alon USA, LP beneficially
owned shares
of common stock of Alon Brands, representing 100% of the
outstanding shares of common stock of Alon Brands. Alon Energy,
through it subsidiaries owns 100% of the outstanding voting
rights in Alon USA, LP. As of March 1, 2011, Alon Energy
had |
91
|
|
|
|
|
(i) 55,083,372 common shares outstanding of which Alon
Israel owned approximately 75.0% and (ii) 4,000,000
convertible preferred shares outstanding of which Alon Israel
owned 87.5%. The address of Alon USA, LP and Alon Energy is 7616
LBJ Freeway, Suite 300, Dallas, Texas, 75251. |
|
|
|
|
|
Alon Israel filed a Schedule 13D/A with the SEC on
January 5, 2010 reporting that Alon Israel beneficially
owned 41,183,097 shares of Alon Energy common stock, of
which it had sole investment and voting power over
40,952,082 shares and shared investment and voting power
over 231,015 shares owned by Tabris Investments Inc., a
wholly-owned subsidiary of Alon Israel. |
|
|
|
|
|
On October 28, 2010, Alon Israel purchased
3,500,000 shares of Alon Energys 8.50% Series A
Convertible Preferred Stock (the Preferred Stock) in
a registered direct offering. On December 31, 2010, Alon
Energy issued 88,681 shares of Alon Energy common stock to
Alon Israel in payment of the fourth quarter 2010 Preferred
Stock dividend payment. Alon Israels approximate 75.0%
beneficial ownership of Alon Energy common stock includes the
41,183,097 shares reported in the January 5, 2010
Schedule 13D/A
filing and the 88,681 shares from the December 31,
2010 Preferred Stock dividend payment. |
|
|
|
|
|
After Alon Israels purchase of the Preferred Stock, it
filed a Schedule 13D/A with the SEC on November 2,
2010 reporting that Alon Israel beneficially owned
46,376,047 shares of Alon Energy common stock, of which it
had sole investment and voting power over 46,145,032 shares
and shared investment and voting power over 231,015 shares
owned by Tabris Investments Inc. The 46,376,047 reported in the
November 2, 2010 Schedule 13D/A filing includes the
41,183,097 shares reported in the January 5, 2010
13D/A filing and 5,192,950 shares of Alon Energy common
stock that Alon Israel would receive if it converted all of its
Preferred Stock into Alon Energy common stock at that date. Alon
Israels approximate 75.0% beneficial ownership of Alon
Energy common stock represented in the table above does not
include the 5,192,950 shares that Alon Israel would receive
if it converted all of its Preferred Stock into Alon Energy
common stock because the conversion is subject to stockholder
approval. |
|
|
|
|
|
The address of Alon Israel and Tabris is Europark (France
Building), Kibbutz Yakum 60972, Israel. |
As of March 1, 2011, Alon Israel had 6,215,185 ordinary
shares outstanding, which were owned of record as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Number of
|
|
|
Outstanding
|
|
Record Holder
|
|
Shares
|
|
|
Shares
|
|
|
Bielsol Investments (1987) Ltd.(i)
|
|
|
3,131,375
|
|
|
|
50.38
|
%
|
Several Purchase Organizations of the Kibbutz Movement(ii)
|
|
|
2,915,497
|
|
|
|
46.91
|
|
Mr. Eitan Shmueli, as trustee (iii)
|
|
|
168,313
|
|
|
|
2.71
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,215,185
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Bielsol Investments (1987) Ltd. is a privately held Israeli
limited liability company that is beneficially owned
(1) 80.0% by Shebug Ltd., an Israeli limited liability
company that is wholly owned by the family of Shraga Biran
(where all voting rights have been granted to Shraga Biran), the
father of Boaz Biran, one of our director nominees, and
(2) 20.0% by David Wiessman, the Chairman of the Board. The
address of Bielsol Investments (1987) Ltd. is 1 Denmark
St., Petach-Tivka, Israel. |
|
|
|
(ii) |
|
The Kibbutz Movement is a combination of approximately 270
economic cooperatives, or purchase organizations, engaged in
agriculture, industry and commerce in Israel. The shares of Alon
Israel shown in the table above as owned by several purchase
organizations of the Kibbutz Movement are owned of record by
nine such purchase organizations. Each of the purchase
organizations that owns of record 5% or more of the outstanding
shares of Alon Israel is shown on the following table: |
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Number of
|
|
|
Outstanding
|
|
Purchase Organization
|
|
Shares
|
|
|
Shares
|
|
|
Aloney Granot Cooperative Regional Organization Corporation(x)
|
|
|
505,172
|
|
|
|
8.13
|
%
|
Mishkey Emek Hayarden Ltd.
|
|
|
489,012
|
|
|
|
7.87
|
|
Miskey Hanegev Export Ltd.
|
|
|
476,209
|
|
|
|
7.66
|
|
Mishkey Darom Holdings Cooperative Regional Organization
Corporation
|
|
|
385,519
|
|
|
|
6.20
|
|
Mishkey Galil elyon Cooperative Regional Organization Corporation
|
|
|
391,005
|
|
|
|
6.29
|
|
Alonit Cooperative Regional Organization Corporation
|
|
|
405,394
|
|
|
|
6.52
|
|
|
|
|
|
(x)
|
Itzhak Bader, one of our director nominees, is Chairman of
Granot Cooperative Regional Organization Corporation.
|
The purchase organizations of the Kibbutz Movement have granted
a holding company, or the Holding Company, an irrevocable power
of attorney to vote all of the shares of Alon Israel held by
such purchase organizations. The Holding Company is an Israeli
limited liability company that is owned by nine organizations of
the Kibbutz Movement, some of which are also stockholders of
Alon Israel. One of our director nominees, Mr. Bader, is
Chairman of the Holding Company.
|
|
|
(iii) |
|
The shares of Alon Israel held by Mr. Eitan Shmueli are
held by him as trustee of a trust which David Wiessman, the
Chairman of the Board, is the sole beneficiary. These shares are
treated as non-voting shares. |
Bielsol Investments (1987) Ltd., the purchase organizations
of the Kibbutz Movement and the Holding Company are parties to a
stockholders agreement. Under that agreement:
|
|
|
|
|
Certain major decisions made by Alon Israel require the approval
of more than 75% of the voting interests in Alon Israel or of
more than 75% of the board of directors of Alon Israel, as
applicable. The provisions of the stockholders agreement
relating to approval of major transactions involving Alon Israel
also apply to approval of major transactions involving
significant subsidiaries of Alon Israel, including Alon.
|
|
|
|
The number of directors of Alon Israel must be between three and
12. The provision under the agreement currently allows Bielsol
Investments (1987) Ltd. to elect six directors and the
purchase organizations of the Kibbutz Movement to elect five
directors.
|
|
|
|
There are various rights of first refusal among the stockholders
who are party to the agreement.
|
Africa-Israel Investments Ltd. (Africa Israel) filed
a Schedule 13D/A on March 1, 2010 reporting that
Africa Israel beneficially owned 6,255,313 shares of Alon
Energy common stock, which includes 2,579,774 shares held
directly by Africa Israel and up to 3,675,539 shares
underlying an option exercisable by Africa Israel during certain
exercise windows, and which is mandatorily exercisable on
July 1, 2011 if not exercised prior thereto. The option may
only be exercised one time by Africa Israel, for all shares of
Alon Energy common stock issuable thereunder, during one of the
following exercise periods: (a) during the first five
trading days of the trading period window for Alon Energy common
stock on or after January 1, 2010; (b) during the
first five trading days of the trading period window for Alon
Energy common stock on or after July 1, 2010; or
(c) during the first five trading days of the trading
period window for Alon Energy common stock on or after
January 1, 2011. To the extent Africa Israel exercises the
option during one of the exercise windows that is prior to the
mandatory exercise date on July 1, 2011, the number of
shares to be issued will be less than 3,675,539.
According to Africa Israels Schedule 13D/A filed on
March 1, 2010, it has sole investment and voting power over
6,255,313 shares of Alon Energy common stock and, due to
the right of first offer provided by Africa Israel to Alon
Israel under a share exchange agreement, Africa Israel may be
deemed to share investment and voting power over the
6,255,313 shares of Alon Energy common stock with Alon
Israel. Each of Lev Leviev, Izzy Cohen, Chaim Erez, Avinadav
Grinshpon, Eitan Haber, Shmuel Shkedi, Rami
93
Guzman, Zipora Samet, Jacques Zimmerman, Shaul Dabby, Avi
Barzilay, Gidi Kadusi, Ronit Cohen Nissan, Ron Fainaro, Zviya
Leviev Eliazarov and Ron Maor, the directors and executive
officers of Africa Israel, may be deemed to possess shared
investment and voting power over such shares of Alon Energy
common stock by virtue of their positions with Africa Israel.
Each such director
and/or
executive officer disclaims beneficial ownership of all such
shares. Furthermore, Lev Leviev, as controlling stockholder of
Africa Israel, may be deemed to share beneficial ownership (both
investment and voting power) of all of the shares of Alon Energy
common stock that are held by Africa Israel. Mr. Leviev
disclaims beneficial ownership of all of such shares, except to
the extent of his pecuniary interest therein.
Africa Israel is a publicly-held Israeli limited liability
company that is listed on the Tel Aviv Stock Exchange. As of
March 1, 2010, based on information available to us, Africa
Israel is beneficially owned (a) 47.23% by Lev Leviev, an
Israeli citizen, and (b) 52.77% by public stockholders. The
address of Africa Israel is 4 Derech Hahoresh, Yahud, Israel.
|
|
|
(2) |
|
Such director or executive officer beneficially owns less than
1% of the total outstanding Alon Energy common stock. |
|
(3) |
|
Pursuant to the Alon USA Energy, Inc. Amended and Restated 2005
Incentive Compensation Plan, on March 7, 2007 Alon made
grants of Stock Appreciation Rights (SARs) to
certain officers of Alon Energy at a grant price of $28.46 per
share. The SARs granted on March 7, 2007 vest as follows:
50% on March 7, 2009, 25% on March 7, 2010 and 25% on
March 7, 2011 and are exercisable during the
3-year
period following the date of vesting. |
When exercised, the SARs are convertible into shares of Alon
Energy common stock, the number of which will be determined at
the time of exercise by calculating the difference between the
closing price of Alon Energy common stock on the exercise date
and the grant price of the SARs (the Spread),
multiplying the Spread by the number of SARs being exercised and
then dividing the product by the closing price of Alon Energy
common stock on the exercise date. In no event may a SAR be
exercised if the Spread is not a positive number. On
March 1, 2011, the reported closing price for Alon Energy
common stock on the NYSE was $10.87 which was less than the
respective grant prices.
|
|
|
(4) |
|
As of March 1, 2011, Mr. Wiessman, our Chairman of the
Board, beneficially owns 4.97% of Alon Energy common stock,
which includes: (a) a right to exchange a 2.71% ownership
interest in Alon Israel held in trust by Eitan Shmueli, as
trustee, of which Mr. Wiessman is the sole beneficiary, for
a 2.71% ownership interest in certain subsidiaries of Alon
Israel, including Alon Energy, which if exercised in full as of
March 1, 2011 would represent 1,492,759 shares of Alon
common stock; and (b) 1,247,205 shares of Alon Energy
common stock held by Mr. Wiessman. Additionally,
Mr. Wiessman holds 1,200,000 warrants to purchase shares of
Alon Energy common stock. See Certain Relationships and
Related Party Transactions with Management and
Others Relationship with Alon Israel
Loan Agreement and Warrants. Pursuant to the warrant
agreements, in the event of an underwritten initial public
offering of our common stock (including the offering
contemplated by this prospectus), Mr. Wiessman may elect to
exchange all or any portion of his warrants to purchase Alon
Energy common stock for warrants to purchase a pre-determined
number of shares of our common stock at an exercise price based
on the offering price. The election to exchange the Alon Energy
warrants for warrants to purchase our common stock must be made
prior to the commencement of this offering. |
|
|
|
(5) |
|
As of March 1, 2011, Mr. Morris owns
4,671.40 shares (or 4.27%) of non-voting stock of Alon USA
Operating, Inc., our indirect parent and subsidiary of Alon
Energy. |
|
|
|
(6) |
|
Alon USA, LP, as selling stockholder, has granted the
underwriters the option to
purchase shares of common
stock from Alon USA, LP, at the offering price less the
underwriting discount for 30 days from the date of this
prospectus. This assumes that the underwriters exercise this
option in full. |
94
CORPORATE
REORGANIZATION TRANSACTIONS
Prior to this offering, we were an operating segment of Alon
Energy. Prior to November 2008, our retail business was
conducted through Alon Interests and its direct and indirect
subsidiaries. In November 2008, under Section 265 of the
General Corporation Law of the State of Delaware, Alon Interests
was converted into a Delaware corporation and its name was
changed to Alon Brands. Prior to this offering, our wholesale
marketing segment was conducted through Alon USA, LP, a Texas
limited partnership, which was the sole stockholder of Alon
Brands.
We and Alon Energy and its subsidiaries intend to conduct an
additional corporate reorganization transaction, to take effect
upon the effectiveness of this registration statement, in order
that the retail and wholesale marketing segments will both be
conducted by Alon Brands, the issuer of the shares of common
stock being sold in this offering. In the reorganization, Alon
USA, LP will contribute the assets and liabilities associated
with our wholesale marketing segment to Alon Brands, which will
then be contributed to a
newly-formed
subsidiary. As a result, Alon Brands will become the holding
company for our wholesale marketing segment in addition to
owning our retail business. The reorganization will not affect
our operations.
In addition, we intend to effect a -for-1 stock split
of our common stock outstanding prior to this offering.
The following diagram illustrates our organizational structure
prior to the corporate reorganization transaction:
95
The following diagram illustrates our organizational structure
following the corporate reorganization transaction:
96
DESCRIPTION
OF CAPITAL STOCK
Immediately following the consummation of this offering, our
authorized capital stock will consist of 100,000,000 shares
of common stock, par value $0.01 per share, and
25,000,000 shares of preferred stock, par value $0.01 per
share, the rights and preferences of which may be established
from time to time by our board of directors. Upon completion of
this offering, there will
be outstanding
shares of common stock and no shares of preferred stock will be
outstanding.
The following is a summary of our capital stock and important
provisions of our amended and restated certificate of
incorporation and amended and restated bylaws. This summary does
not purport to be complete and is subject to and qualified by
our amended and restated certificate of incorporation and
amended and restated bylaws, copies of which have been filed as
exhibits to the registration statement of which this prospectus
is a part, and by the provisions of applicable law.
Common
Stock
Holders of our common stock are entitled to one vote for each
share on all matters voted upon by our stockholders, including
the election of directors, and do not have cumulative voting
rights. Subject to the rights of holders of any then outstanding
shares of our preferred stock, our common stockholders are
entitled to receive ratably any dividends that may be declared
by our board of directors out of funds legally available
therefor. Holders of our common stock are entitled to share
ratably in our net assets upon our dissolution or liquidation
after payment or provision for all liabilities and any
preferential liquidation rights of our preferred stock then
outstanding. Holders of our common stock do not have preemptive
rights to purchase shares of our stock. The shares of our common
stock are not subject to any redemption provisions and are not
convertible into any other shares of our capital stock. All
outstanding shares of our common stock are, and the shares of
common stock to be issued in the offering will be, upon payment
therefor, fully paid and nonassessable. The rights, preferences
and privileges of holders of our common stock will be subject to
those of the holders of any shares of our preferred stock we may
issue in the future.
Preferred
Stock
Our board of directors may, from time to time, authorize the
issuance of one or more additional classes or series of
preferred stock without stockholder approval. We have no current
intention to issue any shares of preferred stock.
Our amended and restated certificate of incorporation permits us
to issue up to 25,000,000 shares of preferred stock from
time to time. Subject to the provisions of our amended and
restated certificate of incorporation and limitations prescribed
by law, our board of directors is authorized to adopt
resolutions to issue shares, establish the number of shares,
change the number of shares constituting any series and provide
or change the voting powers, designations, preferences and
relative rights, qualifications, limitations or restrictions on
shares of our preferred stock, including dividend rights, terms
of redemption, conversion rights and liquidation preferences, in
each case without any action or vote by our stockholders.
The issuance of preferred stock may adversely affect the rights
of our common stockholders by, among other things:
|
|
|
|
|
restricting dividends on the common stock;
|
|
|
|
diluting the voting power of the common stock;
|
|
|
|
impairing the liquidation rights of the common stock; or
|
|
|
|
delaying or preventing a change in control.
|
As a result of these or other factors, the issuance of preferred
stock could have an adverse impact on the market price of our
common stock.
97
Anti-takeover
Effects of Certain Provisions of Our Amended and Restated
Certificate of Incorporation and Amended and Restated
Bylaws
General
Our amended and restated certificate of incorporation and
amended and restated bylaws contain provisions that are intended
to enhance the likelihood of continuity and stability in the
composition of our board of directors and that could make it
more difficult to acquire control of our company by means of a
tender offer, open market purchases, a proxy contest or
otherwise. A description of these provisions is set forth below.
Preferred
Stock
We believe that the availability of the preferred stock under
our amended and restated certificate of incorporation provides
us with flexibility in addressing corporate issues that may
arise. Having these authorized shares available for issuance
will allow us to issue shares of preferred stock without the
expense and delay of a special stockholders meeting. The
authorized shares of preferred stock, as well as shares of
common stock, will be available for issuance without further
action by our stockholders, unless action is required by
applicable law or the rules of any stock exchange on which our
securities may be listed. The board of directors has the power,
subject to applicable law, to issue series of preferred stock
that could, depending on the terms of the series, impede the
completion of a merger, tender offer or other takeover attempt.
For instance, subject to applicable law, a series of preferred
stock might impede a business combination by including class
voting rights which would enable the holder or holders of such
series to block a proposed transaction. Our board of directors
could issue preferred stock having terms which could discourage
an acquisition attempt or other transaction that some, or a
majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for
their stock over the then prevailing market price of the stock.
No
Stockholder Action by Written Consent
Our amended and restated certificate of incorporation provides
that any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken only at a duly
called annual or special meeting of stockholders and may not be
effected by any written consent of stockholders in lieu of a
meeting of stockholders. This prevents stockholders from
initiating or effecting any action by written consent, thereby
limiting the ability of stockholders to take actions opposed by
our board of directors.
Advance
Notice Procedure
Our amended and restated bylaws provide an advance notice
procedure for stockholders to nominate director candidates for
election or to bring business before an annual meeting of
stockholders, including proposed nominations of persons for
election to the board of directors. Only persons nominated by,
or at the direction of, our board of directors or by a
stockholder who has given proper and timely notice to our
secretary prior to the meeting will be eligible for election as
a director. In addition, any proposed business other than the
nomination of persons for election to our board of directors
must constitute a proper matter for stockholder action pursuant
to the notice of meeting delivered to us. For notice to be
timely, it must be received by our secretary not less than 60
nor more than 90 calendar days prior to the first anniversary of
the previous years annual meeting (or if the date of the
annual meeting is advanced more than 30 calendar days or delayed
by more than 30 calendar days from such anniversary date, not
earlier than the 90th calendar day prior to such meeting or
the 10th calendar day after public disclosure of the date
of such meeting is first made). These advance notice provisions
may have the effect of precluding the conduct of business at a
meeting if the proper procedures are not followed or may
discourage or deter a potential acquirer from conducting a
solicitation of proxies to elect its own slate of directors or
otherwise attempt to obtain control of us.
Special
Meetings of Stockholders
Our bylaws provide that special meetings of stockholders may be
called only by our chairman of the board, president or secretary
after written request of a majority of the total number of
directors that our company would have it there were no vacancies.
98
Delaware
Anti-Takeover Law
Section 203 of the General Corporation Law of the State of
Delaware provides that, subject to exceptions specified therein,
an interested stockholder of a Delaware corporation
shall not engage in any business combination,
including general mergers or consolidations or acquisitions of
additional shares of the corporation, with the corporation for a
three-year period following the time that such stockholder
becomes an interested stockholder unless:
|
|
|
|
|
prior to such time, the board of directors of the corporation
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
|
|
|
|
upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction
commenced (excluding specified shares); or
|
|
|
|
on or subsequent to such time, the business combination is
approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least
662/3%
of the outstanding voting stock not owned by the interested
stockholder.
|
Under Section 203, the restrictions described above also do
not apply to specified business combinations proposed by an
interested stockholder following the announcement or
notification of one of specified transactions involving the
corporation and a person who had not been an interested
stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the
corporations directors, if such transaction is approved or
not opposed by a majority of the directors who were directors
prior to any person becoming an interested stockholder during
the previous three years or were recommended for election or
elected to succeed such directors by a majority of such
directors.
Except as otherwise specified in Section 203, an
interested stockholder is defined to include:
|
|
|
|
|
any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate
of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within
three years immediately prior to the date of
determination; and
|
|
|
|
the affiliates and associates of any such person.
|
Under some circumstances, Section 203 makes it more
difficult for a person who is an interested stockholder to
effect various business combinations with us for a three-year
period. We have not elected to be exempt from the restrictions
imposed under Section 203.
Limitation
of Liability of Officers and Directors
Our amended and restated certificate of incorporation limits the
liability of directors to the fullest extent permitted by
Delaware law. The effect of these provisions is to eliminate the
rights of our company and our stockholders, through
stockholders derivative suits on behalf of our company, to
recover monetary damages against a director for breach of
fiduciary duty as a director, including breaches resulting from
grossly negligent behavior. However, exculpation does not apply
if the directors acted in bad faith, knowingly or intentionally
violated the law, authorized illegal dividends or redemptions or
derived an improper benefit from their actions as directors. In
addition, our amended and restated certificate of incorporation
provides that we will indemnify our directors and officers to
the fullest extent permitted by Delaware law. We expect to enter
into indemnification agreements with our current directors and
executive officers prior to the completion of this offering. We
also maintain directors and officers insurance.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock
is .
99
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there was no market for our common
stock. We can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless,
sales of significant amounts of our common stock in the public
market, or the perception that those sales may occur, could
adversely affect prevailing market prices and impair our future
ability to raise capital through the sale of our equity at a
time and price we deem appropriate.
Upon completion of this offering,
approximately shares
of our common stock will be outstanding. Of these shares, Alon
USA, LP, a subsidiary of Alon Energy, will beneficially
own shares
of our common stock
( shares,
or %, if the underwriters over-allotted option
is exercised in full), which will
represent % of the total
fully-diluted shares of our common stock. In addition,
all
shares of common stock sold in this offering will be freely
tradeable in the public market without restriction or further
registration under the Securities Act, unless those shares are
purchased by affiliates as that term is defined in
Rule 144 under the Securities Act. The
remaining shares
of common stock, or % of our total
fully-diluted shares of common stock, will constitute
restricted securities as that term is defined in
Rule 144. Restricted securities may be sold in the public
market only if registered under the Securities Act or if they
qualify for an exemption from registration under Rules 144
or 701 under the Securities Act. These rules are summarized
below. Of these remaining
shares, shares
are also subject to
lock-up
agreements restricting the sale of such shares for 180 days
from the date of this prospectus, subject to certain extensions.
However, the underwriters may waive this restriction and allow
these stockholders to sell their shares at any time. These
shares will all become eligible for resale in the public market
from time to time following such
lock-up
period when the applicable holding period under Rule 144
has been met with respect to such shares.
Rule 144
In general, under Rule 144 as currently in effect,
beginning 90 days after the effective date of this
offering, a person, or persons whose shares must be aggregated,
who is one of our affiliates and has beneficially owned
restricted shares of our common stock for at least six months is
entitled to sell within any three-month period a number of
shares that does not exceed the greater of the following:
|
|
|
|
|
one percent of the then-outstanding shares of our common stock,
or
approximately shares
immediately after this offering; or
|
|
|
|
the average weekly trading volume of our common stock on the
NYSE during the four calendar weeks preceding the date of filing
of a notice on Form 144 with respect to the sale.
|
Sales by our affiliates under Rule 144 are also generally
subject to certain manner of sale and notice requirements and to
the availability of current public information about us.
In addition, under Rule 144, a person, or persons whose
shares must be aggregated, who is not currently an affiliate of
ours, and who has not been an affiliate of ours for at least
90 days before the sale, and who has beneficially owned the
shares proposed to be sold for at least six months is entitled
to sell the shares without restriction, provided that until the
shares have been held for at least one year, they may only be
sold subject to the availability of current public information
about us.
Rule 701
In general, Rule 701 of the Securities Act, as currently in
effect, provides that any of our employees, consultants or
advisors who purchased shares of our common stock in connection
with a compensatory stock or option plan or other written
agreement relating to compensation is eligible to resell those
shares 90 days after we became a reporting company under
the Securities Exchange Act of 1934 in reliance on
Rule 144, but without compliance with some of the
restrictions provided in Rule 144, including the holding
period requirements.
100
Lock-Up
Agreement
For a description of the
lock-up
agreement with the underwriters that restricts sales of shares
by Alon Energy, see Underwriting.
Registration
Rights
Pursuant to the terms of a registration rights agreement with
Alon USA, LP, a subsidiary of Alon Energy, we have provided Alon
Energy with certain rights with respect to the registration of
shares of our common stock under the Securities Act. Under the
terms of the agreement, if we propose to register any of our
securities under the Securities Act, either for our own account
or for the account of other security holders exercising
registration rights, Alon Energy is entitled to notice of such
registration and is entitled to include shares of such common
stock therein. In addition, Alon Energy is entitled to certain
demand registration rights pursuant to which it may require us
to file a registration statement under the Securities Act at our
expense with respect to our shares of common stock, provided
that the number of shares to be included in such registration is
not less than 10% of the then-outstanding shares of our common
stock and 5% of the aggregate number of shares outstanding
immediately following completion of this offering. Alon Energy
may exercise these demand registration rights no more than three
times during the term of the agreement, except for those demand
registrations that we can satisfy on
Form S-3,
which shall be unlimited. We are not required to effect a demand
registration during the period starting 60 days prior to
our good faith estimate of the filing date of, and ending
90 days after the effective date of, a company-initiated
registration on which Alon Energy can piggyback. Under these
registration rights, the underwriters of an offering may limit
the number of shares included in the registration. The
registration rights agreement shall remain in effect so long as
Alon Energy owns any registrable shares, as defined
in the agreement, which includes all shares of our common stock
held by Alon Energy that have not been (1) sold under an
effective registration statement, (2) distributed to the
public pursuant to Rule 144, (3) otherwise have become
freely distributable by Alon Energy without the need for
registration under federal or state securities laws or subject
to volume or manner of sale restrictions under Rule 144 or
(4) cease to be outstanding.
101
MATERIAL
U.S. FEDERAL TAX CONSEQUENCES
TO NON-U.S.
HOLDERS OF COMMON STOCK
The following is a general discussion of the material
U.S. federal income and estate tax consequences to
non-U.S. Holders
with respect to the acquisition, ownership and disposition of
our common stock. In general, a
Non-U.S. Holder
is any holder (other than a partnership) of our common stock
other than the following:
|
|
|
|
|
a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United
States or meets the substantial presence test under
Section 7701(b)(3) of the Code;
|
|
|
|
|
|
a corporation (or an entity treated as a corporation) created or
organized in the United States or under the laws of the United
States, any state thereof, or the District of Columbia;
|
|
|
|
an estate, the income of which is subject to U.S. federal
income tax regardless of its source; or
|
|
|
|
a trust, if a U.S. court can exercise primary supervision
over the administration of the trust and one or more
U.S. persons can control all substantial decisions of the
trust, or certain other trusts that have a valid election to be
treated as a U.S. person pursuant to the applicable
Treasury Regulations.
|
This discussion is based on current provisions of the Internal
Revenue Code, Treasury Regulations, judicial opinions, published
positions of the Internal Revenue Service (IRS), and
all other applicable administrative and judicial authorities,
all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of
U.S. federal income and estate taxation or any aspects of
state, local, or
non-U.S. taxation,
nor does it consider any specific facts or circumstances that
may apply to particular
Non-U.S. Holders
that may be subject to special treatment under the
U.S. federal income tax laws including, but not limited to,
insurance companies, tax-exempt organizations, pass-through
entities, financial institutions, brokers, dealers in
securities, and U.S. expatriates. If a partnership or other
entity treated as a partnership for U.S. federal income tax
purposes is a beneficial owner of our common stock, the
treatment of a partner in the partnership will generally depend
upon the status of the partner and the activities of the
partnership. This discussion assumes that the
Non-U.S. Holder
will hold our common stock as a capital asset, which generally
is property held for investment.
Prospective investors are urged to consult their tax advisors
regarding the U.S. federal, state and local, and
non-U.S. income
and other tax considerations of acquiring, holding and disposing
of shares of common stock.
Dividends
In general, dividends paid to a
Non-U.S. Holder
(to the extent paid out of our current or accumulated earnings
and profits, as determined under U.S. federal income tax
principles) will be subject to U.S. withholding tax at a
rate equal to 30% of the gross amount of the dividend, or a
lower rate prescribed by an applicable income tax treaty, unless
the dividends are effectively connected with a trade or business
carried on by the
Non-U.S. Holder
within the United States. Under applicable Treasury Regulations,
a
Non-U.S. Holder
will be required to satisfy certain certification requirements,
generally on IRS
Form W-8BEN,
directly or through an intermediary, in order to claim a reduced
rate of withholding under an applicable income tax treaty. If
tax is withheld in an amount in excess of the amount applicable
under an income tax treaty, a refund of the excess amount may
generally be obtained by filing an appropriate claim for refund
with the IRS.
Dividends that are effectively connected with such a
U.S. trade or business generally will not be subject to
U.S. withholding tax if the
Non-U.S. Holder
files the required forms, including IRS
Form W-8ECI,
or any successor form, with the payor of the dividend, but
instead generally will be subject to U.S. federal income
tax on a net income basis in the same manner as if the
Non-U.S. Holder
were a resident of the United States. A corporate
Non-U.S. Holder
that receives effectively connected dividends may be subject to
an additional branch profits tax at a rate of 30%, or a lower
rate prescribed by an applicable income tax treaty, on the
repatriation from the United States of its effectively
connected earnings and profits, subject to adjustments.
102
Gain on
Sale or Other Disposition of Common Stock
In general, a
Non-U.S. Holder
will not be subject to U.S. federal income tax on any gain
realized upon the sale or other taxable disposition of the
Non-U.S. Holders
shares of common stock unless:
|
|
|
|
|
the gain is effectively connected with a trade or business
carried on by the
Non-U.S. Holder
within the United States (and, where an income tax treaty
applies, is attributable to a U.S. permanent establishment
of the
Non-U.S. Holders),
in which case the branch profits tax discussed above may also
apply if the
Non-U.S. Holder
is a corporation;
|
|
|
|
the
Non-U.S. Holder
is an individual who holds shares of common stock as capital
assets and is present in the United States for 183 days or
more in the taxable year of disposition and certain other
conditions are met; or
|
|
|
|
we are or have been a U.S. real property holding
corporation for U.S. federal income tax purposes.
|
We have not determined whether or not we currently are a
U.S. real property holding corporation for
U.S. federal income tax purposes. If we are, have been, or
become, a U.S. real property holding corporation in the
future, and our common stock is regularly traded on an
established securities market, a
Non-U.S. Holder
who (actually or constructively) holds or held (at anytime
during the shorter of the five-year period preceding the date of
dispositions or the holders holding period) more than five
percent of our common stock would be subject to
U.S. federal income tax on a disposition of our common
stock but other
Non-U.S. Holders
generally would not be. If our common stock is not so traded,
all
Non-U.S. Holders
would be subject to U.S. federal income tax on disposition
of our common stock. See Risk Factors Risks
Relating to this Offering If we are, or become a
U.S. real property holding corporation, special tax rules
may apply to a sale, exchange or other disposition of common
stock by
non-U.S. holders,
and those holders may be less inclined to invest in our stock as
they may be subject to U.S. federal income tax in certain
situations.
Information
Reporting and Backup Withholding
Generally, we must report annually to the IRS the amount of
dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the
recipient. These information reporting requirements apply even
if withholding was not required because the dividends were
effectively connected dividends or withholding was reduced by an
applicable income tax treaty. Under income tax treaties or other
agreements, the IRS may make its reports available to tax
authorities in the recipients country of residence.
Dividends paid made to a
Non-U.S. Holder
that is not an exempt recipient generally will be subject to
backup withholding, currently at a rate of 28% of the gross
proceeds, unless a
Non-U.S. Holder
certifies as to its foreign status, which certification may be
made on IRS
Form W-8BEN.
Proceeds from the disposition of common stock by a
Non-U.S. Holder
effected by or through a U.S. office of a broker will be
subject to information reporting and backup withholding,
currently at a rate of 28% of the gross proceeds, unless the
Non-U.S. Holder
certifies to the payor under penalties of perjury as to, among
other things, its address and status as a
Non-U.S. Holder
or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds if the transaction is
effected outside the United States by or through a
non-U.S. office.
However, if the broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation,
a foreign person who derives 50% or more of its gross income for
specified periods from the conduct of a U.S. trade or
business, specified U.S. branches of foreign banks or
insurance companies or a foreign partnership with various
connections to the United States, information reporting but not
backup withholding will apply unless:
|
|
|
|
|
the broker has documentary evidence in its files that the holder
is a
Non-U.S. Holder
and certain other conditions are met; or
|
|
|
|
the holder otherwise establishes an exemption.
|
103
Backup withholding is not an additional tax. Rather, the amount
of tax withheld is applied as a credit to the U.S. federal
income tax liability of persons subject to backup withholding.
If backup withholding results in an overpayment of
U.S. federal income taxes, a refund may be obtained,
provided the required documents are timely filed with the IRS.
Withholding
Legislation
Recently enacted legislation would generally impose, effective
for payments made after December 31, 2012, a withholding
tax of 30% on (i) dividends paid on common stock and
(ii) the gross proceeds of a disposition of common stock
paid to a foreign financial institution, unless such institution
enters into an agreement with the U.S. government to
collect and provide to the U.S. tax authorities substantial
information regarding U.S. account holders of such
institution (which would include certain account holders that
are foreign entities with U.S. owners). The legislation
would also generally impose a withholding tax of 30% on
(i) dividends paid on common stock and (ii) the gross
proceeds of a disposition of common stock paid to a
non-financial foreign entity unless such entity provides the
withholding agent with a certification identifying the direct
and indirect U.S. owners of the entity. Under certain
circumstances, a
non-U.S. holder
might be eligible for refunds or credits of such taxes.
Prospective investors are urged to consult with their tax
advisors regarding the possible implications of this legislation
on their investment in shares of our common stock.
Estate
Tax
Our common stock owned or treated as owned by an individual who
is not a citizen or resident of the United States (as
specifically defined for U.S. federal estate tax purposes)
at the time of death will be includible in the individuals
gross estate for U.S. federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.
104
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2011, we have agreed to sell to the underwriters named below,
for
whom
is acting as representative, the following respective numbers of
shares of common stock:
|
|
|
|
|
|
|
Number of
|
|
Underwriter
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in this
offering if any are purchased, other than those shares covered
by the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated.
Alon USA, LP, as selling stockholder, has granted to the
underwriters a
30-day
option to purchase on a pro rata basis up
to additional
shares from the selling stockholder at the initial public
offering price less the underwriting discounts and commissions.
The option may be exercised only to cover any over-allotments of
common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
selling concession of $ per share.
The underwriters and selling group members may allow a discount
of $ per share on sales to other
broker/dealers. After the initial public offering, the
representative may change the public offering price and
concession and discount to broker/dealers.
The following table summarizes the compensation and estimated
expenses we and the selling stockholder will pay:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Total
|
|
|
|
Without
|
|
|
With
|
|
|
Without
|
|
|
With
|
|
|
|
Over-
|
|
|
Over-
|
|
|
Over-
|
|
|
Over-
|
|
|
|
Allotment
|
|
|
Allotment
|
|
|
Allotment
|
|
|
Allotment
|
|
|
Underwriting Discounts and Commissions paid by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Selling Stockholder
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Expenses payable by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The representative has informed us that it does not expect sales
to accounts over which the underwriters have discretionary
authority to exceed 5% of the shares of common stock being
offered.
We have agreed that we will not directly or indirectly
(i) offer, sell, issue, contract to sell, pledge or
otherwise dispose of or file with the SEC a registration
statement under the Securities Act relating to any shares of our
common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock,
(ii) publicly disclose the intention to make any offer,
sale, pledge, disposition or filing or (iii) enter into any
swap, hedge or any other agreement that transfers, in whole or
in part, the economic consequences of ownership of any shares of
our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, without the
prior written consent
of ,
for a period of 180 days after the date of this prospectus,
except (x) grants of stock options to directors, employees
or consultants pursuant to the terms of a plan in effect on the
date hereof and the issuance of our shares of common stock upon
the exercise of those stock options or (y) the issuance of
shares of our common stock pursuant to the exercise of warrants
or options outstanding on the date hereof. However, in the event
that either (1) during the last 17 days of any
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of any
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either
105
case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable,
unless
waives, in writing, such an extension.
Our officers, directors and stockholders have agreed that they
will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common
stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our
common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in
cash or otherwise, or publicly disclose the intention to make
any offer, sale, pledge or disposition, or to enter into any
transaction, swap, hedge or other arrangement, without, in each
case, the prior written consent
of
for a period of 180 days after the date of this prospectus.
However, in the event that either (1) during the last
17 days of any
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of any
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable,
unless
waives, in writing, such an extension.
At our request, the underwriters have reserved for sale at the
initial public offering price up
to shares
of the common stock for employees, directors, officers and other
persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares
available for sale to the general public in the offering will be
reduced to the extent these persons purchase the reserved
shares. Except for certain of our officers and directors who
have entered into
lock-up
agreements as contemplated in the immediately preceding two
paragraphs, each person buying shares through the directed share
program has agreed that, for a period of days
from the date of this prospectus, he or she will not, without
the prior written consent
of ,
dispose of or hedge any shares or any securities convertible
into or exchangeable for our common stock with respect to shares
purchased in the program. For officers and directors purchasing
shares through the directed share program, the
lock-up
agreements contemplated in the immediately preceding two
paragraphs shall govern with respect to their
purchases.
may release any of the securities subject to these
lock-up
agreements at any time without notice. Any reserved shares not
so purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
We and the selling stockholder have agreed to indemnify the
underwriters against liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to
make in that respect.
We intend to apply to list the shares of common stock on the
NYSE under the symbol ABO.
Certain of the underwriters and their respective affiliates have
from time to time performed, and may in the future perform,
various financial advisory, commercial banking and investment
banking services for us and our affiliates in the ordinary
course of business, for which they received, or will receive,
customary fees and expenses.
Prior to this offering, there has been no market for our common
stock. The initial public offering price will be determined by
negotiations between us and the underwriters and will not
necessarily reflect the market price of the common stock
following this offering. The principal factors that will be
considered in determining the initial public offering price will
include:
|
|
|
|
|
the information presented in this prospectus and otherwise
available to the underwriters;
|
|
|
|
the history of, and the prospects for, the industry in which we
will compete;
|
|
|
|
the ability of our management;
|
|
|
|
the prospectus for our future earnings;
|
|
|
|
the present state of our development and our current financial
condition;
|
106
|
|
|
|
|
the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies; and
|
|
|
|
the general conditions of the securities markets at the time of
this offering.
|
We offer no assurances that the initial public offering price
will correspond to the price at which our common stock will
trade in the public market subsequent to the offering or that an
active trading market for our common stock will develop and
continue after this offering.
In connection with this offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
|
|
|
|
|
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
|
|
|
|
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
|
|
|
|
Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
|
|
|
|
Penalty bids permit the representative to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
|
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result,
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the NYSE or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representative may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
107
INTERNATIONAL
SELLING RESTRICTIONS
Notice to
Canadian Residents
Resale
Restrictions
The distribution of our common stock in Canada is being made
only on a private placement basis exempt from the requirement
that we prepare and file a prospectus with the securities
regulatory authorities in each province where trades of our
common stock are made. Any resale of our common stock in Canada
must be made under applicable securities laws that will vary
depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under
a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of our common stock.
Representations
of Purchasers
By purchasing our common stock in Canada and accepting a
purchase confirmation a purchaser is representing to us and the
dealer from whom the purchase confirmation is received that:
|
|
|
|
|
the purchaser is entitled under applicable provincial securities
laws to purchase our common stock without the benefit of a
prospectus qualified under those securities laws;
|
|
|
|
where required by law, that the purchaser is purchasing as
principal and not as agent;
|
|
|
|
the purchaser has reviewed the text above under Resale
Restrictions; and
|
|
|
|
the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of our common
stock to the regulatory authority that by law is entitled to
collect the information.
|
Further details concerning the legal authority for this
information are available on request.
Rights
of Action Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of our common stock, for
rescission against us in the event that this prospectus contains
a misrepresentation without regard to whether the purchaser
relied on the misrepresentation. The right of action for damages
is exercisable not later than the earlier of 180 days from
the date the purchaser first had knowledge of the facts giving
rise to the cause of action and three years from the date on
which payment is made for our common stock. The right of action
for rescission is exercisable not later than 180 days from
the date on which payment is made for our common stock. If a
purchaser elects to exercise the right of action for rescission,
the purchaser will have no right of action for damages against
us. In no case will the amount recoverable in any action exceed
the price at which our common stock was offered to the purchaser
and if the purchaser is shown to have purchased the securities
with knowledge of the misrepresentation, we will have no
liability. In the case of an action for damages, we will not be
liable for all or any portion of the damages that are proven to
not represent the depreciation in value of our common stock as a
result of the misrepresentation relied upon. These rights are in
addition to, and without derogation from, any other rights or
remedies available at law to an Ontario purchaser. The foregoing
is a summary of the rights available to an Ontario purchaser.
Ontario purchasers should refer to the complete text of the
relevant statutory provisions.
Enforcement
of Legal Rights
All of our directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of
process within Canada upon us or those persons. All or a
substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against us or those
108
persons in Canada or to enforce a judgment obtained in Canadian
courts against us or those persons outside of Canada.
Taxation
and Eligibility for Investment
Canadian purchasers of our common stock should consult their own
legal and tax advisors with respect to the tax consequences of
an investment in our common stock in their particular
circumstances and about the eligibility of our common stock for
investment by the purchaser under relevant Canadian legislation.
European
Economic Area
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), each Underwriter represents
and agrees that with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) it has not
made and will not make an offer of Securities to the public in
that Relevant Member State prior to the publication of a
prospectus in relation to the Securities, which has been
approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of Securities to the public
in that Relevant Member State at any time:
|
|
|
|
|
to legal entities that are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
|
|
|
|
to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
|
|
|
|
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the manager for any such
offer; or
|
|
|
|
in any other circumstances that do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
|
For the purposes of this provision, the expression an
offer of Shares to the public in relation to any
Shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the Shares to be offered so as to enable an
investor to decide to purchase or subscribe the Shares, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
United
Kingdom
Each of the underwriters severally represents, warrants and
agrees as follows:
|
|
|
|
|
it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of FSMA) to persons who have professional
experience in matters relating to investments falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 or in circumstances in
which Section 21 of FSMA does not apply to the
company; and
|
|
|
|
|
|
it has complied with, and will comply with all applicable
provisions of FSMA with respect to anything done by it in
relation to the common stock in, from or otherwise involving the
United Kingdom.
|
Notice to
Prospective Investors in Switzerland
This document, as well as any other material relating to the
shares which are the subject of the offering contemplated by
this prospectus, do not constitute an issue prospectus pursuant
to Article 652a
and/or 1156
of
109
the Swiss Code of Obligations. The shares will not be listed on
the SIX Swiss Exchange and, therefore, the documents relating to
the shares, including, but not limited to, this document, do not
claim to comply with the disclosure standards of the listing
rules of SIX Swiss Exchange and corresponding prospectus schemes
annexed to the listing rules of the SIX Swiss Exchange. The
shares are being offered in Switzerland by way of a private
placement, i.e., to a small number of selected investors
only, without any public offer and only to investors who do not
purchase the shares with the intention to distribute them to the
public. The investors will be individually approached by the
issuer from time to time. This document, as well as any other
material relating to the shares, is personal and confidential
and do not constitute an offer to any other person. This
document may only be used by those investors to whom it has been
handed out in connection with the offering described herein and
may neither directly nor indirectly be distributed or made
available to other persons without express consent of the
issuer. It may not be used in connection with any other offer
and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
Prospective Investors in the Dubai International Financial
Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares which are the
subject of the offering contemplated by this prospectus (the
Shares) may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the Shares offered should conduct their own due diligence on
the Shares. If you do not understand the contents of this
document you should consult an authorised financial adviser.
110
LEGAL
MATTERS
The validity of the shares of common stock offered by this
prospectus will be passed upon for our company by Jones Day. The
underwriters have been represented by Cravath,
Swaine & Moore LLP.
EXPERTS
The combined financial statements of Alon Brands, Inc. and
affiliates as of December 31, 2010 and 2009 and for each of
the three years in the period ended December 31, 2010
included in this prospectus and elsewhere in the registration
statement have been so included in reliance upon the reports of
Grant Thornton LLP, independent registered public accountants,
upon the authority of said firm as experts in accounting and
auditing in giving said reports.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on
Form S-1,
Registration
No. 333-155296,
under the Securities Act with respect to the common stock being
sold in this offering. This prospectus, which forms part of the
registration statement, does not contain all of the information
set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information
with respect to us and our common stock being sold in this
offering, we refer you to the registration statement and the
exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus concerning
the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed
as an exhibit to the registration statement, we refer you to the
copy of the contract or document that has been filed, as an
exhibit is qualified in all respects by the filed exhibit. The
registration statement, including exhibits and schedules filed,
may be inspected without charge at the Public Reference Room of
the Securities and Exchange Commission at
100 F Street, NE, Washington, D.C. 20549, and
copies of all or any part of it may be obtained from that office
after payment of fees prescribed by the Securities and Exchange
Commission. Information on the operation of the Public Reference
Room may be obtained by calling the Securities and Exchange
Commission at
1-800-SEC-0330.
The Securities and Exchange Commission maintains a website that
contains reports, proxy and information statements and other
information regarding registrants that file electronically with
the Securities and Exchange Commission at
http://www.sec.gov.
The other information we file with the Securities and Exchange
Commission is not part of the registration statement of which
this prospectus forms a part.
After we have completed this offering, we will file annual,
quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. We
intend to make these filings available on our website once the
offering is completed. In addition, we will provide copies of
our filings free of charge to our stockholders upon request.
111
Report of
Independent Registered Public Accounting Firm
Board of Directors
Alon Brands, Inc.
We have audited the accompanying combined balance sheets of Alon
Brands, Inc. and subsidiaries and affiliates (the
Company) as of December 31, 2009 and 2010, and
the related combined statements of operations, members
interest and stockholders equity, and cash flows for each
of the three years in the period ended December 31, 2010.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these 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. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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 combined financial statements referred to
above present fairly, in all material respects, the financial
position of Alon Brands, Inc. and subsidiaries and affiliates,
as of December 31, 2009 and 2010, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of
America.
Grant Thornton LLP
Dallas, Texas
April 5, 2011 (except for Note 1, Note 2(x), and
the first paragraph of Note 19, as to which the date
is ,
2011).
The foregoing auditors report is in the form that will be
signed upon consummation of the transaction described in
Note 1 to the combined financial statements.
/s/ Grant Thornton LLP
Dallas, Texas
April 5, 2011
F-2
Alon
Brands, Inc. and Affiliates
Combined
Balance Sheets
(In thousands expect share and per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,979
|
|
|
$
|
28,153
|
|
Accounts and short-term notes receivable, net of allowance for
doubtful accounts
|
|
|
15,835
|
|
|
|
23,598
|
|
Inventories
|
|
|
21,954
|
|
|
|
21,008
|
|
Deferred income taxes
|
|
|
1,044
|
|
|
|
423
|
|
Prepaid expenses and other current assets
|
|
|
1,835
|
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
42,647
|
|
|
|
74,324
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
80,960
|
|
|
|
74,065
|
|
|
|
|
|
|
|
|
|
|
Other Non-Current Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
50,256
|
|
|
|
50,256
|
|
Intangible assets, net
|
|
|
8,695
|
|
|
|
8,651
|
|
Other assets
|
|
|
3,866
|
|
|
|
5,152
|
|
|
|
|
|
|
|
|
|
|
Net Other Non-Current Assets
|
|
|
62,817
|
|
|
|
64,059
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
186,424
|
|
|
$
|
212,448
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current portion of notes payable and capital lease obligation
|
|
$
|
6,446
|
|
|
$
|
7,012
|
|
Accounts payable
|
|
|
12,928
|
|
|
|
14,562
|
|
Accounts payable, affiliates
|
|
|
2,194
|
|
|
|
14,550
|
|
Income taxes payable
|
|
|
976
|
|
|
|
|
|
Accrued liabilities and expenses
|
|
|
17,283
|
|
|
|
17,975
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
39,827
|
|
|
|
54,099
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
73,995
|
|
|
|
87,020
|
|
Capital lease obligation
|
|
|
63
|
|
|
|
26
|
|
Deferred income taxes
|
|
|
9,685
|
|
|
|
11,851
|
|
Other non-current liabilities
|
|
|
4,543
|
|
|
|
3,535
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
128,113
|
|
|
|
156,531
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value, 1,000 shares
authorized, 1,000 shares issued and outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
58,416
|
|
|
|
44,691
|
|
Accumulated other comprehensive loss
|
|
|
(953
|
)
|
|
|
(202
|
)
|
Retained earnings
|
|
|
848
|
|
|
|
11,428
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
58,311
|
|
|
|
55,917
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
186,424
|
|
|
$
|
212,448
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-3
Alon
Brands, Inc. and Affiliates
Combined
Statements of Operations
(In thousands except shares and per
share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel
|
|
$
|
978,882
|
|
|
$
|
540,630
|
|
|
$
|
766,424
|
|
Merchandise
|
|
|
253,295
|
|
|
|
261,920
|
|
|
|
274,264
|
|
Other, net
|
|
|
9,879
|
|
|
|
8,990
|
|
|
|
10,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,242,056
|
|
|
|
811,540
|
|
|
|
1,051,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel
|
|
|
951,064
|
|
|
|
509,347
|
|
|
|
728,417
|
|
Merchandise, net
|
|
|
181,688
|
|
|
|
186,291
|
|
|
|
192,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Sales
|
|
|
1,132,752
|
|
|
|
695,638
|
|
|
|
920,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
109,304
|
|
|
|
115,902
|
|
|
|
130,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and Selling Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs, taxes and benefits
|
|
|
45,961
|
|
|
|
48,420
|
|
|
|
51,248
|
|
Leases and utilities
|
|
|
17,221
|
|
|
|
16,359
|
|
|
|
15,978
|
|
Royalties
|
|
|
3,577
|
|
|
|
3,321
|
|
|
|
3,530
|
|
Other operating, selling and administrative
|
|
|
30,346
|
|
|
|
26,449
|
|
|
|
27,356
|
|
Loss from fire
|
|
|
|
|
|
|
742
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating and Selling Expenses
|
|
|
110,809
|
|
|
|
108,883
|
|
|
|
111,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
(1,505
|
)
|
|
|
7,019
|
|
|
|
19,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5,097
|
)
|
|
|
(3,893
|
)
|
|
|
(3,176
|
)
|
Interest income
|
|
|
26
|
|
|
|
6
|
|
|
|
2
|
|
Rental and other income
|
|
|
528
|
|
|
|
553
|
|
|
|
592
|
|
Gain (loss) on sale of assets
|
|
|
(317
|
)
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Other Expense
|
|
|
(4,860
|
)
|
|
|
(3,334
|
)
|
|
|
(2,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(6,365
|
)
|
|
|
3,685
|
|
|
|
16,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense (Benefit)
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-4
Alon
Brands, Inc. and Affiliates
Combined
Statements of Members Interest and Stockholders
Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Members
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
(Loss)
|
|
|
|
|
|
|
Interest
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Loss
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Balance, January 1, 2008
|
|
$
|
101,427
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(747
|
)
|
|
$
|
|
|
|
|
|
|
|
$
|
100,680
|
|
Net loss (January 1-November 30)
|
|
|
(3,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,241
|
)
|
|
|
(3,241
|
)
|
Conversion to C-Corporation
|
|
|
(98,186
|
)
|
|
|
1
|
|
|
|
|
|
|
|
98,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment to parent, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,467
|
)
|
Net loss (December 1-December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,569
|
)
|
|
|
(1,569
|
)
|
|
|
(1,569
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark to market on interest rate hedge, net of tax of $768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,257
|
)
|
|
|
|
|
|
|
(1,257
|
)
|
|
|
(1,257
|
)
|
Minimum pension liability, net of $49 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
64,719
|
|
|
|
(1,924
|
)
|
|
|
(1,569
|
)
|
|
|
|
|
|
|
61,226
|
|
Payment to parent, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,303
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,417
|
|
|
$
|
2,417
|
|
|
|
2,417
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark to market on interest rate hedge, net of tax of $515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
956
|
|
|
|
|
|
|
|
956
|
|
|
|
956
|
|
Minimum pension liability, net of $8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
58,416
|
|
|
|
(953
|
)
|
|
|
848
|
|
|
|
|
|
|
|
58,311
|
|
Payment to parent, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,725
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,580
|
|
|
$
|
10,580
|
|
|
|
10,580
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of interest rate hedge, net of tax of $453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764
|
|
|
|
|
|
|
|
764
|
|
|
|
764
|
|
Minimum pension liability, net of $7 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
|
|
|
|
1
|
|
|
$
|
|
|
|
$
|
44,691
|
|
|
$
|
(202
|
)
|
|
$
|
11,428
|
|
|
|
|
|
|
$
|
55,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-5
Alon
Brands, Inc. and Affiliates
Combined
Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
178
|
|
|
|
|
|
|
|
(80
|
)
|
Depreciation, amortization and accretion
|
|
|
13,704
|
|
|
|
13,592
|
|
|
|
13,550
|
|
Write-down of obsolete assets
|
|
|
21
|
|
|
|
37
|
|
|
|
|
|
(Gain) loss on disposal of property and equipment
|
|
|
317
|
|
|
|
|
|
|
|
(286
|
)
|
Loss from fire
|
|
|
|
|
|
|
607
|
|
|
|
|
|
Deferred income taxes
|
|
|
(3,202
|
)
|
|
|
5,126
|
|
|
|
2,787
|
|
Changes in operating assets and liabilities, net of effect of
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and short-term notes receivable
|
|
|
23,755
|
|
|
|
(1,236
|
)
|
|
|
(7,683
|
)
|
Inventories
|
|
|
6,225
|
|
|
|
(1,373
|
)
|
|
|
946
|
|
Prepaid expenses and other current assets
|
|
|
(815
|
)
|
|
|
133
|
|
|
|
693
|
|
Other assets
|
|
|
(1,509
|
)
|
|
|
(1,610
|
)
|
|
|
(1,086
|
)
|
Accounts payable
|
|
|
1,878
|
|
|
|
3,445
|
|
|
|
1,634
|
|
Accounts payable, affiliates
|
|
|
2,935
|
|
|
|
(2,364
|
)
|
|
|
12,356
|
|
Income taxes payable
|
|
|
(1,974
|
)
|
|
|
(4
|
)
|
|
|
(976
|
)
|
Accrued liabilities and expenses
|
|
|
(1,926
|
)
|
|
|
(255
|
)
|
|
|
692
|
|
Other non-current liabilities
|
|
|
819
|
|
|
|
(1,161
|
)
|
|
|
(1,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
35,596
|
|
|
|
17,354
|
|
|
|
31,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3,203
|
)
|
|
|
(4,342
|
)
|
|
|
(4,671
|
)
|
Proceeds from disposal of property and equipment
|
|
|
369
|
|
|
|
|
|
|
|
595
|
|
Expenditures for brand image enhancement
|
|
|
(685
|
)
|
|
|
(857
|
)
|
|
|
(1,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,519
|
)
|
|
|
(5,199
|
)
|
|
|
(5,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facility
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
Payment of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
Payments on notes payable
|
|
|
(6,392
|
)
|
|
|
(6,404
|
)
|
|
|
(6,209
|
)
|
Payments on capital lease obligation
|
|
|
(31
|
)
|
|
|
(34
|
)
|
|
|
(37
|
)
|
Payments to parent, net
|
|
|
(33,467
|
)
|
|
|
(6,303
|
)
|
|
|
(13,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(39,890
|
)
|
|
|
(12,741
|
)
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(7,813
|
)
|
|
|
(586
|
)
|
|
|
26,174
|
|
Cash and cash equivalents, beginning of period
|
|
|
10,378
|
|
|
|
2,565
|
|
|
|
1,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,565
|
|
|
$
|
1,979
|
|
|
$
|
28,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
5,590
|
|
|
$
|
3,822
|
|
|
$
|
3,272
|
|
Income taxes paid (refunded)
|
|
$
|
471
|
|
|
$
|
(1,268
|
)
|
|
$
|
2,954
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial Statements
(Dollar in thousands, except as noted)
|
|
1.
|
Organization
and Nature of Business
|
Alon Brands, Inc. and subsidiaries (Alon Brands or
the Company) is an operator of convenience stores
and a wholesale marketer of motor fuels. The Companys
combined operations are the result of its retail operations and
a carve out of certain wholesale marketing assets
and liabilities associated with its parent company Alon USA
Energy, Inc.s (Alon Energy) branded marketing
business operated by Alon USA, LP (Alon LP) that
were contributed upon effectiveness of the Companys
registration statement related to its initial public offering.
Alon Energy is the parent company of Alon LP, and Alon LP is the
majority shareholder of Alon Brands. The contribution was
accounted for as a contribution of entities under common control
using as-if
pooling-of-interests
accounting. Under this method of accounting, the assets and
liabilities of Alon LP were carried forward to Alon Brands at
their historical costs. In addition, all prior period financial
statements were restated to include the combined results of
operations, financial position, and cash flows of Alon Brands.
The Company conducts its business in two primary business
segments, wholesale marketing and retail. The wholesale
marketing segment markets motor fuels through a network of
approximately 906 locations under the FINA brand name, including
292 of the convenience stores operated by Alon Brands
retail segment and 261 licensees. Substantially all of the motor
fuel marketed is delivered through Alon Energys physically
integrated system (a distribution network of pipelines and
terminals that are either owned or accessed through leases or
long-term throughput agreements) after being produced at Alon
Energys Big Spring, Texas refinery. This segment also
provides its network of FINA-branded customers with payment card
processing services and other fuel-related marketing programs.
The retail segment operates 304 convenience stores located in
Central and West Texas and New Mexico. These convenience stores
typically offer various grades of motor fuel, general
merchandise and food and beverage products to the general
public, primarily under the 7-Eleven and FINA brand names.
Substantially all of the motor fuels sold through the retail
segment are purchased from Alon Marketing, LLC (Alon
Marketing), a subsidiary of Alon Brands.
|
|
2.
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Basis
of Presentation and Fiscal Period
|
The combined financial statements include the accounts of Alon
Brands and its wholly-owned subsidiaries Southwest Convenience
Stores, LLC (SCS), a Texas limited liability
company, Skinnys, LLC (Skinnys), a Texas
limited liability company, GTS Licensing Company, Inc., a Texas
corporation, Alon Financial Services, Inc., a Texas corporation,
Alon Marketing, LLC, a Texas limited liability company, and its
affiliate SCS Beverage, Inc. (SCS Beverage), a
variable interest entity. All intercompany balances and
transactions have been eliminated. The Companys fiscal
year ends December 31.
As further described in Note 7, SCS is the primary
beneficiary of assets owned by and operating activities of SCS
Beverage, a New Mexico Subchapter S corporation owned by an
officer of Alon Energy and included in the combined financial
statements in accordance with accounting principles generally
accepted in the United States of America (US GAAP)
for variable interest entities. The variable interest entity was
created for a single, specific purpose in February 2004. The
purpose of the variable interest entity is to expedite the New
Mexico liquor license renewal process.
General corporate and shared services provided by Alon Energy
and allocated to Alon Brands pursuant to a corporate services
agreement are included in other operating, selling, and
administrative expenses in the accompanying combined statements
of operations. The allocation is estimated at the beginning of
the year and applied consistently throughout the year unless
there is a significant change in the allocation base. The
allocation of such costs to Alon Brands is not based on a
detailed analysis; rather, it is calculated by Alon
Energys management based on an estimate of time spent by
individual corporate and shared services
F-7
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
departments on Alon Brands activities relative to all other Alon
Energy entities. Management believes the assumptions and method
used to allocate general corporate and shared services are
reasonable. General corporate and shared service cost reflects
treasury, payroll and other financial-related services, human
resources and employee benefits, legal, information systems,
investment services, corporate services and procurement and
sourcing support.
|
|
(b)
|
Fair
Value of Financial Instruments
|
Cash and cash equivalents, accounts and short-term notes
receivable, current portion of notes payable, accounts payable
and accrued liabilities and expenses are reflected in the
combined financial statements at fair value because of the
short-term maturity of the instruments. Notes payable are
reflected in the combined financial statements at fair value due
to their index being tied to market rates.
Under US GAAP, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date (that is, an exit price). The exit price is
based on the amount the holder of the asset or liability would
receive or need to pay in an actual transaction (or in a
hypothetical transaction if an actual transaction does not
exist) at the measurement date. In some circumstances, the entry
and exit price may be the same; however, they are conceptually
different.
Fair value is generally determined based on quoted market prices
in active markets for identical assets or liabilities. If quoted
market prices are not available, the Company uses valuation
techniques that place greater reliance on observable inputs and
less reliance on unobservable inputs. In measuring fair value,
the Company may make adjustments for risks and uncertainties if
a market participant would include such an adjustment in its
pricing.
The Company recorded its interest rate swap at fair value. US
GAAP establishes a fair value hierarchy that distinguishes
between assumptions based on market data (observable inputs) and
the Companys assumptions (unobservable inputs).
Determining where an asset or liability falls within that
hierarchy depends on the lowest level input that is significant
to the fair value measurement as a whole. An adjustment to the
pricing method used within either level 1 or level 2
inputs could generate a fair value measurement that effectively
falls in a lower level in the hierarchy. The hierarchy consists
of three broad levels as follows:
Level 1 Quoted market prices in active markets
for identical assets or liabilities;
Level 2 Inputs other than level 1 inputs
that are either directly or indirectly observable; and
Level 3 Unobservable inputs developed using the
Companys estimates and assumptions, which reflect those
that market participants would use.
The determination of where an asset or liability falls in the
hierarchy requires significant judgment. The Company evaluates
its hierarchy disclosures each quarter based on various factors.
It is possible that an asset or liability may be classified
differently from quarter to quarter. However, the Company
expects that changes in classifications between different levels
will be rare.
The following table summarizes the valuation of financial
instruments measured at fair value on a recurring basis in the
statement of financial position at December 31, 2009 and
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2010
|
|
|
Significant Other
|
|
|
|
Significant Other
|
|
|
|
|
Observable Input
|
|
|
|
Observable Input
|
|
|
|
|
(Level 2)
|
|
Total
|
|
(Level 2)
|
|
Total
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
1,826
|
|
|
$
|
1,826
|
|
|
$
|
|
|
|
$
|
|
|
Total liabilities measured at fair value
|
|
$
|
1,826
|
|
|
$
|
1,826
|
|
|
$
|
|
|
|
$
|
|
|
F-8
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
The fair value of the interest rate swap was determined using a
pricing model predicated upon observable market inputs. The
interest rate swap expired on October 1, 2010 and was not
renewed.
The preparation of financial statements in conformity with US
GAAP 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 combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
|
|
(d)
|
Cash
and Cash Equivalents
|
All highly-liquid instruments with an original 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. The Company maintains some balances
in excess of the Federal Deposit Insurance Corporation
(FDIC) insured limits. On November 19, 2010,
the FDIC issued a final rule implementing Section 343 of
the Dodd-Frank Wall Street Reform and Consumer Protection Act
that provides for unlimited insurance coverage of noninterest
bearing transaction accounts beginning December 31, 2010
through December 31, 2012.
The majority of the accounts receivable are from wholesale fuel
sales to distributors and retail payment card transactions that
have not yet settled. Credit is extended based on evaluation of
the distributors financial condition, and in certain
circumstances, collateral, such as letters of credit or
guarantees, is required. Accounts receivable generally are due
within 10 days and are stated at amounts due from
distributors, net of an allowance for doubtful accounts.
Accounts outstanding longer than contractual payment terms are
considered past due. Credit losses are charged to the allowance
for doubtful accounts when accounts are deemed uncollectible.
Historically, such losses have been minimal. The allowance for
doubtful accounts is based on a combination of current sales,
historical charge-offs and specific accounts identified as high
risk. Non-trade receivables consist mainly of vendor rebates and
environmental receivables. The allowance for doubtful accounts
as of December 31, 2009 and 2010, is $520 and $440,
respectively.
The Companys wholesale marketing segments accounts
receivables, which totaled $20,568 and $29,989 as of
December 31, 2009 and 2010, respectively, are pledged as
security under the IDB Credit Facility (see Note 15(h)).
Merchandise inventories are stated at the lower of average cost
as determined by the retail inventory method or market. Retail
fuel inventories are stated at cost determined using the first
in, first out method. The Company does not maintain wholesale
fuel inventories. Shipping and handling costs are included in
the cost of inventories.
|
|
(g)
|
Property
and Equipment
|
The carrying value of property and equipment is recorded at cost
and includes the fair value of the asset retirement obligations,
net of accumulated depreciation. The useful lives on depreciable
assets used to determine depreciation expense range from 5 to
40 years with an average life of 18 years. Property
and equipment, net of salvage value, are depreciated using the
straight-line method over the estimated useful lives for the
assets or groups of assets, beginning in the month following
acquisition or completion. Leasehold improvements are
depreciated on the straight-line method over the shorter of the
contractual lease terms, including options expected to be
renewed, or the estimated useful lives of the related assets.
The Company
F-9
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
capitalizes interest costs associated with major construction
projects based on the effective interest rate on aggregate
borrowings. The Company did not capitalize any interest in 2008,
2009 or 2010.
Expenditures for major replacements and additions are
capitalized. Routine repairs and maintenance costs are charged
to other operating, selling and administrative expenses 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.
|
|
(h)
|
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 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
undiscounted future net cash flows expected to be generated by
the asset. If the carrying value of an asset exceeds its
expected undiscounted 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 managements judgment
and assumptions. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs of
disposition.
|
|
(i)
|
Asset
Retirement Obligation
|
US GAAP requires recognition and measurement of a liability for
an asset retirement obligation for costs that apply to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development or
normal operation of a long-lived asset, including leased
properties. See Note 12.
|
|
(j)
|
Goodwill
and Intangible Assets
|
Goodwill represents the excess of cost over fair value of net
assets of businesses acquired. Goodwill and intangible assets
acquired in a business combination or determined to have an
indefinite useful life are not amortized but instead tested for
impairment annually and more frequently if events and
circumstances indicate the asset might be impaired. The Company
uses December 31 as the valuation date for annual impairment
testing. An impairment loss is recognized to the extent the
carrying amount exceeds the assets fair value and is
determined by reporting unit, which is an operating segment or
one level below an operating segment. The Companys
reporting units are its wholesale marketing and retail segments.
All goodwill is recorded at the retail segment.
Other intangible assets with finite useful lives are amortized
on a straight-line basis over the expected life of the related
asset.
|
|
(k)
|
Self-insurance
Reserves
|
Alon Energy uses a combination of self-insurance and third-party
insurance with predetermined deductibles to manage certain
insurable risks. Alon Energy also estimates the cost of health
care claims that have been incurred but not reported based on
historical experience. The Companys share of Alon
Energys employee injury plan, general liability losses and
health care claims are recorded for the aggregate liabilities
for claims reported and an estimate of the cost of claims
incurred but not reported, based on actuarial estimates and
historical experience.
The Companys wholesale marketing revenues from the sale of
motor fuels are earned and realized upon transfer of title to
the distributor based on the contractual terms of delivery,
including payment terms and
F-10
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
prices. Title primarily transfers at the terminal when the motor
fuel is loaded into the common carrier trucks (free on board
origin). Wholesale marketing revenues from payment card
processing services are earned and realized upon the third-party
card processors completion of the transaction and are
reflected net of the Companys cost associated with the
transaction.
The Companys retail revenues from merchandise and motor
fuel sales are recognized at the point of sale or when fuel is
dispensed to the customer. Service and commission revenues from
lottery ticket sales, money orders, prepaid phone cards and
wireless services, ATM transactions, car washes and other
ancillary product and service offerings are recognized at the
time the services are rendered or commissions earned.
|
|
(m)
|
Acquisition
Accounting
|
Acquisitions are accounted for under the purchase method of
accounting whereby the purchase price is allocated to assets
acquired and liabilities assumed based on fair value. Any excess
of purchase price over fair value of net assets acquired and
identifiable intangible assets is recorded as goodwill. The
combined statements of operations for the fiscal years presented
include the results of operations for acquisitions from the date
of acquisition.
|
|
(n)
|
Environmental
Expenditures
|
The Company accrues for costs associated with environmental
remediation obligations when such costs are probable and can be
reasonably estimated, which occurs no later than at completion
of the remedial feasibility study. Environmental liabilities
represent the estimated costs to investigate and remediate
contamination at Company properties. This estimate is based on
internal and third-party assessments of the extent of the
contamination, the selected remediation technology and review of
applicable environmental regulations. Such accruals are updated
to reflect changes in factual information, available technology
or applicable laws and regulations as further information
develops or circumstances change. Costs of future expenditures
for environmental remediation obligations are not discounted to
their present value. 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.
Advertising costs are expensed when incurred and were
approximately $956, $936 and $864 for 2008, 2009 and 2010,
respectively.
|
|
(p)
|
Vendor
Allowances and Rebates
|
The Company receives payments for vendor allowances, volume
rebates and other supply arrangements in connection with various
programs. Earned payments are recorded as a reduction to cost of
sales or expenses to which the particular payment relates.
Unearned payments are deferred and amortized as earned over the
term of the respective agreement.
The Company leases some of its convenience store properties,
administrative offices and equipment under non-cancellable
operating leases, whose initial terms are typically 10 to
20 years, along with options that permit renewals for
additional periods. Minimum rent is expensed on a straight-line
basis over the term of the lease, including renewal periods that
are reasonably assured at the inception of the lease. In
addition to minimum rental payments, certain leases require
additional payments based on sales volume. The Company is
typically responsible for payment of real estate taxes,
maintenance expenses and insurance on leased properties.
F-11
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
The excess of straight-line lease expense over scheduled payment
amounts is recorded as deferred rent. At December 31, 2009
and 2010, deferred rent included in other non-current
liabilities in the combined balance sheets was $106 and $176,
respectively.
All of Alon Energys operations, including the operations
of its subsidiaries, are included in Alon Energys
consolidated Federal income tax return. The Company recognizes
deferred income tax liabilities and assets for the expected
future income tax consequences of temporary differences between
financial statement carrying amounts and the related income tax
basis. See Note 16. As permitted by US GAAP, the Company
computes current and deferred taxes as if it were a separate
taxpayer for purposes of the accompanying combined financial
statements. In accordance with an agreement between the Company
and Alon Energy, income taxes payable are paid to Alon Energy,
which then remits those amounts to taxing authorities.
Certain motor fuel excise and sales taxes are collected from
customers and remitted to governmental agencies either directly
by the Company or through suppliers. Taxes on retail motor fuel
sales were approximately $37,894, $47,021 and $54,930 for 2008,
2009 and 2010, respectively, and are included in gross motor
fuel sales and cost of sales in the accompanying combined
statements of operations. All other excise and sales taxes are
presented on a net basis in the combined statements of
operations.
The Company purchases approximately 50% of its general
merchandise, including most cigarettes and grocery items, from a
single wholesale grocer, McLane Company, Inc.
(McLane). The Companys current contract with
McLane expires at the end of December 2011.
Alon LP, the Companys parent, supplied substantially all
of the Companys motor fuel purchases in all periods
presented.
The Companys future operating results may be affected by a
number of factors including disruption in supply of merchandise
and fuel from these primary suppliers. If these suppliers are
unable to fulfill their obligations to the Company or otherwise
cease making products available to the Company, operations could
be adversely affected.
During 2008, Alon LP, the Companys primary supplier of
motor fuels, suffered a major fire at its refinery located in
Big Spring, Texas. As a result of this supply disruption, the
Companys wholesale fuel margins were adversely affected
because the Company purchased motor fuel for resale from third
parties to honor contractual commitments to the Companys
FINA-branded distributors. In addition, the Companys
wholesale motor fuel margins were adversely affected from
increased transportation costs in supplying the Companys
distributors from terminals outside their geographic area.
The retailing business is highly competitive. Price, quality and
selection of merchandise, reputation, store location,
advertising and customer service are important competitive
factors in the Companys business. Although the Company
purchases more than 50% of its merchandise from one supplier,
the Company believes its retail stores could be supplied by
alternative suppliers with little or no significant disruption.
The Company had one customer with net sales exceeding 10% of
combined revenues in 2008, 2009 and 2010. Net sales to this
customer were approximately 16%, 16% and 20% in 2008, 2009 and
2010, respectively. This customers outstanding accounts
receivable balance was approximately 28% of combined accounts
receivable at December 31, 2009 and 39% at
December 31, 2010. No other customers outstanding
accounts receivable balance exceeded 10% of combined accounts
receivable at December 31, 2009 or 2010.
F-12
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
(u)
|
Other
Comprehensive Loss
|
Other comprehensive loss, net of tax consists of net income and
other gains and losses affecting members interest and
equity that, under US GAAP, are excluded from net income, such
as defined benefit pension plan adjustments and gains and losses
related to certain derivative instruments such as cash flow
hedges related to interest rates. The balance in other
comprehensive loss, net of tax reported in the combined
statement of members interest and equity consists of
defined benefit pension plan and fair value of interest rate
swap adjustments.
|
|
(v)
|
Commitments
and Contingencies
|
Liabilities for loss contingencies, including environmental
remediation costs, arising from claims, assessments, litigation,
fines and penalties and other sources are recorded when it is
probable a liability has been incurred and the amount of the
assessment or remediation can be reasonably estimated. Legal
costs incurred in connection with loss contingencies are
expensed as incurred.
Royalty fees are expensed when related gross merchandise sales
are recognized. The majority of the Companys royalty fees
are related to the 7-Eleven license agreement dated June 2,
1993, as amended. 7-Eleven royalties were approximately $3,392,
$3,308 and $3,518 for 2008, 2009 and 2010, respectively.
Basic and diluted earnings per share have been computed by
dividing net earnings by the weighted average number of common
shares outstanding during the period. The following table sets
forth the computation for basic and diluted earnings per share
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands, except share and per share data)
|
|
|
Net income (loss)
|
|
$
|
(4,810
|
)
|
|
$
|
2,417
|
|
|
$
|
10,580
|
|
Basic and diluted weighted average shares outstanding
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
|
|
$
|
(4,810
|
)
|
|
|
2,417
|
|
|
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(y)
|
New
Accounting Standards and Disclosures
|
In February 2007, the Financial Accounting Standards Board
(FASB) issued an accounting pronouncement that
permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently
required to be measured at fair value. This pronouncement is
effective for fiscal years beginning after November 15,
2007. The adoption of this pronouncement did not materially
affect the Companys financial position or results of
operations since it did not elect to record any of its financial
assets or financial liabilities at fair value.
In December 2007, the FASB issued new rules for accounting for
business combinations, which require the purchase method of
accounting be used for all business combinations. It requires
most identifiable assets, liabilities, non-controlling interests
and goodwill acquired in a business combination be recorded at
fair value and applies to all business combinations, including
combinations by contract alone. The new rules are effective for
periods beginning on or after December 15, 2008 and earlier
application is prohibited. The new rules will be applied to
business combinations occurring after the effective date.
F-13
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
In December 2007, the FASB issued a new accounting pronouncement
that requires non-controlling interests (previously referred to
as minority interests) to be treated as a separate component of
equity. This pronouncement is effective for periods beginning on
or after December 15, 2008. Earlier application is
prohibited. This pronouncement will be applied prospectively to
all non-controlling interests. Comparative period information
must be recast to classify non-controlling interests in equity,
attribute net income and other comprehensive income to
non-controlling interests and provide other disclosures. The
Company adopted this pronouncement on January 1, 2009 and
it did not materially affect the Companys financial
position or results of operations.
In March 2008, the FASB issued new disclosure requirements for
derivative instruments and hedging activities. These new
disclosure requirements are intended to improve financial
reporting by requiring transparency about the location and
amounts of derivative instruments in an entitys financial
statements, how derivative instruments and related hedged items
are accounted for, and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance and cash flows. These new disclosure
requirements are effective for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008 and had no impact on the Companys
combined balance sheets, statements of operations, statement of
members interest and equity or statements of cash flows
but require disclosure in the notes to the combined financial
statements.
In April 2008, the FASB issued guidance that amends the factors
that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. This guidance is effective for fiscal years
beginning after December 15, 2008. Early adoption is
prohibited. The adoption of this guidance did not have a
material effect on the Companys financial position,
results of operations, or cash flows.
In December 2008, the FASB issued a new accounting pronouncement
that requires additional disclosures about transfers of
financial assets and involvement with variable interest
entities. The requirements apply to transferors, sponsors,
servicers, primary beneficiaries, and holders of significant
variable interests in a variable interest entity or qualifying
special purpose entity. It is effective for financial statements
issued for interim or annual periods ending after
December 15, 2008. The Company adopted the pronouncement on
January 1, 2009. Because it affects disclosures only, it
had no impact on the Companys financial position, results
of operations, or cash flows.
In April 2009, the FASB issued a new accounting pronouncement
that requires, on an interim basis, disclosures about the fair
value of financial instruments for public entities. It is
effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. The Company adopted this
pronouncement on June 30, 2009. Because it affects
disclosures only, it had no impact on the Companys
financial position, results of operations, or cash flows.
In June 2009, the FASB issued a new accounting standard for
variable interest entities, which improves financial reporting
by enterprises involved with variable interest entities and
addresses (1) the effects on certain provisions of previous
accounting standards, as a result of the elimination of the
qualifying special-purpose entity concept and
(2) constituent concerns about the application of certain
key provisions of previous accounting standards, including those
in which the accounting and disclosures do not always provide
timely and useful information about an enterprises
involvement in a variable interest entity. This standard is
effective as of the beginning of the first annual reporting
period beginning after November 15, 2009 and for interim
periods within that annual reporting period. Early adoption is
prohibited. The adoption of this standard did not have a
material effect on the Companys combined financial
statements.
In July 2010, the FASB issued guidance to enhance disclosures
about the credit quality of a creditors financing
receivables and the adequacy of its allowance for credit losses.
The amended guidance is effective for period-end balances
beginning with the first interim or annual reporting period
ending on or after
F-14
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
December 15, 2010. The amended guidance is effective for
activity during a reporting period beginning with the first
interim or annual reporting period beginning on or after
December 15, 2010. The Company expects the amended guidance
to impact its disclosures in future periods but to otherwise not
have a significant effect on its combined financial statements.
|
|
3.
|
Accounts
and Short-term Notes Receivable, net
|
Accounts and short-term notes receivable consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Wholesale customers
|
|
$
|
12,719
|
|
|
$
|
19,972
|
|
Commissions, rebates, and trade
|
|
|
3,506
|
|
|
|
3,862
|
|
Credit cards
|
|
|
130
|
|
|
|
204
|
|
Allowance for doubtful accounts
|
|
|
(520
|
)
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
15,835
|
|
|
$
|
23,598
|
|
|
|
|
|
|
|
|
|
|
Changes in the Companys allowance for doubtful accounts
for the fiscal years ended December 31, 2008, 2009 and 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Balance at the beginning of year
|
|
$
|
314
|
|
|
$
|
484
|
|
|
$
|
520
|
|
Provision for uncollectible accounts receivable
|
|
|
178
|
|
|
|
|
|
|
|
(80
|
)
|
Accounts written off, net of recoveries
|
|
|
(8
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
484
|
|
|
$
|
520
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Merchandise
|
|
$
|
17,129
|
|
|
$
|
15,609
|
|
Fuel
|
|
|
4,825
|
|
|
|
5,399
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
21,954
|
|
|
$
|
21,008
|
|
|
|
|
|
|
|
|
|
|
F-15
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
5.
|
Property
and Equipment, net
|
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Land
|
|
$
|
22,054
|
|
|
$
|
22,205
|
|
Buildings and improvements
|
|
|
36,407
|
|
|
|
35,816
|
|
Equipment
|
|
|
78,178
|
|
|
|
79,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,639
|
|
|
|
137,261
|
|
Less accumulated depreciation
|
|
|
(55,679
|
)
|
|
|
(63,196
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
80,960
|
|
|
$
|
74,065
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on property and equipment was approximately
$12,083, $11,846 and $12,034, for 2008, 2009 and 2010,
respectively.
During 2008, the Company recorded a net loss of $317 on disposal
of assets, which had a net book value of $686. During 2009, the
Company recorded a loss of $742 from a fire at one of its
convenience stores on July 1, 2009. During 2010, the
Company recorded a gain of $286 on disposal of assets, which had
a net book value of $309. Gains and losses on disposal of assets
are recorded in gain/(loss) on sale of assets in the combined
statements of operations.
Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired. The balances
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Good Times acquisition
|
|
$
|
15,718
|
|
|
$
|
15,718
|
|
Skinnys, Inc. acquisition
|
|
|
34,538
|
|
|
|
34,538
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
50,256
|
|
|
$
|
50,256
|
|
|
|
|
|
|
|
|
|
|
Allocation of the purchase price for Good Times was finalized
during 2007, and the allocation of the purchase price for
Skinnys, Inc. was finalized in 2008. All goodwill was
allocated to the retail segment. Goodwill is not being amortized
but is tested annually for impairment or more frequently if
events and circumstances indicate the asset might be impaired.
No impairment charges related to goodwill were recognized in
2008, 2009 or 2010.
Intangible assets consist of the following:
Area
Licenses
SCS and 7-Eleven, Inc. (successor to the Southland Corporation)
(7-Eleven) are parties to a perpetual Area License
Agreement, which gives the Company a license to use, develop,
operate,
sub-license
and franchise convenience stores under the 7-Eleven
trademark, service name and trade name in West Texas and a
majority of the counties in New Mexico. Pursuant to this Area
License Agreement, the Company is required to pay 7-Eleven a
royalty fee based upon a percentage of the Companys
monthly gross merchandise sales
F-16
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
generated from the convenience stores. In September 2008, the
Company expanded its existing license area in Texas.
The Company sublicenses from Alon LP the exclusive right to use
the FINA name and related trademarks through July 2012 in
connection with the distribution of motor fuels within Texas,
Oklahoma, New Mexico, Arizona, Arkansas, Louisiana, Colorado and
Utah.
Skinnys owns five Subway franchise locations, four of
which reside within convenience stores and one of which is a
free-standing operation. In accordance with the franchise
agreement, the Company pays royalty and advertising fees based
on a percentage of sales in connection with these sites. The
franchise agreement is for an initial
20-year term
with perpetual renewal terms of an additional 20 years
each. The franchise rights were determined not to be material
based on a valuation performed at the time of the Skinnys,
Inc. acquisition. Therefore, the Company did not assign any
value to the franchise rights.
On February 29, 2004, SCS sold 17 licenses for the sale of
alcoholic beverages at 17 stores in New Mexico to SCS Beverage,
a corporation treated as a pass-through entity that is wholly
owned by Jeff D. Morris, Alon Energys Chief Executive
Officer. Under rules and regulations of the New Mexico Alcohol
and Gaming Division, a holder of a license to sell alcoholic
beverages in New Mexico must provide substantial documentation
in the application for an annual renewal of the license,
including detailed questionnaires and fingerprints of the
officers and directors of each entity beneficially owning 10% or
more of the holder of the license. SCS engaged in this
transaction to expedite the process of renewing the licenses by
limiting the required disclosures to one individual stockholder.
The purchase price paid by SCS Beverage consisted of
approximately $2,600 for the 17 licenses and approximately $200
for the inventory of alcoholic beverages on the closing date.
The purchase price was paid by SCS Beverage issuing to SCS a
demand promissory note in the amount of $2,800. The demand note
is payable solely by transferring the licenses and inventory
existing at the time of payment back to SCS. The demand note is
secured by a pledge of the licenses and the inventory and a
pledge of 100% of the stock of SCS Beverage. Pursuant to the
purchase and sale agreement, SCS Beverage granted SCS an option
to re-acquire the licenses at any time at a purchase price equal
to the same purchase price paid by SCS Beverage to acquire the
licenses.
As the holder of the New Mexico licenses, SCS Beverage is the
only party entitled to purchase alcoholic beverages to be sold
at the locations covered by the licenses and to receive revenues
from the sale of alcoholic beverages at those locations.
Simultaneously with the transfer of the licenses, SCS Beverage
entered into a premises lease with SCS to lease space at each of
the locations covered by the licenses for the purpose of
conducting the alcoholic beverages concessions. To date, the
profits realized by SCS Beverage from the sale of alcoholic
beverages at these locations have not exceeded lease payments by
SCS Beverage to SCS and it anticipates this will continue to be
the case in the future. As a result, Mr. Morris, who is the
sole stockholder of SCS Beverage and is entitled to any and all
profits realized by SCS Beverage, has not received any economic
benefit from the ownership of SCS Beverage. SCS does not
anticipate that Mr. Morris will derive any economic benefit
from his ownership of SCS Beverage in the future. The operations
of SCS Beverage are included in the combined financial
statements of the Company.
The Company does not amortize these licenses as they are
perpetually renewed at the option of SCS Beverage. In addition,
the number of licenses issued is strictly controlled by the
state, generally resulting in annual appreciation in the value
of the outstanding licenses. However, this intangible is tested
for impairment annually.
F-17
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Area licenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
7-Eleven perpetual license agreement
|
|
$
|
1,137
|
|
|
$
|
1,137
|
|
New Mexico liquor licenses
|
|
|
2,642
|
|
|
|
2,642
|
|
|
|
|
|
|
|
|
|
|
Total Area Licenses
|
|
$
|
3,779
|
|
|
$
|
3,779
|
|
|
|
|
|
|
|
|
|
|
Other
Intangibles
The Company has finite-lived intangible assets that consist of
favorable leasehold arrangements, brand image enhancement and a
non-compete covenant, all of which are amortized over the
respective lives of the agreements or over the period of time
the assets are expected to contribute directly or indirectly to
the Companys future cash flows. Favorable leasehold
arrangements are being amortized over the remaining life of the
lease. Brand image enhancements constitute expenditures to
improve the curb appeal and general appearance of FINA-branded
convenience stores thereby improving the image of the FINA brand
as a whole, which are expected to result in increased motor fuel
and merchandise sales. Brand image enhancement expenditures are
amortized over a five year period. The noncompete covenant is
amortized over the life of the agreement. The following table
presents the gross carrying amount and accumulated amortization
for each major class of finite-lived intangible assets at
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Favorable leasehold cost
|
|
$
|
4,000
|
|
|
$
|
4,000
|
|
Less accumulated amortization
|
|
|
(1,572
|
)
|
|
|
(2,005
|
)
|
|
|
|
|
|
|
|
|
|
Net favorable leasehold cost
|
|
|
2,428
|
|
|
|
1,995
|
|
|
|
|
|
|
|
|
|
|
Brand image enhancement
|
|
|
13,378
|
|
|
|
14,487
|
|
Less accumulated amortization
|
|
|
(11,028
|
)
|
|
|
(11,610
|
)
|
|
|
|
|
|
|
|
|
|
Net brand image enhancement
|
|
|
2,350
|
|
|
|
2,877
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement
|
|
|
827
|
|
|
|
827
|
|
Less accumulated amortization
|
|
|
(689
|
)
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
Net non-compete agreement
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
$
|
4,916
|
|
|
$
|
4,872
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense from finite-lived intangibles for
2008, 2009 and 2010 was $1,511, $1,634 and $1,402, respectively.
The following table presents the Companys estimate of
amortization includable in amortization expense for each of the
five succeeding fiscal years for finite-lived intangibles as of
December 31, 2010:
|
|
|
|
|
Year Ended
|
|
Amortization
|
|
December 31, 2011
|
|
$
|
1,345
|
|
December 31, 2012
|
|
|
1,158
|
|
December 31, 2013
|
|
|
986
|
|
December 31, 2014
|
|
|
848
|
|
December 31, 2015
|
|
|
535
|
|
F-18
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Accounts payable include account balances due to trade vendors
and other parties, as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Wholesale trade vendors
|
|
$
|
1,043
|
|
|
$
|
869
|
|
Retail trade vendors
|
|
|
11,032
|
|
|
|
12,456
|
|
Due to state lotteries
|
|
|
853
|
|
|
|
1,237
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,928
|
|
|
$
|
14,562
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Accrued
Liabilities and Expenses
|
Accrued liabilities and expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Federal and state motor fuel taxes
|
|
$
|
7,678
|
|
|
$
|
9,094
|
|
Property and sales taxes
|
|
|
3,384
|
|
|
|
2,446
|
|
Payroll and employee benefits
|
|
|
2,982
|
|
|
|
3,062
|
|
Reserves workers compensation, general liability and
other insurance
|
|
|
268
|
|
|
|
814
|
|
Reserves environmental, short-term
|
|
|
51
|
|
|
|
55
|
|
Interest payable
|
|
|
223
|
|
|
|
19
|
|
Royalties, rent overrides, and other accrued expenses
|
|
|
2,697
|
|
|
|
2,474
|
|
Reserves other
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,283
|
|
|
$
|
17,975
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Notes
Payable and Capital Lease Obligation
|
The following table sets forth the Companys notes payable:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Amended Wachovia Credit Facility Term Loan/Second Amended and
Restated Wells Fargo Refinancing Term Loan
|
|
$
|
79,695
|
|
|
$
|
73,361
|
|
Second Amended and Restated Wells Fargo Additional Term Loan
|
|
|
|
|
|
|
10,000
|
|
Second Amended and Restated Wells Fargo Revolving Credit Facility
|
|
|
|
|
|
|
10,000
|
|
Other retail credit facilities
|
|
|
712
|
|
|
|
634
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
80,407
|
|
|
|
93,995
|
|
Less current portion
|
|
|
(6,412
|
)
|
|
|
(6,975
|
)
|
|
|
|
|
|
|
|
|
|
Long-term notes payable
|
|
$
|
73,995
|
|
|
$
|
87,020
|
|
|
|
|
|
|
|
|
|
|
Wells
Fargo Credit
Facility
(previously, Wachovia Credit Facility)
On June 29, 2007, SCS entered into an amended and restated
credit agreement (the Amended Wachovia Credit
Facility) by and among SCS, as borrower, the lender party
thereto and Wachovia Bank, N.A., as Administrative Agent.
F-19
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Borrowings under the Amended Wachovia Credit Facility bore
interest at a Eurodollar rate plus 1.5% per annum (1.82% at
December 31, 2009). Total amounts outstanding under the
Amended Wachovia Credit Facility as of December 31, 2009
was $79,694.
On December 30, 2010, SCS entered into an amended restated
credit agreement (the Second Amended and Restated Wells
Fargo Facility) by and among SCS and Skinnys, as
borrowers, the lender party thereto and Wells Fargo Bank, N.A.
(Wells Fargo), as Administrative Agent. The Second
Amended and Restated Wells Fargo Facility, which matures on
December 30, 2015, amends and restates the Amended Wachovia
Credit Facility and added an additional $10,000 term loan and a
revolver loan with a maximum loan amount of the lesser of the
borrowing base or $10,000.
Prior to the amendment, $73,361 was outstanding under the
Amended Wachovia Credit Facility. The Second Amended and
Restated Wells Fargo Facility consists of a Refinancing Term
Loan of $73,361 bearing interest at Eurodollar rates plus 2.0%
per annum (2.307% at December 31, 2010) with quarterly
principal payments based on a 15 year amortization
schedule, an Additional Term Loan of $10,000 bearing interest at
Eurodollar rates plus 2.75% per annum (3.057% at
December 31, 2010) with quarterly principal payments based
on a 5 year amortization schedule, and a Revolving Credit
Loan in the amount of the lesser of a borrowing base or $10,000
bearing interest at a Eurodollar rates plus 2.75% (3.057% at
December 31, 2010). On December 30, 2010, SCS drew
down the Additional Term Loan and Revolving Credit Loan totaling
$20,000. As of December 31, 2010, $73,361 was outstanding
under the Refinancing Term Loan, $10,000 was outstanding under
the Additional Term Loan and $10,000 was outstanding under the
Revolving Credit Loan.
The obligations under the Second Amended and Restated Wells
Fargo Facility are secured by a pledge of substantially all of
the assets of SCS and Skinnys and each of their
subsidiaries, including cash, accounts receivable and inventory.
The Second Amended and Restated Wells Fargo Facility contains
certain restrictive covenants, financial maintenance covenants
and a corporate guarantee by the Company. At December 31,
2009 and 2010, the Company was in compliance with all
restrictive and financial covenants under the Amended Wachovia
Credit Facility and the Second Amended and Restated Wells Fargo
Facility, respectively.
Other
Retail Credit Facilities
In 2003, SCS obtained $1,545 in mortgage loans to finance the
acquisition of new retail locations. The interest rates on these
loans ranged between 5.5% and 9.7% with 5 to 15 year
payment terms. At December 31, 2009 and 2010, the
outstanding balances were $712 and $634, respectively.
Capital
Lease Obligation
SCS is a party to a master lease agreement dated April 15,
2005 for the purpose of financing certain retail equipment. On
September 1, 2007, SCS executed the first amendment to the
master lease agreement for $172 and recorded $167 of equipment.
The lease is amortized over sixty months. At the termination of
the lease, the lessor will transfer title for an amount equal to
one dollar. The lease is secured by the equipment and a
continuing guarantee by the Company. The balance due as of
December 31, 2010, totaled $63 of which $37 is included in
current portion of long-term debt. The net book value of the
leased equipment was $87, net of accumulated depreciation of
$80, at December 31, 2009 and $55, net of accumulated
depreciation of $112, at December 31, 2010.
F-20
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Maturity
of Notes Payable and Capital Lease Obligation
The aggregate maturities of notes payable and capital lease
obligation for each of the five years subsequent to
December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
|
|
|
Year Ended
|
|
Notes Payable
|
|
|
Obligation
|
|
|
Total
|
|
|
December 31, 2011
|
|
$
|
6,975
|
|
|
$
|
37
|
|
|
$
|
7,012
|
|
December 31, 2012
|
|
|
6,981
|
|
|
|
26
|
|
|
|
7,007
|
|
December 31, 2013
|
|
|
6,979
|
|
|
|
|
|
|
|
6,979
|
|
December 31, 2014
|
|
|
6,940
|
|
|
|
|
|
|
|
6,940
|
|
December 31, 2015
|
|
|
65,852
|
|
|
|
|
|
|
|
65,852
|
|
Thereafter
|
|
|
268
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,995
|
|
|
$
|
63
|
|
|
$
|
94,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
Loan Costs
The Company capitalized $200 issuance cost in connection with
the Second Amended and Restated Wells Fargo Facility dated
December 30, 2010. The issuance cost will be amortized over the
term of the note. The Company did not have any capitalized loan
costs as of December 31, 2009.
|
|
11.
|
Derivative
Financial Instruments
|
The Company selectively utilizes interest rate related
derivative instruments to manage its exposure to floating rate
debt instruments by entering into interest rate swap agreements
that convert certain floating-rate debt to fixed-rate debt.
On October 1, 2007, SCS entered into a three year interest
rate swap agreement with Wachovia in the notional amount of
$50,000. The interest rate swap was accounted for as a cash flow
hedge and expired on October 1, 2010. To designate a
derivative as a cash flow hedge, the Company documented at the
hedges inception the assessment that the derivative will
be highly effective in offsetting expected changes in cash flows
from the item hedged. This assessment, which is updated at least
quarterly, is generally based on the most recent relevant
historical correlation between the derivative and the item
hedged. If, during the derivatives term, the hedge is
determined to be no longer highly effective, hedge accounting is
prospectively discontinued and any remaining unrealized gains or
losses, based on the effective portion of the derivative at that
date, are reclassified to earnings as interest expense.
For the years ended December 31, 2008, 2009 and 2010, there
was no hedge ineffectiveness recognized in income. No component
of the derivative instrument gains or losses was excluded from
the assessment of hedge effectiveness.
For cash flow hedges, gains and losses reported in accumulated
other comprehensive income in the combined statement of
members interest and equity are reclassified into interest
expense when the contracts expire. During the years ended
December 31, 2008, 2009 and 2010, the Company recognized in
accumulated other comprehensive income unrealized after-tax
gains (losses) of $(1,257), $956 and $764, respectively, for the
fair value measurement of the interest rate swap. At
December 31, 2009 and 2010, the fair market value of the
interest rate swap was $(1,826) and $0, respectively, and is
recorded in other non-current liabilities on the Companys
combined balance sheets.
F-21
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
12.
|
Asset
Retirement Obligation
|
The Company recorded, in other non-current liabilities, an asset
retirement obligation for the estimated future cost to remove
underground storage tanks. The liability has been discounted
using a credit-adjusted risk-free rate of approximately 9% and
7% at December 31, 2009 and 2010, respectively. Revisions
to the liability could occur due to changes in tank removal
costs, tank useful lives or if federal or state regulators enact
new guidance on the removal of such tanks. The following table
presents the changes in the carrying amount of asset retirement
obligations for the years ended December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Balance at beginning of year
|
|
$
|
2,385
|
|
|
$
|
2,407
|
|
Credit adjusted risk-free interest rate change
|
|
|
|
|
|
|
671
|
|
Tank removal
|
|
|
(45
|
)
|
|
|
|
|
Other adjustments
|
|
|
(45
|
)
|
|
|
(12
|
)
|
Accretion expense
|
|
|
112
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,407
|
|
|
$
|
3,180
|
|
|
|
|
|
|
|
|
|
|
Alon Energy has a defined benefit pension plan covering
substantially all of the employees of the wholesale marketing
segment. The benefits are based on years of service and the
employees final average monthly compensation. Alon
Energys 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. Alon Energy bears all the costs associated
with this defined benefit pension plan. The costs for the
wholesale marketing segment employees are not material;
therefore, Alon Energy did not allocate any of these costs to
the Company. Upon effectiveness of the registration statement
associated with Companys initial public offering, the
wholesale marketing segment employees transferred to the Company
and ceased to participate in the Alon Energy benefit plan. The
employees retained their benefits accrued to the effective date
of the registration statement associated with initial public
offering and ceased to accrue any additional benefits after that
date.
The Company has an unfunded defined benefit pension plan for an
executive of the retail segment. The benefits are based on years
of service and the employees final average monthly
compensation. The following table sets forth the plans
benefit obligations at December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
285
|
|
|
$
|
311
|
|
Service cost
|
|
|
40
|
|
|
|
39
|
|
Interest cost
|
|
|
17
|
|
|
|
18
|
|
Actuarial loss
|
|
|
(31
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
311
|
|
|
$
|
354
|
|
|
|
|
|
|
|
|
|
|
The expense recognized during the years ended December 31,
2008, 2009 and 2010 was $73, $50 and $23, respectively.
F-22
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were
5.93% and 5.75% at December 31, 2009 and 2010,
respectively. The rate of increase in future compensation levels
used in determining the actuarial present value of the projected
benefit obligation was 2.5% for December 31, 2009 and
December 31, 2010. The calculations also assume retirement
at age 60 or current age plus one year.
The following table provides the components of net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Service cost
|
|
$
|
40
|
|
|
$
|
39
|
|
Interest cost
|
|
|
17
|
|
|
|
18
|
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
Amortization of net gain
|
|
|
|
|
|
|
(27
|
)
|
Amortization of prior service cost
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
50
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
The following table provides the amounts in accumulated other
comprehensive income (loss) expected to be recognized as
components of net periodic benefit costs during 2011:
|
|
|
|
|
Service cost
|
|
$
|
39
|
|
Interest cost
|
|
|
20
|
|
Expected return on plan assets
|
|
|
|
|
Amortization of net gain
|
|
|
(9
|
)
|
Amortization of prior service cost
|
|
|
(7
|
)
|
|
|
|
|
|
Balance at end of year
|
|
$
|
43
|
|
|
|
|
|
|
The Company expects benefit payments of $0 in 2011, $416 in
2012, and none thereafter. The Company does not anticipate
making a contribution to the plan in 2010.
The Company sponsors a 401(k) plan in which employees of the
retail segment may participate by contributing up to 50% of
their pay after completing one year of service. The Company
matches from 25% to 75% of the employees contribution,
depending on the employees years of service. This match is
limited to 4.5% of employee pay with full vesting of matching
contributions occurring after five years of service. The
Companys contributions for the years ended
December 31, 2008, 2009 and 2010 was $217, $343 and $314,
respectively.
|
|
14.
|
Related-Party
Transactions
|
Purchases
The Company and Alon LP have entered into a fuel sales and
licensing agreement. Under this agreement, as amended on
November 15, 2010, Alon LP agrees to provide the Company
with approximately 310 million gallons of motor fuels
annually, with flexibility to purchase up to 20% more or less
than this amount. In the event that the Company does not
purchase at least 248 million gallons in any contract year,
Alon LPs exclusive remedy is to terminate this agreement.
Additionally, in the event we fail to purchase the minimum
monthly fuel quantity for three consecutive months, our parent
company may terminate the fuel supply agreement. The fuel sales
and licensing agreement also grants the Company an exclusive,
non-transferable license to the use of the FINA brand at its
convenience stores and those of its distributors. Pricing for
fuel purchased under this agreement is based upon a formula
incorporating Platts and OPIS-based closing prices. The
pricing arrangement under this agreement is comparable to the
Companys historical pricing arrangements.
F-23
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Payment terms on motor fuels purchased are net 10 days. The
term of the fuel sales and licensing agreement ends on
December 31, 2031, although the license of the FINA brand
may be earlier terminated in the event that Alon LP does not
extend its current license, which expires in 2012.
Shared
Services
For the years ended December 31, 2008, 2009, and 2010, Alon
Energy allocated $3,438, $2,811 and $2,479, respectively, for
shared services and agreed upon administrative costs and
expenses. These costs and expenses are reflected in Other
operating, selling and administrative expenses in the
combined statements of operations.
Inter-Company
Transactions
A summary of inter-company transactions on fuel purchases, cash
advances and repayments, shared corporate services, income taxes
and amounts due as of December 31, 2008, 2009 and 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Accounts payable, affiliates beginning balance
|
|
$
|
1,623
|
|
|
$
|
4,558
|
|
|
$
|
2,194
|
|
Motor fuel purchases for resale
|
|
|
899,825
|
|
|
|
459,235
|
|
|
|
668,895
|
|
Settlements on motor fuel purchases
|
|
|
(899,825
|
)
|
|
|
(444,539
|
)
|
|
|
(661,108
|
)
|
Shared corporate services cost
|
|
|
3,438
|
|
|
|
2,811
|
|
|
|
2,479
|
|
Income tax provision (benefit)
|
|
|
(1,555
|
)
|
|
|
1,268
|
|
|
|
6,267
|
|
Cash settlements
|
|
|
1,052
|
|
|
|
(21,139
|
)
|
|
|
(4,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, affiliates ending balance
|
|
$
|
4,558
|
|
|
$
|
2,194
|
|
|
$
|
14,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Commitments
and Contingencies
|
For the years ended December 31, 2008, 2009 and 2010, Alon
LP furnished virtually all of the Companys motor fuels and
McLane provided approximately 50% of its merchandise. The
Companys supply agreement with McLane expires in December
2011.
The Company is subject to claims and lawsuits that arise in the
ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the
financial position of the Company.
Certain properties used in the Companys business are
leased under operating leases. Generally, real estate leases are
for primary terms of 10 to 20 years and include renewal
provisions at the option of the lessee.
At December 31, 2010, the Company was leasing 154 stores
and other administrative and district office properties under
long-term operating leases with third parties, the longest of
which extends through 2031. Certain properties require
additional rent in excess of base amounts calculated as a
percentage of store sales, less certain expenses. For the years
ended December 31, 2008, 2009 and 2010, third party lease
expense totaled approximately $6,626, $7,034 and $7,189,
respectively. For the years ended December 31, 2008, 2009,
and 2010, included in lease expense was $77, $113 and $132,
respectively, for rent based on a percentage of store sales.
F-24
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
On June 20, 2008 the Company entered into a six year,
$4,000 master lease agreement with Banc of America
Leasing & Capital, LLC for motor fuel dispensers.
Actual costs incurred, including installation of the equipment,
was funded in seven schedules totaling $3,575. Aggregate monthly
operating lease payments, excluding sales tax, under each
schedule total $49 with the first schedule effective
July 1, 2008.
Future minimum lease payments for operating leases are as
follows:
|
|
|
|
|
Year Ended Amount
|
|
Amount
|
|
|
December 31, 2011
|
|
$
|
6,622
|
|
December 31, 2012
|
|
|
6,284
|
|
December 31, 2013
|
|
|
5,731
|
|
December 31, 2014
|
|
|
4,921
|
|
December 31, 2015
|
|
|
3,739
|
|
Thereafter
|
|
|
34,678
|
|
|
|
|
|
|
Total
|
|
$
|
61,975
|
|
|
|
|
|
|
Pursuant to the Area License Agreement with 7-Eleven, five
Subway site licenses and four Stuckeys, the Company is
required to pay royalty
and/or
advertising fees based upon a percentage of related product
sales. 7-Eleven royalty fees for the years ended
December 31, 2008, 2009, and 2010, totaled $3,392, $3,308,
and $3,595, respectively. All other royalty fees are not
material.
Alon Energy has a letter of credit expiring September 13,
2011 for $2,765 issued by Ace American Insurance Company for the
purpose of prior workers compensation claims. There are no
specific claims related to the Company. Alon Energy has an
additional letter of credit expiring July 31, 2011 for $182
issued to Kemper Indemnity Insurance Company for workers
compensation, general liability and auto liability claims
related to SCS. In the event these letters of credit are drawn
in respect of their claims, the Company will have an
indemnification obligation to Alon Energy for such amounts.
|
|
(f)
|
Environmental
Remediation
|
The Company is subject to loss contingencies pursuant to
federal, state and local environmental laws and regulations.
These rules regulate the discharge of materials into the
environment and may require the Company to incur future
obligations to investigate the effects of the release 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 or leased and are associated with past or present
operations. The Company is currently participating in
environmental investigations, assessments and cleanups under
these regulations at six retail sites. 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 that may be required and the
determination of the Companys 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.
F-25
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
The Company has accrued environmental remediation obligations of
$51 at December 31, 2009 and $55 at December 31, 2010.
The Company also accrues its costs to retire underground storage
tanks. See Note 12.
Total remediation costs, netted against state reimbursement
programs or third party insurance providers, for the years ended
December 31, 2008, 2009, and 2010, totaled $438, $786, and
$978, respectively. These costs consist primarily of recurring
tank inspection and testing expenditures.
The Company believes it has adequately provided for its
environmental exposures with the accruals referred to above.
These liabilities have not been reduced by potential future
recoveries from third parties. Environmental liabilities are
difficult to assess and estimate due to unknown factors such as
the timing and extent of remediation, the determination of the
obligation in proportion to other parties, improvements in
remediation technologies and the extent to which environmental
laws and regulations may change in the future. However, it is
reasonably possible the Company will have to adjust the amount
of its environmental accruals in the future as additional
information becomes available.
The Company is partially self-insured for its general liability,
workers compensation and employee health insurance. The
Company maintains insurance coverage at levels that are
customary and consistent with industry standards for companies
of similar size. The Company is a nonsubscriber under the Texas
Workers Compensation Act and maintains an ERISA-based
employee injury plan, which is partially self-insured. As of
December 31, 2010, there are a number of outstanding claims
that are of a routine nature. The estimated incurred but unpaid
liabilities relating to these claims are included in other
accrued expenses. Additionally, there are open claims under
previous policies that have not been resolved as of
December 31, 2010. While the ultimate outcome of these
claims cannot presently be determined, management believes the
accrued liability of $228, combined with Alon Energys
$2,765 letter of credit issued by Ace American Insurance
Company, which covers all Alon Energy operations, will be
sufficient to cover the related liability and the ultimate
disposition of these claims will not have a material effect on
the Companys financial position and results of operations.
However, it is reasonably possible the Company will have to
adjust the amount of its self-insurance accruals in the future
as additional information becomes available.
|
|
(h)
|
Credit
Facility Guarantee
|
Alon LP is a party to an Amended Revolving Credit Agreement,
dated as of June 22, 2006 (as thereafter amended from time
to time, the IDB Credit Facility), by and among Alon
LP, the Borrowers designated by Alon LP thereunder, the
Guarantor Companies a party thereto, the lenders from time to
time a party thereto, and Israel Discount Bank of New York, as
agent, and Bank Leumi USA, as co-arranger for the lenders. The
IDB Credit Facility can be used both for borrowings and the
issuance of letters of credit subject to a limit of the lesser
of the facility or the amount of the borrowing base under the
facility. The size of the IDB Credit Facility is fixed at
$240,000.
The IDB Credit Facility will mature on January 1, 2013. The
IDB Credit Facility is secured by (i) a first lien on Alon
LPs cash, accounts receivables, inventories and related
assets, excluding those of Alon Paramount Holdings, Inc.
(Alon Holdings), a subsidiary of Alon Energy, and
its subsidiaries other than Alon Pipeline Logistics, LLC
(Alon Logistics), those subsidiaries established in
conjunction with the Krotz Springs refinery acquisition and
those of SCS and Skinnys and (ii) a second lien on
Alon LPs fixed assets excluding assets held by Alon
Holdings (excluding Alon Logistics), those subsidiaries
established in conjunction with the Krotz Springs refinery
acquisition and SCS and Skinnys. As a result, the
wholesale marketing segments accounts receivables are
pledged as security under the IDB Credit Facility.
Alon LP had borrowings of $88,000 and $122,000 outstanding under
the IDB Credit Facility at December 31, 2009 and
December 31, 2010, respectively. As of December 31,
2009 and December 31, 2010,
F-26
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Alon LP had outstanding letters of credit under the IDB Credit
Facility of $128,963 and $116,956, respectively.
The Company has provided an unsecured unconditional guarantee of
all of Alon LPs obligations under the IDB Credit Facility.
The Company has not recorded a liability related to the
guarantee of the borrowings under the IDB Credit Facility.
Components of the Companys income tax expense (benefit)
for the years ended December 31, 2008, 2009 and 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Current Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
401
|
|
|
$
|
3,698
|
|
State
|
|
|
979
|
|
|
|
576
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax
|
|
|
979
|
|
|
|
977
|
|
|
|
4,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,484
|
)
|
|
|
347
|
|
|
|
2,077
|
|
State
|
|
|
(50
|
)
|
|
|
(56
|
)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax
|
|
|
(2,534
|
)
|
|
|
291
|
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(1,555
|
)
|
|
$
|
1,268
|
|
|
$
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between the income tax expense (benefit)
computed on pretax income at the statutory federal rate and the
actual expense (benefit) for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Tax expense (benefit) at statutory federal rate
|
|
$
|
(2,153
|
)
|
|
$
|
1,290
|
|
|
$
|
5,901
|
|
State and local income taxes, net of federal benefits
|
|
|
604
|
|
|
|
388
|
|
|
|
346
|
|
Income tax return to book provision adjustments
|
|
|
|
|
|
|
(430
|
)
|
|
|
40
|
|
Other, net
|
|
|
(6
|
)
|
|
|
20
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(1,555
|
)
|
|
$
|
1,268
|
|
|
$
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
185
|
|
|
$
|
156
|
|
State tax deduction
|
|
|
202
|
|
|
|
200
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
|
657
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
1,044
|
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Pension liability
|
|
$
|
(113
|
)
|
|
$
|
(114
|
)
|
Asset retirement obligation
|
|
|
(888
|
)
|
|
|
(922
|
)
|
State tax
|
|
|
(137
|
)
|
|
|
(114
|
)
|
Property and equipment
|
|
|
7,595
|
|
|
|
8,649
|
|
Intangible assets
|
|
|
3,228
|
|
|
|
4,352
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
9,685
|
|
|
$
|
11,851
|
|
|
|
|
|
|
|
|
|
|
The 2009 federal tax law changes allowed companies to carry back
net operating losses to the prior five years. Alon Energy
elected to do so and utilized the Companys
December 31, 2008 net operating loss balance of
$8,870. As of December 31, 2009 all net operating losses of
the Company have been utilized. The Company had net operating
loss carryforwards for state income tax purposes of $114 as of
December 31, 2010, which are available to offset future
state taxable income in various years through 2024.
Uncertain
Tax Positions
It is the Companys policy to recognize interest and
penalties in other operating, selling and administrative
expenses. The Company files a consolidated income tax return in
the United States federal jurisdiction and files separate income
tax returns in Texas, Oklahoma, Louisiana and New Mexico. Tax
years 2006 through 2010 remain open for audit.
No adjustments have been recorded to the balance of unrecognized
tax benefits, and therefore no balance exists at
December 31, 2009 or 2010, as all tax positions are
considered highly certain. There are no positions the Company
reasonably anticipates will significantly increase or decrease
within 12 months of the reporting date.
The Companys two reportable segments described below
adhere to the accounting policies used for the Companys
combined financial statements as described in Note 2. The
reportable 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 reportable
segments performance is primarily evaluated on operating
income. The Company has not aggregated operating segments into
reportable segments.
These two segments are reviewed on a regular basis by the
Companys chief operating decision maker. All of the
Companys operations are in the United States.
F-28
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
Retail
As of December 31, 2010, the retail segment operates 304
convenience stores located in Central and West Texas and New
Mexico. Substantially all of the convenience stores are branded
7-Eleven under a perpetual area license agreement between SCS
and 7-Eleven and typically offer food and beverage products and
various grades of FINA-branded motor fuels to the general public.
The retail stores also offer general merchandise and convenience
services, such as ATMs, lottery tickets, money orders, prepaid
telephone cards and gift cards.
Wholesale
Marketing
The wholesale marketing segment markets motor fuels through a
network of distributors serving approximately 906
FINA branded outlets, including 292 Company-owned
retail convenience stores. The Company, through an agreement
with its parent, has 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 motor
fuels within Texas, Oklahoma, New Mexico, Arizona, Arkansas,
Louisiana, Colorado and Utah. Prior to the expiration of the
license, the Company intends to review its alternatives for
branding fuels, including requesting that its parent seek to
extend the FINA license or developing its own brand.
The wholesale segment also provides its network of FINA-branded
customers with payment card processing services and other
fuel-related marketing programs.
One customer is individually material to the wholesale segment,
accounting for approximately 30%, 50% and 55% of sales in 2008,
2009 and 2010, respectively. This customers outstanding
accounts receivable balance was approximately 28% of combined
accounts receivable at December 31, 2009 and 39% at
December 31, 2010.
F-29
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment
|
|
|
|
|
|
|
Corporate
|
|
|
Retail
|
|
|
Wholesale
|
|
|
Combined
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel sales
|
|
$
|
|
|
|
$
|
315,756
|
|
|
$
|
899,825
|
|
|
$
|
1,215,581
|
|
Less intercompany sales
|
|
|
|
|
|
|
|
|
|
|
(236,699
|
)
|
|
|
(236,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net motor fuel sales
|
|
|
|
|
|
|
315,756
|
|
|
|
663,126
|
|
|
|
978,882
|
|
Merchandise sales
|
|
|
|
|
|
|
253,295
|
|
|
|
|
|
|
|
253,295
|
|
Other, net
|
|
|
|
|
|
|
7,850
|
|
|
|
2,387
|
|
|
|
10,237
|
|
Less intercompany sales
|
|
|
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other, net
|
|
|
|
|
|
|
7,850
|
|
|
|
2,029
|
|
|
|
9,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
576,901
|
|
|
|
665,155
|
|
|
|
1,242,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuels & merchandise
|
|
|
|
|
|
|
469,354
|
|
|
|
907,921
|
|
|
|
1,377,275
|
|
Less intercompany sales
|
|
|
|
|
|
|
7,823
|
|
|
|
(252,346
|
)
|
|
|
(244,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of sales
|
|
|
|
|
|
|
477,177
|
|
|
|
655,575
|
|
|
|
1,132,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
99,724
|
|
|
|
9,580
|
|
|
|
109,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating & selling expenses
|
|
|
174
|
|
|
|
92,313
|
|
|
|
4,976
|
|
|
|
97,463
|
|
Less intercompany sales
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating & selling expenses
|
|
|
174
|
|
|
|
91,955
|
|
|
|
4,976
|
|
|
|
97,105
|
|
Depreciation, amortization, & accretion
|
|
|
|
|
|
|
12,214
|
|
|
|
1,490
|
|
|
|
13,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating & selling expenses
|
|
|
174
|
|
|
|
104,169
|
|
|
|
6,466
|
|
|
|
110,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(174
|
)
|
|
|
(4,445
|
)
|
|
|
3,114
|
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
67
|
|
|
|
(5,138
|
)
|
|
|
|
|
|
|
(5,071
|
)
|
Less intercompany charges
|
|
|
(67
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
|
|
|
|
(5,071
|
)
|
|
|
|
|
|
|
(5,071
|
)
|
Other non-operating income
|
|
|
|
|
|
|
171
|
|
|
|
40
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
|
|
|
|
(4,900
|
)
|
|
|
40
|
|
|
|
(4,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(174
|
)
|
|
|
(9,345
|
)
|
|
|
3,154
|
|
|
|
(6,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(1,555
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,381
|
|
|
$
|
(9,345
|
)
|
|
$
|
3,154
|
|
|
$
|
(4,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,913
|
|
|
$
|
171,725
|
|
|
$
|
16,254
|
|
|
$
|
195,892
|
|
Total liabilities
|
|
$
|
9,581
|
|
|
$
|
114,219
|
|
|
$
|
10,866
|
|
|
$
|
134,666
|
|
Capital expenditures(1)
|
|
$
|
|
|
|
$
|
2,690
|
|
|
$
|
1,190
|
|
|
$
|
3,888
|
|
|
|
|
(1) |
|
Expenditures relate to purchase of property and equipment and
brand image enhancement. |
F-30
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment
|
|
|
|
|
|
|
Corporate
|
|
|
Retail
|
|
|
Wholesale
|
|
|
Combined
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel sales
|
|
$
|
|
|
|
$
|
276,951
|
|
|
$
|
469,905
|
|
|
$
|
746,856
|
|
Less intercompany sales
|
|
|
|
|
|
|
|
|
|
|
(206,226
|
)
|
|
|
(206,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net motor fuel sales
|
|
|
|
|
|
|
276,951
|
|
|
|
263,679
|
|
|
|
540,630
|
|
Merchandise sales
|
|
|
|
|
|
|
261,920
|
|
|
|
|
|
|
|
261,920
|
|
Other, net
|
|
|
|
|
|
|
6,867
|
|
|
|
2,395
|
|
|
|
9,262
|
|
Less intercompany sales
|
|
|
|
|
|
|
|
|
|
|
(272
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other, net
|
|
|
|
|
|
|
6,867
|
|
|
|
2,123
|
|
|
|
8,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
545,738
|
|
|
|
265,802
|
|
|
|
811,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuels & merchandise
|
|
|
|
|
|
|
442,629
|
|
|
|
459,235
|
|
|
|
901,864
|
|
Less intercompany sales
|
|
|
|
|
|
|
3,841
|
|
|
|
(210,067
|
)
|
|
|
(206,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of sales
|
|
|
|
|
|
|
446,470
|
|
|
|
249,168
|
|
|
|
695,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
99,268
|
|
|
|
16,634
|
|
|
|
115,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating & selling expenses
|
|
|
203
|
|
|
|
89,835
|
|
|
|
5,525
|
|
|
|
95,563
|
|
Less intercompany sales
|
|
|
|
|
|
|
(272
|
)
|
|
|
|
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating & selling expenses
|
|
|
203
|
|
|
|
89,563
|
|
|
|
5,525
|
|
|
|
95,291
|
|
Depreciation, amortization, & accretion
|
|
|
|
|
|
|
11,906
|
|
|
|
1,686
|
|
|
|
13,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating & selling expenses
|
|
|
203
|
|
|
|
101,469
|
|
|
|
7,211
|
|
|
|
108,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(203
|
)
|
|
|
(2,201
|
)
|
|
|
9,423
|
|
|
|
7,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
67
|
|
|
|
(3,954
|
)
|
|
|
|
|
|
|
(3,887
|
)
|
Less intercompany charges
|
|
|
(67
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
|
|
|
|
(3,887
|
)
|
|
|
|
|
|
|
(3,887
|
)
|
Other non-operating income
|
|
|
|
|
|
|
513
|
|
|
|
40
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
|
|
|
|
(3,374
|
)
|
|
|
40
|
|
|
|
(3,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(203
|
)
|
|
|
(5,575
|
)
|
|
|
9,463
|
|
|
|
3,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
1,268
|
|
|
|
|
|
|
|
|
|
|
|
1,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,471
|
)
|
|
$
|
(5,575
|
)
|
|
$
|
9,463
|
|
|
$
|
2,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,661
|
|
|
$
|
165,712
|
|
|
$
|
17,051
|
|
|
$
|
186,424
|
|
Total liabilities
|
|
$
|
14,851
|
|
|
$
|
99,019
|
|
|
$
|
14,243
|
|
|
$
|
128,113
|
|
Capital expenditures(1)
|
|
$
|
|
|
|
$
|
3,947
|
|
|
$
|
1,252
|
|
|
$
|
5,199
|
|
|
|
|
(1) |
|
Expenditures relate to purchase of property and equipment and
brand image enhancement. |
F-31
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment
|
|
|
|
|
|
|
Corporate
|
|
|
Retail
|
|
|
Wholesale
|
|
|
Combined
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel sales
|
|
$
|
|
|
|
$
|
384,148
|
|
|
$
|
681,057
|
|
|
$
|
1,065,205
|
|
Less intercompany sales
|
|
|
|
|
|
|
|
|
|
|
(298,781
|
)
|
|
|
(298,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net motor fuel sales
|
|
|
|
|
|
|
384,148
|
|
|
|
382,276
|
|
|
|
766,424
|
|
Merchandise sales
|
|
|
|
|
|
|
274,264
|
|
|
|
|
|
|
|
274,264
|
|
Other, net
|
|
|
|
|
|
|
7,409
|
|
|
|
3,629
|
|
|
|
11,038
|
|
Less intercompany sales
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other, net
|
|
|
|
|
|
|
7,409
|
|
|
|
3,142
|
|
|
|
10,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
665,821
|
|
|
|
385,418
|
|
|
|
1,051,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuels & merchandise
|
|
|
|
|
|
|
550,319
|
|
|
|
668,896
|
|
|
|
1,219,215
|
|
Less intercompany sales
|
|
|
|
|
|
|
7,468
|
|
|
|
(306,249
|
)
|
|
|
(298,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of sales
|
|
|
|
|
|
|
557,787
|
|
|
|
362,647
|
|
|
|
920,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
108,034
|
|
|
|
22,771
|
|
|
|
130,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating & selling expenses
|
|
|
240
|
|
|
|
92,715
|
|
|
|
5,644
|
|
|
|
98,599
|
|
Less intercompany sales
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating & selling expenses
|
|
|
240
|
|
|
|
92,228
|
|
|
|
5,644
|
|
|
|
98,112
|
|
Depreciation, amortization, & accretion
|
|
|
|
|
|
|
11,905
|
|
|
|
1,645
|
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating & selling expenses
|
|
|
240
|
|
|
|
104,133
|
|
|
|
7,289
|
|
|
|
111,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(240
|
)
|
|
|
3,901
|
|
|
|
15,482
|
|
|
|
19,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
67
|
|
|
|
(3,241
|
)
|
|
|
|
|
|
|
(3,174
|
)
|
Less intercompany charges
|
|
|
(67
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
|
|
|
|
(3,174
|
)
|
|
|
|
|
|
|
(3,174
|
)
|
Other non-operating income
|
|
|
|
|
|
|
866
|
|
|
|
12
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
|
|
|
|
(2,308
|
)
|
|
|
12
|
|
|
|
(2,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(240
|
)
|
|
|
1,593
|
|
|
|
15,494
|
|
|
|
16,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,507
|
)
|
|
$
|
1,593
|
|
|
$
|
15,494
|
|
|
$
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,858
|
|
|
$
|
181,833
|
|
|
$
|
25,757
|
|
|
$
|
212,448
|
|
Total liabilities
|
|
$
|
22,080
|
|
|
$
|
104,185
|
|
|
$
|
30,266
|
|
|
$
|
156,531
|
|
Capital expenditures(1)
|
|
$
|
|
|
|
$
|
3,035
|
|
|
$
|
2,994
|
|
|
$
|
6,029
|
|
|
|
|
(1) |
|
Expenditures relate to purchase of property and equipment and
brand image enhancement. |
F-32
Alon
Brands, Inc. and Affiliates
Notes to
Combined Financial
Statements (Continued)
|
|
18.
|
Quarterly
Results of Operations (unaudited)
|
The Companys gross profit and related net income
fluctuates with the prices of wholesale and retail motor fuels.
During periods of price increases, gross profit and net income
are negatively impacted. The opposite is true for periods when
prices are decreasing.
Selected financial data by quarter is set forth in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Full Year
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
166,985
|
|
|
$
|
206,946
|
|
|
$
|
187,232
|
|
|
$
|
250,377
|
|
|
$
|
811,540
|
|
Operating income (loss)
|
|
|
1,377
|
|
|
|
2,421
|
|
|
|
3,978
|
|
|
|
(757
|
)
|
|
|
7,019
|
|
Net income (loss)
|
|
|
294
|
|
|
|
834
|
|
|
|
1,728
|
|
|
|
(439
|
)
|
|
|
2,417
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
229,211
|
|
|
$
|
256,159
|
|
|
$
|
275,730
|
|
|
$
|
290,139
|
|
|
$
|
1,051,239
|
|
Operating income (loss)
|
|
|
(1,855
|
)
|
|
|
7,257
|
|
|
|
8,810
|
|
|
|
4,931
|
|
|
|
19,143
|
|
Net income (loss)
|
|
|
(1,632
|
)
|
|
|
4,350
|
|
|
|
4,828
|
|
|
|
3,034
|
|
|
|
10,580
|
|
The Company has evaluated subsequent events after the balance
sheet date of December 31, 2010
through ,
2011 the date the combined financial statements were available
to be issued. The Company is not aware of any subsequent events
that would require recognition or disclosure in the combined
financial statements.
On February 21, 2011, Alon Brands entered into loan
agreements with a group of investors, including Alon Israel,
pursuant to which the investors loaned an aggregate of
$30.0 million to Alon Brands for general corporate
purposes. In connection with these loans, Alon Energy, our
indirect parent company, issued to the investors warrants to
purchase up to an aggregate of 3,092,783 shares of Alon
Energys common stock for an aggregate purchase price of up
to $30.0 million, subject to adjustment. In March 2011,
Alon Brands used $30.0 million of the proceeds from these
loans to pay a cash distribution to Alon USA, LP, its parent
company.
The loans mature in March 2016 and bear interest at a rate of 7%
per annum, payable semiannually; provided, that in the event the
warrants are not exercised in full by maturity, the interest
rate will be increased to 9% per annum retroactively with
respect to the same portion of the loans for which the warrants
were not exercised. The principal amounts of the loans are
payable in four equal annual installments beginning in March
2013, provided that each scheduled principal payment will
automatically be deferred until maturity unless the applicable
investor notifies Alon Brands in writing of its election to
receive the scheduled principal payment at least 30 days
prior to the scheduled payment date. In the event an investor
elects not to defer the principal payment on any scheduled
principal payment date, the number of warrants associated with
the loan and aggregate purchase price will be reduced by the
corresponding amount of such principal payment made.
Pursuant to the warrant agreements, in the event of an
underwritten initial public offering of Alon Brands common
stock, the investors may elect to exchange all or any portion of
their warrants to purchase a pre-determined number of shares of
Alon Energy common stock for warrants to purchase shares of Alon
Brands common stock at an exercise price based on the offering
price. The election to exchange the Alon Energy warrants for
warrants to purchase Alon Brands common stock must be made prior
to the commencement of such offering.
F-33
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table sets forth the costs and expenses to be paid
by us in connection with the sale of the shares of common stock
being registered hereby. All amounts are estimates except for
the Securities and Exchange Commission registration fee, the
Financial Industry Regulatory Authority (FINRA) filing fee and
the NYSE listing fee.
|
|
|
|
|
Securities and Exchange Commission registration fee
|
|
$
|
3,930
|
|
FINRA filing fee
|
|
|
10,500
|
|
NYSE listing fee
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Printing and engraving expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous expenses
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment. |
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
We are a Delaware corporation. Section 145 of the Delaware
General Corporation Law authorizes a court to award, or a
corporations board of directors to grant, indemnity under
certain circumstances to directors, officers employees or agents
in connection with actions, suits or proceedings, by reason of
the fact that the person is or was a director, officer, employee
or agent, against expenses and liabilities incurred in such
actions, suits or proceedings so long as they acted in good
faith and in a manner the person reasonable believed to be in,
or not opposed to, the best interests of the company, and with
respect to any criminal action if they had no reasonable cause
to believe their conduct was unlawful. With respect to suits by
or in the right of such corporation, however, indemnification is
generally limited to attorneys fees and other expenses and
is not available if such person is adjudged to be liable to such
corporation unless the court determines that indemnification is
appropriate.
As permitted by Delaware law, our certificate of incorporation
includes a provision that eliminates the personal liability of
our directors to Alon Brands or our stockholders for monetary
damages for breach of fiduciary duty as a director, except for
liability:
|
|
|
|
|
for any breach of the directors duty of loyalty to us or
our stockholders;
|
|
|
|
for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
|
|
|
|
|
|
under Section 174 of the Delaware General Corporation Law
regarding unlawful dividends and stock purchases; or
|
|
|
|
|
|
for any transaction for which the director derived an improper
personal benefit.
|
As permitted by Delaware law, our certificate of incorporation
provides that:
|
|
|
|
|
we are required to indemnify our directors and officers to the
fullest extent permitted by Delaware law, subject to very
limited exceptions;
|
|
|
|
we may indemnify our other employees and agents to the fullest
extent permitted by Delaware law, subject to very limited
exceptions;
|
II-1
|
|
|
|
|
we are required to advance expenses (including without
limitation, attorneys fees), as incurred, to our directors
and officers in connection with a legal proceeding to the
fullest extent permitted by Delaware law, subject to very
limited exceptions;
|
|
|
|
we may advance expenses, as incurred, to our employees and
agents in connection with a legal proceeding; and
|
|
|
|
the rights conferred in our certificate of incorporation are not
exclusive.
|
We intend to enter into indemnification agreements with each of
our current directors and officers to give these directors and
officers additional contractual assurances regarding the scope
of the indemnification set forth in our certificate of
incorporation and to provide additional procedural protections.
At present, there is no pending litigation or proceeding
involving any of our directors, officers or employees regarding
which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for
indemnification.
The indemnification provisions in our certificate of
incorporation and the indemnification agreements entered into
with our directors and officers may be sufficiently broad to
permit indemnification of our directors and officers for
liabilities arising under the Securities Act.
Under Delaware law, corporations also have the power to purchase
and maintain insurance for directors, officers, employees and
agents.
Alon Brands and its subsidiaries are covered by liability
insurance policies which indemnify their directors and officers
against loss arising from claims by reason of their legal
liability for acts as such directors, officers or trustees,
subject to limitations and conditions as set forth in the
policies.
The foregoing discussion of our certificate of incorporation and
Delaware law is not intended to be exhaustive and is qualified
in its entirety by such certificate of incorporation or law.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
In November 2008, Alon USA Interests, LLC, a Texas limited
liability company, was converted to a Delaware corporation
pursuant to Section 265 of the General Corporation Law of
the State of Delaware and renamed Alon Brands, Inc.
In connection with this statutory conversion, Alon USA, LP, the
sole member of Alon USA Interests, LLC, received
1,000 shares of common stock of Alon Brands, Inc. in
exchange for all membership interests of Alon USA Interests, LLC
outstanding immediately prior to the conversion. The issuance of
shares of common stock was exempt from registration under the
Securities Act of 1933, as amended, pursuant to
Section 3(a)(9).
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following exhibits are filed herewith:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.*
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of March 2, 2007, by
and among Alon USA Energy, Inc., Alon USA Interests, LLC,
Aloski, LLC, Skinnys, Inc. and the Davis Shareholders (as
defined therein) (incorporated by reference to Exhibit 10.1
to
Form 8-K
filed by Alon USA Energy, Inc. on March 6, 2007, SEC File
No. 001-32567).
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of
Alon Brands, Inc.
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of Alon Brands, Inc.
|
|
4
|
.1
|
|
Specimen Common Stock Certificate.
|
|
5
|
.1
|
|
Opinion of Jones Day.*
|
|
10
|
.1
|
|
Form of Master Agreement between Alon USA Energy, Inc. and Alon
Brands, Inc.
|
|
10
|
.2
|
|
Form of Tax Matters Agreement between Alon USA Energy, Inc. and
Alon Brands, Inc.
|
|
10
|
.3
|
|
Area License Agreement, dated as of June 2, 1993, between
Southwest Convenience Stores, Inc. and The Southland
Corporation***
|
II-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.4
|
|
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.***
|
|
10
|
.5
|
|
Amendment No. 2 to Area License Agreement, dated as of
August 14, 1997, between Southwest Convenience Stores, LLC
and The Southland Corporation***
|
|
10
|
.6
|
|
Amendment No. 3. to Area License Agreement, dated as of
August 20, 2008, between Southwest Convenience Stores, LLC
and 7-Eleven, Inc.***
|
|
10
|
.7
|
|
Fuel Sales and Licensing Agreement, dated as of November 1,
2009, between Alon USA, LP and Alon Brands, Inc.***
|
|
10
|
.8
|
|
First Amendment to Fuel Sales and Licensing Agreement, dated
November 15, 2010, between Alon USA, LP and Alon Brands, Inc.**
|
|
10
|
.9
|
|
Form of Director Indemnification Agreement.**
|
|
10
|
.10
|
|
Form of Officer Indemnification Agreement.**
|
|
10
|
.11
|
|
Form of Alon Brands, Inc. 2011 Equity Incentive Compensation
Plan.**
|
|
10
|
.12
|
|
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 Alon USA Energy, Inc. on June 17, 2005, SEC File
No. 333-124797).
|
|
10
|
.13
|
|
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 Alon USA Energy, Inc. on June 17, 2005, SEC File
No. 333-124797).
|
|
10
|
.14
|
|
Management Employment Agreement, dated July 1, 2001,
between Joseph Lipman and Southwest Convenience Store, LLC.**
|
|
10
|
.15
|
|
Management Employment Agreement, dated May 1, 2008, between
Kyle McKeen and Alon USA GP, LLC**
|
|
10
|
.16
|
|
Form of Registration Rights Agreement between Alon USA Energy,
Inc. and Alon Brands, Inc.
|
|
10
|
.17
|
|
Form of Corporate Services Agreement between Alon USA Energy,
Inc. and Alon Brands, Inc.
|
|
10
|
.18
|
|
Amended and Restated Credit Agreement, dated as of
December 30, 2010, among Southwest Convenience Stores, LLC,
Skinnys, LLC, the lenders party thereto and Wells Fargo
Bank, National Association (incorporated by reference to
Exhibit 10.1 to
Form 8-K
filed by Alon USA Energy, Inc. on January 6, 2011, SEC File
No. 001-32567)
|
|
10
|
.19
|
|
Loan Agreement, dated as of February 21, 2011, between Alon
Brands, Inc. and FIMI Opportunity IV, L.P.
|
|
10
|
.20
|
|
Loan Agreement, dated as of February 21, 2011, between Alon
Brands, Inc. and FIMI Israel Opportunity IV, Limited
Partnership.
|
|
10
|
.21
|
|
Loan Agreement, dated as of February 21, 2011, between Alon
Brands, Inc. and Alon Israel Oil Company, Ltd.
|
|
21
|
.1
|
|
List of Subsidiaries of Alon Brands, Inc.**
|
|
23
|
.1
|
|
Consent of Grant Thornton.
|
|
23
|
.2
|
|
Consent of Jones Day (included in Exhibit 5.1).*
|
|
24
|
.1
|
|
Power of Attorney (included on the signature pages to this
Form S-1).**
|
|
24
|
.2
|
|
Power of Attorney (included on the signature pages to this
Form S-1).**
|
|
99
|
.1
|
|
Consent of Yeshayahu Pery**
|
|
99
|
.2
|
|
Consent of Boaz Biran**
|
|
99
|
.3
|
|
Consent of Itzhak Bader**
|
|
|
|
|
|
Filed herewith. |
|
* |
|
To be filed by amendment. |
|
** |
|
Previously filed. |
|
*** |
|
Filed under confidential treatment request. |
(b) Financial Statement Schedule.
None.
II-3
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was
declared effective;
(2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof; and
(3) for the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
|
|
|
|
|
any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed
pursuant to Rule 424;
|
|
|
|
any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
|
|
the portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
|
|
|
|
any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
|
(4) for the purpose of determining liability under the
Securities Act to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment no. 5 to the
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Dallas, State of
Texas, on this 5th day of April, 2011.
Alon Brands, Inc.
Kyle McKeen
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 5 to the registration statement has been
signed by the following persons in the capacities indicated on
April 5, 2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Kyle
McKeen
Kyle
McKeen
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
*
David
Potter
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
*
David
Wiessman
|
|
Chairman
|
|
|
|
*
Shlomo
Braun
|
|
Director
|
|
|
|
*
Shai
Even
|
|
Director
|
|
|
|
*
Shlomo
Even
|
|
Director
|
|
|
|
*
Paul
Eisman
|
|
Director
|
|
|
|
*
Joseph
Lipman
|
|
Director
|
|
|
|
*
Jeff
D. Morris
|
|
Director
|
|
|
|
*
Snir
Wiessman
|
|
Director
|
|
|
|
* |
|
The undersigned, by signing his name hereto, signs and executes
this amendment no. 5 to the registration statement pursuant
to the powers of attorney executed by the above-named officers
and directors as previously filed with the Securities and
Exchange Commission. |
Kyle McKeen
Attorney-in-Fact
II-5
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.*
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of March 2, 2007, by
and among Alon USA Energy, Inc., Alon USA Interests, LLC,
Aloski, LLC, Skinnys, Inc. and the Davis Shareholders (as
defined therein) (incorporated by reference to Exhibit 10.1
to
Form 8-K
filed by Alon USA Energy, Inc. on March 6, 2007, SEC File
No. 001-32567).
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of
Alon Brands, Inc.
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of Alon Brands, Inc.
|
|
4
|
.1
|
|
Specimen Common Stock Certificate.
|
|
5
|
.1
|
|
Opinion of Jones Day.*
|
|
10
|
.1
|
|
Form of Master Agreement between Alon USA Energy, Inc. and Alon
Brands, Inc.
|
|
10
|
.2
|
|
Form of Tax Matters Agreement between Alon USA Energy, Inc. and
Alon Brands, Inc.
|
|
10
|
.3
|
|
Area License Agreement, dated as of June 2, 1993, between
Southwest Convenience Stores, Inc. and The Southland
Corporation***
|
|
10
|
.4
|
|
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.***
|
|
10
|
.5
|
|
Amendment No. 2 to Area License Agreement, dated as of
August 14, 1997, between Southwest Convenience Stores, LLC
and The Southland Corporation***
|
|
10
|
.6
|
|
Amendment No. 3. to Area License Agreement, dated as of
August 20, 2008, between Southwest Convenience Stores, LLC
and 7-Eleven, Inc.***
|
|
10
|
.7
|
|
Fuel Sales and Licensing Agreement, dated as of November 1,
2009, between Alon USA, LP and Alon Brands, Inc.***
|
|
10
|
.8
|
|
First Amendment to Fuel Sales and Licensing Agreement, dated
November 15, 2010, between Alon USA, LP and Alon Brands, Inc.**
|
|
10
|
.9
|
|
Form of Director Indemnification Agreement.**
|
|
10
|
.10
|
|
Form of Officer Indemnification Agreement.**
|
|
10
|
.11
|
|
Form of Alon Brands, Inc. 2011 Equity Incentive Compensation
Plan.**
|
|
10
|
.12
|
|
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 Alon USA Energy, Inc. on June 17, 2005, SEC File
No. 333-124797).
|
|
10
|
.13
|
|
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 Alon USA Energy, Inc. on June 17, 2005, SEC File
No. 333-124797).
|
|
10
|
.14
|
|
Management Employment Agreement, dated July 1, 2001,
between Joseph Lipman and Southwest Convenience Store, LLC.**
|
|
10
|
.15
|
|
Management Employment Agreement, dated May 1, 2008, between
Kyle McKeen and Alon USA GP, LLC**
|
|
10
|
.16
|
|
Form of Registration Rights Agreement between Alon USA Energy,
Inc. and Alon Brands, Inc.
|
|
10
|
.17
|
|
Form of Corporate Services Agreement between Alon USA Energy,
Inc. and Alon Brands, Inc.
|
|
10
|
.18
|
|
Amended and Restated Credit Agreement, dated as of
December 30, 2010, among Southwest Convenience Stores, LLC,
Skinnys, LLC, the lenders party thereto and Wells Fargo
Bank, National Association (incorporated by reference to
Exhibit 10.1 to
Form 8-K
filed by Alon USA Energy, Inc. on January 6, 2011, SEC File
No. 001-32567)
|
|
10
|
.19
|
|
Loan Agreement, dated as of February 21, 2011, between Alon
Brands, Inc. and FIMI Opportunity IV, L.P.
|
|
10
|
.20
|
|
Loan Agreement, dated as of February 21, 2011, between Alon
Brands, Inc. and FIMI Israel Opportunity IV, Limited
Partnership.
|
|
10
|
.21
|
|
Loan Agreement, dated as of February 21, 2011, between Alon
Brands, Inc. and Alon Israel Oil Company, Ltd.
|
|
21
|
.1
|
|
List of Subsidiaries of Alon Brands, Inc.**
|
|
23
|
.1
|
|
Consent of Grant Thornton.
|
|
23
|
.2
|
|
Consent of Jones Day (included in Exhibit 5.1).*
|
|
24
|
.1
|
|
Power of Attorney (included on the signature pages to this
Form S-1).**
|
|
24
|
.2
|
|
Power of Attorney (included on the signature pages to this
Form S-1).**
|
|
99
|
.1
|
|
Consent of Yeshayahu Pery**
|
|
99
|
.2
|
|
Consent of Boaz Biran**
|
|
99
|
.3
|
|
Consent of Itzhak Bader**
|
|
|
|
|
|
Filed herewith. |
|
* |
|
To be filed by amendment. |
|
** |
|
Previously filed. |
|
*** |
|
Filed under confidential treatment request. |