Correspondence 0001193125-24-182783 from HF Sinclair Corp (DINO) (CIK 0001915657) (DINO)
HF Sinclair Corp (DINO) (CIK 0001915657)
Date: July 23, 2024 · CIK: 0001915657 · Accession: 0001193125-24-182783
AI Filing Summary & Sentiment
File numbers found in text: 001-41325
Referenced dates: July 16, 2024
Letter
Securities and Exchange Commission
July 23, 2024
Page 1
HF Sinclair Corporation
2828 N. Harwood, Suite 1300
Dallas, Texas 75201
July 23, 2024
Division of Corporation Finance
Office of Energy & Transportation
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-3561
Re: HF Sinclair Corp
Form 10-K for Fiscal Year Ended December 31, 2023
Form 8-K filed on February 21, 2024
File No. 001-41325
Ladies and Gentlemen:
Set forth below are the responses of HF Sinclair Corporation (the “Corporation,” “we,” “us” or “our”), to the comments received from the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) by letter dated July 16, 2024, with respect to the Form 10-K for fiscal year ended December 31, 2023 (the “Form 10-K”) and Form 8-K filed on February 21, 2024.
For your convenience, each response is prefaced by the exact text of the Staff’s corresponding comment in bold, italicized text. All references to page numbers and captions correspond to the Form 10-K unless otherwise specified. Capitalized terms used but not defined in this letter have the meanings ascribed to such terms in the Form 10-K.
Form 10-K for Fiscal Year Ended December 31, 2023
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles, page 76
1. We note your proposed presentation of the comparable GAAP measure, gross margin in response to prior comment 2. Please explain to us why operating expenses are deducted in calculating GAAP gross margin. Please also clarify for us the types of costs included in operating expenses and the extent to which these costs are inventoriable based on the guidance in FASB ASC 330-10-30-1 through 8. In addition, your response should explain why you believe these costs are not required to be included in the cost of products sold measure that you separately report pursuant to Rule 5-03.2(a) of Regulation S-X.
Securities and Exchange Commission
July 23, 2024
Page
RESPONSE:
In Note 1 of the Corporation’s audited financial statements included in the Form 10-K, “Cost of products sold” is defined as the cost of crude oil, other feedstocks, blendstocks and purchased finished products, inclusive of transportation costs (see Form 10-K, page 94). Our Cost of products sold differs from our Operating expenses in that Cost of products sold directly relates to (i) materials that are a component of our finished product sold, including costs directly related to any environmental credit obligations, (ii) delivery and transportation costs of such products, and (iii) gains and losses on certain commodity contracts accounted for as economic hedges (see Form 10-K, page 115).
Additionally, “Operating expenses” include direct costs of labor, maintenance materials and services, utilities and other direct operating costs (see Form 10-K, page 94). Based on the guidance in FASB ASC 330-10-30-1, our operating expenses are inventoriable and, therefore, such costs are included in our inventories.
We believe our presentation of these two categories of costs reflects important measures of operating and financial performance of our Refining, Renewables and other segment results and is consistent with industry practice. We also believe the presentation of our statement of income appropriately includes the components that comprise cost of goods sold as indicated by Rule 5-03.2(a) of Regulation S-X.
However, based on the information described above and our review of the disclosure requirements of Rule 5-03.2(a), we propose that our financial statement line item labeled “Cost of products sold” be revised and presented as “Cost of materials and other” in our future filings. Additionally, we propose the inclusion of a “Cost of sales (exclusive of depreciation and amortization)” line that will aggregate and subtotal the cost components attributed to that measure. We believe that the inclusion of a Cost of sales measure in our statements of income will clarify that its component parts are inventoriable costs.
Please see below for an illustration of our proposed statement of income presentation based on financial information for the three months ended March 31, 2024, which is presented in thousands, except for per share data.
Securities and Exchange Commission
July 23, 2024
Page
Three Months Ended March 31,
Sales and other revenues
$ 7,027,145
$ 7,565,142
Operating costs and expenses:
Cost of sales (exclusive of depreciation and amortization):
Cost of materials and other (exclusive of lower of cost or market inventory valuation adjustment)
5,926,500
6,104,057
Lower of cost or market inventory valuation adjustment
(219,370 )
47,597
Operating expenses (exclusive of depreciation and amortization)
607,112
639,383
6,314,242
6,791,037
Selling, general and administrative expenses (exclusive of depreciation and amortization)
103,374
95,913
Depreciation and amortization
198,729
173,983
Total operating costs and expenses
6,616,345
7,060,933
Income from operations
410,800
504,209
Other income (expense):
Earnings of equity method investments
7,346
3,882
Interest income
22,179
19,935
Interest expense
(40,691 )
(45,822 )
Gain on foreign currency transactions
Gain on sale of assets and other
2,019
1,631
(8,704 )
(19,504 )
Income before income taxes:
402,096
484,705
Income tax expense:
Current
70,705
84,395
Deferred
14,769
15,305
85,474
99,700
Net income
316,622
385,005
Less: net income attributable to noncontrolling interest
1,958
31,739
Net income attributable to HF Sinclair stockholders
$ 314,664
$ 353,266
Earnings per share:
Basic
$ 1.57
$ 1.79
Diluted
$ 1.57
$ 1.79
Average number of common shares outstanding:
Basic
198,710
195,445
Diluted
198,710
195,445
We also propose conforming presentation changes be made to our Segment Information in the notes to consolidated financial statements (see Form 10-K, page 128). As a result of this change, the segment Gross margin measure that will be included in our non-GAAP reconciliation will be computed as segment “Sales and other revenues”, less the segment “Cost of sales” subtotal and segment “Depreciation and amortization”.
Please see below for an illustration of our proposed reconciliation of Refining segment gross margin to Adjusted refinery gross margin, and Refining segment gross margin per produced barrel sold to adjusted refinery gross margin, less operating expenses per produced barrel sold, in each case based on financial information for the three months ended March 31, 2024.
Securities and Exchange Commission
July 23, 2024
Page
Three Months Ended March 31,
(In thousands, except per barrel amounts)
Refining segment
Sales and other revenues
$ 6,204,245
$ 6,718,615
Cost of sales (exclusive of depreciation and amortization)
5,726,050
6,142,890
Depreciation and amortization
117,370
100,083
Gross margin
$ 360,825
$ 475,642
Add (subtract) lower of cost or market inventory adjustment
(220,558 )
—
Add operating expenses
472,086
501,759
Add depreciation and amortization
117,370
100,083
Adjusted refinery gross margin
$ 729,723
$ 1,077,484
Produced barrels sold (BPD) (1)
631,470
515,960
Gross margin per produced barrel sold
$ 6.28
$ 10.24
Add (subtract) lower of cost or market inventory adjustment per produced barrel sold
(3.84 )
—
Add operating expenses per produced barrel sold
8.22
10.81
Add depreciation and amortization per produced barrel sold
2.04
2.15
Adjusted refinery gross margin per produced barrel sold
$ 12.70
$ 23.20
Less operating expenses per produced barrel sold
8.22
10.81
Adjusted refinery gross margin, less operating expenses per produced barrel sold
$ 4.48
$ 12.39
(1) Represents the number of produced barrels sold per calendar day in the period.
In future filings, we will make corresponding edits in our presentation of the reconciliations of Adjusted renewables gross margin and Adjusted renewables gross margin, less operating expenses per produced barrel sold.
2. Your proposed disclosures in response to prior comment 2 present reconciliations of Adjusted refinery/renewables gross margin, less operating expenses per produced barrel/gallon sold to another non-GAAP measure, Adjusted refinery/renewables gross margin per produced barrel/gallon sold. Please revise to include reconciliations that start with the most directly comparable GAAP measure to comply with Item 10(e)(1)(i) of Regulation S-K.
RESPONSE:
The Corporation respectfully acknowledges the Staff’s comment and proposes, in future filings, to present a reconciliation from segment Gross margin per produced barrel sold, to segment Adjusted refinery/renewables gross margin per produced barrel sold, to segment Adjusted refinery/renewables gross margin, less operating expenses per produced barrel sold. Please see Comment 1 above for an illustration of our proposed revised reconciliations of this non-GAAP measure for the three months ended March 31, 2024.
* * * * *
Securities and Exchange Commission
July 23, 2024
Page
Please direct any questions that you have with respect to the foregoing or if any additional supplemental information is required by the Staff, to the undersigned at (214) 954-6657 or Atanas.atanasov@hfsinclair.com, or to Katherine Terrell Frank at (214) 220-7869 or kfrank@velaw.com.
Very truly yours,
HF Sinclair Corporation
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CORRESP 1 filename1.htm CORRESP Securities and Exchange Commission July 23, 2024 Page 1 HF Sinclair Corporation 2828 N. Harwood, Suite 1300 Dallas, Texas 75201 July 23, 2024 Division of Corporation Finance Office of Energy & Transportation United States Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-3561 Re: HF Sinclair Corp Form 10-K for Fiscal Year Ended December 31, 2023 Form 8-K filed on February 21, 2024 File No. 001-41325 Ladies and Gentlemen: Set forth below are the responses of HF Sinclair Corporation (the “Corporation,” “we,” “us” or “our”), to the comments received from the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) by letter dated July 16, 2024, with respect to the Form 10-K for fiscal year ended December 31, 2023 (the “Form 10-K”) and Form 8-K filed on February 21, 2024. For your convenience, each response is prefaced by the exact text of the Staff’s corresponding comment in bold, italicized text. All references to page numbers and captions correspond to the Form 10-K unless otherwise specified. Capitalized terms used but not defined in this letter have the meanings ascribed to such terms in the Form 10-K. Form 10-K for Fiscal Year Ended December 31, 2023 Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles, page 76 1. We note your proposed presentation of the comparable GAAP measure, gross margin in response to prior comment 2. Please explain to us why operating expenses are deducted in calculating GAAP gross margin. Please also clarify for us the types of costs included in operating expenses and the extent to which these costs are inventoriable based on the guidance in FASB ASC 330-10-30-1 through 8. In addition, your response should explain why you believe these costs are not required to be included in the cost of products sold measure that you separately report pursuant to Rule 5-03.2(a) of Regulation S-X. Securities and Exchange Commission July 23, 2024 Page 2 RESPONSE: In Note 1 of the Corporation’s audited financial statements included in the Form 10-K, “Cost of products sold” is defined as the cost of crude oil, other feedstocks, blendstocks and purchased finished products, inclusive of transportation costs (see Form 10-K, page 94). Our Cost of products sold differs from our Operating expenses in that Cost of products sold directly relates to (i) materials that are a component of our finished product sold, including costs directly related to any environmental credit obligations, (ii) delivery and transportation costs of such products, and (iii) gains and losses on certain commodity contracts accounted for as economic hedges (see Form 10-K, page 115). Additionally, “Operating expenses” include direct costs of labor, maintenance materials and services, utilities and other direct operating costs (see Form 10-K, page 94). Based on the guidance in FASB ASC 330-10-30-1, our operating expenses are inventoriable and, therefore, such costs are included in our inventories. We believe our presentation of these two categories of costs reflects important measures of operating and financial performance of our Refining, Renewables and other segment results and is consistent with industry practice. We also believe the presentation of our statement of income appropriately includes the components that comprise cost of goods sold as indicated by Rule 5-03.2(a) of Regulation S-X. However, based on the information described above and our review of the disclosure requirements of Rule 5-03.2(a), we propose that our financial statement line item labeled “Cost of products sold” be revised and presented as “Cost of materials and other” in our future filings. Additionally, we propose the inclusion of a “Cost of sales (exclusive of depreciation and amortization)” line that will aggregate and subtotal the cost components attributed to that measure. We believe that the inclusion of a Cost of sales measure in our statements of income will clarify that its component parts are inventoriable costs. Please see below for an illustration of our proposed statement of income presentation based on financial information for the three months ended March 31, 2024, which is presented in thousands, except for per share data. Securities and Exchange Commission July 23, 2024 Page 3 Three Months Ended March 31, 2024 2023 Sales and other revenues $ 7,027,145 $ 7,565,142 Operating costs and expenses: Cost of sales (exclusive of depreciation and amortization): Cost of materials and other (exclusive of lower of cost or market inventory valuation adjustment) 5,926,500 6,104,057 Lower of cost or market inventory valuation adjustment (219,370 ) 47,597 Operating expenses (exclusive of depreciation and amortization) 607,112 639,383 6,314,242 6,791,037 Selling, general and administrative expenses (exclusive of depreciation and amortization) 103,374 95,913 Depreciation and amortization 198,729 173,983 Total operating costs and expenses 6,616,345 7,060,933 Income from operations 410,800 504,209 Other income (expense): Earnings of equity method investments 7,346 3,882 Interest income 22,179 19,935 Interest expense (40,691 ) (45,822 ) Gain on foreign currency transactions 443 870 Gain on sale of assets and other 2,019 1,631 (8,704 ) (19,504 ) Income before income taxes: 402,096 484,705 Income tax expense: Current 70,705 84,395 Deferred 14,769 15,305 85,474 99,700 Net income 316,622 385,005 Less: net income attributable to noncontrolling interest 1,958 31,739 Net income attributable to HF Sinclair stockholders $ 314,664 $ 353,266 Earnings per share: Basic $ 1.57 $ 1.79 Diluted $ 1.57 $ 1.79 Average number of common shares outstanding: Basic 198,710 195,445 Diluted 198,710 195,445 We also propose conforming presentation changes be made to our Segment Information in the notes to consolidated financial statements (see Form 10-K, page 128). As a result of this change, the segment Gross margin measure that will be included in our non-GAAP reconciliation will be computed as segment “Sales and other revenues”, less the segment “Cost of sales” subtotal and segment “Depreciation and amortization”. Please see below for an illustration of our proposed reconciliation of Refining segment gross margin to Adjusted refinery gross margin, and Refining segment gross margin per produced barrel sold to adjusted refinery gross margin, less operating expenses per produced barrel sold, in each case based on financial information for the three months ended March 31, 2024. Securities and Exchange Commission July 23, 2024 Page 4 Three Months Ended March 31, 2024 2023 (In thousands, except per barrel amounts) Refining segment Sales and other revenues $ 6,204,245 $ 6,718,615 Cost of sales (exclusive of depreciation and amortization) 5,726,050 6,142,890 Depreciation and amortization 117,370 100,083 Gross margin $ 360,825 $ 475,642 Add (subtract) lower of cost or market inventory adjustment (220,558 ) — Add operating expenses 472,086 501,759 Add depreciation and amortization 117,370 100,083 Adjusted refinery gross margin $ 729,723 $ 1,077,484 Produced barrels sold (BPD) (1) 631,470 515,960 Gross margin per produced barrel sold $ 6.28 $ 10.24 Add (subtract) lower of cost or market inventory adjustment per produced barrel sold (3.84 ) — Add operating expenses per produced barrel sold 8.22 10.81 Add depreciation and amortization per produced barrel sold 2.04 2.15 Adjusted refinery gross margin per produced barrel sold $ 12.70 $ 23.20 Less operating expenses per produced barrel sold 8.22 10.81 Adjusted refinery gross margin, less operating expenses per produced barrel sold $ 4.48 $ 12.39 (1) Represents the number of produced barrels sold per calendar day in the period. In future filings, we will make corresponding edits in our presentation of the reconciliations of Adjusted renewables gross margin and Adjusted renewables gross margin, less operating expenses per produced barrel sold. 2. Your proposed disclosures in response to prior comment 2 present reconciliations of Adjusted refinery/renewables gross margin, less operating expenses per produced barrel/gallon sold to another non-GAAP measure, Adjusted refinery/renewables gross margin per produced barrel/gallon sold. Please revise to include reconciliations that start with the most directly comparable GAAP measure to comply with Item 10(e)(1)(i) of Regulation S-K. RESPONSE: The Corporation respectfully acknowledges the Staff’s comment and proposes, in future filings, to present a reconciliation from segment Gross margin per produced barrel sold, to segment Adjusted refinery/renewables gross margin per produced barrel sold, to segment Adjusted refinery/renewables gross margin, less operating expenses per produced barrel sold. Please see Comment 1 above for an illustration of our proposed revised reconciliations of this non-GAAP measure for the three months ended March 31, 2024. * * * * * Securities and Exchange Commission July 23, 2024 Page 5 Please direct any questions that you have with respect to the foregoing or if any additional supplemental information is required by the Staff, to the undersigned at (214) 954-6657 or Atanas.atanasov@hfsinclair.com, or to Katherine Terrell Frank at (214) 220-7869 or kfrank@velaw.com. Very truly yours, HF Sinclair Corporation By: /s/ Atanas H. Atanasov Name: Atanas H. Atanasov Title: Executive Vice President and Chief Financial Officer Enclosures cc: Stacey Foland, VP, Senior Assistant General Counsel & Secretary Eric Nitcher, Executive Vice President, General Counsel Katherine Terrell Frank, Vinson & Elkins L.L.P.