Financial Statements and Schedules
Delek US Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Continued)
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Treasury Stock
|
|
Non-Controlling Interest in Subsidiaries
|
|
Total Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Balance at
|
December 31, 2017
|
81,533,548
|
|
|
$
|
0.8
|
|
|
$
|
900.1
|
|
|
$
|
6.9
|
|
|
$
|
767.8
|
|
|
(762,623
|
)
|
|
$
|
(25.0
|
)
|
|
$
|
313.6
|
|
|
$
|
1,964.2
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
340.1
|
|
|
—
|
|
|
—
|
|
|
34.8
|
|
|
374.9
|
|
Other comprehensive income related to commodity contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
26.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26.2
|
|
Other comprehensive loss related to postretirement benefit plans
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.7
|
)
|
Other comprehensive loss related to interest rate contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
Foreign currency translation loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
Common stock dividends ($0.96 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80.1
|
)
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27.7
|
)
|
|
(27.7
|
)
|
Equity-based compensation expense
|
—
|
|
|
—
|
|
|
20.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
21.4
|
|
Issuance of stock for non-controlling interest repurchase, net of tax
|
5,649,373
|
|
|
0.1
|
|
|
140.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(127.0
|
)
|
|
13.5
|
|
De-recognition of non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18.7
|
)
|
|
(18.7
|
)
|
Reclassification for stranded tax effects resulting from the the Tax Reform Act (see Note 2)
|
—
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
(1.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative effect of adopting accounting principle regarding income tax effect of intra-equity transfers (see Note 2)
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44.4
|
)
|
Shares issued in connection with settlement of Convertible Notes
|
2,692,218
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
Shares received in connection with exercise of Call Options
|
—
|
|
|
—
|
|
|
124.2
|
|
|
—
|
|
|
—
|
|
|
(2,692,771
|
)
|
|
(123.9
|
)
|
|
—
|
|
|
0.3
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,022,386
|
)
|
|
(365.3
|
)
|
|
—
|
|
|
(365.3
|
)
|
Warrant reclassification to liability award
|
—
|
|
|
—
|
|
|
(35.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35.9
|
)
|
Taxes due to the net settlement of equity-based compensation
|
—
|
|
|
—
|
|
|
(11.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.5
|
)
|
Exercise of equity-based awards
|
602,936
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
(2.4
|
)
|
Balance at
|
December 31, 2018
|
90,478,075
|
|
|
$
|
0.9
|
|
|
$
|
1,135.4
|
|
|
$
|
28.6
|
|
|
$
|
981.8
|
|
|
(12,477,780
|
)
|
|
$
|
(514.1
|
)
|
|
$
|
175.5
|
|
|
$
|
1,808.1
|
|
See accompanying notes to the consolidated financial statements
(1)
This cumulative effect of adopting an accounting principle reflects a
$14.5 million
adjustment to decrease retained earnings related to the establishment of a valuation allowance on deferred tax assets recognized in connection with the adoption that was not previously reported in our March 31, 2018 Quarterly Report on Form 10-Q filed on May 10, 2018. This adjustment was not considered material to retained earnings or deferred tax liabilities.
Financial Statements and Schedules
Delek US Holdings, Inc.
Consolidated Statements of Cash Flows
(In millions, except per share data )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
374.9
|
|
|
$
|
322.6
|
|
|
$
|
(133.4
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
199.4
|
|
|
153.3
|
|
|
116.4
|
|
Amortization of above and below market leases, net
|
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
Amortization of deferred financing costs and debt discount
|
|
8.6
|
|
|
8.3
|
|
|
4.4
|
|
Accretion of environmental liabilities and asset retirement obligations
|
|
3.3
|
|
|
1.2
|
|
|
0.3
|
|
Amortization of unfavorable contract liability
|
|
(2.2
|
)
|
|
(5.8
|
)
|
|
(0.7
|
)
|
Deferred income taxes
|
|
(26.8
|
)
|
|
(48.0
|
)
|
|
(153.2
|
)
|
(Income) loss from equity method investments
|
|
(9.7
|
)
|
|
(12.6
|
)
|
|
43.4
|
|
Dividends from equity method investments
|
|
8.8
|
|
|
5.9
|
|
|
—
|
|
(Gain) loss on disposal of assets
|
|
(0.9
|
)
|
|
1.0
|
|
|
4.8
|
|
Impairment of equity method investment
|
|
—
|
|
|
—
|
|
|
245.3
|
|
Gain on remeasurement of equity method investment
|
|
—
|
|
|
(190.1
|
)
|
|
—
|
|
Loss on extinguishment of debt
|
|
9.1
|
|
|
—
|
|
|
—
|
|
Gain on sale of business
|
|
(13.3
|
)
|
|
—
|
|
|
—
|
|
Impairment of assets held for sale
|
|
27.5
|
|
|
—
|
|
|
—
|
|
Equity-based compensation expense
|
|
21.4
|
|
|
17.5
|
|
|
16.4
|
|
Income tax benefit of equity-based compensation
|
|
(2.2
|
)
|
|
(1.4
|
)
|
|
(1.2
|
)
|
Loss from discontinued operations
|
|
8.7
|
|
|
5.9
|
|
|
(86.3
|
)
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
Accounts receivable
|
|
112.7
|
|
|
(155.8
|
)
|
|
(48.1
|
)
|
Inventories and other current assets
|
|
138.7
|
|
|
(191.1
|
)
|
|
(56.5
|
)
|
Fair value of derivatives
|
|
(52.6
|
)
|
|
39.2
|
|
|
44.2
|
|
Accounts payable and other current liabilities
|
|
(128.1
|
)
|
|
290.9
|
|
|
223.8
|
|
Obligation under Supply and Offtake Agreement
|
|
(84.3
|
)
|
|
113.0
|
|
|
12.8
|
|
Non-current assets and liabilities, net
|
|
(1.1
|
)
|
|
(32.2
|
)
|
|
2.3
|
|
Cash provided by operating activities - continuing operations
|
|
590.4
|
|
|
321.8
|
|
|
234.7
|
|
Cash (used in) provided by operating activities - discontinued operations
|
|
(30.1
|
)
|
|
(2.1
|
)
|
|
13.3
|
|
Net cash provided by operating activities
|
|
560.3
|
|
|
319.7
|
|
|
248.0
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Business combinations, net of cash acquired
|
|
—
|
|
|
196.2
|
|
|
—
|
|
Equity method investment contributions
|
|
(0.2
|
)
|
|
(5.8
|
)
|
|
(61.6
|
)
|
Distributions from equity method investments
|
|
1.2
|
|
|
12.4
|
|
|
20.2
|
|
Purchases of property, plant and equipment
|
|
(322.0
|
)
|
|
(172.0
|
)
|
|
(46.3
|
)
|
Purchase of intangible assets
|
|
(1.7
|
)
|
|
(5.5
|
)
|
|
(0.7
|
)
|
Proceeds from sale of property, plant and equipment
|
|
11.1
|
|
|
0.1
|
|
|
0.2
|
|
Proceeds from sale of business
|
|
110.8
|
|
|
—
|
|
|
—
|
|
Proceeds from sales of discontinued operations
|
|
55.5
|
|
|
—
|
|
|
—
|
|
Cash (used in) provided by investing activities - continuing operations
|
|
(145.3
|
)
|
|
25.4
|
|
|
(88.2
|
)
|
Cash provided by investing activities - discontinued operations
|
|
20.0
|
|
|
12.2
|
|
|
288.9
|
|
Net cash (used in) provided by investing activities
|
|
(125.3
|
)
|
|
37.6
|
|
|
200.7
|
|
Delek US Holdings, Inc.
Consolidated Statements of Cash Flows (Continued)
(In millions, except per share data )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from long-term revolvers
|
|
2,124.6
|
|
|
1,122.1
|
|
|
369.0
|
|
Payments on long-term revolvers
|
|
(1,679.8
|
)
|
|
(1,239.8
|
)
|
|
(327.9
|
)
|
Proceeds from term debt
|
|
690.6
|
|
|
286.2
|
|
|
40.3
|
|
Payments on term debt
|
|
(826.3
|
)
|
|
(103.6
|
)
|
|
(55.0
|
)
|
Proceeds from product financing agreements
|
|
—
|
|
|
52.5
|
|
|
56.5
|
|
Repayments of product financing agreements
|
|
(72.4
|
)
|
|
(98.7
|
)
|
|
(50.4
|
)
|
Settlement of warrants unwind agreement
|
|
(35.9
|
)
|
|
—
|
|
|
—
|
|
Taxes paid due to the net settlement of equity-based compensation
|
|
(11.5
|
)
|
|
(5.0
|
)
|
|
(1.5
|
)
|
Income tax benefit of equity-based compensation
|
|
—
|
|
|
—
|
|
|
1.2
|
|
Repurchase of common stock
|
|
(365.3
|
)
|
|
(25.0
|
)
|
|
(6.0
|
)
|
Repurchase of non-controlling interest
|
|
—
|
|
|
(7.3
|
)
|
|
(6.9
|
)
|
Distribution to non-controlling interest
|
|
(27.7
|
)
|
|
(35.7
|
)
|
|
(24.1
|
)
|
Dividends paid
|
|
(80.1
|
)
|
|
(44.0
|
)
|
|
(37.5
|
)
|
Deferred financing costs paid
|
|
(13.8
|
)
|
|
(6.3
|
)
|
|
(1.9
|
)
|
Cash used in financing activities - continuing operations
|
|
(297.6
|
)
|
|
(104.6
|
)
|
|
(44.2
|
)
|
Cash used in financing activities - discontinued operations
|
|
—
|
|
|
—
|
|
|
(17.5
|
)
|
Net cash used in financing activities
|
|
(297.6
|
)
|
|
(104.6
|
)
|
|
(61.7
|
)
|
Net increase in cash and cash equivalents
|
|
137.4
|
|
|
252.7
|
|
|
387.0
|
|
Cash and cash equivalents at the beginning of the period
|
|
941.9
|
|
|
689.2
|
|
|
302.2
|
|
Cash and cash equivalents at the end of the period
|
|
1,079.3
|
|
|
941.9
|
|
|
689.2
|
|
Less cash and cash equivalents of discontinued operations at the end of the period
|
|
—
|
|
|
10.1
|
|
|
—
|
|
Cash and cash equivalents of continuing operations at the end of the period
|
|
$
|
1,079.3
|
|
|
$
|
931.8
|
|
|
$
|
689.2
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
Interest, net of capitalized interest of $0.8 million, and $0.3 million and $0.2 million in 2018, 2017 and 2016, respectively
|
|
$
|
120.1
|
|
|
$
|
82.1
|
|
|
$
|
51.9
|
|
Income taxes
|
|
$
|
103.9
|
|
|
$
|
70.5
|
|
|
$
|
1.7
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
Common stock issued in connection with the buyout of Alon Partnership non-controlling interest
|
|
$
|
127.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(Decrease) increase in accrued capital expenditures
|
|
$
|
(4.8
|
)
|
|
$
|
9.4
|
|
|
$
|
(3.7
|
)
|
Non-cash financing activities:
|
|
|
|
|
|
|
Common stock issued in connection with settlement of Convertible Notes
|
|
$
|
123.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Treasury shares received in connection with exercise of Call Options
|
|
$
|
(123.9
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Common stock issued in connection with the Delek/Alon Merger
|
|
$
|
—
|
|
|
$
|
509.0
|
|
|
$
|
—
|
|
Equity instruments issued in connection with the Delek/Alon Merger
|
|
$
|
—
|
|
|
$
|
21.7
|
|
|
$
|
—
|
|
See accompanying notes to the consolidated financial statements
Delek US Holdings, Inc.
Notes to Consolidated Financial Statements
1
. General
Delek US Holdings, Inc. operates through its consolidated subsidiaries, which include Delek US Energy, Inc. (and its subsidiaries) and Alon USA Energy, Inc. ("Alon") (and its subsidiaries).
Effective July 1, 2017 (the "Effective Time"), we acquired the outstanding common stock of Alon (previously listed under NYSE: ALJ) (the "Delek/Alon Merger", as further discussed in Note
3
), resulting in a new post-combination consolidated registrant renamed as Delek US Holdings, Inc. (“New Delek”), with Alon and the previous Delek US Holdings, Inc. (“Old Delek”) surviving as wholly-owned subsidiaries. New Delek is the successor issuer to Old Delek and Alon pursuant to Rule 12g-3(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, as a result of the Delek/Alon Merger, the shares of common stock of Old Delek and Alon were delisted from the New York Stock Exchange ("NYSE") in July 2017, and their respective reporting obligations under the Exchange Act were terminated.
Unless otherwise indicated or the context requires otherwise, the disclosures and financial information included in this report for the periods prior to July 1, 2017 reflect that of Old Delek, and the disclosures and financial information included in this report for the periods beginning July 1, 2017 reflect that of New Delek. The terms "we," "our," "us," "Delek" and the "Company" are used in this report to refer to Old Delek and its consolidated subsidiaries for the periods prior to July 1, 2017, and New Delek and its consolidated subsidiaries for the periods on or after July 1, 2017, unless otherwise noted. New Delek's Common Stock is listed on the NYSE under the symbol "DK."
2
. Accounting Policies
Basis of Presentation
Our consolidated financial statements include the accounts of Delek and its subsidiaries. All significant intercompany transactions and account balances have been eliminated in consolidation. We have evaluated subsequent events through the filing of this Form 10-K. Any material subsequent events that occurred during this time have been properly recognized or disclosed in our financial statements.
In August 2016, we entered into a definitive equity purchase agreement (the "Purchase Agreement") with Compañía de Petróleos de Chile COPEC S.A. and its subsidiary, Copec Inc., a Delaware corporation (collectively, "COPEC"). Under the terms of the Purchase Agreement, Delek agreed to sell, and COPEC agreed to purchase, 100% of the equity interests in Delek's wholly-owned subsidiaries MAPCO Express, Inc. ("MAPCO Express"), MAPCO Fleet, Inc., Delek Transportation, LLC, NTI Investments, LLC and GDK Bearpaw, LLC (collectively, the “Retail Entities”) for cash consideration of
$535.0 million
, subject to customary adjustments (the “ Retail Transaction”). The Retail Transaction closed in November 2016. As a result of the Purchase Agreement, we met the requirements under the provisions of Accounting Standards Codification ("ASC") 205-20,
Presentation of Financial Statements - Discontinued Operations
("ASC 205-20")
and ASC 360,
Property, Plant and Equipment
("ASC 360")
,
to report the results of the Retail Entities as discontinued operations and to classify the Retail Entities as a group of assets held for sale. See Note
8
for further information regarding the Retail Entities.
During the third quarter 2017, we committed to a plan to sell certain assets associated with our Paramount and Long Beach, California refineries and Alon's California renewable fuels facility (collectively, the "California Discontinued Entities"), which were acquired as part of the Delek/Alon Merger. As a result of this decision and commitment to a plan, and because it was made within three months of the Delek/Alon Merger, we met the requirements under ASC 205-20 and ASC 360 to report the results of the California Discontinued Entities as discontinued operations and to classify the California Discontinued Entities as a group of assets held for sale. On March 16, 2018, Delek sold to World Energy, LLC (i) all of Delek’s membership interests in AltAir Paramount, LLC (Alon's California renewable fuels facility), (ii) certain refining assets and other related assets located in Paramount, California and (iii) certain associated tank farm and pipeline assets and other related assets located in California. The transaction to dispose of certain assets and liabilities associated with our Long Beach, California refinery, to Bridge Point Long Beach, LLC, closed July 17, 2018. See Note
8
for further information regarding the California Discontinued Entities.
On February 12, 2018, Delek announced it had reached a definitive agreement to sell certain assets and operations of
four
asphalt terminals (included in Delek's corporate/other segment), as well as an equity method investment in an additional asphalt terminal, to an affiliate of Andeavor. This transaction includes asphalt terminal assets in Bakersfield, Mojave and Elk Grove, California and Phoenix, Arizona, as well as Delek’s
50%
equity interest in the Paramount-Nevada Asphalt Company, LLC joint venture that operates an asphalt terminal located in Fernley, Nevada. On May 21, 2018, Delek completed the transaction and received net proceeds of approximately
$110.8 million
, inclusive of the
$75.0 million
base proceeds as well as certain preliminary working capital adjustments. These associated assets did not meet the definition of held for sale pursuant to ASC 360 as of
December 31, 2017
, and therefore were not reflected as held for sale nor as discontinued operations in the consolidated financial statements as of and for the year ended
December 31, 2017
. See
Note 8
for further information regarding the disposal of these assets held for sale.
As of
December 31, 2017
, our consolidated financial statements included the consolidated financial statements of the following variable interest entities: Delek Logistics Partners, LP ("Delek Logistics"), Alon USA Partners, LP (the "Alon Partnership") and AltAir Paramount LLC ("AltAir"). On February 7, 2018, Delek acquired the non-controlling interest in the Alon Partnership; and on March 16, 2018, we sold the membership interests
in AltAir. Thus, Delek Logistics is Delek's only remaining variable interest entity as of
December 31, 2018
. As the indirect owner of the general partner of Delek Logistics, we have the ability to direct the activities of this entity that most significantly impact economic performance. We are also considered to be the primary beneficiary for accounting purposes for this entity and are Delek Logistics' primary customer. As Delek Logistics does not derive an amount of gross margin material to us from third parties, there is limited risk to Delek associated with Delek Logistics' operations. However, in the event that Delek Logistics incurs a loss, our operating results will reflect such loss, net of intercompany eliminations, to the extent of our ownership interest in this entity.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments necessary for a fair presentation of the financial condition and the results of operations have been included. All significant intercompany transactions and account balances have been eliminated in consolidation. All adjustments are of a normal, recurring nature.
Reclassifications
Certain prior period amounts have been reclassified in order to conform to the current year presentation. Additionally, certain changes to presentation of the prior period statements of income have been made in order to conform to the current period presentation, primarily relating to the addition of a subtotal entitled 'cost of sales' which includes all costs directly attributable to the generation of the related revenue, as defined by GAAP, and the retitling of what was previously referred to as 'cost of goods sold' to 'cost of materials and other'. In connection with this change in presentation, we have revised our related accounting policy for '
Cost of Materials and Other and Operating Expenses'
presented below.
Segment Reporting
Delek is an integrated downstream energy business based in Brentwood, Tennessee, and has three primary lines of business: petroleum refining; the transportation, storage and wholesale distribution of crude oil, intermediate and refined products; and convenience store retailing. For the periods presented, we have aggregated our operating units into three reportable segments: refining, logistics and retail.
Our corporate activities, results of certain immaterial operating segments (including our asphalt terminal operations effective with the Delek/ Alon Merger), our non-controlling equity interest of approximately
47%
of the outstanding shares in Alon (which was accounted for as an equity method investment) prior to the Delek/Alon Merger, results and assets of discontinued operations and intercompany eliminations are reported in corporate, other and eliminations segment. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of the reportable segments based on the segment contribution margin.
Prior to the Delek/Alon Merger, the refining segment operated high conversion, independent refineries in Tyler, Texas (the "Tyler refinery") and El Dorado, Arkansas (the "El Dorado refinery") and biodiesel facilities in Cleburne, Texas and Crossett, Arkansas. Effective with the Delek/Alon Merger, the refining segment now also includes the operations of high conversion, independent refineries in Big Spring, Texas (the "Big Spring refinery"), Krotz Springs, Louisiana (the "Krotz Springs refinery") and in Bakersfield, California (the "Bakersfield refinery"). The Bakersfield refinery has not processed crude oil since 2012 due to the high cost of crude oil relative to product yield and low asphalt demand. The logistics segment owns and operates crude oil and refined products logistics and marketing assets. The retail segment markets gasoline, diesel and other refined petroleum products, and convenience merchandise through a network of company-operated retail fuel and convenience stores and includes the assets and results of operations of the retail business acquired in connection with the Delek/Alon Merger. The assets and results of operations related to the Retail Entities disposed in 2016 were classified as discontinued operations and therefore are excluded from our retail segment and included in our corporate, other and eliminations segment.
Segment reporting is more fully discussed in
Note 4
.
Cash and Cash Equivalents
Delek maintains cash and cash equivalents in accounts with large, U.S. or multi-national financial institutions. All highly liquid investments purchased with a term of three months or less are considered to be cash equivalents. As of
December 31, 2018
and
2017
, these cash equivalents consisted primarily of bank money market accounts and bank certificates of deposit, as well as overnight investments in U.S. Government or its agencies' obligations and bank repurchase obligations collateralized by U.S. Government or its agencies' obligations.
Accounts Receivable
Accounts receivable primarily consists of trade receivables generated in the ordinary course of business. Delek recorded an allowance for doubtful accounts related to trade receivables of
$3.4 million
and
$4.4 million
as of
December 31, 2018
and
2017
, respectively.
Credit is extended based on evaluation of the customer’s financial condition. We perform ongoing credit evaluations of our customers and require letters of credit, prepayments or other collateral or guarantees as management deems appropriate. Allowance for doubtful accounts is based on a combination of current sales and specific identification methods.
Credit risk is minimized as a result of the ongoing credit assessment of our customers and a lack of concentration in our customer base. Credit losses are charged to allowance for doubtful accounts when deemed uncollectible. Our allowance for doubtful accounts is reflected as a reduction of accounts receivable in the consolidated balance sheets.
No
customer accounted for more than 10% of our consolidated accounts receivable balance as of both
December 31, 2018
and
2017
.
No
customer accounted for more than 10% of consolidated net sales for the years ended
December 31, 2018
,
2017
or
2016
.
Inventory
Refinery crude oil, work-in-process, refined products, blendstocks and asphalt inventory for all of our operations, excluding the refinery located in Tyler, Texas (the "Tyler refinery") and merchandise inventory in our Retail segment, are stated at the lower of cost determined using the first-in, first-out (“FIFO”) basis or net realizable value. Cost of inventory at the Tyler refinery is determined using the last-in, first-out (“LIFO”) inventory valuation method and inventory is stated at the lower of LIFO cost or market. Retail merchandise inventory consists of cigarettes, beer, convenience merchandise and food service merchandise and is stated at estimated cost as determined by the retail inventory method. We are not subject to concentration risk with specific suppliers, since our crude oil and refined products inventory purchases are commodities that are readily available from a large selection of suppliers.
Commodity Investments
Commodity investments represent those commodities (generally crude oil) physically on hand as a result of trading activities with physical forward contracts where such crude will not be used (either directly in production or indirectly through inventory optimization) in the normal course of our refining business. Such investment stores are maintained on a weighted average cost basis for determining realized gains and losses on physical sales under forward contracts, and ending balances are adjusted to fair value at each reporting date using published market prices of the commodity on the applicable exchange. The commodity investments are included in other current assets on the accompanying consolidated balance sheets and changes in fair value are recorded in other operating income (expense) in the accompanying consolidated statements of income.
Property, Plant and Equipment
Assets acquired by Delek in conjunction with business acquisitions are recorded at estimated fair value at the acquisition date in accordance with the purchase method of accounting as prescribed in ASC 805,
Business Combinations
("ASC 805"). Other acquisitions of property and equipment are carried at cost. Betterments, renewals and extraordinary repairs that extend the life of an asset are capitalized. Maintenance and repairs are charged to expense as incurred. Delek owns certain fixed assets on leased locations and depreciates these assets and asset improvements over the lesser of management's estimated useful lives of the assets or the remaining lease term.
Depreciation is computed using the straight-line method over management's estimated useful lives of the related assets, which are as follows:
|
|
|
|
Years
|
Building and building improvements
|
15-40
|
Refinery machinery and equipment
|
5-40
|
Pipelines and terminals
|
15-40
|
Retail store equipment and site improvements
|
7-40
|
Refinery turnaround costs
|
4-6
|
Automobiles
|
3-5
|
Computer equipment and software
|
3-10
|
Furniture and fixtures
|
5-15
|
Asset retirement obligation assets
|
15-50
|
Other Intangible Assets
Delek has intangible assets associated with third-party fuel supply agreements, fuel trade name, liquor licenses, refinery permits and below market leases resulting from to the Delek/Alon Merger, in addition to a long-term supply contract, capacity contracts, line space history and rights of way. We amortize the definite-lived intangible assets on straight-line bases over the estimated useful lives of five to 15 years. The amortization expense is included in depreciation and amortization on the accompanying consolidated statements of income.
Property, Plant and Equipment and Other Intangibles Impairment
Property, plant and equipment held and used and definite-life intangibles are evaluated for impairment whenever indicators of impairment exist. In accordance with ASC 360 and ASC 350,
Intangibles - Goodwill and Other
, Delek evaluates the realizability of these long-lived assets as events occur that might indicate potential impairment. In doing so, Delek assesses whether the carrying amount of the asset is recoverable by estimating the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges. If the carrying amount is more than the recoverable amount, an impairment charge must be recognized based on the fair value of the asset. These impairment charges are included in other operating income in our consolidated statements of income. There were
no
impairment charges identified for the years ended
December 31, 2018
,
2017
or
2016
.
Equity Method Investments
For equity investments that are not required to be consolidated under the variable or voting interest model, we evaluate the level of influence we are able to exercise over an entity’s operations to determine whether to use the equity method of accounting. Our judgment regarding the level of influence over an equity method investment includes considering key factors such as our ownership interest, participation in policy-making and other significant decisions and material intercompany transactions. Equity investments for which we determine we have significant influence are accounted for as equity method investments. Amounts recognized for equity method investments are included in equity method investments in our consolidated balance sheets and adjusted for our share of the net earnings and losses of the investee and cash distributions, which are separately stated in our consolidated statements of income and our consolidated statements of cash flows. We evaluate our equity method investments presented for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. We recorded an impairment charge of
$245.3 million
on our investment in Alon based on the quoted market price of our ALJ Shares as of September 30, 2016, during the
year ended
December 31, 2016
. This impairment is reflected in the loss on impairment of equity method investment in our consolidated statements of income for the
year ended
December 31, 2016
. There were
no
impairment losses recorded on equity method investments for the year ended
December 31, 2018
or
2017
. See
Note 7
for further information on our equity method investments.
Capitalized Interest
Delek capitalizes interest on capital projects associated with the refining and logistics segments. For the years ended
December 31, 2018
,
2017
and
2016
, interest of
$0.8 million
,
$0.3 million
and
$0.2 million
, respectively, was capitalized relating to these projects.
Refinery Turnaround Costs
Refinery turnaround costs are incurred in connection with planned shutdowns and inspections of our refineries' major units to perform necessary repairs and replacements. Refinery turnaround costs are deferred when incurred, classified as property, plant and equipment and amortized on a straight-line basis over that period of time estimated to lapse until the next planned turnaround occurs. Refinery turnaround costs include, among other things, the cost to repair, restore, refurbish or replace refinery equipment such as vessels, tanks, reactors, piping, rotating equipment, instrumentation, electrical equipment, heat exchangers and fired heaters.
Goodwill and Potential Impairment
Goodwill in an acquisition represents the excess of the aggregate purchase price over the fair value of the identifiable net assets. Goodwill is reviewed at least annually for impairment, or more frequently if indicators of impairment exist, such as disruptions in our business, unexpected significant declines in operating results or a sustained market capitalization decline. Goodwill is evaluated for impairment by comparing the carrying amount of the reporting unit to its estimated fair value. Prior to the adoption of Accounting Standard Update ("ASU") 2017-04,
Simplifying the Test for Goodwill Impairment
, If a reporting unit's carrying amount exceeds its fair value (Step 1), the impairment assessment leads to the testing of the implied fair value of the reporting unit's goodwill to its carrying amount (Step 2). If the implied fair value is less than the carrying amount, a goodwill impairment charge is recorded. Subsequent to adoption of ASU 2017-04 (which we adopted during the fourth quarter of 2018, as permitted by the ASU), Step 2 is no longer required, but rather any impairment is determined based on the results of Step 1.
In assessing the recoverability of goodwill, assumptions are made with respect to future business conditions and estimated expected future cash flows to determine the fair value of a reporting unit. We may consider inputs such as a market participant weighted average cost of capital, estimated growth rates for revenue, gross profit and capital expenditures based on history and our best estimate of future forecasts, all of which are subject to significant judgment and estimates. We may also estimate the fair values of the reporting units using a multiple of expected future cash flows, such as those used by third-party analysts. If these estimates and assumptions change in the future, due to factors such as a decline in general economic conditions, competitive pressures on sales and margins and other economic and industry factors beyond management's control, an impairment charge may be required. A significant risk to our future results and the potential future impairment of goodwill is the volatility of the crude oil and the refined product markets which is often unpredictable and may negatively impact our results of operations in ways that cannot be anticipated and that are beyond management's control.
Our annual assessment of goodwill did not result in impairment during the years ended
December 31, 2018
,
2017
or
2016
. Details of remaining goodwill balances by segment are included in
Note 18
to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Renewable Identification Numbers
The U.S. Environmental Protection Agency (“EPA”) requires certain refiners to blend biofuels into the fuel products they produce pursuant to the EPA’s Renewable Fuel Standard - 2 ("RFS-2"). Alternatively, credits, called Renewable Identification Numbers ("RINs"), which may be generated and/or purchased, can be used to satisfy this obligation instead of physically blending biofuels ("RINs Obligation"). All of our refineries are obligated parties to the RFS-2 (see
Note 14
for further discussion of these requirements). To the extent that any of our refineries is unable to blend biofuels at the required rate, it must purchase RINs in the open market to satisfy its annual requirement. Our RINs Obligation is based on the amount of RINs we must purchase and the price of those RINs as of the balance sheet date. The cost of RINs used each period is charged to cost of materials and other in the consolidated statements of income. We recognize a liability at the end of each reporting period in which we do not have sufficient RINs to cover the RINs Obligation. The liability is calculated by multiplying the RINs shortage (based on actual results) by the period end RIN spot price. From time to time, we may hold RINs generated or acquired in excess of our current obligations. We recognize an asset at the end of each reporting period in which we have generated or acquired RINs in excess of our RINs Obligation. The asset is calculated by multiplying the RINs surplus (based on actual results) by the period end RIN spot price. The value of RINs in excess of our RINs Obligation, if any, would be reflected in other current assets on the consolidated balance sheets. RINs generated in excess of our current RINs Obligation may be sold or held to offset future RINs Obligations. Any such sales of excess RINs are recorded in cost of materials and other on the consolidated statements of income. The assets and liabilities associated with our RINs Obligation are considered recurring fair value measurements. See
Note 13
for further information.
From time to time, Delek enters into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs Obligation. These future RIN commitment contracts meet the definition of derivative instruments under ASC 815,
Derivatives and Hedging
("ASC 815"), and are measured at fair value based on quoted prices from an independent pricing service. Changes in the fair value of these future RIN commitment contracts are recorded in cost of materials and other on the consolidated statements of income. See
Note 12
for further information.
Derivatives
Delek records all derivative financial instruments, including any interest rate swap and cap agreements, fuel-related derivatives, over the counter ("OTC") future swaps, forward contracts and future RIN purchase and sales commitments that qualify as derivative instruments, at estimated fair value in accordance with the provisions of ASC 815. Changes in the fair value of the derivative instruments are recognized in operations, unless we elect to apply and qualify for the hedging treatment permitted under the provisions of ASC 815 allowing such changes to be classified as other comprehensive income for cash flow hedges. We validate the fair value of all derivative financial instruments on a periodic basis, utilizing exchange pricing and/or price index developers such as Platts, Argus or OPIS. On a regular basis, Delek enters into commodity contracts with counterparties for the purchase or sale of crude oil, blendstocks, and various finished products. These contracts usually qualify for the normal purchase / normal sale exemption under ASC 815 and, as such, are not measured at fair value.
Delek's policy under the guidance of ASC 815-10-45,
Derivatives and
Hedging - Other Presentation Matters
("ASC 815-10-45"), is to net the fair value amounts recognized for multiple derivative instruments executed with the same counterparty and offset these values against the cash collateral arising from these derivative positions.
Fair Value of Financial Instruments
The fair values of financial instruments are estimated based upon current market conditions and quoted market prices for the same or similar instruments. Management estimates that the carrying value approximates fair value for all of Delek's assets and liabilities that fall under the scope of ASC 825,
Financial Instruments
("ASC 825").
Delek applies the provisions of ASC 820,
Fair Value Measurements and Disclosure
("ASC 820"), which defines fair value, establishes a framework for its measurement and expands disclosures about fair value measurements. ASC 820 applies to our commodity and interest rate derivatives that are measured at fair value on a recurring basis. ASC 820 also applies to the measurement of our equity method investment, goodwill and long-lived tangible and intangible assets when determining whether or not an impairment exists, when circumstances require evaluation. See
Note 7
for further information. This standard also requires that we assess the impact of nonperformance risk on our derivatives. Nonperformance risk is not considered material to our financial statements as of
December 31, 2018
and
2017
.
Delek also applies the provisions of ASC 825 as it pertains to the fair value option. This standard permits the election to carry financial instruments and certain other items similar to financial instruments at fair value on the balance sheet, with all changes in fair value reported in earnings. By electing the fair value option, we can achieve an accounting result similar to a fair value hedge without having to follow the complex hedge accounting rules. As of both
December 31, 2018
and
2017
, we elected to account for the market-indexed step-out liabilities associated with our applicable Master Supply and Offtake Agreements (the "Supply and Offtake Agreements" or the "J. Aron Agreements") with J. Aron & Company ("J. Aron") at fair value and recognize all changes in the fair value of the step-out liabilities in cost of materials and other in the accompanying statements of income. Additionally, at
December 31, 2018
we continue to apply our fair value election to our amended fixed-price step-out liabilities where changes in fair value relate to interest rate risk and therefore are recognized in interest expense in the accompanying statements of income. See Notes
10
and
13
for further discussion.
Self-Insurance Reserves
Delek has varying deductibles or self-insured retentions on our workers’ compensation, general liability, automobile liability insurance and medical claims for certain employees with coverage above the deductibles or self-insured retentions in amounts management considers adequate. We maintain an accrual for these costs based on claims filed and an estimate of claims incurred but not reported. Differences between actual settlements and recorded accruals are recorded in the period identified.
Environmental Expenditures
It is Delek's policy to accrue environmental and clean-up related costs of a non-capital nature when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Environmental liabilities represent the current estimated costs to investigate and remediate contamination at our 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, typically considering estimated activities and costs for 15 years, and up to 30 years if a longer period is believed reasonably necessary. Accruals for estimated costs from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and include, but are not limited to, costs to perform remedial actions and costs of machinery and equipment that are dedicated to the remedial actions and that do not have an alternative use. Such accruals are adjusted as further information develops or circumstances change. We discount environmental liabilities to their present value if payments are fixed and determinable. Expenditures for equipment necessary for environmental issues relating to ongoing operations are capitalized.
Changes in laws and regulations and actual remediation expenses compared to historical experience could significantly impact our results of operations and financial position. We believe the estimates selected, in each instance, represent our best estimate of future outcomes, but the actual outcomes could differ from the estimates selected.
Asset Retirement Obligations
Delek recognizes liabilities which represent the fair value of a legal obligation to perform asset retirement activities, including those that are conditional on a future event, when the amount can be reasonably estimated. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the liability’s fair value.
In the refining segment, we have asset retirement obligations with respect to our refineries due to various legal obligations to clean and/or dispose of these assets at the time they are retired. However, the majority of these assets can be used for extended and indeterminate periods of time provided that they are properly maintained and/or upgraded. It is our practice and intent to continue to maintain these assets and make improvements based on technological advances. In the logistics segment, these obligations relate to the required cleanout of the pipeline and terminal tanks and removal of certain above-grade portions of the pipeline situated on right-of-way property. In the retail segment, we have asset retirement obligations related to the removal of underground storage tanks and the removal of brand signage at owned and leased retail sites which are legally required under the applicable leases. The asset retirement obligation for storage tank removal on leased retail sites is accreted over the expected life of the owned retail site or the average retail site lease term.
In order to determine fair value, management must make certain estimates and assumptions including, among other things, projected cash flows, a credit-adjusted risk-free rate and an assessment of market conditions that could significantly impact the estimated fair value of the asset retirement obligations. We believe the estimates selected, in each instance, represent our best estimate of future outcomes, but the actual outcomes could differ from the estimates selected.
Revenue Recognition
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or by providing services to a customer. The adoption of ASC 606,
Revenue from Contracts with Customers
("ASC 606"), did not materially change our revenue recognition patterns, which are described below by reportable segment. The principles for recognizing revenue as codified in ASC 605,
Revenue Recognition
("ASC 605"), were applied during the years ended
December 31, 2017
and
2016
. No restatements to revenues or expenses were required to be made to our consolidated statements of income, as we applied the modified retrospective transition method in adopting ASC 606, as described below under "—New Accounting Pronouncements Adopted During 2018—
ASU 2014-09, Revenue - Revenue from Contracts with Customers
."
Refining
Revenues for products sold are recorded at the point of sale upon delivery of product, which is the point at which title to the product is transferred, the customer has accepted the product and the customer has significant risks and rewards of owning the product. We typically have a right to payment once control of the product is transferred to the customer. Transaction prices for these products are typically at market rates for the product at the time of delivery. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.
Logistics
Revenues for products sold are generally recognized upon delivery of the product, which is when title and control of the product is transferred. Transaction prices for these products are typically at market rates for the product at the time of delivery. Service revenues are recognized as crude oil, intermediate and refined product are shipped through, delivered by or stored in our pipelines, trucks, terminals and storage facility assets, as
applicable. We do not recognize product revenues for these services as the product does not represent a promised good in the context of ASC 606. All service revenues are based on regulated tariff rates or contractual rates. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.
Retail
Fuel and merchandise revenue is recognized at the point of sale, which is when control of the product is transferred to the customer. Payments from customers are received at the time sales occur in cash or by credit or debit card. We derive service revenues from the sale of lottery tickets, money orders, car washes and other ancillary product and service offerings. Service revenue and related costs are recorded at gross amounts or net amounts, as appropriate, in accordance with the principal versus agent provisions in ASC 606.
Refer to
Note 4
for disclosure of our revenue disaggregated by segment, as well as a description of our reportable segment operations.
Cost of Materials and Other and Operating Expenses
For the refining segment, cost of materials and other includes (i) the direct cost of materials (such as crude oil and other refinery feedstocks, refined petroleum products and blendstocks, and ethanol feedstocks and products) that are a component of our products sold; (ii) costs related to the delivery (such as shipping and handling costs) or products sold; (iii) costs related to our environmental credit obligations to comply with various governmental and regulatory programs (such as the cost of renewable identification numbers as required by the EPA's Renewable Fuel Standard and emission credits under various cap-and-trade systems); and (iv) gains and losses on our commodity derivative instruments.
Operating expenses for the refining segment include the costs to operate our refineries and biodiesel facilities, excluding depreciation and amortization. These costs primarily include employee-related expenses, energy and utility costs, catalysts and chemical costs, and repairs and maintenance expenses.
For the logistics segment, cost of materials and other includes (i) all costs of purchased refined products, additives and related transportation of such products, (ii) it also includes costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance, (iii) the cost of pipeline capacity leased from a third-party, and (iv) gains and losses related to our commodity hedging activities.
Operating expenses for the logistics segment include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business.
For the retail segment, cost of materials and other comprises the costs related to specific products sold at retail sites, primarily consisting of motor fuels and merchandise. Retail fuel cost of sales represents the cost of purchased fuel, including transportation costs. Merchandise cost of sales includes the delivered cost of merchandise purchases, net of merchandise rebates and commissions. Operating expenses related to the retail business include costs such as wages of employees, lease expense, utility expense and other costs of operating the stores, excluding depreciation and amortization, and are excluded from cost of sales because they primarily relate to costs associated with selling the products through our retail sites.
Depreciation and amortization is separately presented in our statement of income and disclosed by reportable segment in
Note 4
.
Interest Expense
Interest expense includes interest expense on debt, letters of credit, financing fees (including certain J. Aron fees associated with our Supply and Offtake Agreements), the amortization, net of accretion, of debt discounts or premium and amortization of deferred debt issuance costs, and interest rate swap settlements, but excludes capitalized interest. Original issuance discount and debt issuance costs are amortized ratably over the term of the related debt when it is not materially different from the effective interest method.
Sales, Use and Excise Taxes
Prior to the adoption of ASC 606, Delek's policy was to exclude sales, use and excise taxes from revenue when we are an agent of the taxing authority, in accordance with
the applicable guidance in ASC 605,
Revenue Recognition
.
Upon
the adoption of ASC 606,
we made the accounting policy election to exclude from revenue all taxes assessed by a governmental authority, including sales, use and excise taxes, that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer.
Deferred Financing Costs
Deferred financing costs associated with our revolving credit facilities are included in other non-current assets in the accompanying consolidated balance sheets. Deferred financing costs associated with our term loan facilities are included as a reduction to the associated debt balance in the accompanying consolidated balance sheets. These costs represent expenses related to issuing our long-term debt and obtaining our lines of credit and are amortized ratably over the remaining term of the respective financing when it is not materially different from the effective interest method and included in interest expense in the accompanying consolidated statements of income. See
Note 11
for further information.
Advertising Costs
Delek expenses advertising costs as the advertising space is utilized. Advertising expense for the years ended
December 31, 2018
,
2017
and
2016
was
$4.1 million
,
$1.3 million
and
$0.2 million
, respectively.
Operating Leases
Delek leases land, buildings and various equipment under various operating lease arrangements, most of which provide the option, after the initial lease term, to renew the leases. Some of these lease arrangements include fixed rental rate increases, while others include rental rate increases based upon such factors as changes, if any, in defined inflationary indices.
In accordance with ASC 840-20,
Leases - Operating Leases
("ASC 840-20"), for all leases that include fixed rental rate increases, Delek calculates the total rent expense for the entire lease period, considering renewals for all periods for which failure to renew the lease imposes economic penalty, and records rental expense on a straight-line basis in the accompanying consolidated statements of income. See
Note 14
for further information.
Income Taxes
Income taxes are accounted for under the provisions of ASC 740,
Income Taxes
("ASC 740"). This statement generally requires Delek to record deferred income taxes for the differences between the book and tax bases of its assets and liabilities, which are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income tax expense or benefit represents the net change during the year in our deferred income tax assets and liabilities, exclusive of the amounts held in other comprehensive income.
ASC 740 also prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return and prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Finally, ASC 740 requires an annual tabular roll-forward of unrecognized tax benefits.
The Tax Cuts and Jobs Act (the "Tax Reform Act") was enacted on December 22, 2017. The Tax Reform Act reduces the US federal corporate tax rate from 35% to 21%, provides for immediate deduction of qualified capital assets placed in service, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At
December 31, 2018
, we have finalized our accounting analysis based on the guidance, interpretations, and data available. Adjustments made in the fourth quarter of fiscal 2018 upon finalization of our accounting analysis were not material to our Consolidated Financial Statements. See
Note 15
for further discussion.
Equity-Based Compensation
ASC 718,
Compensation - Stock Compensation
("ASC 718"), requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement and establishes fair value as the measurement objective in accounting for share-based payment arrangements. ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards on the date of grant. Delek uses the Black-Scholes-Merton option-pricing model to determine the fair value of stock option and stock appreciation right (SAR) awards.
Restricted stock units ("RSUs") are valued based on the fair market value of the underlying stock on the date of grant. Performance-based RSUs ("PRSUs") include a market condition based on the Company's total shareholder return over the performance period and are valued using a Monte-Carlo simulation model. We record compensation expense for these awards based on the grant date fair value of the award, recognized ratably over the measurement period. Vested RSUs and PRSUs are not issued until the minimum statutory withholding requirements have been remitted to us for payment to the taxing authority. As a result, the actual number of shares accounted for as issued may be less than the number of RSUs vested, due to any withholding amounts which have not been remitted.
We generally recognize compensation expense related to stock-based awards with graded or cliff vesting on a straight-line basis over the vesting period. It is our practice to issue new shares when share-based awards are exercised. Our equity-based compensation expense includes estimates for forfeitures and volatility based on our historical experience. If actual forfeitures differ from our estimates, we adjust equity-based compensation expense accordingly.
Postretirement Benefits
In connection with the Delek/Alon Merger, we assumed defined benefit pension and postretirement medical plans for certain former Alon employees. We recognize the underfunded status of our defined benefit pension and postretirement medical plans as a liability. Changes in the funded status of our defined benefit pension and postretirement medical plans are recognized in other comprehensive income in the period when the changes occur. The funded status represents the difference between the projected benefit obligation and the fair value of the plan assets. The projected benefit obligation is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases. Plan assets are measured at fair value. We use December 31 of each year, or more frequently as necessary, as the measurement date for plan assets and obligations for all of our defined benefit pension and postretirement medical plans. We straight-line amortize prior service costs and actuarial gains and losses over the average future service of members expected to receive benefits and use a 10% corridor in regards to the actuarial gains and losses. See Note
22
for more information regarding our postretirement benefits.
The service cost component of net periodic benefit is included as part of general and administrative expenses in the accompanying consolidated statements of income. The other components of net periodic benefit are included as part of other non-operating expense (income), net in the accompanying consolidated statements of income.
New Accounting Pronouncements Adopted During 2018
ASU 2018-02, Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for stranded tax effects resulting from the Tax Reform Act, which was signed into law on December 22, 2017. Consequently, the amendments eliminate the stranded tax effects related to items in accumulated other comprehensive income resulting from the Tax Reform Act. The new guidance may be applied retrospectively to each period in which the effect of the Tax Reform Act is recognized, or in the period of adoption. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We elected to early adopt this guidance effective January 1, 2018. As a result of adopting this guidance, we reclassified
$1.6 million
from AOCI to retained earnings. See
Note 15
for further discussion.
ASU 2017-09, Stock Compensation - Scope of Modification Accounting
In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The modification accounting guidance applies if the value, vesting conditions or classification of the award changes. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This guidance should be applied prospectively to an award modified on or after the adoption date. We adopted this guidance on January 1, 2018 and the adoption did not have a material impact on our business, financial condition or results of operations.
ASU 2017-07, Compensation - Improving the Presentation of Net Periodic Pension Cost and Net Postretirement Benefit Cost
In March 2017, the FASB issued guidance that will require that an employer disaggregate the service cost component from the other components of net benefit cost with respect to defined benefit postretirement employee benefit plans. Service cost is required to be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost are required to be reported outside the subtotal for operating income. Additionally, only the service cost component of net benefit costs are eligible for capitalization. The guidance became effective January 1, 2018. We adopted this guidance on January 1, 2018, which retrospectively impacted the presentation of our third and fourth quarter 2017 statements of income as a result of the pension and postretirement obligations assumed in the Delek/Alon Merger. As further discussed in
Note 22
, only the service cost component of net periodic benefit costs are included as part of general and administrative expenses in the accompanying consolidated statements of income. The other components of net periodic benefit costs are included as part of other non-operating expenses (income), net. As a practical expedient, we used the amounts disclosed regarding our pension and other postretirement benefit plans for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The following table details the impact of the retrospective adoption of this standard for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
(in millions)
|
|
As Reported
|
|
Adjustment
|
|
As Adjusted
|
General and administrative expenses
|
|
$
|
169.8
|
|
|
$
|
6.1
|
|
|
$
|
175.9
|
|
Other income, net
|
|
$
|
—
|
|
|
$
|
(6.1
|
)
|
|
$
|
(6.1
|
)
|
ASU 2017-05, Other Income - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
In February 2017, the FASB issued guidance clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. The amendments in this guidance should be applied using either i) a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption or ii) a retrospective basis to each period presented in the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within
that reporting period. We adopted this guidance on January 1, 2018, and the adoption did not have a material impact on our business, financial condition or results of operations.
ASU 2017-04, Intangible - Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued guidance concerning the goodwill impairment test that eliminates Step 2, which required a comparison of the implied fair value of goodwill of the reporting unit with the carrying amount of that goodwill for that reporting unit. It also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative assessment, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. As permitted under ASU 2017-04, we adopted this guidance in the fourth quarter of 2018 in connection with our 2018 goodwill impairment tests. The adoption did not have a material impact on our business, financial condition or results of operations.
ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this guidance on January 1, 2018. As a result of adopting this guidance, we decreased retained earnings by
$44.4 million
for the cumulative effect as of January 1, 2018.
ASU 2016-15, Statement of Cash Flow - Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued guidance that clarifies eight cash flow classification issues pertaining to cash receipts and cash payments. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this guidance on January 1, 2018 and the adoption did not have a material impact on our business, financial condition or results of operations, except for reclassifications of certain distributions received from equity method investees, due to Delek making an accounting policy election to classify distributions received from equity method investees using the cumulative earnings approach. Under this approach, distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investor’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings (as adjusted for amortization of basis differences) recognized by the investor. When such an excess occurs, the current-period distribution up to this excess should be considered a return of investment and classified as cash inflows from investing activities. This resulted in a reclassification of
$12.4 million
and
$20.2 million
of distributions received for the years ended
December 31, 2017
and
2016
, respectively, from the line item entitled dividends from equity method investments in net cash provided by (used in) operating activities to the line item entitled distributions from equity method investments in net cash provided by (used in) investing activities in the consolidated statements of cash flows.
ASU 2016-07, Investment - Simplifying the Transition to the Equity Method of Accounting
In January 2016, the FASB issued guidance that affects the accounting for equity investments, financial liabilities accounted for under the fair value option and the presentation and disclosure requirements for financial instruments. Under the new guidance, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification for equity securities with readily determinable fair values. For financial liabilities when the fair value option has been elected, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. It will require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and will eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. We adopted this guidance on January 1, 2018 and the adoption did not have a material impact on our business, financial condition or results of operations.
ASU 2014-09, Revenue - Revenue from Contracts with Customers
In May 2014, the FASB issued guidance as codified in ASC 606 to clarify the principles for recognizing revenue. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires improved interim and annual disclosures that enable the users of financial statements to better understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and can be adopted retrospectively. We adopted this guidance on January 1, 2018, using the modified retrospective transition method applied to contracts which were not completed as of January 1, 2018, and the adoption did not have a material impact on our business, financial condition or results of operations.
Accounting Pronouncements Not Yet Adopted
ASU 2018-15, Intangible - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the Financial Accounting Standards Board (the "FASB") issued guidance related to customers’ accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. This pronouncement aligns the requirements for capitalizing implementation costs in such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact that adopting this new guidance will have on our business, financial condition and results of operations.
ASU 2018-14, Compensation - Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued guidance related to disclosure requirements for defined benefit plans. The pronouncement eliminates, modifies and adds disclosure requirements for defined benefit plans. The pronouncement is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. We expect to adopt this guidance on or before the effective date and do not expect adopting this new guidance will have a material impact on our business, financial condition or results of operations.
ASU 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurements. The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We expect to adopt this guidance on or before the effective date and do not expect adopting this new guidance will have a material impact on our business, financial condition or results of operations.
ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued guidance to better align financial reporting for hedging activities with the economic objectives of those activities for both financial (e.g., interest rate) and commodity risks. The guidance was intended to create more transparency in the presentation of financial results, both on the face of the financial statements and in the footnotes, and simplify the application of hedge accounting guidance. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Companies are required to apply the guidance on a modified retrospective transition method in which the cumulative effect of the change will be recognized within equity in the consolidated balance sheet as of the date of adoption. Early adoption is permitted, including in an interim period. If a company early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact that adopting this new guidance will have on our business, financial condition and results of operations.
ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance requiring the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This guidance is effective for interim and annual periods beginning after December 15, 2019. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact that adopting this new guidance will have on our business, financial condition and results of operations.
ASU 2016-02, Leases
In February 2016, the FASB issued guidance that requires the recognition of a lease liability and a right-of-use asset, initially measured at the present value of the lease payments, in the statement of financial condition for all leases with terms longer than one year. The guidance was subsequently amended to consider the impact of practical expedients and provide additional clarifications. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We plan to adopt the new lease standard on January 1, 2019. We plan to elect the package of practical expedients which, among other things, allows us to carry forward the historical lease classification. We plan to also elect the practical expedient not to separate lease and non-lease components, which allows us to combine the components if certain criteria are met. Further, we plan to elect the optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance sheet of retained earnings at the date of adoption and to not recast our comparative periods. We do not plan to elect the hindsight practical expedients, which would have allowed us to use hindsight in determining the reasonably certain lease term. We anticipate that adoption of the guidance will not have a material impact on our consolidated balance sheet or on our consolidated income statement, with the most significant impact consisting of the recognition of the lease liability and a right-of-use asset on our consolidated balance sheet.
3
. Acquisitions
Alon
Effective July 1, 2017, we acquired the outstanding common stock of Alon (the "Delek/Alon Merger"). Prior to the Merger, Old Delek owned a non-controlling equity interest of approximately
47%
of the outstanding shares of Alon, which was accounted for under the equity method of accounting (See Note
7
). Alon was a refiner and marketer of petroleum products, operating primarily in the south central, southwestern and western regions of the United States.
Subject to the terms and conditions of the Delek/Alon Merger Agreement (the "Merger Agreement"), at the Effective Time, each issued and outstanding share of Alon Common Stock, other than shares owned by Old Delek and its subsidiaries or held in the treasury of Alon, was converted into the right to receive
0.504
of a share of New Delek Common Stock, or, in the case of fractional shares of New Delek Common Stock, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of New Delek Common Stock multiplied by (ii)
$25.96
per share, which was the volume weighted average price of the Old Delek Common Stock, par value
$0.01
per share as reported on the NYSE Composite Transactions Reporting System for the twenty consecutive NYSE full trading days ending on June 30, 2017. Each outstanding share of restricted Alon Common Stock was assumed by New Delek and converted into restricted stock denominated in shares of New Delek Common Stock, using the conversion rate applicable to the Merger. Committed but unissued share-based awards were exchanged and converted into rights to receive share-based awards indexed to New Delek Common Stock.
In addition, subject to the terms and conditions of the Merger Agreement, each share of Old Delek Common Stock or fraction thereof issued and outstanding immediately prior to the Effective Time (other than Old Delek Common Stock held in the treasury of Old Delek, which was retired in connection with the Merger) was converted at the Effective Time into the right to receive
one
validly issued, fully paid and non‑assessable share of New Delek Common Stock or such fraction thereof equal to the fractional share of New Delek Common Stock. All existing Old Delek stock options, restricted stock awards and stock appreciation rights were converted into equivalent rights with respect to New Delek Common Stock.
In connection with the Merger, Alon, New Delek and U.S. Bank National Association, as trustee (the “Trustee”), entered into a First Supplemental Indenture (the “Supplemental Indenture”), effective as of July 1, 2017, supplementing the Indenture, dated as of September 16, 2013 (the “Original Indenture”; the Original Indenture, as amended by the Supplemental Indenture, is referred to as the "Indenture"), pursuant to which Alon issued its
3.00%
Convertible Senior Notes due 2018 (the “Convertible Notes”), which were convertible into shares of Alon’s Common Stock, par value
$0.01
per share or cash or a combination of cash and Alon Common Stock, all as provided in the Indenture. The Supplemental Indenture provided that, as of the Effective Time, the right to convert each
$1,000
principal amount of the Convertible Notes based on a number of shares of Alon Common Stock equal to the Conversion Rate (as defined in the Indenture) in effect immediately prior to the Merger was changed into a right to convert each
$1,000
principal amount of Convertible Notes into or based on a number of shares of New Delek Common Stock (at the exchange rate of
0.504
), par value
$0.01
per share, equal to the Conversion Rate in effect immediately prior to the Merger. In addition, the Supplemental Indenture provided that, as of the Effective Time, New Delek fully and unconditionally guaranteed, on a senior basis, Alon’s obligations under the Convertible Notes. See
Note 11
for further discussion.
In connection with the Indenture, Alon also entered into equity instruments, including Purchased Options and Warrants, designed, in combination, to hedge a portion of
the risk associated with the potential exercise of the conversion feature of the Convertible Notes and to minimize the dilutive effect of such potential conversion. These equity instruments, in addition to the conversion feature, represent equity instruments originally indexed to Alon Common Stock that were exchanged for instruments with terms designed to preserve the original economic intent of such instruments and indexed to New Delek Common Stock in connection with the Merger. See Note
11
for further discussion.
In connection with the Delek/Alon Merger, Delek acquired
100%
of the general partner and
81.6%
of the limited partner interests in the Alon Partnership, which owns a crude oil refinery in Big Spring, Texas with a crude oil throughput capacity of
73,000
barrels per day ("bpd") and an integrated wholesale marketing business. Delek acquired the non-controlling interest in the Alon Partnership on February 7, 2018. In addition, as a result of the Delek/Alon Merger, Delek acquired a crude oil refinery in Krotz Springs, Louisiana with a crude oil throughput capacity of
74,000
bpd. In connection with the Delek/Alon Merger, Delek also acquired crude oil refineries in California, which have not processed crude oil since 2012. On March 16, 2018, Delek sold to World Energy, LLC the Paramount, California refinery and the California renewables facility (AltAir). The transaction to dispose of certain assets and liabilities associated with the Long Beach, California refinery, to Bridge Point Long Beach, LLC, closed July 17, 2018. Alon was a marketer of asphalt, which it distributed through asphalt terminals located predominantly in the southwestern and western United States. Alon also owned crude oil refineries in California, which have not processed crude oil since 2012. Alon is a marketer of asphalt, which it distributes through asphalt terminals located predominantly in the southwestern and western United States. On May 21, 2018, Delek sold
four
asphalt terminals (included in Delek's corporate/other segment) and its
50%
interest in an asphalt joint venture to an affiliate of Andeavor. See further discussion in
Note 2
and
Note 8
. Finally, in connection with the Delek/Alon Merger, Delek acquired Alon's retail business where Alon was the largest 7-Eleven licensee in the United States and operating approximately
300
convenience stores which market motor fuels in central and west Texas and New Mexico.
Transaction costs incurred by the Company in connection with the Delek/Alon Merger totaled approximately
$6.6 million
,
$24.7 million
and
$3.0 million
for the years ended
December 31, 2018
,
December 31, 2017
and
December 31, 2016
, respectively. Such costs were included in general and administrative expenses in the accompanying consolidated statements of income.
The Merger was accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair value as of the acquisition date.
Determination of Purchase Price
The components of the consideration transferred were as follows (dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
Delek common stock issued
|
19,250,795
|
|
|
Ending price per share of Delek Common Stock immediately before the Effective Time
|
$
|
26.44
|
|
|
Total value of common stock consideration
|
|
$
|
509.0
|
|
Additional consideration
(1)
|
|
21.7
|
|
Fair value of Delek's pre-existing equity method investment in Alon
(2)
|
|
449.0
|
|
|
|
$
|
979.7
|
|
(1)
Additional consideration includes the fair value of certain equity instruments originally indexed to Alon stock that were exchanged for instruments indexed to New Delek's stock, as well as the fair value of certain share-based payments that were required to be exchanged for awards indexed to New Delek's stock in connection with the Delek/Alon Merger.
(2)
The fair value of Delek's pre-existing equity method investment in Alon was based on the quoted market price of shares of Alon.
Final Purchase Price Allocation
The final allocation of the aggregate purchase price as of
December 31, 2018
(which was finalized as of June 30, 2018) is summarized as follows (in millions), and is inclusive of the California Discontinued Entities discussed in Note
8
:
|
|
|
|
|
|
Cash
|
|
$
|
215.3
|
|
Receivables
|
|
176.8
|
|
Inventories
|
|
266.3
|
|
Prepaids and other current assets
|
|
38.7
|
|
Property, plant and equipment
(1)
|
|
1,130.3
|
|
Equity method investments
|
|
31.0
|
|
Acquired intangible assets
(2)
|
|
86.7
|
|
Goodwill
(3)
|
|
870.7
|
|
Other non-current assets
|
|
37.0
|
|
Accounts payable
|
|
(263.4
|
)
|
Obligation under Supply & Offtake Agreements
|
|
(208.9
|
)
|
Current portion of environmental liabilities
|
|
(7.9
|
)
|
Other current liabilities
|
|
(308.6
|
)
|
Environmental liabilities and asset retirement obligations, net of current portion
|
|
(226.7
|
)
|
Deferred income taxes
|
|
(194.0
|
)
|
Debt
|
|
(568.0
|
)
|
Other non-current liabilities
(4)
|
|
(95.6
|
)
|
Fair value of net assets acquired
|
|
$
|
979.7
|
|
(1)
This fair value of property, plant and equipment is based on a valuation using a combination of the income, cost and market approaches. The useful lives are based upon guidelines for similar equipment, chronological age since installation and consideration of costs spent on upgrades, repairs, turnarounds and rebuilds.
(2)
The acquired intangible assets amount includes the following identified intangibles:
|
|
•
|
Third-party fuel supply agreement intangible that is subject to amortization with a fair value of
$49.0 million
, which is being amortized over a
10
-year useful life. We recognized amortization expense for the year ended
December 31, 2018
of
$4.9 million
. The estimated annual amortization is
$4.9 million
for the four succeeding fiscal years.
|
|
|
•
|
Fuel trade name intangible valued at
$4.0 million
, which will be amortized over
5
years. We recognized amortization expense for the year ended
December 31, 2018
of
$0.8 million
. The estimated annual amortization is
$0.8 million
for the three succeeding fiscal years, with
$0.4 million
in the fourth succeeding year.
|
|
|
•
|
License agreements intangible valued at
$2.6 million
, which is being amortized over
8.7 years
. We recognized amortization expense for the year ended
December 31, 2018
of
$0.1 million
, as this intangible was sold in the first quarter of 2018.
|
|
|
•
|
Rights-of-way intangible valued at
$9.5 million
, which has an indefinite life.
|
|
|
•
|
Liquor license intangible valued at
$8.5 million
, which has an indefinite life.
|
|
|
•
|
Colonial Pipeline shipping rights intangible valued at
$1.7 million
, which has an indefinite life.
|
|
|
•
|
Refinery permits valued at
$3.1 million
, which have an indefinite life.
|
|
|
•
|
Below-market lease intangibles valued at
$8.3 million
, which is being amortized over the remaining lease term.
|
(3)
Goodwill generated as a result of the Delek/Alon Merger consists of the value of expected synergies from combining operations, the acquisition of an existing integrated refining, marketing and retail business located in areas with access to cost–advantaged feedstocks with an assembled workforce that cannot be duplicated at the same costs by a new entrant, and the strategic advantages of having a larger market presence. The total amount of goodwill that is expected to be deductible for tax purposes is
$15.5 million
. Goodwill has been allocated to reportable segments based on various relevant factors. The updated allocation of goodwill to reportable segments in connection with the purchase price allocation is as follows: Refining -
$801.3 million
and Retail -
$44.3 million
. The remainder relates to the asphalt operations, which was included in the corporate, other and eliminations segment, and which was subsequently written off as part of the impairment on assets held for sale during the first quarter of 2018.
(4)
The assumed other non-current liabilities include liabilities related to above-market leases fair valued at
$15.8 million
, which is being amortized over the remaining lease term.
Pro Forma Financial Information
The following unaudited pro forma financial information presents the condensed combined results of operations of Delek and Alon for the years ended
December 31, 2017
and
2016
, as if the Delek/Alon Merger had occurred on January 1, 2016, and reflects the final purchase price allocation. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations that would have been reported had the Delek/Alon merger been completed as of January 1, 2016, and should not be taken as indicative of New Delek's future consolidated results of operations. In addition, the unaudited pro forma condensed combined results of operations do not reflect any cost savings or associated costs to achieve such savings from operating efficiencies, synergies, debt refinancing or other restructuring that may result from the Delek/Alon Merger. The pro forma financial information also does not reflect certain non-recurring adjustments that have been, or are expected to be, recorded in connection with the Delek/Alon Merger, including any accrual for integration costs or transaction costs or additional transactions costs related to the Merger, nor any retrospective adjustments related to the conforming of Alon's accounting policies to Delek's accounting policies, as such adjustments are impracticable to determine, and such adjustments are not expected to be indicative of on-going operations of the combined company. Finally, the pro forma presentation of net revenues and net income is inclusive of the revenue and net income (loss) attributable to the California Discontinued Entities (which are generally not material as the majority of the California Discontinued Entities were non-operating during the pro forma period). Pro forma adjustments are tax-effected at the Company's estimated statutory tax rates.
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
(in millions, except per share data)
|
2017
(1) (2)
|
|
2016
(1) (2)
|
|
(unaudited)
|
Net revenues
|
$
|
9,477.8
|
|
|
$
|
8,100.9
|
|
Net income attributable to Delek
|
223.6
|
|
|
16.3
|
|
Earnings per share:
|
|
|
|
Basic
|
$
|
2.75
|
|
|
$
|
0.20
|
|
Diluted
|
$
|
2.73
|
|
|
$
|
0.20
|
|
(1)
The pro forma information for the years ended
December 31, 2017
and
2016
has been updated to reflect the final purchase price allocation in the table above.
|
|
(2)
|
The unaudited pro forma statements of operations reflect the following adjustments:
|
|
|
•
|
T
o eliminate transactions between Delek and Alon for purchases and sales of refined products, reducing revenue and the associated cost of materials and other. Such pro forma eliminations resulted in a decrease to combined pro forma revenues by
$59.0 million
and
$10.4 million
million for the years ended
December 31, 2017
and
2016
, respectively.
|
|
|
•
|
To eliminate the non-recurring transaction costs incurred during the historical periods. Such adjustments to general and administrative expense have been estimated to result in an increase to pro forma pre-tax income attributable to Delek totaling
$32.2 million
and
$13.7 million
million for the years ended
December 31, 2017
and
2016
.
|
|
|
•
|
To retrospectively reflect depreciation of property, plant and equipment and amortization of intangibles based on the fair value of the assets as of the acquisition date, as if that fair value had been reflected beginning January 1, 2016, and to retrospectively eliminate the amortization of any previously recorded intangibles. Such adjustments to depreciation and amortization have been estimated to result in an increase to pro forma pre-tax income attributable to Delek totaling
$34.7 million
and
$70.8 million
million for the years ended
December 31, 2017
and
2016
, respectively.
|
|
|
•
|
To retrospectively reflect the accretion of asset retirement obligations and certain environmental liabilities. Such adjustments to general and administrative expense have been estimated to result in a decrease to pro forma pre-tax income attributable to Delek totaling
$0.8 million
and
$1.6 million
million for the years ended
December 31, 2017
and
2016
, respectively.
|
|
|
•
|
To retrospectively reflect adjustments to interest expense, including the impact of discounts or premiums created by the difference in fair value and outstanding amounts as of the acquisition date (collectively, the “new effective yield”), by applying the new effective yield to historical outstanding amounts in the pro forma period and reversing previously recognized interest expense. Such net adjustments to interest expense have been estimated to result in an increase to pro forma pre-tax income attributable to Delek totaling
$9.4 million
and
$20.7 million
million for the years ended
December 31, 2017
and
2016
, respectively.
|
|
|
•
|
To eliminate Delek’s equity income previously recorded on its equity method investment in Alon, prior to the Merger. Such pro forma elimination resulted in an (increase) decrease to pro forma pre-tax income totaling
$3.2 million
and
$(42.2) million
million for the years ended
December 31, 2017
and
2016
, respectively.
|
|
|
•
|
To eliminate the impairment charge on the equity method investment in Alon totaling
$245.3 million
recognized in the year ended
December 31, 2016
, and to eliminate the gain on remeasurement of the equity method investment in Alon totaling
$190.1 million
recognized during the year ended
December 31, 2017
.
|
|
|
•
|
To record the tax effect on pro forma adjustments and additional tax benefit associated with dividends received from Alon at a combined U.S. (federal and state) income tax statutory blended rate of approximately
37%
for the year ended
December 31, 2017
, and approximately
35%
for the year ended
December 31, 2016
.
|
|
|
•
|
To adjust the weighted average number of shares outstanding based on
0.504
of a share of Delek common stock for each share of Alon common stock outstanding as of July 1, 2017, as if they were outstanding for the entire year ended
December 31, 2017
, reflecting the elimination of Alon historical weighted average shares outstanding and the addition of the estimated New Delek incremental shares issued.
|
As of June 30, 2017, the carrying value of Delek's equity method investment in Alon was
$252.6 million
. During the year ended
December 31, 2017
, we recognized a gain of
$196.4 million
as a result of remeasuring the
47%
equity method investment in Alon at its fair value as of the Effective Time of the Delek/Alon Merger, in accordance with ASC 805,
net of a
$6.3 million
loss to record the reversal of accumulated other comprehensive income. This net gain of
$190.1 million
was recognized in the line item entitled Gain on remeasurement of equity method investment in Alon in the consolidated statements of income. The acquisition-date fair value of the pre-existing non-controlling interest in Alon was
$449.0 million
and is included in the measurement of the consideration transferred.
Delek began consolidating Alon's results of operations on July 1, 2017. Alon operations contributed
$4,649.8 million
to net revenues and
$394.9 million
to pre-tax income for the year ended
December 31, 2018
, inclusive of the contribution of the California Discontinued Entities. Alon operations contributed
$1,950.0 million
to net revenues and and
$90.1 million
to pre-tax income for the year ended
December 31, 2017
, inclusive of the contribution of the California Discontinued Entities.
Updates to the Preliminary Purchase Price Allocation
During the year ended
December 31, 2018
, we continued our procedures to determine the fair value of assets acquired and liabilities assumed in the Delek/Alon Merger, as anticipated and disclosed in our 2017 Annual Report on Form 10-K (all of which were completed by June 30, 2018, within the permitted measurement period). As a result, the following changes were made to the preliminary purchase price allocation disclosed in our 2017 Annual Report on Form 10-K:
|
|
|
|
|
|
Subsequent increases (decreases) to initial allocation of fair value of net assets acquired:
|
|
|
Receivables
(1)
|
|
$
|
10.7
|
|
Inventories
|
|
(0.5
|
)
|
Prepaids and other current assets
(2)
|
|
9.7
|
|
Property, plant and equipment
|
|
(0.2
|
)
|
Acquired intangible assets
(3)
|
|
7.7
|
|
Accounts payable
(4)
|
|
6.0
|
|
Obligation under Supply & Offtake Agreements
(5)
|
|
10.9
|
|
Current portion of environmental liabilities
|
|
0.4
|
|
Other current liabilities
(6)
|
|
22.3
|
|
Environmental liabilities and asset retirement obligations, net of current portion
(7)
|
|
65.3
|
|
Deferred income taxes
(8)
|
|
(8.4
|
)
|
Other non-current liabilities
(9)
|
|
(2.8
|
)
|
Resulting increase to goodwill
|
|
$
|
66.3
|
|
(1)
Change primarily relates to the recognition of a receivable associated with a third-party indemnification agreement for asset retirement obligations for one of the acquired refineries that was previously under review, and finalization of an accrued receivable estimate.
(2)
Change primarily relates to a reclassification of RINs assets from other current liabilities to other current assets.
(3)
Change is primarily due to the addition of an intangible asset for certain below-market leases that had previously been identified but for which the evaluation and determination of fair value was not complete at
December 31, 2017
.
(4)
Change is primarily due to the elimination of amounts in accounts payable in the retail segment that were determined not to have value combined with reclassifications of amounts to accounts receivable.
(5)
Change relates to true-up of certain accounts related to one of the acquired supply and offtake agreements for contractual terms that were previously under review.
(
6)
Change is primarily due to an increase related to the reclassification of RINs assets from other current liabilities to other current assets and an increase related to the accrual of certain executive bonuses that were required under existing Alon employment agreements and related to service provided prior to the Delek/Alon Merger, net of adjustments to current income taxes payable to true up income taxes related to the acquired net assets.
(7)
Change is to record the long-term portion of additional asset retirement obligations and environmental liabilities identified and/or to update preliminary estimates based on additional information.
(8)
Change is related to adjustments to net deferred tax liabilities based on the updated purchase price allocation and revisions of preliminary tax estimates.
(9)
Change is related to the reversal of an accrual established in the purchase price allocation related to a pre-acquisition legal contingency that was resolved during the first quarter
2018
in our favor.
During the year ended
December 31, 2018
, certain immaterial catch-up adjustments were recorded related to accretion of environmental liabilities and amortization of leasehold intangibles identified and valued during the final months of the measurement period.
Pipeline Assets
During the year ended
December 31, 2017
, Delek made
two
pipeline asset acquisitions, for a total purchase price of
$13.0 million
. Such acquisitions were accounted for as asset acquisitions, and therefore the cost of the acquisition has been allocated to the cost of the assets acquired on a relative fair value basis.
The following table summarizes the allocation of the relative fair value assigned to the asset groups for the acquisitions (in millions):
|
|
|
|
|
|
Land
|
|
$
|
0.2
|
|
Property, plant and equipment
|
|
6.4
|
|
Intangible assets
(1)
|
|
6.4
|
|
Total
|
|
$
|
13.0
|
|
(1)
Intangible assets acquired represent rights-of-way assets with indefinite useful lives. Rights-of-way assets are not subject to amortization.
4
. Segment Data
We aggregate our operating segments into three reportable segments: refining, logistics and retail.
Our corporate activities, results of certain immaterial operating segments, including our Canadian crude trading operations (as discussed in Note
12
) , Alon's asphalt terminal operations effective with the Delek/Alon Merger, our equity method investment in Alon prior to the Delek/Alon Merger, as well as our discontinued Paramount and Long Beach, California refinery and California renewable fuels facility operations (acquired as part of the Delek/Alon Merger - see
Note 8
for further discussion) and the discontinued Retail Entities operations (for 2016), and intercompany eliminations are reported in the corporate, other and eliminations segment. In November 2016, Delek sold the Retail Entities to COPEC, as further discussed in
Note 8
. On March 16, 2018, Delek sold to World Energy, LLC (i) all of Delek’s membership interests in the California renewable fuels facility, (ii) certain refining assets and other related assets located in Paramount, California and (iii) certain associated tank farm and pipeline assets and other related assets located in California. On May 21, 2018, Delek sold certain assets and operations of
four
asphalt terminals (included in Delek's corporate/other segment), as well as an equity method investment in an additional asphalt terminal, to an affiliate of Andeavor. The transaction to dispose of certain assets and liabilities associated with our Long Beach, California refinery, to Bridge Point Long Beach, LLC, closed July 17, 2018.
Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of the reportable segments based on the segment contribution margin. Segment contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization. Operations which are not specifically included in the reportable segments are included in the corporate and other category, which primarily consists of net revenues, operating costs and expenses, depreciation and amortization expense and interest income and expense associated with our discontinued operations and with our corporate headquarters.
The refining segment processes crude oil and other purchased feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel, aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals. Prior to the Delek/Alon Merger, the refining segment had a combined nameplate capacity of
155,000
bpd, including the
75,000
bpd Tyler refinery and the
80,000
bpd El Dorado refinery. The refining segment also owns and operates two biodiesel facilities involved in the production of biodiesel fuels and related activities, located in Crossett, Arkansas and Cleburne, Texas. Effective with the Delek/Alon Merger, our refining segment now also includes the operations of the Big Spring refinery with a nameplate capacity of
73,000
bpd, the Krotz Springs refinery, with a nameplate capacity of
74,000
bpd and the Bakersfield refinery, which has not processed crude oil since 2012 due to the high cost of crude oil relative to product yield and low asphalt demand. Alon's petroleum-based products are marketed primarily in the south central, southwestern and western regions of the United States and also ships and sells gasoline into wholesale markets in the southern and eastern United States. Motor fuels are sold under the Alon brand through various terminals to supply Alon branded retail sites, including our retail segment convenience stores. In addition, Alon sells motor fuels through its wholesale distribution network on an unbranded basis.
Our refining segment has services agreements with our logistics segment, which, among other things, requires the refining segment to pay service fees based on the number of gallons sold and a sharing of a portion of the margin achieved in return for providing marketing, sales and customer services at the Tyler refinery, and effective March 1, 2018, at the Big Spring refinery (see
Note 6
for further discussion regarding the new marketing agreement). These intercompany transaction fees in regards to the Tyler refinery were
$21.8 million
,
$20.4 million
and
$16.9 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. The intercompany transaction fees in regards to the Big Spring refinery for the year ended
December 31, 2018
were
$11.2 million
. Additionally, the refining segment pays crude transportation, terminalling and storage fees to the logistics segment for the utilization of pipeline, terminal and storage assets, including effective March 1, 2018, those related to the Big Spring Logistic Assets Acquisition discussed further in
Note 6
. These fees were
$200.4 million
,
$129.6 million
and
$123.2 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. The logistics segment also sold
$2.6 million
,
$5.6 million
and
$6.7 million
of RINs to the refining segment during the years ended
December 31, 2018
,
2017
and
2016
, respectively. The refining segment recorded sales revenues from the retail segment of
$438.2 million
and
$186.8 million
during the years ended
December 31, 2018
and
2017
, respectively, and recorded sales revenues from the Retail Entities, the operations of which are included in discontinued operations, in the amount of
$292.1 million
during the year ended
December 31, 2016
. The refining segment includes sales revenue from our logistics segment of
$349.0 million
,
$57.5 million
and
$26.0 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. The refining segment also includes sales revenue of
$51.8 million
and
$11.8 million
from sales of asphalt to our other segment during the years ended
December 31, 2018
and
2017
.
Our logistics segment owns and operates crude oil and refined products logistics and marketing assets. The logistics segment generates revenue by charging fees for gathering, transporting and storing crude oil and for marketing, distributing, transporting and storing intermediate and refined products in select regions of the southeastern United States and west Texas for our refining segment and third parties, and sales of wholesale products in the west Texas market. The logistics segment is currently managing a long-term capital project on behalf of the Company for the construction of a gathering system in the Permian Basin and a long-haul crude oil pipeline that will originate in Midland, Texas and terminate near Houston, Texas. The logistics segment received management fees of
$4.8 million
during the year ended
December 31, 2018
, from the Corporate/Other segment for the management of this project.The logistics segment incurs costs in connection with the construction of the assets and is subsequently reimbursed by the Corporate/Other segment.
Effective with the Delek/Alon Merger July 1, 2017 (see Note
3
), Delek's retail segment includes the operations of Alon's owned and leased convenience store sites located primarily in central and west Texas and New Mexico. These convenience stores typically offer various grades of gasoline and diesel under the Alon brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery, which is transferred to the retail segment at prices substantially determined by reference to published commodity pricing information. We operated
279
and
302
stores as of
December 31, 2018
and
2017
, respectively.
In November 2018, we terminated the license agreement with 7-Eleven, Inc. and the terms of such termination require the removal of all 7-Eleven branding on a store-by-store basis by the earlier of December 31, 2021 or the date upon which our last 7-Eleven store is de-identified or closed. Merchandise sales at our convenience store sites will continue to be sold under the 7-Eleven brand name until 7-Eleven branding is removed pursuant to the termination.
All inter-segment transactions have been eliminated in consolidation.
The following is a summary of business segment operating performance as measured by contribution margin for the period indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2018
|
(In millions)
|
|
Refining
|
|
Retail
|
|
Logistics
|
|
Corporate,
Other and Eliminations
|
|
Consolidated
|
Net revenues (excluding intercompany fees and sales)
|
|
$
|
8,771.4
|
|
|
$
|
915.4
|
|
|
$
|
416.8
|
|
|
$
|
129.5
|
|
|
$
|
10,233.1
|
|
Intercompany fees and sales
|
|
839.0
|
|
|
—
|
|
|
240.8
|
|
|
(1,079.8
|
)
|
|
—
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
|
8,279.9
|
|
|
755.8
|
|
|
429.1
|
|
|
(904.3
|
)
|
|
8,560.5
|
|
Operating expenses (excluding depreciation and amortization presented below)
|
|
465.4
|
|
|
100.7
|
|
|
58.7
|
|
|
20.2
|
|
|
645.0
|
|
Segment contribution margin
|
|
$
|
865.1
|
|
|
$
|
58.9
|
|
|
$
|
169.8
|
|
|
$
|
(66.2
|
)
|
|
1,027.6
|
|
Depreciation and amortization
|
|
133.7
|
|
|
24.6
|
|
|
26.0
|
|
|
15.1
|
|
|
199.4
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
247.6
|
|
Other operating income, net
|
|
|
|
|
|
|
|
|
|
(31.3
|
)
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
611.9
|
|
Total assets
|
|
$
|
5,430.1
|
|
|
$
|
310.6
|
|
|
$
|
624.6
|
|
|
$
|
(604.7
|
)
|
|
$
|
5,760.6
|
|
Capital spending (excluding business combinations)
(1)
|
|
$
|
203.9
|
|
|
$
|
10.0
|
|
|
$
|
11.6
|
|
|
$
|
91.7
|
|
|
$
|
317.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2017
|
(In millions)
|
|
Refining
|
|
Retail
|
|
Logistics
|
|
Corporate,
Other and Eliminations
|
|
Consolidated
|
Net revenues (excluding intercompany fees and sales)
|
|
$
|
6,364.5
|
|
|
$
|
426.7
|
|
|
$
|
382.3
|
|
|
$
|
93.6
|
|
|
$
|
7,267.1
|
|
Intercompany fees and sales
|
|
256.1
|
|
|
—
|
|
|
155.8
|
|
|
(411.9
|
)
|
|
—
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
|
5,852.2
|
|
|
350.3
|
|
|
372.9
|
|
|
(247.8
|
)
|
|
6,327.6
|
|
Operating expenses (excluding depreciation and amortization presented below)
|
|
317.7
|
|
|
49.6
|
|
|
43.3
|
|
|
18.4
|
|
|
429.0
|
|
Segment contribution margin
|
|
$
|
450.7
|
|
|
$
|
26.8
|
|
|
$
|
121.9
|
|
|
$
|
(88.9
|
)
|
|
510.5
|
|
Depreciation and amortization
|
|
109.2
|
|
|
7.0
|
|
|
21.9
|
|
|
15.2
|
|
|
153.3
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
175.9
|
|
Other operating expense, net
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
180.3
|
|
Total assets
(2)
|
|
$
|
4,846.5
|
|
|
$
|
331.4
|
|
|
$
|
443.5
|
|
|
$
|
313.8
|
|
|
$
|
5,935.2
|
|
Capital spending (excluding business combinations)
(3)
|
|
$
|
128.2
|
|
|
$
|
11.7
|
|
|
$
|
18.4
|
|
|
$
|
19.2
|
|
|
$
|
177.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2016
|
(In millions)
|
|
Refining
|
|
Logistics
|
|
Corporate,
Other and Eliminations
|
|
Consolidated
|
Net revenues (excluding intercompany fees and sales)
|
|
$
|
3,605.1
|
|
|
$
|
301.3
|
|
|
$
|
(0.6
|
)
|
|
$
|
3,905.8
|
|
Intercompany fees and sales
(4)
|
|
318.1
|
|
|
146.8
|
|
|
(172.8
|
)
|
|
292.1
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
|
3,614.1
|
|
|
302.2
|
|
|
(103.4
|
)
|
|
3,812.9
|
|
Operating expenses (excluding depreciation and amortization presented below)
|
|
212.4
|
|
|
37.2
|
|
|
(0.3
|
)
|
|
249.3
|
|
Insurance proceeds - business interruption
|
|
(42.4
|
)
|
|
—
|
|
|
—
|
|
|
(42.4
|
)
|
Segment contribution margin
|
|
$
|
139.1
|
|
|
$
|
108.7
|
|
|
$
|
(69.7
|
)
|
|
178.1
|
|
Depreciation and amortization
|
|
88.2
|
|
|
20.8
|
|
|
7.4
|
|
|
116.4
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
106.1
|
|
Other operating expense, net
|
|
|
|
|
|
|
|
4.8
|
|
Operating loss
|
|
|
|
|
|
|
|
$
|
(49.2
|
)
|
Capital spending (excluding business combinations)
(3)
|
|
$
|
27.9
|
|
|
$
|
11.8
|
|
|
$
|
6.6
|
|
|
$
|
46.3
|
|
(1)
Capital spending excludes transaction costs capitalized in the amount of
$0.4 million
during the year ended
December 31, 2018
, that relate to the Big Spring Logistic Assets Acquisition.
(2)
Assets held for sale of
$160.0 million
are included in the corporate, other and eliminations segment as of
December 31, 2017
.
(3)
Capital spending excludes capital spending associated with the California Discontinued Entities of
$2.6 million
during the year ended
December 31, 2017
. Capital spending excludes capital spending associated with the Retail Entities of
$14.4 million
during the year ended
December 31, 2017
.
(4)
Intercompany fees and sales for the refining segment include revenues from the Retail Entities of
$292.1 million
during the year ended
December 31, 2016
, the operations of which are reported in discontinued operations.
5
. Earnings (Loss) Per Share and Stock Repurchase Program
Earnings (Loss) Per Share
Basic earnings per share (or "EPS") is computed by dividing net income (loss) by the weighted average common shares outstanding. Diluted earnings per share is computed by dividing net income (loss), as adjusted for changes to income that would result from the assumed settlement of the dilutive equity instruments included in diluted weighted average common shares outstanding, by the diluted weighted average common shares outstanding. For all years presented, we have outstanding various equity-based compensation awards that are considered in our diluted EPS calculation when to do so would not be anti-dilutive, and is inclusive of awards disclosed in
Note 21
to these consolidated financial statements. For those instruments that are indexed to our common stock, they are generally dilutive when the market price of the underlying indexed share of common stock is in excess of the exercise price. Additionally, in connection with the Delek/Alon Merger (disclosed in
Note 3
), we assumed certain equity instruments, including conversion options (associated with Convertible Debt) and Warrants, that may be dilutive for the periods in which they were outstanding (see discussion of these instruments in
Note 11
). The Convertible Debt conversion options were dilutive during the period they were outstanding when the incremental EPS calculated by dividing the increase in income associated with the elimination of interest expense on the convertible debt, net of tax, by the number of shares that would be issued upon conversion using the treasury stock method (which is applicable because of the cash settlement feature associated with the underlying principal) is dilutive to the overall diluted EPS calculation. The Warrants were generally dilutive during the periods they were outstanding when the market price of the underlying indexed share of common stock was in excess of the exercise price. All such instruments that may otherwise be dilutive may not be dilutive when there is net loss for the period. We also assumed Call Options in connection with the Delek/Alon Merger which were not reflected in the diluted weighted average common shares outstanding because to do so would have been antidilutive.
The following table sets forth the computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
Numerator for EPS - continuing operations
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
383.6
|
|
|
$
|
328.5
|
|
|
$
|
(219.7
|
)
|
Less: Income from continuing operations attributed to non-controlling interest
|
|
26.7
|
|
|
33.8
|
|
|
20.3
|
|
Income (loss) from continuing operations attributable to Delek (numerator for basic EPS - continuing operations attributable to Delek)
|
|
356.9
|
|
|
294.7
|
|
|
(240.0
|
)
|
Interest on convertible debt, net of tax
|
|
2.6
|
|
|
—
|
|
|
—
|
|
Numerator for diluted EPS - continuing operations attributable to Delek
|
|
$
|
359.5
|
|
|
$
|
294.7
|
|
|
$
|
(240.0
|
)
|
|
|
|
|
|
|
|
Numerator for EPS - discontinued operations
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
(8.7
|
)
|
|
$
|
(5.9
|
)
|
|
$
|
86.3
|
|
Less: Income from discontinued operations attributed to non-controlling interest
|
|
8.1
|
|
|
—
|
|
|
—
|
|
Income (loss) from discontinued operations attributable to Delek
|
|
$
|
(16.8
|
)
|
|
$
|
(5.9
|
)
|
|
$
|
86.3
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average common shares outstanding (denominator for basic EPS)
|
|
82,797,110
|
|
|
71,566,225
|
|
|
61,921,787
|
|
Dilutive effect of convertible debt
|
|
1,525,846
|
|
|
—
|
|
|
—
|
|
Dilutive effect of warrants
|
|
967,352
|
|
|
—
|
|
|
—
|
|
Dilutive effect of stock-based awards
|
|
1,478,093
|
|
|
736,858
|
|
|
—
|
|
Weighted average common shares outstanding, assuming dilution
|
|
86,768,401
|
|
|
72,303,083
|
|
|
61,921,787
|
|
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
4.31
|
|
|
$
|
4.12
|
|
|
$
|
(3.88
|
)
|
(Loss) income from discontinued operations
|
|
$
|
(0.20
|
)
|
|
(0.08
|
)
|
|
1.39
|
|
Total basic income (loss) per share
|
|
$
|
4.11
|
|
|
$
|
4.04
|
|
|
$
|
(2.49
|
)
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
4.14
|
|
|
$
|
4.08
|
|
|
$
|
(3.88
|
)
|
(Loss) income from discontinued operations
|
|
$
|
(0.19
|
)
|
|
(0.08
|
)
|
|
1.39
|
|
Total diluted income (loss) per share
|
|
$
|
3.95
|
|
|
$
|
4.00
|
|
|
$
|
(2.49
|
)
|
|
|
|
|
|
|
|
The following equity instruments were excluded from the diluted weighted average common shares outstanding because their effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock-based compensation (because average share price is less than exercise price)
|
|
1,462,112
|
|
|
|
|
|
2,297,127
|
|
Antidilutive due to loss
|
|
—
|
|
|
|
|
276,094
|
|
Total antidilutive stock-based compensation
|
|
1,462,112
|
|
|
—
|
|
|
2,573,221
|
|
|
|
|
|
|
|
|
Antidilutive convertible debt instruments (because average share price is less than exercise price)
|
|
—
|
|
|
2,811,652
|
|
|
—
|
|
Total antidilutive convertible debt instruments
|
|
—
|
|
|
2,811,652
|
|
|
—
|
|
|
|
|
|
|
|
|
Antidilutive warrants (because average share price is less than exercise price)
|
|
—
|
|
|
2,806,291
|
|
|
—
|
|
Total antidilutive warrants
|
|
—
|
|
|
2,806,291
|
|
|
—
|
|
Stock Repurchase Program
In December 2016, our Board of Directors authorized a share repurchase program for up to
$150.0 million
of Delek common stock. Any share repurchases under the repurchase program may be implemented through open market transactions or in privately negotiated transactions, in accordance with applicable securities laws. The timing, price and size of repurchases will be made at the discretion of management and will depend on prevailing market prices, general economic and market conditions and other considerations. The repurchase program does not obligate us to acquire any particular amount of stock and does not expire. We repurchased
762,623
shares, for a total of
$25.0 million
, pursuant to this repurchase program in December 2017.
On February 26, 2018, the Board of Directors approved a new
$150.0 million
authorization to repurchase Delek common stock. This amount has no expiration date and is in addition to any remaining amounts previously authorized. On
November 6, 2018
, the Board of Directors authorized the repurchase of an additional
$500.0 million
of Delek common stock. During the year ended
December 31, 2018
, we repurchased
9,022,386
shares of our common stock for a total of
$365.3 million
. The purchases included the
2.0 million
shares of our common stock purchased from Alon Israel in connection with Delek’s rights pursuant to a Stock Purchase Agreement dated April 14, 2015, by and between Delek and Alon Israel. Alon Israel delivered a right of first offer notice to Delek on January 16, 2018, informing Delek of Alon Israel’s intention to sell the
2.0 million
shares, and Delek accepted such offer on January 17, 2018. The total purchase price for the
2.0 million
shares was approximately
$75.3 million
, or
$37.64
per share.
As of
December 31, 2018
, there was approximately
$409.7 million
of authorization remaining under Delek's aggregate stock repurchase program (based on repurchases that had settled as of
December 31, 2018
).
6
. Delek Logistics and the Alon Partnership
Delek Logistics
Delek Logistics is a publicly traded limited partnership that was formed by Delek in 2012 to own, operate, acquire and construct crude oil and refined products logistics and marketing assets. A substantial majority of Delek Logistics' assets are integral to Delek’s refining and marketing operations. As of
December 31, 2018
, we owned a
61.4%
limited partner interest in Delek Logistics, consisting of
15,294,046
common units, and a
94.6%
interest in Delek Logistics GP, LLC which owns the entire
2.0%
general partner interest, consisting of
498,038
general partner units, in Delek Logistics and all of the incentive distribution rights.
The limited partner interests in Delek Logistics not owned by us are reflected in net income attributable to non-controlling interest in the accompanying consolidated statements of income and in non-controlling interest in subsidiaries in the accompanying consolidated balance sheets.
In March 2018, a subsidiary of Delek Logistics completed the acquisition from a subsidiary of Delek ( the Alon Partnership) of storage tanks and terminals that support our Big Spring, Texas refinery (the "Big Spring Logistic Assets Acquisition"), which included the execution of related commercial agreements. In addition, a new marketing agreement was entered into between the subsidiary of Delek Logistics and the Alon Partnership pursuant to which the subsidiary of Delek Logistics will provide marketing services for product sales from Big Spring. The cash paid for the transferred assets was
$170.8 million
, and the cash paid for the marketing agreement was
$144.2 million
. The transactions were financed with borrowings under the DKL Credit Facility (as defined in
Note 11
. Additionally, the transaction resulted in the creation of a deferred tax asset related to the tax-book basis difference in the sold assets totaling
$98.8 million
, against which we have recorded a valuation allowance totaling
$5.5 million
for the portion of the deferred tax asset that relates to basis difference attributable to the non-controlling interest and therefore may not be realizable. Prior periods have not been recast in our Segment Data
Note 4
, as these assets did not constitute a business in accordance with the Accounting Standard Update, "Clarifying the Definition of a Business" and were accounted for as acquisitions of assets between entities under common control.
We have agreements with Delek Logistics that, among other things, establish fees for certain administrative and operational services provided by us and our subsidiaries to Delek Logistics, provide certain indemnification obligations and establish terms for fee-based commercial logistics and marketing services provided by Delek Logistics and its subsidiaries to us, including new agreements related to the Big Spring Logistic Assets Acquisition. The revenues and expenses associated with these agreements are eliminated in consolidation.
Delek Logistics is a variable interest entity, as defined under GAAP, and is consolidated into our consolidated financial statements, representing our logistics segment. With the exception of intercompany balances which are eliminated in consolidation, the Delek Logistics consolidated balance sheets as of
December 31, 2018
and
2017
, as presented below, are included in the consolidated balance sheets of Delek (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
ASSETS
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4.5
|
|
|
$
|
4.7
|
|
Accounts receivable
|
|
21.6
|
|
|
23.0
|
|
Accounts receivable from related parties
|
|
—
|
|
|
1.1
|
|
Inventory
|
|
5.5
|
|
|
20.9
|
|
Other current assets
|
|
1.0
|
|
|
0.7
|
|
Property, plant and equipment, net
|
|
312.6
|
|
|
255.1
|
|
Equity method investments
|
|
104.8
|
|
|
106.5
|
|
Goodwill
|
|
12.2
|
|
|
12.2
|
|
Intangible assets, net
|
|
154.0
|
|
|
15.9
|
|
Other non-current assets
|
|
8.4
|
|
|
3.4
|
|
Total assets
|
|
$
|
624.6
|
|
|
$
|
443.5
|
|
LIABILITIES AND DEFICIT
|
|
|
|
|
Accounts payable
|
|
$
|
14.2
|
|
|
$
|
19.1
|
|
Accounts payable to related parties
|
|
7.8
|
|
|
—
|
|
Accrued expenses and other current liabilities
|
|
14.5
|
|
|
12.6
|
|
Long-term debt
|
|
700.4
|
|
|
422.6
|
|
Asset retirement obligations
|
|
5.2
|
|
|
4.1
|
|
Other non-current liabilities
|
|
17.3
|
|
|
14.3
|
|
Deficit
|
|
(134.8
|
)
|
|
(29.2
|
)
|
Total liabilities and deficit
|
|
$
|
624.6
|
|
|
$
|
443.5
|
|
Alon Partnership
The Alon Partnership owns the assets and conducts the operations of the Big Spring refinery and the associated integrated wholesale marketing operations. On November 8, 2017, Delek and the Alon Partnership entered into a definitive merger agreement under which Delek agreed to acquire all of the outstanding limited partner units which Delek did not already own in an all-equity transaction (the "Alon Partnership Merger"). This transaction closed on February 7, 2018 (the "Merger Date"). Delek owned approximately
51.0 million
limited partner units of the Alon Partnership, or approximately
81.6%
of the outstanding units, immediately prior to the Merger Date. Under terms of the merger agreement, the owners of the remaining outstanding units in the Alon Partnership that Delek did not own immediately prior to the Merger Date received a fixed exchange ratio of
0.49
shares of New Delek common stock for each limited partner unit of the Alon Partnership, resulting in the issuance of approximately
5.6 million
shares of New Delek common stock to the public unitholders of the Alon Partnership. Because the transaction represented a combination of ownership interests under common control, the transfer of equity from non-controlling interest to owned interest (additional paid-in capital) was recorded at carrying value and no gain or loss was recognized in connection with the transaction. Additionally, book-tax basis difference was created as a result of the transaction that resulted in a deferred tax asset of approximately
$13.5 million
, net of a valuation allowance on certain state income tax components, that also increased additional paid-in capital.
The limited partner interests of the Alon Partnership prior to this acquisition were represented as common units outstanding. As of
December 31, 2017
, the
11.5 million
common units held by the public represented approximately
18.4%
of the Alon Partnership’s common units outstanding. Alon USA Partners GP, LLC (the “Alon General Partner”), our wholly-owned subsidiary, owns
100%
of the general partner interest in the Alon Partnership, which is a non-economic interest.
The limited partner interests in the Alon Partnership not owned by us are reflected in net income attributable to non-controlling interest in the accompanying consolidated statements of income for the year ended
December 31, 2017
and in non-controlling interest in subsidiaries in the accompanying consolidated balance sheet as of
December 31, 2017
.
Prior to the Alon Partnership Merger, we had agreements with the Alon Partnership, under which the Alon Partnership agreed to reimburse us for certain administrative and operational services provided by us and our subsidiaries to the Alon Partnership, indemnify us with respect to certain matters and establish terms for the supply of products by the Alon Partnership to us.
Prior to the Merger Date, the Alon Partnership was a variable interest entity, as defined under GAAP, and was consolidated into our consolidated financial statements as part of the refining segment. We have elected to push down purchase accounting to the Alon Partnership, which resulted in the push-down of the preliminary fair value of equity as purchase price consideration based on the market value of the Alon Partnership units as of the Merger Date, and the fair valuing of assets and liabilities as of the Merger Date. Such push-down purchase accounting also resulted in a determination of the fair value of our non-controlling interest in the Alon Partnership, which was estimated to be
$120.6 million
. With the exception of intercompany balances, which are eliminated in consolidation, the Alon Partnership condensed consolidated balance sheet as of
December 31, 2017
, as presented below, is included in the consolidated balance sheet of Delek (unaudited, in millions).
|
|
|
|
|
|
|
|
December 31,
2017
|
|
|
ASSETS
|
|
|
Cash and cash equivalents
|
|
$
|
252.8
|
|
Accounts receivable
|
|
96.7
|
|
Accounts receivable from related parties
|
|
640.0
|
|
Inventories
|
|
133.2
|
|
Prepaid expenses and other current assets
|
|
5.9
|
|
Property, plant and equipment, net
|
|
413.3
|
|
Goodwill
|
|
576.6
|
|
Other non-current assets
|
|
59.2
|
|
Total assets
|
|
$
|
2,177.7
|
|
LIABILITIES AND EQUITY
|
|
|
Accounts payable
|
|
$
|
44.5
|
|
Accounts payable to related parties
|
|
794.2
|
|
Accrued expenses and other current liabilities
|
|
161.9
|
|
Current portion of long-term debt
|
|
337.4
|
|
Obligation under Supply and Offtake Agreement
|
|
120.1
|
|
Deferred income tax liability
|
|
1.3
|
|
Other non-current liabilities
|
|
34.5
|
|
Equity
|
|
683.8
|
|
Total liabilities and equity
|
|
$
|
2,177.7
|
|
Transaction costs incurred by the Company in connection with the Alon Partnership Merger totaled approximately
$3.0 million
for the year ended
December 31, 2018
. Such costs were included in general and administrative expenses in the accompanying condensed consolidated statements of income.
As of
December 31, 2018
, the Alon Partnership is included in Delek's condensed consolidated balance sheet as a wholly-owned subsidiary.
7
. Equity Method Investments
On May 14, 2015, Delek acquired from Alon Israel Oil Company, Ltd. ("Alon Israel") approximately
33.7 million
shares of common stock (the "ALJ Shares") of Alon pursuant to the terms of a stock purchase agreement with Alon Israel dated April 14, 2015 (the "Alon Acquisition"). The ALJ Shares represented an equity interest in Alon of approximately
48%
at the time of acquisition.
As of December 31, 2016, our investment balance in Alon was
$259.0 million
(our equity method investment in Alon prior to the Delek/Alon Merger was reported in the corporate, other and eliminations segment) and the excess of our initial investment over our net equity in the underlying net assets of Alon was approximately
$11.9 million
. This excess was included in equity method investments in our consolidated balance sheet and a portion had been attributed to property, plant and equipment and definite lived intangible assets. These portions of the excess were amortized as a reduction to earnings from equity method investments on a straight-line basis over the lives of the related assets. The earnings from this equity method investment reflected in our consolidated statements of income include our share of net earnings or losses directly attributable to this equity method investment, and amortization of the excess of our investment balance over the underlying net assets of Alon prior to the Delek/Alon Merger. We evaluated our investment in Alon as of September 30, 2016, and determined that the decline in the market value of the ALJ Shares was other than temporary and, therefore, it was necessary to record an impairment charge of
$245.3 million
on our investment based on the quoted market price of our ALJ Shares, which is a Level 1 fair value measurement. Our decision that the decline in market value of the ALJ shares was other than temporary was primarily based on the following factors: the duration of the period in which the fair market value had been below our investment balance and the decreased possibility of a recovery in the near term as a result of Alon's year-end financial performance, as well as expectations of Alon's future operating performance. This impairment is reflected in the loss on impairment of equity method investment in our consolidated statements of income for the
year ended
December 31, 2016.
Effective July 1, 2017, Alon became a wholly-owned subsidiary of New Delek in connection with the Delek/Alon Merger. In connection with the acquisition, we recognized a gain of
$196.4
as a result of remeasuring the
47%
equity method investment in Alon at its fair value as of the Effective Time of the Delek/Alon Merger, in accordance with ASC 805,
net of a
$6.3 million
loss to record the reversal of accumulated other comprehensive income. This net gain of
$190.1 million
was recognized in the line item entitled Gain on remeasurement of equity method investment in Alon in the consolidated statements of income. The acquisition-date fair value of the pre-existing non-controlling interest in Alon was
$449.0 million
and is included in the measurement of the consideration transferred. See Note
3
for further discussion.
Below are the summarized financial information of the results of operations of Alon (in millions) for the previous periods when Alon was accounted for as an equity method investment:
|
|
|
|
|
|
|
|
|
|
Income Statement Information
|
|
For the period January 1, 2017 to June 30, 2017
|
|
Year Ended December 31, 2016
|
Net revenues
|
|
$
|
2,269.7
|
|
|
$
|
3,913.4
|
|
Gross profit
|
|
351.2
|
|
|
536.6
|
|
Pre-tax income (loss)
|
|
20.0
|
|
|
(126.6
|
)
|
Net income (loss)
|
|
15.0
|
|
|
(79.8
|
)
|
Net income (loss) attributable to Alon
|
|
9.5
|
|
|
(82.8
|
)
|
Delek Logistics has
two
joint ventures that own and operate logistics assets, and which serve third parties and subsidiaries of Delek.
One
of the joint venture projects was completed and began operations in September 2016. The other was completed and began operations in January 2017. As of
December 31, 2018
and
2017
, Delek Logistics' investment balance in these joint ventures was
$104.8 million
and
$106.5 million
, respectively, and are accounted for using the equity method.
In July 2017, Delek Renewables, LLC invested in a joint venture with an unrelated third party that was formed to plan, develop, construct, own, operate and maintain a terminal consisting of an ethanol unit train facility with an ethanol tank in North Little Rock, Arkansas. This investment was financed through cash from operations. As of
December 31, 2018
and
2017
, Delek Renewables, LLC's investment balance in this joint venture was
$2.4 million
and
$2.2 million
respectively, and was accounted for using the equity method. The investment in this joint venture is reflected in the refining segment.
Effective with the Delek/Alon Merger, we acquired a
50
% interest in
two
joint ventures that own asphalt terminals located in Fernley, Nevada, and Brownwood, Texas. On May 21, 2018, Delek sold its
50
% interest in the asphalt terminal located in Fernley, Nevada. As of
December 31, 2018
, Delek's investment balance in the Brownwood, Texas joint venture was
$23.1 million
and as of
December 31, 2017
, Delek's investment balance in both joint ventures was
$29.4 million
. These investments are accounted for using the equity method and are included as part of total assets in the corporate, other and eliminations segment.
8
. Discontinued Operations and Assets Held for Sale
Asphalt Terminals Held for Sale
On February 12, 2018, Delek announced it had reached a definitive agreement to sell certain assets and operations of
four
asphalt terminals (included in Delek's corporate/other segment), as well as an equity method investment in an additional asphalt terminal, to an affiliate of Andeavor. This transaction includes asphalt terminal assets in Bakersfield, Mojave and Elk Grove, California and Phoenix, Arizona, as well as Delek’s
50%
equity interest in the Paramount-Nevada Asphalt Company, LLC joint venture that operates an asphalt terminal located in Fernley, Nevada. On May 21, 2018, Delek completed the transaction and received net proceeds of approximately
$110.8 million
, inclusive of the
$75.0 million
base proceeds as well as certain preliminary working capital adjustments. The assets associated with the owned terminals met the definition of held for sale pursuant to ASC 360 as of February 1, 2018, but did not meet the definition of discontinued operations pursuant to ASC 205-20, as the sale of these asphalt assets does not represent a strategic shift that will have a major effect on the entity's operations and financial results. Accordingly, depreciation ceased as of February 1, 2018, and the assets to be sold were reclassified to assets held for sale as of that date and were written down to the estimated fair value less costs to sell, resulting in an impairment loss on assets held for sale of
$27.5 million
for the year ended
December 31, 2018
. All goodwill associated with the asphalt operations sold was written off in connection with the impairment charge discussed above. In connection with the completion of the sale transaction, we recognized a gain of approximately
$13.3 million
, resulting primarily from the recognition of certain additional proceeds at closing associated with the asphalt terminals which were not previously determinable or probable and the recognition of the gain on the sale of the joint venture which was not previously recognized as held for sale (as it did not meet the criteria). Such gain on sale of the asphalt assets is reflected in results of continuing operations on the accompanying consolidated income statement.
These associated assets did not meet the definition of held for sale pursuant to ASC 360 as of
December 31, 2017
, and therefore were not reflected as held for sale as of
December 31, 2017
nor as discontinued operations in the consolidated financial statements for the years ended
December 31, 2018
and
2017
.
California Discontinued Entities
During the third quarter 2017, we committed to a plan to sell certain assets associated with our Paramount and Long Beach, California refineries (both non-operating refineries) and our California renewable fuels facility (AltAir), which were acquired as part of the Delek/Alon Merger. As a result of this decision and commitment to a plan, and because it was made within three months of the Delek/Alon Merger, we met the requirements under ASC 205-20 and ASC 360 to report the results of the California Discontinued Entities as discontinued operations and to classify the California Discontinued Entities as a group of assets held for sale as of July 1, 2017. The property, plant and equipment of the California Discontinued Entities were recorded at fair value as part of the Delek/Alon Merger, and we have not recorded any depreciation of these assets since the Delek/Alon Merger.
On March 16, 2018, Delek sold to World Energy, LLC (i) all of Delek’s membership interests in AltAir (ii) certain refining assets and other related assets located in Paramount, California and (iii) certain associated tank farm and pipeline assets and other related assets located in California. Upon final settlement (excluding contingent components), Delek expects to receive net cash proceeds of approximately
$85.2 million
, which includes a post-closing working capital settlement, Delek’s portion of the expected biodiesel tax credit for 2017 and certain customary adjustments. The sale resulted in a loss on sale of discontinued operations totaling approximately
$41.4 million
for the year ended
December 31, 2018
. Of the total expected proceeds,
$70.4 million
was received in
2018
(
$14.9 million
of which were included in net cash flows from investing activities in discontinued operations). Additionally, Delek will be entitled to its pro rata portion of any tax credits relating to AltAir activities in 2018 earned through the sale date if the 2018 biodiesel tax credit is re-enacted. A receivable for such additional contingent proceeds will be recorded when the criteria for recognition are met, which is predicated upon reenactment of the tax credit and determination of the amounts earned by AltAir. In connection with the sale, the remaining assets and liabilities associated with the sold operations that were not included in the assets and liabilities acquired/assumed by the buyer were reclassified into assets and liabilities held and used (relating to continuing operations) and are presented as such in our
December 31, 2018
balance sheet.
The transaction to dispose of certain assets and liabilities associated with our Long Beach, California refinery to Bridge Point Long Beach, LLC closed July 17, 2018 resulting in initial cash proceeds of approximately
$14.5 million
, net of expenses, and resulting in a gain on sale of discontinued operations of approximately
$1.4 million
for the year ended
December 31, 2018
.
The carrying amount of the major classes of assets and liabilities of the California Discontinued Entities included in assets held for sale and liabilities associated with assets held for sale are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Assets held for sale:
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
10.1
|
|
Accounts receivable
|
|
|
7.9
|
|
Inventory
|
|
|
1.9
|
|
Other current assets
|
|
|
1.3
|
|
Property, plant & equipment, net
|
|
|
130.0
|
|
Other intangibles, net
|
|
|
6.6
|
|
Other non-current assets
|
|
|
2.2
|
|
Assets held for sale
|
|
|
$
|
160.0
|
|
Liabilities associated with assets held for sale:
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
$
|
9.5
|
|
Deferred tax liabilities
|
|
|
63.9
|
|
Other non-current liabilities
|
|
|
32.5
|
|
Liabilities associated with assets held for sale
|
|
|
$
|
105.9
|
|
Once the operating assets of the California Discontinued Entities met the criteria to be classified as assets held for sale, the operations associated with these properties qualified for reporting as discontinued operations. Accordingly, the operating results, net of tax, from discontinued operations are presented separately in Delek’s consolidated statements of income and the notes to the consolidated financial statements have been adjusted to exclude the discontinued operations. Classification as discontinued operations requires retrospective reclassification of the associated assets, liabilities and results of operations for all periods presented, beginning (in this case) as of the date of acquisition, which was July 1, 2017. Components of amounts reflected in income from discontinued operations are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Net revenues
|
|
$
|
32.5
|
|
|
$
|
82.4
|
|
Cost of sales:
|
|
|
|
|
Cost of materials and other
|
|
3.8
|
|
|
(68.7
|
)
|
Operating expenses (excluding depreciation and amortization)
|
|
(9.4
|
)
|
|
(14.4
|
)
|
Total cost of sales
|
|
(5.6
|
)
|
|
(83.1
|
)
|
General and administrative expenses
|
|
(1.1
|
)
|
|
(6.0
|
)
|
Other operating income, net
|
|
0.3
|
|
|
(0.2
|
)
|
Interest expense
|
|
—
|
|
|
(1.7
|
)
|
Interest income
|
|
3.0
|
|
|
—
|
|
Other expense, net
|
|
—
|
|
|
—
|
|
Loss on sale of California Discontinued Entities
|
|
(40.0
|
)
|
|
—
|
|
Loss from discontinued operations before taxes
|
|
(10.9
|
)
|
|
(8.6
|
)
|
Income tax benefit
|
|
(2.2
|
)
|
|
(2.7
|
)
|
Loss from discontinued operations, net of tax
|
|
$
|
(8.7
|
)
|
|
$
|
(5.9
|
)
|
The net assets of the California Discontinued Entities include a non-controlling interest totaling
$10.5 million
as of
December 31, 2017
related to AltAir. The income (loss) attributable to the non-controlling interest included
$8.1 million
and
$(0.6) million
related to AltAir for the years ended
December 31, 2018
and
2017
.
Retail Entities
In August 2016, Delek entered into a Purchase Agreement to sell the Retail Entities to COPEC. As a result of the Purchase Agreement, we met the requirements of ASC 205-20 and ASC 360 to report the results of the Retail Entities as discontinued operations and to classify the Retail Entities as a group of assets held for sale. The fair value assessment of the Retail Entities as of August 27, 2016 did not result in an impairment. We ceased depreciation of these assets as of August 27, 2016. The Retail Transaction closed in November 2016, and we received net cash consideration of
$378.9 million
, net of debt repayments and transaction costs, and retained approximately
$62.8 million
of net liabilities from the Retail Entities. The Retail Transaction resulted in a gain on sale of the Retail Entities, before income tax, of
$134.1 million
in 2016.
Under the terms of the Purchase Agreement, Lion Oil and MAPCO Express entered into a supply agreement at the closing of the Retail Transaction pursuant to which Lion Oil would supply fuel to retail locations owned by MAPCO Express for a period of
18 months
following the closing of the Retail Transaction (the "Fuel Supply Agreement"). We recorded net revenues of
$148.5 million
,
$410.5 million
and
$54.3 million
and net cash inflows of
$166.2 million
,
$411.5 million
and
$43.5 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, associated with the Fuel Supply Agreement.
Once the Retail Entities were identified as assets held for sale, the operations associated with these properties qualified for reporting as discontinued operations. Accordingly, the operating results, net of tax, from discontinued operations are presented separately in Delek’s consolidated statements of income and the notes to the consolidated financial statements have been adjusted to exclude the discontinued operations. Components of amounts reflected in income from discontinued operations are as follows (in millions):
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2016
|
Net revenues
|
|
$
|
1,216.3
|
|
Cost of materials and other
|
|
(1,041.2
|
)
|
Operating expenses
|
|
(116.4
|
)
|
General and administrative expenses
|
|
(21.8
|
)
|
Depreciation and amortization
|
|
(20.4
|
)
|
Interest expense
|
|
(6.4
|
)
|
Gain on sale of Retail Entities
|
|
134.1
|
|
Income from discontinued operations before taxes
|
|
144.2
|
|
Income tax expense
|
|
57.9
|
|
Income from discontinued operations, net of tax
|
|
$
|
86.3
|
|
9
. Inventory
Crude oil, work in process, refined products, blendstocks and asphalt inventory for all of our operations, excluding the Tyler refinery and merchandise inventory in our retail segment, are stated at the lower of cost determined using the FIFO basis or net realizable value. Cost of all inventory at the Tyler refinery is determined using the LIFO inventory valuation method and inventory is stated at the lower of LIFO cost or market. Retail merchandise inventory consists of cigarettes, beer, convenience merchandise and food service merchandise and is stated at estimated cost as determined by the retail inventory method.
Carrying value of inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Refinery raw materials and supplies
|
|
$
|
289.0
|
|
|
$
|
308.0
|
|
Refinery work in process
|
|
58.9
|
|
|
79.2
|
|
Refinery finished goods
|
|
304.1
|
|
|
366.4
|
|
Retail fuel
|
|
8.0
|
|
|
8.3
|
|
Retail merchandise
|
|
25.4
|
|
|
25.6
|
|
Logistics refined products
|
|
5.5
|
|
|
20.9
|
|
Total inventories
|
|
$
|
690.9
|
|
|
$
|
808.4
|
|
At
December 31, 2018
, we recorded a pre-tax inventory valuation reserve of
$54.0 million
,
$39.4 million
of which related to LIFO inventory due to a market price decline below our average cost of certain inventory products, which is subject to reversal in subsequent periods, not to exceed LIFO cost, should market prices recover. At
December 31, 2017
, we recorded a pre-tax inventory valuation reserve of
$2.4 million
,
$1.5 million
of which related to LIFO inventory, which reversed in the first quarter of
2018
. For the years ended
December 31, 2018
,
2017
and
2016
, we recognized net LIFO inventory valuation (losses) gains related to the pre-tax valuation of
$(37.9) million
,
$14.5 million
and
$33.8 million
, respectively, which were recorded as a component of cost of materials and other in the accompanying consolidated statements of income.
At
December 31, 2018
and
2017
, the excess of replacement cost over the carrying value (LIFO) of the Tyler refinery inventories was
$1.5 million
and
$9.0 million
, respectively.
Permanent Liquidations
We incurred a permanent reduction in a LIFO layer resulting in liquidation (loss) gain in our refinery inventory of
$(7.5) million
,
$0.9 million
and
$(2.2) million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. These liquidation (losses) gains were recognized as a component of cost of materials and other in the accompanying consolidated statements of income.
10
. Crude Oil Supply and Inventory Purchase Agreements
Delek has Master Supply and Offtake Agreements (the "Supply and Offtake Agreements") with J. Aron & Company ("J. Aron").
El Dorado refinery operations
Throughout the term of the Supply and Offtake Agreement that supports the operations of our refinery located in El Dorado, Arkansas (the "El Dorado Supply and Offtake Agreement"), which was amended on February 27, 2017 to change, among other things, certain terms related to pricing and an extension of the maturity date to April 30, 2020, Lion Oil Company ("Lion Oil") (as the primary legal entity associated with the El Dorado refinery for purposes of this Agreement) and J. Aron will identify mutually acceptable contracts for the purchase of crude oil from third parties and J. Aron will supply up to
100,000
bpd of crude oil to the El Dorado refinery. Crude oil supplied to the El Dorado refinery by J. Aron will be purchased daily at an estimated average monthly market price by Lion Oil. J. Aron will also purchase all refined products from the El Dorado refinery at an estimated daily market price, as they are produced. These daily purchases and sales are trued-up on a monthly basis in order to reflect actual average monthly prices. We have recorded a receivable related to this monthly settlement of
$7.8 million
and
$0.3 million
as of
December 31, 2018
and
2017
, respectively. Also pursuant to the El Dorado Supply and Offtake Agreement and other related agreements, Lion Oil will endeavor to arrange potential sales by either Lion Oil or J. Aron to third parties of the products produced at the El Dorado refinery or purchased from third parties. In instances where Lion Oil is the seller to such third parties, J. Aron will first transfer title to the applicable products to Lion Oil.
This arrangement is accounted for as a product financing arrangement under the fair value election provided by ASC 815 and ASC 825. Delek incurred fees payable to J. Aron under the El Dorado Supply and Offtake Agreement of
$10.7 million
,
$9.7 million
and
$9.7 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. These amounts are included as a component of interest expense in the condensed consolidated statements of income. Upon any termination of the El Dorado Supply and Offtake Agreement, including in connection with a force majeure event, the parties are required to negotiate with third parties for the assignment to us of certain contracts, commitments and arrangements, including procurement contracts, commitments for the sale of product, and pipeline, terminalling, storage and shipping arrangements.
Based upon terms in effect as of
December 31, 2018
, upon the expiration of the El Dorado Supply and Offtake Agreement on April 30, 2020, or upon any earlier termination, Delek would be required to repurchase the consigned crude oil and refined products from J. Aron at then prevailing market prices
.
At
December 31, 2018
and
2017
, Delek had
2.8 million
barrels and
3.0 million
barrels, respectively, of inventory consigned from J. Aron under the El Dorado Supply and Offtake Agreement, and we have recorded liabilities associated with this consigned inventory of
$152.6 million
and
$181.9 million
, respectively, in the consolidated balance sheets, measured using the fair value election pursuant to ASC 825. We also maintained letters of credit with respect to the El Dorado Supply and Offtake Agreement totaling
$120.0
and
$95.0
, as of
December 31, 2018
and
2017
, respectively. See Note
24
for discussion of the January 2019 amendment to the El Dorado Supply and Offtake Agreement and its expected impact on the consolidated financial statements.
Alon refinery operations
Effective with the Delek/Alon Merger, we assumed Alon's existing Supply and Offtake Agreements and other associated agreements with J. Aron, to support the operations of our Big Spring, Krotz Springs and California refineries (as further defined in Note
4
) and certain of our asphalt terminals (together, the “Alon Supply and Offtake Agreements”). Pursuant to the Alon Supply and Offtake Agreements, (i) J. Aron agreed to sell to us, and we agreed to buy from J. Aron, at market prices, crude oil for processing at these refineries and (ii) we agreed to sell, and J. Aron agreed to buy, at market prices, certain refined products produced at these refineries. The Alon Supply and Offtake Agreements also provide for the sale, at market prices, of our crude oil and certain refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product storage facilities and the identification of prospective purchasers of refined products on J. Aron’s behalf. The Supply and Offtake Agreements for the Big Spring and Krotz Springs refineries have initial terms that expire in May 2021. The Supply and Offtake Agreement for the California refineries which had an initial expiration date in May 2019, contained early termination provisions, and we elected to terminate the Supply and Offtake Agreement at the California refineries effective on May 31, 2018. J. Aron may elect to terminate the Supply and Offtake Agreements for the Big Spring and Krotz Springs refineries prior to the expiration of the initial term beginning in May 2019 and upon each anniversary thereafter, on
six months
' prior notice. We may elect to terminate the agreements at the Big Spring and Krotz Springs refineries in May 2020 on
six months
prior notice.
These daily purchases and sales are trued-up on a monthly basis in order to reflect actual average monthly prices. We have recorded a net payable related to this monthly settlement of
$1.0 million
and
$4.4 million
as of
December 31, 2018
and
2017
, respectively.
These arrangements are accounted for as product financing arrangements. Delek incurred fees payable to J. Aron of
$13.8 million
and
$7.1 million
during the year ended
December 31, 2018
and
2017
, respectively. These amounts are included as a component of interest expense in the consolidated statements of income. Upon any termination of the Alon Supply and Offtake Agreements, including in connection with a force majeure event, the parties are required to negotiate with third parties for the assignment to us of certain contracts, commitments and arrangements, including procurement contracts, commitments for the sale of product, and pipeline, terminalling, storage and shipping arrangements.
Effective December 21, 2018, we amended our Big Spring refinery's Supply and Offtake Agreement with J. Aron so that the repurchase of baseline volumes at the end of the Supply and Offtake Agreement term (representing the "Baseline Step-Out Liability") will be based upon a fixed price instead of a market-indexed price. The modified arrangement results in a Baseline Step-Out Liability that is no longer subject to commodity volatility, but for which its fair value is now subject to interest rate risk. As a result, we recorded a gain on the change in fair value resulting from
the modification of the instruments from commodities-based risk to interest rate risk in cost of materials and other totaling approximately
$4.0 million
in the fourth quarter of
2018
. As of December 31, 2018, the Baseline Step-Out Liability under the Big Spring refinery's Supply and Offtake Agreement represents the fixed notional amount outstanding under the Supply and Offtake Agreement of
$52.0 million
less the unamortized discount of
$2.4 million
for a fair value of
$49.6 million
related to
0.8 million
barrels of baseline consigned inventory, and is reflected as a non-current obligation due May 2020 on our consolidated balance sheet as of
December 31, 2018
. Such Baseline Step-Out Liability will continue to be recorded at fair value, where the fair value will reflect changes in interest rate risk rather than commodity price risk.
Under the terms of the amendment to the Big Spring refinery Supply and Offtake Agreement, over, short and excess target quantities will continue to be refunded/financed on a monthly basis based on that month's activity, based on market-indexed pricing. This arrangement is treated like short-term financing (where J. Aron may finance our overages or we may finance the shortages based on activity each month), and therefore may be a receivable or payable at period end. As of
December 31, 2018
, this short-term arrangement resulted in a payable totaling
$46.9 million
related to
0.9 million
barrels of consigned inventory representing quantities over or short baseline volumes and excess target quantities, and is reflected at fair value as a current
obligation on our consolidated balance sheet.
Based upon terms in effect as of
December 31, 2018
, upon the expiration of the Krotz Springs Supply and Offtake Agreement, or upon any earlier termination, Delek would be required to repurchase the consigned crude oil and refined products from J. Aron at then prevailing market prices. At
December 31, 2018
, Delek had
1.8 million
barrels of inventory consigned from J. Aron under the Krotz Springs refinery's Supply and Offtake Agreement, inclusive of both the baseline volumes and over, short and excess target quantities, and we have recorded a current liability associated with this consigned inventory of
$113.1 million
in the consolidated balance sheets, measured using the fair value election pursuant to ASC 825. See Note
24
for discussion of the January 2019 amendment to the Krotz Springs Supply and Offtake Agreement and its expected impact on the consolidated financial statements.
At
December 31, 2017
, Delek had
3.5 million
barrels of inventory consigned from J. Aron under the Alon Supply and Offtake Agreements, and we recorded a current liability associated with this consigned inventory of
$253.7 million
in the consolidated balance sheets, measured using the fair value election pursuant to ASC 825. We maintained letters of credit totaling
$24.0
and
$10.0
, as of
December 31, 2018
and
2017
, respectively with respect to the Alon Supply and Offtake Agreements.
In connection with the Alon Supply and Offtake Agreement for our Krotz Springs refinery, we have granted a security interest to J. Aron in certain assets (including all of its accounts receivable and inventory) to secure its obligations to J. Aron.
11
. Long-Term Obligations and Notes Payable
Outstanding borrowings, net of unamortized debt discounts and certain deferred financing costs, under Delek’s existing debt instruments are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Revolving Credit Facility
|
|
$
|
300.0
|
|
|
$
|
—
|
|
Term Loan Credit Facility
(1)
|
|
682.9
|
|
|
—
|
|
Delek Logistics Credit Facility
|
|
456.7
|
|
|
179.9
|
|
Delek Logistics Notes
(2)
|
|
243.7
|
|
|
242.7
|
|
Wells Term Loan
(3)
|
|
—
|
|
|
40.5
|
|
Wells Revolving Loan
|
|
—
|
|
|
45.0
|
|
Reliant Bank Revolver
|
|
30.0
|
|
|
17.0
|
|
Promissory Notes
|
|
70.0
|
|
|
95.1
|
|
Lion Term Loan
(4)
|
|
—
|
|
|
203.4
|
|
Alon Partnership Credit Facility
|
|
—
|
|
|
100.0
|
|
Alon Partnership Term Loan
|
|
—
|
|
|
237.5
|
|
Convertible Notes
(5)
|
|
—
|
|
|
146.0
|
|
Alon Term Loan Credit Facilities
(6)
|
|
—
|
|
|
72.4
|
|
Alon Retail Credit Facilities
(7)
|
|
—
|
|
|
86.1
|
|
|
|
1,783.3
|
|
|
1,465.6
|
|
Less: Current portion of long-term debt and notes payable
|
|
32.0
|
|
|
590.2
|
|
|
|
$
|
1,751.3
|
|
|
$
|
875.4
|
|
|
|
(1)
|
The Term Loan Credit Facility is net of deferred financing costs of
$3.5 million
and debt discount of
$8.4 million
at
December 31, 2018
.
|
|
|
(2)
|
The Delek Logistics Notes are net of deferred financing costs of
$4.8 million
and
$5.6 million
, respectively, and debt discount of
$1.5 million
and
$1.7 million
, respectively, at
December 31, 2018
and
December 31, 2017
.
|
|
|
(3)
|
The Wells Term Loan was extinguished on March 30, 2018, as further discussed below, and was net of deferred financing costs of a nominal amount and debt discount
$0.3 million
at
December 31, 2017
.
|
|
|
(4)
|
The Lion Term Loan Facility was extinguished on March 30, 2018, as further discussed below, and was net of deferred financing costs of
$2.1 million
and debt discount of
$0.8 million
at
December 31, 2017
.
|
|
|
(5)
|
The Convertible Notes were extinguished on September 17, 2018, as further discussed below, and were net of debt discount of
$4.0 million
at
December 31, 2017
.
|
|
|
(6)
|
The Alon Term Loan Credit Facilities were extinguished on March 30, 2018, as further discussed below, and were net of debt discount of
$0.6 million
at
December 31, 2017
.
|
|
|
(7)
|
The Alon Retail Credit Facilities were extinguished on March 30, 2018, as further discussed below, and were net of debt discount of
$2.4 million
at
December 31, 2017
.
|
Delek Revolver and Term Loan
On March 30, 2018, (the "Closing Date") Delek entered into (i) a new term loan credit agreement with Wells Fargo Bank, National Association, as administrative agent (the "Term Administrative Agent"), Delek, as borrower, and the lenders from time to time party thereto, providing for a senior secured term loan facility in an amount of
$700.0 million
(the "Term Loan Credit Facility") and (ii) a second amended and restated credit agreement with Wells Fargo Bank, National Association, as administrative agent (the "Revolver Administrative Agent"), Delek, as borrower, certain subsidiaries of Delek, as guarantors, and the other lenders party thereto, providing for a senior secured asset-based revolving credit facility with commitments of
$1.0 billion
(the "Revolving Credit Facility" and, together with the "Term Loan Credit Facility," the "New Credit Facilities").
The Revolving Credit Facility permits borrowings in Canadian dollars of up to
$50.0 million
. The Revolving Credit Facility also permits the issuance of letters of credit of up to
$300.0 million
, including letters of credit denominated in Canadian dollars of up to
$10.0 million
. Delek may designate restricted subsidiaries as additional borrowers under the Revolving Credit Facility.
The Term Loan Credit Facility was drawn in full for
$700.0 million
on the Closing Date at an original issue discount of
0.50%
. Proceeds under the Term Loan Credit Facility, as well as proceeds of approximately
$300.0 million
in borrowings under the Revolving Credit Facility on the Closing Date, were used to repay certain indebtedness of Delek and its subsidiaries (the “Refinancing”), as well as certain fees, costs and expenses in connection with the closing of the New Credit Facilities with any remaining proceeds held in cash. Proceeds of future borrowings under the Revolving Credit Facility will be used for working capital and general corporate purposes of Delek and its subsidiaries.
We recorded a loss on extinguishment of debt totaling approximately
$9.1 million
during the
year ended
December 31, 2018
in connection with the Refinancing.
Interest and Unused Line Fees
The interest rates applicable to borrowings under the Term Loan Credit Facility and the Revolving Credit Facility are based on a fluctuating rate of interest measured by reference to either, at Delek’s option, (i) a base rate, plus an applicable margin, or (ii) a reserve-adjusted London Interbank Offered Rate ("LIBOR"), plus an applicable margin (or, in the case of Revolving Credit Facility borrowings denominated in Canadian dollars, the Canadian dollar bankers' acceptances rate ("CDOR")). The initial applicable margin for all Term Loan Credit Facility borrowings was
1.50%
per annum with respect to base rate borrowings and
2.50%
per annum with respect to LIBOR borrowings.
On October 26, 2018, Delek entered into an amendment to the Term Loan Credit Facility (the “First Amendment”) to reduce the margin on borrowings under the Term Loan Credit Facility and incorporate certain other changes. The First Amendment prospectively decreases the applicable margins for borrowings under (i) Base Rate Loans from
1.50%
to
1.25%
and (ii) LIBOR Rate Loans from
2.50%
to
2.25%
, as such terms are defined in the Term Loan Credit Facility. The decreases to the applicable margins became effective upon execution of the First Amendment.
The initial applicable margin for Revolving Credit Facility borrowings was
0.25%
per annum with respect to base rate borrowings and
1.25%
per annum with respect to LIBOR and CDOR borrowings, and the applicable margin for such borrowings after September 30, 2018 is based on Delek’s excess availability as determined by reference to a borrowing base, ranging from
0.25%
to
0.75%
per annum with respect to base rate borrowings and from
1.25%
per annum to
1.75%
per annum with respect to LIBOR and CDOR borrowings.
In addition, the Revolving Credit Facility will require Delek to pay an unused line fee on the average amount of unused commitments thereunder in each quarter, which fee will be at a rate of
0.25%
or
0.375%
per annum, depending on average commitment usage for such quarter. As of
December 31, 2018
, the unused line fee was set at
0.375%
per annum.
Maturity and Repayments
The Revolving Credit Facility will mature and the commitments thereunder will terminate on March 30, 2023. The Term Loan Credit Facility requires scheduled quarterly principal payments of
$1.75 million
, with the balance of the principal due on March 30, 2025. Additionally, the Term Loan Credit Facility requires prepayments by Delek with the net cash proceeds from certain debt incurrences, asset dispositions and insurance or condemnation events with respect to Delek’s assets, subject to certain exceptions, thresholds and reinvestment rights. The Term Loan Credit Facility also requires prepayments with a variable percentage of Delek’s excess cash flow, ranging from
50%
to
0%
depending on Delek’s
consolidated secured net leverage ratio from time to time. Delek may also make voluntarily prepayments under the Term Loan Credit Facility at any time, subject to a prepayment premium of
1.0%
in connection with certain customary repricing events that may occur within six months after the Closing Date, as well as after the First Amendment effective date, with no premium applied after six months.
Guarantee and Security
The obligations of the borrowers under the New Credit Facilities are guaranteed by Delek and each of its direct and indirect, existing and future, wholly-owned domestic subsidiaries, subject to customary exceptions and limitations, and excluding Delek Logistics Partners, LP, Delek Logistics GP, LLC, and each subsidiary of the foregoing (collectively, the "MLP Subsidiaries"). Borrowings under the New Credit Facilities are also guaranteed by DK Canada Energy ULC, a British Columbia unlimited liability company and a wholly-owned restricted subsidiary of Delek.
The Revolving Credit Facility is secured by a first priority lien over substantially all of Delek’s and each guarantor's receivables, inventory, renewable identification numbers, instruments, intercompany loan receivables, deposit and securities accounts and related books and records and certain other personal property, subject to certain customary exceptions (the "Revolving Priority Collateral"), and a second priority lien over substantially all of Delek's and each guarantor's other assets, including all of the equity interests of any subsidiary held by the Delek or any guarantor (other than equity interests in certain MLP Subsidiaries) subject to certain customary exceptions, but excluding real property (such real property and equity interests, the "Term Priority Collateral").
The Term Loan Credit Facility is secured by a first priority lien on the Term Priority Collateral and a second priority lien on the Revolving Priority Collateral, all in accordance with an intercreditor agreement between the Term Administrative Agent and the Revolver Administrative Agent and acknowledged by Delek and the subsidiary guarantors. Certain excluded assets are not included in the Term Priority Collateral and the Revolving Priority Collateral.
Additional Information
At
December 31, 2018
, the weighted average borrowing rate under the Revolving Credit Facility was approximately
5.8%
and was comprised entirely of a base rate borrowing and the principal amount outstanding thereunder was
$300.0 million
. Additionally, there were letters of credit issued of approximately
$179.4 million
as of
December 31, 2018
under the Revolving Credit Facility. Unused credit commitments under the Revolving Credit Facility, as of
December 31, 2018
, were approximately
$520.6 million
.
At
December 31, 2018
, the weighted average borrowing rate under the Term Loan Credit Facility was approximately
4.77%
comprised entirely of a LIBOR borrowing and the principal amount outstanding thereunder was approximately
$694.8 million
.
Delek Logistics Credit Facility
At
December 31, 2017
, Delek Logistics had a
$700.0 million
senior secured revolving credit agreement with Fifth Third Bank ("Fifth Third"), as administrative agent, and a syndicate of lenders (the "2014 Facility") with a
$100.0 million
accordion feature, bearing interest at (i) either a U.S. prime dollar rate or a LIBOR Rate for borrowings denominated in U.S. Dollars, or (ii) either a Canadian dollar prime rate, or a CDOR rate for borrowings denominated in Canadian dollars (in each case plus applicable margins, at the election of the borrowers and as a function of draw down currency). The 2014 Facility had a maturity date of December 30, 2019. Outstanding borrowings at December 31, 2017 were
$179.9 million
. The obligations under the 2014 Facility were secured by a first priority lien on substantially all of Delek Logistics' tangible and intangible assets. Additionally, a subsidiary of Delek provided a limited guaranty of Delek Logistics' obligations under the 2014 Facility.
On September 28, 2018, Delek Logistics and all of its subsidiaries entered into a third amended and restated senior secured revolving credit agreement, which amended and restated the 2014 Facility (hereafter, the "Delek Logistics Credit Facility") with Fifth Third, as administrative agent, and a syndicate of lenders. The Delek Logistics Credit Facility contains a dual currency borrowing tranche that permits draw downs in U.S. or Canadian dollars. Under the terms of the Delek Logistics Credit Facility, among other things, the lender commitments were increased from
$700.0 million
to
$850.0 million
. The Delek Logistics Credit Facility also contains an accordion feature whereby the Partnership can increase the size of the credit facility to an aggregate of
$1.0 billion
, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent.
The obligations under the Delek Logistics Credit Facility remain secured by first priority liens on substantially all of Delek Logistics' tangible and intangible assets. Additionally, a subsidiary of Delek provides a limited guaranty of Delek Logistics' obligations under the Delek Logistics Credit Facility. The guaranty is (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek in favor of the subsidiary guarantor (the "Holdings Note") and (ii) secured by the subsidiary guarantor's pledge of the Holdings Note to the Delek Logistics Credit Facility lenders. As of both
December 31, 2018
and
2017
, the principal amount of the Holdings Note was
$102.0 million
.
The Delek Logistics Credit Facility has a maturity date of September 28, 2023. Borrowings under the Delek Logistics Credit Facility bear interest at either a U.S. dollar prime rate, Canadian prime rate, LIBOR, or a CDOR rate, in each case plus applicable margins, at the election of the borrowers and as a function of draw down currency. The applicable margin, in each case, and the fee payable for the unused revolving commitments vary based upon Delek Logistics' most recent total leverage ratio calculation delivered to the lenders, as called for and defined under the terms of the Delek Logistics Credit Facility. At
December 31, 2018
, the weighted average borrowing rate was approximately
5.4%
. Additionally, the Delek Logistics Credit Facility requires Delek Logistics to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of
December 31, 2018
, this fee was
0.50%
per year.
As of
December 31, 2018
, Delek Logistics had
$456.7 million
of outstanding borrowings under the Delek Logistics Credit Facility, as well as
no
letters of credit issued. Unused credit commitments available under the Delek Logistics Credit Facility, as of
December 31, 2018
, were
$393.3 million
.
Delek Logistics Notes
On May 23, 2017, Delek Logistics and Delek Logistics Finance Corp. (collectively, the “Issuers”) issued
$250.0 million
in aggregate principal amount of
6.75%
senior notes due 2025 (the “Delek Logistics Notes”) at a discount. The Delek Logistics Notes are general unsecured senior obligations of the Issuers. The Delek Logistics Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by Delek Logistics' existing subsidiaries (other than Delek Logistics Finance Corp., the "Guarantors") and will be unconditionally guaranteed on the same basis by certain of Delek Logistics' future subsidiaries. The Delek Logistics Notes rank equal in right of payment with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers. Interest on the Delek Logistics Notes is payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 2017.
At any time prior to May 15, 2020, the Issuers may redeem up to
35
% of the aggregate principal amount of the Delek Logistics Notes with the net cash proceeds of one or more equity offerings by Delek Logistics at a redemption price of
106.750
% of the redeemed principal amount, plus accrued and unpaid interest, if any, subject to certain conditions and limitations. Prior to May 15, 2020, the Issuers may also redeem all or part of the Delek Logistics Notes at a redemption price of the principal amount plus accrued and unpaid interest, if any, plus a "make whole" premium, subject to certain conditions and limitations. In addition, beginning on May 15, 2020, the Issuers may, subject to certain conditions and limitations, redeem all or part of the Delek Logistics Notes, at a redemption price of
105.063
% of the redeemed principal for the twelve-month period beginning on May 15, 2020,
103.375
% for the twelve-month period beginning on May 15, 2021,
101.688
% for the twelve-month period beginning on May 15, 2022, and
100.00
% beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if any.
In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the Delek Logistics Notes from holders at a price equal to
101.00
% of the principal amount thereof, plus accrued and unpaid interest.
In connection with the issuance of the Delek Logistics Notes, the Issuers and the Guarantors entered into a registration rights agreement, whereby the Issuers and the Guarantors were required to exchange the Delek Logistics Notes for new notes with terms substantially identical in all material respects with the Delek Logistics Notes except the new notes do not contain terms with respect to transfer restrictions. On April 25, 2018, Delek Logistics made an offer to exchange the Delek Logistics Notes and the related guarantees that were validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradeable, as required under the terms of the original indenture (the “Exchange Offer”). The Exchange Offer expired on May 23, 2018 (the "Expiration Date"). The terms of the exchange notes that were issued as a result of the Exchange Offer (also referred to as the "2025 Notes") are substantially identical to the terms of the original Delek Logistics Notes.
As of
December 31, 2018
, we had
$250.0 million
in outstanding principal amount under the Delek Logistics Notes.
Alon Convertible Senior Notes (share values in dollars)
In connection with the Delek/Alon Merger, Alon, New Delek and U.S. Bank National Association, as trustee (the “Trustee”), entered into a First Supplemental Indenture (the “Supplemental Indenture”), effective as of July 1, 2017, supplementing the Indenture, dated as of September 16, 2013 (the “Original Indenture”; the Original Indenture, as amended by the Supplemental Indenture, is referred to as the "Indenture"), pursuant to which Alon issued its
3.00%
Convertible Senior Notes due 2018 (the “ Convertible Notes”) in the aggregate principal amount of
$150.0 million
, which were convertible into shares of Alon’s Common Stock, par value
$0.01
per share or cash or a combination of cash and Alon Common Stock, at Alon's election, all as provided in the Indenture. The Supplemental Indenture provides that, as of the Effective Time, the right to convert each
$1,000
principal amount of the Notes based on a number of shares of Alon Common Stock equal to the Conversion Rate (as defined in the Indenture) in effect immediately prior to the Merger was changed into a right to convert each
$1,000
principal amount of Notes into or based on a number of shares of New Delek Common Stock (at the exchange rate of
0.504
), par value
$0.01
per share, equal to the Conversion Rate in effect immediately prior to the Merger. In addition, the Supplemental Indenture provided that, as of the Effective Time, New Delek fully and unconditionally guaranteed, on a senior basis, Alon’s obligations under the Convertible Notes.
Interest on the Convertible Notes was payable in arrears in March and September of each year. The Convertible Notes were not redeemable at our option prior to maturity. Under the terms of the Convertible Notes, the holders of the Convertible Notes could not require us to repurchase all or part of the notes except for instances of a fundamental change, as defined in the indenture.
The holders of the Convertible Notes could convert their notes at any time after June 15, 2018 into a settlement amount determined in accordance with the terms of the Indenture. The Convertible Notes could be converted into shares of New Delek Common Stock, into cash, or into a combination of cash and shares of New Delek Common Stock, at our election. In May 2018, we made the election and notified holders of our intention to satisfy the principal amount outstanding with cash and the incremental value of the conversion options with shares at maturity.
The conversion rate of the Convertible Notes was subject to adjustment upon the occurrence of certain events, including cash dividend adjustments. On September 17, 2018, Delek settled the Convertible Notes for a combination of cash and shares of New Delek Common Stock. The maturity settlement in respect of the Convertible Notes consisted of (i) cash payments totaling approximately
$152.5 million
which included a cash payment for outstanding principal of
$150.0 million
, a cash payment for accrued interest of approximately
$2.2 million
, a cash payment for dividends of approximately
$0.3 million
and a nominal cash payment in lieu of fractional shares, and (ii) the issuance of approximately
2.7 million
shares of New Delek Common Stock to holders of the Convertible Notes (the “Conversion Shares”). The issuance of the Conversion Shares was made in exchange for the Convertible Notes pursuant to an exemption from the registration requirements provided by Section 3(a)(9) of the Securities Act of 1933, as amended.
Prior to the conversion, the conversion feature met the definition for recognition as a bifurcated equity instrument. As of
December 31, 2017
, the conversion feature equity instrument totaling
$26.6 million
was included in additional paid-in capital on the accompanying consolidated balance sheets.
Convertible Note Hedge Transactions
In connection with the Convertible Notes offering, Alon entered into convertible note hedge transactions with respect to Alon Common Stock (the “Call Options”) with the initial purchasers of the Convertible Notes (the “Hedge Counterparties”). In connection with the Delek/Alon Merger, Alon, Delek and the Hedge Counterparties entered into amended and restated Call Options permitting us to purchase up to approximately
5.7 million
shares of New Delek Common Stock, subject to customary anti-dilution adjustments, that underlie the Convertible Notes sold in the offering.
The Call Options were intended to reduce the potential dilution with respect to our common stock upon conversion of the Convertible Notes, or upon settlement of the incremental value of the conversion options associated with the Convertible Notes in shares, as well as offset any potential cash payments we would be required to make in excess of the principal amount upon any conversion of the notes. As of
December 31, 2017
, the Call Options totaling
$23.3 million
were included as a reduction of additional paid-in capital on the consolidated balance sheets. The Call Options were separate transactions and were not part of the terms of the Convertible Notes and were excluded from classification as a derivative as the amount could be settled in our stock. Holders of the Convertible Notes did not have any rights with respect to the Call Options.
On September 17, 2018, we exercised the Call Options in connection with the settlement of the Convertible Notes and received approximately
2.7 million
shares of our common stock from the Call Option counterparties, a cash payment for dividends of approximately
$0.3 million
and a nominal cash payment in lieu of fractional shares. On a net basis, the settlement of the Convertible Notes and the exercise of the Call Options resulted in no net dilution to our common stock.
Warrant Transactions
In connection with the Convertible Notes offering, Alon also entered into warrant transactions (the “Warrants”) whereby warrants to acquire Alon common stock were sold to the Hedge Counterparties. In connection with the Delek/Alon Merger, Alon, Delek and the Hedge Counterparties entered into amended and restated Warrants which allow the Hedge Counterparties to purchase up to approximately
5.7 million
shares of New Delek Common Stock, subject to customary anti-dilution adjustments. The Warrants are separate transactions and are not part of the terms of the Convertible Notes and are excluded from classification as a derivative as the amount could be settled in our stock. Holders of the Convertible Notes did not have any rights with respect to the Warrants.
As of
December 31, 2017
, the Warrants had an adjusted strike price of approximately
$35
per share of New Delek Common Stock. The Warrants required settlement on a net-share basis and expired in April 2019. As of
December 31, 2017
, Warrants totaling
$14.3 million
were included in additional paid-in capital on the accompanying consolidated balance sheets. In November 2018, Delek entered into Warrant Unwind Agreements (the "Unwind Agreements") with the holders of our outstanding common stock Warrants. Pursuant to the terms of the Unwind Agreements, we settled for cash all outstanding Warrants with the holders at various prices per Warrant as provided in the Unwind Agreements. The settlement amount was based on the volume-weighted average market price of our common stock taking into account an adjustment for the exercise price of the Warrants over a period of sixteen trading days beginning November 9, 2018 (the “Unwind Period”). Following the Unwind Period and upon the satisfaction of the payment obligation, the Warrants were canceled and the associated rights and obligations terminated. Based on the provisions of the Unwind Agreements, the amount paid to warrant holders in satisfaction of the payment obligation totaled approximately
$36 million
.
Reliant Bank Revolver
Delek has an unsecured revolving credit agreement with Reliant Bank (the "Reliant Bank Revolver"), which was amended on June 20, 2018 which extended the maturity by two years to June 28, 2020, reduced the fixed interest rate from
5.25%
to
4.75%
per annum and increased the maximum borrowing amount for loans from
$17.0 million
to
$30.0 million
. The Reliant Bank Revolver requires us to pay a quarterly fee of
0.50%
per year on the average available revolving commitment. As of
December 31, 2018
, we had
$30.0 million
outstanding under this facility and
no
unused credit commitments under the Reliant Bank Revolver.
Promissory Notes
Delek had a
$50.0 million
promissory note with Ergon, Inc. that required Delek to make annual amortization payments of
$10.0 million
each, commencing April 29, 2013, and with interest computed at a fixed rate equal to
4%
per annum. The Ergon Note matured on April 29, 2017 and was paid in full.
On
May 14, 2015
, in connection with the Company’s closing of the Alon Acquisition, the Company issued the Alon Israel Note in the amount of
$145.0 million
, which was payable to Alon Israel. The Alon Israel Note bears interest at a fixed rate of
5.50%
per annum and requires five annual principal amortization payments of
$25.0 million
beginning in January 2016 followed by a final principal amortization payment of
$20.0 million
at maturity on
January 4, 2021
. In October 2015, we prepaid the first annual principal amortization payment in the amount of
$25.0 million
, along with all interest due on the prepaid amount. On December 22, 2015, Alon Israel assigned the remaining
$120.0 million
of principal and all accrued interest due under the Alon Israel Note to assignees under four new notes in substantially the same form and on the same terms as the Alon Israel Note (collectively, the "Alon Successor Notes"). The
$120.0 million
total principal of the four Alon Successor Notes collectively require the same principal amortization payments and schedule as under the Alon Israel Note, with payments due under each Alon Successor Note commensurate to such note's pro rata share of
$120.0 million
in assigned principal. As of
December 31, 2018
, a total principal amount of
$70.0 million
was outstanding under the Alon Successor Notes.
Restrictive Covenants
Under the terms of our Revolving Credit Facility, Term Loan Credit Facility, Delek Logistics Credit Facility, Delek Logistics Notes and Reliant Bank Revolver, we are required to comply with certain usual and customary financial and non-financial covenants. The terms and conditions of the Revolving Credit Facility include periodic compliance with a springing minimum fixed charge coverage ratio financial covenant if excess availability under the revolver borrowing base is below certain thresholds, as defined in the credit agreement. The Term Loan Credit Facility does not have any financial maintenance covenants. We believe we were in compliance with all covenant requirements under each of our credit facilities as of
December 31, 2018
.
Certain of our debt facilities contain limitations on the incurrence of additional indebtedness, making of investments, creation of liens, dispositions and acquisitions of assets, and making of restricted payments and transactions with affiliates. Specifically, these covenants may limit the payment, in the form of cash or other assets, of dividends or other distributions, or the repurchase of shares with respect to the equity of our subsidiaries. Additionally, certain of our debt facilities limit our ability to make investments, including extensions of loans or advances to, or acquisitions of equity interests in, or guarantees of obligations of, any other entities.
Restricted Net Assets
Some of Delek's subsidiaries have restrictions in their respective credit facilities limiting their use of assets, as has been discussed above. As of
December 31, 2018
, we had
no
subsidiaries with restricted net assets which would prohibit earnings from being transferred to the parent company for its use.
Future Maturities
Principal maturities of Delek's existing third-party debt instruments for the next five years and thereafter are as follows as of
December 31, 2018
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
Revolving Credit Facility
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
300.0
|
|
|
$
|
—
|
|
|
$
|
300.0
|
|
Term Loan Credit Facility
|
|
7.0
|
|
|
7.0
|
|
|
7.0
|
|
|
7.0
|
|
|
7.0
|
|
|
659.8
|
|
|
694.8
|
|
Delek Logistics Credit Facility
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
456.7
|
|
|
—
|
|
|
456.7
|
|
Delek Logistics Notes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250.0
|
|
|
250.0
|
|
Reliant Bank Revolver
|
|
—
|
|
|
30.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30.0
|
|
Promissory Notes
|
|
25.0
|
|
|
25.0
|
|
|
20.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70.0
|
|
Total
|
|
$
|
32.0
|
|
|
$
|
62.0
|
|
|
$
|
27.0
|
|
|
$
|
7.0
|
|
|
$
|
763.7
|
|
|
$
|
909.8
|
|
|
$
|
1,801.5
|
|
Obligations Extinguished in Connection with the 2018 Refinancing
Wells ABL
Our subsidiary, Delek Refining, Ltd., had an asset-based loan credit facility with Wells Fargo Bank, National Association, as administrative agent, and a syndicate of lenders, which was previously amended and restated on September 29, 2016 and on May 17,2017 (the "Wells ABL"). This facility was amended and restated on March 30, 2018 in connection with the Refinancing. The Wells ABL consisted of (i) a
$450.0 million
revolving loan (the "Wells Revolving Loan"), which included a
$45.0 million
swing line loan sub-limit and a
$200.0 million
letter of credit sub-limit, (ii) a
$70.0 million
term loan (the "Wells Term Loan"), and (iii) an accordion feature that permitted an increase in the size of the revolving credit facility to an aggregate of
$725.0 million
, subject to additional lender commitments and the satisfaction of certain other conditions precedent. The Wells Revolving Loan was to mature on
September 29, 2021
and the Wells Term Loan was to mature on
September 29, 2019
. The Wells Term Loan was subject to repayment in level principal installments of approximately
$5.8 million
per quarter, with the final installment due on
September 29, 2019
. The obligations under the Wells ABL were secured by (i) substantially all the assets of Refining and its subsidiaries, with certain limitations, (ii) guaranties provided by the general partner of Delek Refining, Ltd., as well as by the parent of Delek Refining, Ltd., Delek Refining, Inc. (iii) a limited guarantee provided jointly and severally by Old and New Delek in an amount up to
$15.0 million
in the aggregate and (iv) a limited guarantee provided by Lion Oil in an amount equal to the sum of the face amount of all letters of credit issued on behalf of Lion Oil under the Wells ABL and any loans made by Refining or its subsidiaries to Lion Oil. Under the facility, revolving loans and letters of credit were provided subject to availability requirements, which were determined pursuant to a borrowing base calculation as defined in the credit agreement. The borrowing base, as calculated, was primarily supported by cash, certain accounts receivable and certain inventory. Borrowings under the Wells Revolving Loan and Wells Term Loan bore interest based on separate predetermined pricing grids that allowed us to choose between base rate loans or LIBOR rate loans. Additionally, the Wells ABL required us to pay a quarterly unused credit commitment fee.
Lion Term Loan
Our subsidiary, Lion Oil, had a term loan credit facility with Fifth Third Bank, as administrative agent, and a syndicate of lenders, which as amended and restated had a total loan size of
$275.0 million
(the "Lion Term Loan"). This facility was extinguished in connection with the Refinancing on March 30, 2018. The Lion Term Loan required Lion Oil to make quarterly principal amortization payments of approximately
$6.9 million
each, commencing on
September 30, 2015
, with a final balloon payment due at maturity on
May 14, 2020
. The Lion Term Loan was secured by, among other things, (i) certain assets of Lion Oil and its subsidiaries, (ii) all shares in Lion Oil, (iii) any subordinated and common units of Delek Logistics held by Lion Oil, and (iv) the ALJ Shares. Additionally, the Lion Term Loan was guaranteed by Old and New Delek and the subsidiaries of Lion Oil. Interest on the unpaid balance of the Lion Term Loan was computed at a rate per annum equal to LIBOR or a base rate, at our election, plus the applicable margins, subject in each case to an all-in interest rate floor of
5.5%
per annum.
Alon Partnership
Revolving Credit Facility
Alon USA, LP, a wholly-owned subsidiary of the Alon Partnership, had a
$240.0 million
asset-based revolving credit facility with Israel Discount Bank of New York, as administrative agent (the “Alon Partnership Credit Facility”) that was to mature on May 26, 2018. This facility was extinguished in connection with the Refinancing on March 30, 2018. The Alon Partnership Credit Facility could be used both for borrowings and the issuance of letters of credit subject to a limit of the lesser of the facility amount or the borrowing base amount under the facility. Borrowings under the Alon Partnership Credit Facility bore interest at LIBOR or base rate, at our election, plus the applicable margins. The Alon Partnership Credit Facility was secured by a first priority lien on the Alon Partnership’s cash, accounts receivables, inventories and related assets and a second priority lien on the Alon Partnership’s fixed assets and other specified property. Additionally, the Alon Partnership Credit Facility required the payment of a quarterly fee on the average unused revolving commitment.
Partnership Term Loan Credit Facility
The Alon Partnership had a
$250.0 million
term loan with Credit Suisse AG, as administrative agent (the “Alon Partnership Term Loan”). This term loan was extinguished in connection with the Refinancing on March 30, 2018. The Alon Partnership Term Loan required principal payments of
$2.5 million
per annum paid in equal quarterly installments until maturity in November 2018, at which time a balloon payment was to be due for any remaining principal outstanding. The Alon Partnership Term Loan bore interest at a rate per annum equal to LIBOR (subject to a floor of
1.25%
) or a base rate plus the applicable margins. The Alon Partnership Term Loan was guaranteed by Alon USA Partners GP, LLC, Alon Assets, Inc. and certain subsidiaries of the Alon Partnership, and was secured by a first priority lien on all of the Alon Partnership’s fixed assets and other specified property, as well as on the general partner interest in the Alon Partnership held by the Alon General Partner, and a second priority lien on the Alon Partnership’s cash, accounts receivables, inventories and related assets.
Alon Term Loan Credit Facilities
Alon Energy Term Loan
On March 27, 2014, Alon issued a promissory note to Bank Hapoalim B.M. in an original principal amount of
$25.0 million
(“Alon Energy Term Loan”), that was to mature in March 2019, but was refinanced on December 29, 2017 with the proceeds of a new promissory note to Bank Hapoalim in an original principal amount of
$38.0 million
("New Alon Energy Term Loan"), maturing on December 29, 2022. The New Alon Energy Term Loan was extinguished in connection with the Refinancing on March 30, 2018. The New Alon Energy Term Loan required quarterly principal amortization payments of approximately
$1.4 million
each, commencing on March 30, 2018, and incurred interest at an annual rate equal to LIBOR plus an applicable margin. Additionally, Delek guaranteed all obligations under the New Alon Energy Term Loan.
Alon Asphalt Term Loan
Alon had a term loan owing to Export Development Canada secured by liens on certain of our asphalt terminals (“Alon Asphalt Term Loan”) in an original principal amount of
$35.0 million
. This loan was prepaid on March 29, 2018 in connection with the Refinancing on March 30, 2018. The Alon Asphalt Term Loan was guaranteed by Delek and certain subsidiaries of Alon and was also secured by pledges of equity of certain subsidiaries of Alon. The Alon Asphalt Term Loan required quarterly principal amortization payments of
$3.9 million
, commencing December 2018 until maturity in December 2020. The Alon Asphalt Term Loan bore interest at a rate equal to LIBOR plus an applicable margin.
Alon Energy Letter of Credit Facility
Alon had a Letter of Credit Facility with Israel Discount Bank of New York (the “Alon Energy Letter of Credit Facility”) that was used for the issuance of standby letters of credit. The facility was amended on November 30, 2017, to, among other things, extend the maturity date of the facility to February 28, 2018 and to reduce the maximum commitment under the facility from
$60.0 million
to
$45.0 million
effective December 31, 2017, and was again amended on February 27, 2018 to extend the maturity date to March 29, 2018. As collateral for the Alon Energy Letter of Credit Facility, we were required to pledge sufficient Alon Partnership common units with an initial collateral value of at least
$100.0 million
. Alon Assets, Inc. (“Alon Assets”) was a guarantor under the Alon Energy Letter of Credit Facility. Additionally, the Alon Energy Letter of Credit Facility required the payment of a quarterly fee on the average unused commitment.
Alon Retail Credit Agreement
Alon wholly-owned subsidiaries Southwest Convenience Stores, LLC and Skinny’s LLC, (collectively, “Alon Retail”), had a credit agreement (“Alon Retail Credit Agreement”), that was to mature in March 2019, with Wells Fargo Bank, National Association, as administrative agent. This credit agreement was extinguished in connection with the Refinancing on March 30, 2018. The Alon Retail Credit Agreement included a term loan in an original principal amount of
$110.0 million
and a
$10.0 million
revolving credit facility. The Alon Retail Credit Agreement also included an accordion feature that provided for incremental term loans up to
$30.0 million
. In August 2015, Alon borrowed
$11.0 million
using the accordion feature and amended the Alon Retail Credit Agreement to restore the available accordion back to
$30.0 million
. Borrowings under the Alon Retail Credit Agreement bore interest at LIBOR or base rate, at our election, plus an applicable margin, determined quarterly based upon Alon Retail’s leverage ratio. Principal payments on the term loan borrowings were made in quarterly installments based on a
15
-year amortization schedule. Obligations under the Alon Retail Credit Agreement were secured by a first priority lien on substantially all of the assets of Alon Retail and its subsidiaries. The Alon Retail Credit Agreement required us to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment.
Interest-Rate Derivative Instruments
Effective with the Delek/Alon Merger, we assumed Alon's interest rate swap agreements set to mature in March 2019 that effectively fixed the variable LIBOR interest component of the term loans within the Alon Retail Credit Agreement. These interest rate swap agreements were terminated in connection with the Refinancing on March 30, 2018. These interest rate swaps were accounted for as cash flow hedges. See Note
Note 16
for further information regarding the interest rate swap agreements.
12
. Derivative Instruments
We use the majority of our derivatives to reduce normal operating and market risks with the primary objective of reducing the impact of market price volatility on our results of operations. As such, our use of derivative contracts is aimed at:
|
|
•
|
limiting the exposure to price fluctuations of commodity inventory above or below target levels at each of our segments;
|
|
|
•
|
managing our exposure to commodity price risk associated with the purchase or sale of crude oil, feedstocks and finished grade fuel products at each of our segments;
|
|
|
•
|
managing the cost of our RINs Obligation using future commitments to purchase or sell RINs at fixed prices and quantities; and
|
|
|
•
|
limiting the exposure to interest rate fluctuations on our floating rate borrowings.
|
We primarily utilize commodity swaps, futures, forward contracts and options contracts, generally with maturity dates of three years or less, and from time to time interest rate swap agreements to achieve these objectives. Futures contracts are standardized agreements, traded on a futures exchange, to buy or sell the commodity at a predetermined price at a specified future date. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Commodity swap and futures contracts require cash settlement for the commodity based on the difference between a fixed or floating price and the market price on the settlement date, and options require payment of an upfront premium. Because these derivatives are entered into to achieve objectives specifically related to our inventory and production risks, such gains and losses (to the extent not designated as accounting hedges and recognized on an unrealized basis in other comprehensive income) are recognized in cost of materials and other.
Interest rate swap agreements economically hedge floating rate debt by exchanging interest rate cash flows, based on a notional amount from a floating rate to a fixed rate. Effective with the Delek/Alon Merger, we acquired four interest rate swap agreements (that had maturities in March 2019) which effectively fixed the variable LIBOR interest component of the term loans within the Alon Retail Credit Agreement. The aggregate notional amount under these agreements were to cover approximately
77%
of the outstanding principal of these term loans throughout the duration of the interest rate swaps. These interest rate swap agreements were terminated due to the extinguishment of the Alon Retail Credit Agreement in connection with the Refinancing on March 30, 2018, resulting in a reclassification of unrealized loss of
$0.6 million
from accumulated other comprehensive income to interest expense on the condensed consolidated statement of income for the year ended
December 31, 2018
- see
Note 11
for further information.
Forward contracts are agreements to buy or sell a commodity at a predetermined price at a specified future date, and for our transactions, generally require physical delivery. Forward contracts where the underlying commodity will be used or sold in the normal course of business qualify as normal purchases and normal sales pursuant to ASC 815 and are not accounted for as derivative instruments. Rather, such forward contracts are accounted for under other applicable GAAP. Forward contracts entered into for trading purposes that do not meet the normal purchases, normal sales exception are accounted for as derivative instruments. For the year ended
December 31, 2018
, all of our forward contracts that were accounted for as derivative instruments consisted of contracts related to our Canadian crude trading operations. Since Canadian crude trading activity is not related to managing supply or pricing risk of inventory that will be used in production, such unrealized and realized gains and losses are recognized in other operating income (expense), net rather than cost of materials and other on the accompanying condensed consolidated statements of income. There were no forward contract transactions that were accounted for as derivatives for the years ended
December 31, 2017
and
2016
, and there were no forward contract derivative assets or liabilities outstanding as of
December 31, 2017
.
Futures, swaps or other commodity related derivative instruments that are utilized to specifically hedge our Canadian forward contract or investment positions are recognized in other operating income (expense), net because that is where the related underlying transactions are reflected.
At this time, we do not believe there is any material credit risk with respect to the counterparties to any of our derivative contracts.
From time to time, we also enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs Obligation. These future RIN commitment contracts meet the definition of derivative instruments under ASC 815, and are recorded at estimated fair value in accordance with the provisions of ASC 815. Changes in the fair value of these future RIN commitment contracts are recorded in cost of materials and other on the consolidated statements of income.
In accordance with ASC 815, certain of our commodity swap contracts and our interest rate agreements have been designated as cash flow hedges and the effective portion of the change in fair value between the execution date and the end of period (or early termination date in regards to the four Alon Retail interest rate swaps discussed above) has been recorded in other comprehensive income. The effective portion of the fair value of these contracts is recognized in income at the time the positions are closed and the hedged transactions are recognized in income. In regards to our interest rate swap agreements, the losses in accumulated other comprehensive income were reclassified into earnings as a result of the discontinuance of cash flow hedges since the originally forecasted Alon Retail Credit Agreement interest payments will not occur by the end of the originally specified time period due to the Refinancing on March 30, 2018, as discussed above.
The following table presents the fair value of our derivative instruments as of
December 31, 2018
and
2017
. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under our master netting arrangements, including cash collateral on deposit with our counterparties. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below differ from the amounts presented in our consolidated balance sheets. See Note
13
for further information regarding the fair value of derivative instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Derivative Type
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Commodity derivatives
(1)
|
Other current assets
|
|
$
|
158.3
|
|
|
$
|
(142.4
|
)
|
|
$
|
164.6
|
|
|
$
|
(162.0
|
)
|
Commodity derivatives
(1)
|
Other current liabilities
|
|
—
|
|
|
(8.4
|
)
|
|
13.4
|
|
|
(28.3
|
)
|
Commodity derivatives
(1)
|
Other long-term assets
|
|
2.1
|
|
|
(2.4
|
)
|
|
—
|
|
|
—
|
|
Commodity derivatives
(1)
|
Other long-term liabilities
|
|
93.0
|
|
|
(94.0
|
)
|
|
—
|
|
|
—
|
|
RIN commitment contracts
(2)
|
Other current assets
|
|
2.0
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
RIN commitment contracts
(2)
|
Other current liabilities
|
|
—
|
|
|
(6.7
|
)
|
|
—
|
|
|
(24.0
|
)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Commodity derivatives
(1)
|
Other current assets
|
|
200.3
|
|
|
(157.0
|
)
|
|
—
|
|
|
—
|
|
Commodity derivatives
(1)
|
Other current liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13.6
|
)
|
Commodity derivatives
(1)
|
Other long-term assets
|
|
6.1
|
|
|
(4.8
|
)
|
|
—
|
|
|
—
|
|
Interest rate derivatives
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
Total gross fair value of derivatives
|
|
461.8
|
|
|
(415.7
|
)
|
|
179.4
|
|
|
(228.8
|
)
|
Less: Counterparty netting and cash collateral
(3)
|
|
399.9
|
|
|
(399.5
|
)
|
|
163.5
|
|
|
(173.6
|
)
|
Total net fair value of derivatives
|
|
$
|
61.9
|
|
|
$
|
(16.2
|
)
|
|
$
|
15.9
|
|
|
$
|
(55.2
|
)
|
|
|
(1)
|
As of
December 31, 2018
and
2017
, we had open derivative positions representing
39,277,822
and
35,978,000
barrels, respectively, of crude oil and refined petroleum products. Of these open positions, contracts representing
16,461,000
and
575,000
barrels were designated as cash flow hedging instruments as of
December 31, 2018
and
2017
, respectively.
|
|
|
(2)
|
As of
December 31, 2018
and
2017
, we had open RIN commitment contracts representing
137,750,000
and
163,361,320
RINs, respectively.
|
|
|
(3)
|
As of
December 31, 2018
and
2017
,
$(0.4) million
and
$10.0 million
, respectively, of cash (obligation) collateral held by counterparties has been netted with the derivatives with each counterparty.
|
Total losses on our commodity derivatives and RIN commitment contracts recorded in cost of materials and other on the consolidated statements of income are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Gains (losses) on commodity derivatives not designated as hedging instruments recognized in cost of materials and other
(1)
|
|
$
|
0.9
|
|
|
$
|
(33.1
|
)
|
|
$
|
(21.7
|
)
|
Gains on commodity derivatives not designated as hedging instruments recognized in other operating income (expenses), net
(1) (2)
|
|
7.7
|
|
|
—
|
|
|
—
|
|
Realized losses reclassified out of OCI on commodity derivatives designated as cash flow hedging instruments
|
|
(1.7
|
)
|
|
(38.6
|
)
|
|
(27.8
|
)
|
Gains recognized on commodity derivatives due to cash flow hedging ineffectiveness
|
|
0.9
|
|
|
0.5
|
|
|
3.1
|
|
Total income (losses)
|
|
$
|
7.8
|
|
|
$
|
(71.2
|
)
|
|
$
|
(46.4
|
)
|
|
|
(1)
|
Gains (losses) on commodity derivatives that are economic hedges but not designated as hedging instruments include unrealized gains (losses) of
$32.1 million
,
$(13.0) million
and
$(34.2) million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Of these amounts, approximately
$8.1 million
and
$4.6 million
for the years ended
December 31, 2018
and
2017
, respectively, represent unrealized gains where the instrument has matured but where it has not cash settled as of period end, excluding the reversal of prior period settlement differences. Derivative instruments that have matured but not cash settled at the balance sheet date continue to be reflected in derivative assets or liabilities on our balance sheet.
|
|
|
(2)
|
See separate table below for disclosures about "trading derivatives."
|
For cash flow hedges,
no
component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for the years ended
December 31, 2018
,
2017
and
2016
. As of
December 31, 2018
and
2017
, cumulative gains of
$35.4 million
(related to Midland to Cushing crude price differentials at our refineries) and
$7.6 million
(related to future purchases of crude oil), respectively, on cash flow hedges, net of tax, remained in accumulated other comprehensive income. Losses of
$1.5 million
,
$25.1 million
and
$18.1 million
, net of tax, on settled commodity contracts were reclassified into cost of materials and other in the consolidated statements of income during the years ended
December 31,
2018
,
2017
and
2016
, respectively. We estimate that
$43.6 million
of deferred gains related to commodity cash flow hedges will be reclassified into cost of materials and other over the next 12 months as a result of hedged transactions that are forecasted to occur.
As of
December 31, 2017
gains of
$0.6 million
, net of tax, related to the interest rate cash flow hedges, remained in accumulated other comprehensive income. Related to Alon's interest rate swap cash flow hedges for the year ended
December 31, 2018
, we recognized
$0.7 million
in interest expense on the consolidated statements of income in regards to normal settlements and for early termination settlements reclassified from accumulated other comprehensive income into income as a result of the discontinuation of cash flow hedge accounting. There was no cash flow hedge ineffectiveness for the year ended
December 31, 2018
in regards to Alon's interest rate swap cash flow hedges. For the years ended
December 31, 2018
,
2017
and
2016
, there were
no
amounts reclassified from accumulated other comprehensive income into income as a result of the discontinuation of cash flow hedge accounting.
Total gains on our trading forward contract derivatives (none of which were designated as hedging instruments) recorded in other operating income (expense), net on the condensed consolidated statements of income are as follows (in millions):
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
Realized gains
|
|
$
|
23.1
|
|
Unrealized losses
|
|
(3.0
|
)
|
Total
|
|
$
|
20.1
|
|
13
. Fair Value Measurements
ASC 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
Commodity swaps, exchange-traded futures, options, physical commodity forward purchase and sale contracts (that do qualify as normal purchases or normal sales), and interest rate swaps are generally valued using industry-standard models that consider various assumptions, including quoted forward prices, spot prices, interest rates, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines the classification as Level 2 or 3. Our contracts are valued based on exchange pricing and/or price index developers such as Platts or Argus and are, therefore, classified as Level 2. Commodity investments are valued using published market prices of the commodity on the applicable exchange and are, therefore, classified as Level 1.
Our RINs Obligation surplus or deficit is based on the amount of RINs we must purchase, net of amounts internally generated and purchased and the price of those RINs as of the balance sheet date. The RINs Obligation surplus or deficit is categorized as Level 2, and is measured at fair value based on quoted prices from an independent pricing service.
In both March 1, 2018 and March 1, 2017, the El Dorado refinery received approval from the EPA for a small refinery exemption from the requirements of the renewable fuel standard for the 2017 and 2016 calendar years, respectively which resulted in a reduction of our RINs Obligation and related cost of material other of approximately
$59.3 million
and
$47.5 million
for the
year ended
December 31, 2018
and
2017
, respectively. In March 2018, the Krotz Springs refinery received such approval as well, which resulted in a reduction of our RINs Obligation and related cost of materials and other of approximately
$31.6 million
for the year ended
December 31, 2018
.
Our RIN commitment contracts are future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs Obligation. These RIN commitment contracts are categorized as Level 2, and are measured at fair value based on quoted prices from an independent pricing service. Changes in the fair value of these future RIN commitment contracts are recorded in cost of materials and other in the consolidated statements of income.
With respect to the J. Aron Agreements in effect as of
December 31, 2018
and
2017
, we elected to account for our related supply and offtake obligations at fair value in accordance with ASC 825, as it pertains to the fair value option.
This standard permits the election to carry financial instruments and certain other items similar to financial instruments at fair value on the balance sheet, with all changes in fair value reported in earnings. For those periods for the El Dorado and Krotz Springs Agreements and at
December 31, 2017
for our Big Spring Agreement, our corresponding J. Aron supply and offtake obligations are categorized as Level 2, and are measured at fair value using market prices for the consigned crude oil and refined products we are required to repurchase from J. Aron at the end of the term of the Supply and Offtake Agreements. These obligations are presented in the current portion of the Obligation under Supply and Offtake Agreements on our consolidated balance sheets. Gains (losses) related to the change in fair value are recorded as a component of cost of materials and other in the consolidated statements of income. At
December 31, 2018
with respect to the Big Spring Agreement, we apply fair value measurement as follows: (1) we determine fair value
for our amended fixed-price step-out liability based on changes in fair value related to interest rate risk where such obligation is categorized as Level 2 and is presented in the long-term portion of the Obligation under Supply and Offtake Agreements on our consolidated balance sheets, and where gains (losses) related to changes in fair value are recorded as a component of interest expense in the consolidated statements of income; and (2) we determine fair value of the short-term commodity-indexed financing facility based on the market prices for the consigned crude oil and refined products collateralizing the financing/funding where such obligation is categorized as Level 2 and is presented in the current portion of the Obligation under Supply and Offtake Agreements on our consolidated balance sheets, and where gains (losses) related to the change in fair value are recorded as a component of cost of materials and other in the consolidated statements of income.
Commodity investments represent those commodities (generally crude oil) physically on hand as a result of trading activities with physical forward contracts. Such investment stores are maintained on a weighted average cost basis for determining realized gains and losses on physical sales under forward contracts, and ending balances are adjusted to fair value at each reporting date. The unrealized loss on the commodity investments for the year ended
December 31, 2018
totaled
$2.0 million
.
The fair value hierarchy for our financial assets and liabilities accounted for at fair value on a recurring basis at
December 31, 2018
and
2017
, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
459.8
|
|
|
$
|
—
|
|
|
$
|
459.8
|
|
Commodity investments
|
|
15.8
|
|
|
—
|
|
|
—
|
|
|
15.8
|
|
RIN commitment contracts
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
2.0
|
|
Total assets
|
|
15.8
|
|
|
461.8
|
|
|
—
|
|
|
477.6
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
—
|
|
|
(409.0
|
)
|
|
—
|
|
|
(409.0
|
)
|
RIN commitment contracts
|
|
—
|
|
|
(6.7
|
)
|
|
—
|
|
|
(6.7
|
)
|
RINs obligation deficit
|
|
—
|
|
|
(11.8
|
)
|
|
—
|
|
|
(11.8
|
)
|
J. Aron supply and offtake obligations
|
|
—
|
|
|
(362.2
|
)
|
|
—
|
|
|
(362.2
|
)
|
Total liabilities
|
|
—
|
|
|
(789.7
|
)
|
|
—
|
|
|
(789.7
|
)
|
Net liabilities
|
|
$
|
15.8
|
|
|
$
|
(327.9
|
)
|
|
$
|
—
|
|
|
$
|
(312.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
178.0
|
|
|
$
|
—
|
|
|
$
|
178.0
|
|
RIN commitment contracts
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
RINs Obligation surplus
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
Total assets
|
|
—
|
|
|
180.5
|
|
|
—
|
|
|
180.5
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
—
|
|
|
(203.9
|
)
|
|
—
|
|
|
(203.9
|
)
|
Interest rate derivatives
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(0.9
|
)
|
RIN commitment contracts
|
|
—
|
|
|
(24.0
|
)
|
|
—
|
|
|
(24.0
|
)
|
RINs obligation deficit
|
|
—
|
|
|
(130.8
|
)
|
|
—
|
|
|
(130.8
|
)
|
J. Aron supply and offtake obligations
|
|
—
|
|
|
(435.6
|
)
|
|
—
|
|
|
(435.6
|
)
|
Total liabilities
|
|
—
|
|
|
(795.2
|
)
|
|
—
|
|
|
(795.2
|
)
|
Net liabilities
|
|
$
|
—
|
|
|
$
|
(614.7
|
)
|
|
$
|
—
|
|
|
$
|
(614.7
|
)
|
The derivative values above are based on analysis of each contract as the fundamental unit of account as required by ASC 820. In the table above, derivative assets and liabilities with the same counterparty are not netted where the legal right of offset exists. This differs from the presentation
in the financial statements which reflects our policy, wherein we have elected to offset the fair value amounts recognized for multiple derivative instruments executed with the same counterparty and where the legal right of offset exists. As of
December 31, 2018
and
2017
,
$(0.4) million
and
$10.0 million
, respectively, of cash (obligation) collateral was held by counterparty brokerage firms and has been netted with the net derivative positions with each counterparty. See Note
12
for further information regarding derivative instruments.
14
. Commitments and Contingencies
Litigation
In the ordinary conduct of our business, we are from time to time 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, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our financial statements. Certain environmental matters that have or may result in penalties or assessments are discussed below in the
"
Environmental, Health and Safety" section of
Note 14
.
One of our Alon subsidiaries was party to a lawsuit alleging breach of contract pertaining to an asphalt supply agreement. During the year ended
December 31, 2017
, we reached a settlement on this matter which was included in accrued liabilities in purchase accounting as part of the fair value of the liabilities assumed in the Delek/Alon Merger.
Self-insurance
Delek records a self-insurance accrual for workers’ compensation claims up to a
$1.0 million
deductible on a per accident basis, general liability claims up to
$4.0 million
on a per occurrence basis, and medical claims for eligible full-time employees up to
$0.3 million
per covered individual per calendar year . We
also record a self-insurance accrual for
auto liability up to a
$1.0 million
deductible on a per accident basis for claims incurred in recent periods, and up to a
$4.0 million
deductible for remaining claims from certain prior periods.
We have umbrella liability insurance available to each of our segments in an amount determined reasonable by management.
Environmental Health and Safety
We are subject to extensive federal, state and local environmental and safety laws and regulations enforced by various agencies, including the EPA, the United States Department of Transportation, the Occupational Safety and Health Administration, as well as numerous state, regional and local environmental, safety and pipeline agencies. These laws and regulations govern the discharge of materials into the environment, waste management practices, pollution prevention measures and the composition of the fuels we produce, as well as the safe operation of our plants and pipelines and the safety of our workers and the public. Numerous permits or other authorizations are required under these laws and regulations for the operation of our refineries, renewable fuels facilities, terminals, pipelines, underground storage tanks, trucks, rail cars and related operations, and may be subject to revocation, modification and renewal.
These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters which could include soil and water contamination, air pollution, personal injury and property damage allegedly caused by substances which we manufactured, handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which we have assumed responsibility. We believe that our current operations are in substantial compliance with existing environmental and safety requirements. However, there have been and will continue to be ongoing discussions about environmental and safety matters between us and federal and state authorities, including notices of violations, citations and other enforcement actions, some of which have resulted or may result in changes to operating procedures and in capital expenditures. While it is often difficult to quantify future environmental or safety related expenditures, we anticipate that continuing capital investments and changes in operating procedures will be required for the foreseeable future to comply with existing and new requirements, as well as evolving interpretations and more strict enforcement of existing laws and regulations.
On November 5, 2018, Alon and certain of its subsidiaries including Alon Bakersfield Property, Inc. (collectively, "ABPI") entered into a Settlement and Release Agreement (the "Settlement Agreement") with Equilon Enterprises, LLC, doing business as Shell Oil Products, US ("Shell"), a former owner of our non-operating refinery located in Bakersfield, California (the "Bakersfield Refinery") which was acquired by Delek in connection with the Delek/Alon Merger. The Settlement Agreement resolved certain disputed indemnification matters related to environmental obligations and asset retirement obligations at the Bakersfield Refinery. As a result of this Settlement Agreement, Shell paid ABPI a lump sum payment of
$34.0 million
and conveyed to ABPI ownership of a non-operating terminal located on the site of the Bakersfield Refinery (deemed to have little or no value) and the parties will terminate a nominal lease agreement related to such terminal. Of this total lump sum settlement payment,
$14.0 million
was previously recognized as an indemnification receivable in the purchase price allocation associated with the Delek/Alon Merger as of July 1, 2017, because such amounts represented indemnification that was deemed by the Company to be probable of realization based on existing indemnification agreements in place on the date of the acquisition and that related to identified asset retirement obligations that were also recognized in the purchase price allocation. Of the remaining settlement amount received,
$16.0 million
is attributable to additional recoveries of remediation costs and is included as a reduction of operating expenses, and
$4.0 million
is considered additional consideration for concessions made under the Settlement Agreement and is included as other income in the accompanying consolidated statements of income for the year ended
December 31, 2018
.
The Big Spring refinery has been negotiating an agreement with the EPA for over
10
years under the EPA’s National Petroleum Refinery Initiative regarding alleged historical violations of the federal Clean Air Act related to emissions and emissions control equipment. A Consent Decree resolving these alleged historical violations for the Big Spring refinery was lodged with the United States District Court for the Northern District of Texas on June 6, 2017, and we expect that Consent Decree to become final in early 2019 when amendments to the Consent Decree are lodged. An amendment to the Consent Decree was agreed upon by the Delek and the EPA/DOJ in late 2018 and was executed by Delek. However, the amendment to the Consent Decree was not executed by the EPA/DOJ and lodged due to the government shutdown. Once the amendment is lodged and entered, the Consent Decree
will require payment of a
$0.5 million
civil penalty and capital expenditures for pollution control equipment that may be significant over the next
10 years
.
The Big Spring refinery had been in discussions with the EPA since March 2016 to resolve alleged violations regarding six batches of gasoline produced in 2012-2013 that exceeded the applicable Reid Vapor Pressure standard. The issue, which was previously accrued in the Delek/Alon Merger purchase price allocation, was resolved in January 2018, resulting in payment of a penalty of approximately
$0.4 million
.
The USA's Paramount Petroleum subsidiary had been in discussions with the State of California since December 2016 regarding alleged violations of the state's Low Carbon Fuel Standard ("LCFS") program related to reporting of fuel transactions. The issue, which was previously accrued in the Delek/Alon Merger purchase price allocation, was resolved in March 2018, resulting in payment of a penalty of approximately
$0.3 million
.
As of
December 31, 2018
, we have recorded an environmental liability of approximately
$143.3 million
, primarily related to the estimated probable costs of remediating or otherwise addressing certain environmental issues of a non-capital nature at our refineries, as well as terminals, some of which we no longer own. This liability includes estimated costs for ongoing investigation and remediation efforts, which were already being performed by the former operators of the refineries and terminals prior to our acquisition of those facilities, for known contamination of soil and groundwater, as well as estimated costs for additional issues which have been identified subsequent to the acquisitions. Approximately
$3.8 million
of the total liability is expected to be expended over the next 12 months, with most of the balance expended by
2032
, although some costs may extend up to
30
years. In the future, we could be required to extend the expected remediation period or undertake additional investigations of our refineries, pipelines and terminal facilities, which could result in the recognition of additional remediation liabilities.
Environmental liabilities with payments that are fixed or reliably determinable have been discounted to present value at various rates depending on their expected payment stream. In regards to the environmental liabilities assumed in the Delek/Alon acquisition, the discount rates vary from
2.31%
to
2.84%
. See Note
3
for further information regarding the environmental liabilities assumed in the Delek/Alon Merger. In regards to the environmental liability associated with the Tyler refinery, a discount rate of
2.78%
has been used.
The table below summarizes our environmental liability accruals (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
Discounted environmental liabilities
|
|
$
|
58.7
|
|
|
$
|
33.7
|
|
Undiscounted environmental liabilities
|
|
84.6
|
|
|
42.4
|
|
Total accrued environmental liabilities
|
|
$
|
143.3
|
|
|
$
|
76.1
|
|
As of
December 31, 2018
, the estimated future payments of environmental obligations for which discounts have been applied are as follows (in millions):
|
|
|
|
|
|
2019
|
|
$
|
2.9
|
|
2020
|
|
3.1
|
|
2021
|
|
3.2
|
|
2022
|
|
3.7
|
|
2023
|
|
2.8
|
|
Thereafter
|
|
61.7
|
|
Discounted environmental liabilities, gross
|
|
77.4
|
|
Less: Discount applied
|
|
18.7
|
|
Discounted environmental liabilities
|
|
$
|
58.7
|
|
We have experienced several crude oil releases from pipelines owned by our logistics segment, including, but not limited to:
|
|
•
|
Magnolia Station in March 2013 (the "Magnolia Release");
|
|
|
•
|
a pipeline segment east of El Dorado, Arkansas in February 2018;
|
|
|
•
|
a gathering line release near one of our storage facilities located south of El Dorado, Arkansas in February 2018;
|
|
|
•
|
a gathering line release located on property owned by Clean Harbors, Inc. in El Dorado, Arkansas in March 2018;
|
|
|
•
|
two gathering line releases near Smackover, Arkansas occurring in November 2018 and December 2018; and
|
|
|
•
|
a gathering line release near Norphlet, Arkansas in December 2018.
|
The United States Department of Justice (the "DOJ"), on behalf of the EPA, and the State of Arkansas, on behalf of the Arkansas Department of Environmental Quality, have been pursuing an enforcement action against Delek Logistics with regard to potential violations of the Clean Water Act and certain state laws arising from the Magnolia Release since June 2015. On July 13, 2018, the DOJ and the State of Arkansas filed a civil action against two of Delek Logistics’ wholly-owned subsidiaries, Delek Logistics Operating LLC and SALA Gathering Systems LLC, in the United States District Court for the Western District of Arkansas. On or around December 12, 2018, the claims against the Partnership were resolved and an additional demand for a compliance audit at the Magnolia terminal was abandoned pursuant to payment of monetary penalties and other relief. As of
December 31, 2018
, we have accrued
$2.2 million
, which we recorded in accrued expenses and other current liabilities in our condensed consolidated balance sheet, which represents the full settlement amount for these proceedings. We believe this amount is adequate to cover our expected obligations related to these proceedings and that these proceedings will not have a material adverse effect upon Delek's business, financial condition or result of operations.
Asset Retirement Obligations
The reconciliation of the beginning and ending carrying amounts of asset retirement obligations is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
Beginning balance
|
|
$
|
72.1
|
|
|
$
|
5.2
|
|
Liabilities identified
(1)
|
|
(1.2
|
)
|
|
66.2
|
|
Liabilities settled
|
|
(2.2
|
)
|
|
—
|
|
Accretion expense
|
|
1.9
|
|
|
0.7
|
|
Reclassification from discontinued operations
|
|
4.9
|
|
|
—
|
|
Ending balance
|
|
$
|
75.5
|
|
|
$
|
72.1
|
|
(1)
All asset retirement obligations were assumed in the Delek/Alon Merger.
Business Interruption Insurance Proceeds
In January 2016, Delek US received an insurance settlement in the amount of
$49.0 million
related to losses stemming from the rupture of an unaffiliated third-party pipeline in 2012 that supplied crude to the El Dorado refinery. Of the total settlement,
$42.4 million
was recognized as business interruption proceeds in our 2016 consolidated statement of income.
Letters of Credit
As of
December 31, 2018
, we had in place letters of credit totaling approximately
$179.4 million
with various financial institutions securing obligations primarily with respect to our commodity purchases for the refining segment and certain of our insurance programs. There were
no
amounts drawn by beneficiaries of these letters of credit at
December 31, 2018
.
Operating Leases
Delek leases buildings, equipment and corporate office space under agreements expiring at various dates through 2035 after considering available renewal options. Many of these leases contain renewal options and require Delek to pay executory costs (such as property taxes, maintenance and insurance). Lease expense for all operating leases for the years ended
December 31, 2018
,
2017
and
2016
totaled
$46.2 million
,
$40.9 million
, and
$31.1 million
, respectively.
The following is an estimate of our future minimum lease payments for operating leases having remaining noncancelable terms in excess of one year as of
December 31, 2018
(in millions):
|
|
|
|
|
|
2019
|
|
$
|
48.1
|
|
2020
|
|
42.1
|
|
2021
|
|
39.5
|
|
2022
|
|
28.5
|
|
2023
|
|
23.4
|
|
Thereafter
|
|
77.9
|
|
Total future minimum rentals
|
|
$
|
259.5
|
|
15
. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
On December 22, 2017, the U.S. government enacted the Tax Reform Act, which makes broad and complex changes to the U.S. tax code, including a permanent reduction in the U.S. federal corporate tax rate from 35% to 21% (“Rate Reduction”). The Tax Reform Act also puts into place new tax laws that will apply prospectively, which include, but are not limited to, modifying the rules governing the deductibility of certain executive compensation; extending and modifying the additional first-year depreciation deduction to accelerate expensing of certain qualified property; creating a limitation on deductible interest expense; and changing rules related to uses and limitations of net operating loss carryforwards.
We applied the guidance in Staff Accounting Bulletin 118 (“SAB 118”), when accounting for the effects of the Tax Reform Act. At December 31, 2017, we made a reasonable estimate of the effects on our existing deferred tax balances, and recognized a provisional benefit amount of
$166.9 million
, which was included as a component of income tax expense from continuing operations. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for federal purposes. For the year ended December 31, 2018, we completed the analysis of the accounting for the tax effects of the Tax Reform Act, resulting in our recording of an additional tax benefit of
$0.6 million
during 2018. These adjustments to the previously recorded provisional amounts include the tax effects on the remeasurement of the existing net deferred tax liabilities. We also had a reclassification of
$1.6 million
from accumulated other comprehensive income to retained earnings for stranded tax effects as of
December 31, 2018
resulting from the Tax Reform Act. See
Note 2
for further information.
On January 1, 2018, we adopted ASU 2016-16 as discussed in Note
1
. As a result of the adoption, we decreased prepaid income taxes by
$59.4 million
, increased income taxes payable by
$3.0 million
, increased deferred tax assets by
$18.0 million
(net of a valuation allowance of
$17.2 million
), and decreased retained earnings by
$44.4 million
for the cumulative effect related to new guidance that requires recognizing the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs - see
Note 2
for further information.
Significant components of Delek's deferred tax assets (liabilities) reported in the accompanying consolidated financial statements as of
December 31, 2018
and
2017
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Non-Current Deferred Taxes:
|
|
|
|
Property, plant and equipment, and intangibles
|
$
|
(275.6
|
)
|
|
$
|
(180.9
|
)
|
Partnership and equity investments
|
22.2
|
|
|
(83.7
|
)
|
Deferred revenues
|
(5.5
|
)
|
|
(6.5
|
)
|
Derivatives and hedging
|
(12.5
|
)
|
|
4.8
|
|
Compensation and employee benefits
|
15.5
|
|
|
15.9
|
|
Net operating loss carryforwards
|
39.9
|
|
|
26.5
|
|
Reserves and accruals
|
63.0
|
|
|
40.8
|
|
Inventories
|
1.3
|
|
|
4.4
|
|
Valuation allowance
|
(58.5
|
)
|
|
(21.2
|
)
|
Total net deferred tax liabilities
|
$
|
(210.2
|
)
|
|
$
|
(199.9
|
)
|
The difference between the actual income tax expense and the tax expense computed by applying the statutory federal income tax rate to income from continuing operations was attributable to the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Provision (benefit) for federal income taxes at statutory rate
|
$
|
102.0
|
|
|
$
|
104.7
|
|
|
$
|
(137.0
|
)
|
State income tax expense (benefit), net of federal tax provision
|
5.5
|
|
|
4.9
|
|
|
(10.2
|
)
|
Income tax (benefit) expense attributable to non-controlling interest
|
(7.3
|
)
|
|
(12.0
|
)
|
|
(7.1
|
)
|
Tax credits and incentives
|
(8.3
|
)
|
|
(1.6
|
)
|
|
(9.7
|
)
|
Partnership basis differences not expected to be realized
|
5.5
|
|
|
—
|
|
|
—
|
|
Dividends received deduction
|
—
|
|
|
(2.8
|
)
|
|
(5.7
|
)
|
Executive compensation limitation
|
1.7
|
|
|
1.5
|
|
|
0.3
|
|
Stock compensation
|
(2.2
|
)
|
|
—
|
|
|
—
|
|
Amortization - prepaid taxes
|
—
|
|
|
(2.4
|
)
|
|
(3.5
|
)
|
Reversal of deferred taxes related to equity method investment in Alon
|
—
|
|
|
45.3
|
|
|
—
|
|
Impact of Tax Reform Act
|
(0.6
|
)
|
|
(166.9
|
)
|
|
—
|
|
Goodwill write-down
|
5.3
|
|
|
—
|
|
|
—
|
|
Other items
|
0.3
|
|
|
0.1
|
|
|
1.4
|
|
Income tax expense (benefit)
|
$
|
101.9
|
|
|
$
|
(29.2
|
)
|
|
$
|
(171.5
|
)
|
Tax credits and incentives include work opportunity, research and development, E-85 and blocked pump tax credits, as well as incentives for the Company’s biodiesel blending operations.
Income tax expense (benefit) from continuing operations was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Current
|
$
|
128.7
|
|
|
$
|
18.8
|
|
|
$
|
(18.3
|
)
|
Deferred
|
(26.8
|
)
|
|
(48.0
|
)
|
|
(153.2
|
)
|
|
$
|
101.9
|
|
|
$
|
(29.2
|
)
|
|
$
|
(171.5
|
)
|
We carry valuation allowances against certain state deferred tax assets and net operating losses that may not be recoverable with future taxable income. We also carry valuation allowances related to basis differences that may not be recoverable. During the years ended
December 31, 2018
and
2017
, we recorded increases to the valuation allowance related to continuing operations of
$37.3 million
(
$17.2 million
of which was charged to retained earnings as a result of the cumulative effect of the adoption of accounting guidance, discussed above) and
$13.9 million
, respectively.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it is more likely than not Delek will realize the benefits of these deductible differences, net of the existing valuation allowance. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Subsequently recognized tax benefit or expense relating to the valuation allowance for deferred tax assets will be reported as an income tax benefit or expense in the consolidated statement of income.
State net operating loss and credit carryforwards at
December 31, 2018
totaled
$668.4 million
and
$3.5 million
, respectively, a portion of which are subject to a valuation allowance. State net operating losses will begin expiring in
2019 through 2038
. State tax credit carryforwards will begin expiring in
2020
.
Delek files a consolidated U.S. federal income tax return, as well as income tax returns in various state jurisdictions. Delek is no longer subject to U.S. federal income tax examinations by tax authorities for years through 2013. The Internal Revenue Service has examined Delek's income tax returns through the tax year ended 2013. However, pre-acquisition tax returns for Alon USA Energy & Subsidiaries are open to U.S. federal income tax examinations beginning with the year ended December 31, 2013. Alon's federal income tax returns for tax years 2014 through 2016 are currently under examination. The Company is under audit in the state of Texas for the years ended December 31, 2013 through December 31, 2014. No material adjustments have been identified at this time.
ASC 740 provides a recognition threshold and guidance for measurement of income tax positions taken or expected to be taken on a tax return. ASC 740 requires the elimination of the income tax benefits associated with any income tax position where it is not "more likely than not" that the position would be sustained upon examination by the taxing authorities.
Increases and decreases to the beginning balance of unrecognized tax benefits during the years ended
December 31, 2018
,
2017
, and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at the beginning of the year
|
$
|
6.1
|
|
|
$
|
1.7
|
|
|
$
|
0.2
|
|
Additions based on tax positions related to current year
|
11.2
|
|
|
0.4
|
|
|
1.5
|
|
Additions for tax positions related to prior years and acquisitions
|
3.4
|
|
|
4.2
|
|
|
—
|
|
Reductions for tax positions related to prior years
|
(0.9
|
)
|
|
(0.2
|
)
|
|
—
|
|
Settlements with taxing authorities
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
Balance at the end of the year
|
$
|
19.2
|
|
|
$
|
6.1
|
|
|
$
|
1.7
|
|
The amount of the unrecognized benefit above, that if recognized would change the effective tax rate, is
$7.4 million
and
$4.6 million
as of
December 31, 2018
and
2017
, respectively.
Delek recognizes accrued interest and penalties related to unrecognized tax benefits as an adjustment to the current provision for income taxes.
$2.9 million
and
$0.5 million
of interest was recognized related to unrecognized tax benefits during the years ended
December 31, 2018
and
2017
, respectively and a nominal amount of interest was recognized during the year ended December 31,
2016
.
Uncertain tax positions have been examined by Delek for any material changes in the next 12 months, and none are expected.
16
. Related Party Transactions
Transaction with Caddo Pipeline, LLC ("CP LLC")
For the years ended
December 31, 2018
and
2017
, respectively, our refining segment paid pipeline throughput fees of
$1.3 million
and
$1.6 million
to CP LLC. There was no revenue and/or activity for the year ended
December 31, 2016
as the Caddo Pipeline construction was completed at the end of December 2016. Delek Logistics owns
50%
of CP LLC, and Plains All American Pipeline, LLC, a third-party, owns the other
50%
.
Transactions with Rangeland RIO Pipeline, LLC ("Andeavor Logistics")
During 2018, Rangeland RIO Pipeline, LLC was acquired by Andeavor and became Andeavor Logistics RIO Pipeline LLC ("Andeavor Logistics"). For the years ended
December 31, 2018
,
2017
and
2016
, respectively, our refining segment paid pipeline throughput fees of
$17.9 million
,
$13.8 million
and
$3.1 million
to Andeavor Logistics. As of
December 31, 2018
and
2017
, respectively, we carried a
$1.5 million
and
$1.2 million
payable balance to Andeavor Logistics, which is reflected in accounts payable to related party on our consolidated balance sheets. Delek Logistics owns
33%
of Andeavor Logistics, and Rangeland Energy II, LLC, a third-party, owns
67%
.
Transactions with Wright Asphalt Products Company, LLC ("Wright Asphalt")
For the year ended
December 31, 2018
and the period from the Delek/Alon Merger date of July 1, 2017 through
December 31, 2017
, respectively, our refining segment paid throughput fees of
$0.2 million
and
$1.8 million
to Wright Asphalt. In addition, for the years ended
December 31, 2018
and
2017
, respectively, our other segment had related party revenues of
$32.1 million
and
$40.9 million
from Wright Asphalt related to asphalt sales and had purchases from Wright Asphalt of
$1.3 million
and
$9.1 million
. As of
December 31, 2018
, there was
no
payable balance to Wright Asphalt. As of
December 31, 2017
, we carried a
$0.5 million
payable balance to Wright Asphalt, which is reflected in accounts payable to related party on our consolidated balance sheets. Alon owns
50%
of Wright Asphalt, and TTRD, Ltd., a third-party, owns the other
50%
.
Transactions with Paramount Nevada Asphalt Company, LLC ("PNAC")
For the period from the Delek/Alon Merger date of July 1, 2017 through May 21, 2018 we had related party transactions with PNAC. Alon owned
50%
of PNAC, and Granite Construction Inc., a third-party, owned the other
50%
. On May 21, 2018, Delek sold its
50
% interest in the PNAC - see note
Note 8
for further information. For the years ended
December 31, 2018
and
2017
, respectively, our other segment had related party revenues of
$1.6 million
and
$9.6 million
from PNAC related to asphalt sales and had purchases from PNAC of
$3.6 million
and
$6.0 million
. As of
December 31, 2017
we carried a
$2.1 million
receivable balance from PNAC, which is reflected in accounts receivable from related party on our consolidated balance sheets.
Transactions with North Little Rock Energy Logistics, LLC ("NLR")
For the year ended December 31, 2018, our refining segment paid pipeline throughput fees of
$0.7 million
to NLR. As of
December 31, 2018
we carried a
$0.3 million
payable balance to NLR, which is reflected in accounts payable to related party on our consolidated balance sheets. There was no activity related to NLR in
2017
. Delek Logistics own
50%
of NLR, and Green Plains Partners, LP, a third-party, owns the other
50%
.
Transactions with Alon
For the period from January 1, 2017 through June 30, 2017 and the year ended
December 31, 2016
, respectively, our refining and logistics segments sold,
$44.7 million
and
$7.5 million
of refined products to and purchased
$14.3 million
and
$2.9 million
of refined products from Alon. Effective July 1, 2017, Alon became a wholly-owned subsidiary of New Delek in connection with the Delek/Alon Merger.
17
. Property, Plant and Equipment
Property, plant and equipment, at cost, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
Land
|
|
$
|
66.2
|
|
|
$
|
54.0
|
|
Building and building improvements
|
|
108.7
|
|
|
67.9
|
|
Refinery machinery and equipment
|
|
1,801.8
|
|
|
1,823.4
|
|
Pipelines and terminals
|
|
412.2
|
|
|
314.3
|
|
Retail store equipment and site improvements
|
|
37.8
|
|
|
75.5
|
|
Refinery turnaround costs
|
|
166.9
|
|
|
124.8
|
|
Other equipment
|
|
124.9
|
|
|
108.2
|
|
Construction in progress
|
|
281.1
|
|
|
204.4
|
|
|
|
$
|
2,999.6
|
|
|
2,772.5
|
|
Less: accumulated depreciation
|
|
(804.7
|
)
|
|
(631.7
|
)
|
|
|
$
|
2,194.9
|
|
|
$
|
2,140.8
|
|
Property, plant and equipment, accumulated depreciation and depreciation expense by reporting segment are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2018
|
|
|
Refining
|
|
Logistics
|
|
Retail
|
|
Corporate,
Other and Eliminations
|
|
Consolidated
|
Property, plant and equipment
|
|
$
|
2,230.6
|
|
|
$
|
452.7
|
|
|
$
|
146.5
|
|
|
$
|
169.8
|
|
|
$
|
2,999.6
|
|
Less: Accumulated depreciation
|
|
(584.2
|
)
|
|
(140.2
|
)
|
|
(29.3
|
)
|
|
(51.0
|
)
|
|
(804.7
|
)
|
Property, plant and equipment, net
|
|
$
|
1,646.4
|
|
|
$
|
312.5
|
|
|
$
|
117.2
|
|
|
$
|
118.8
|
|
|
$
|
2,194.9
|
|
Depreciation expense
|
|
$
|
124.2
|
|
|
$
|
25.9
|
|
|
$
|
23.8
|
|
|
$
|
15.1
|
|
|
$
|
189.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2017
|
|
|
Refining
|
|
Logistics
|
|
Retail
|
|
Corporate,
Other and Eliminations
|
|
Consolidated
|
Property, plant and equipment
|
|
$
|
2,112.2
|
|
|
$
|
367.2
|
|
|
$
|
141.9
|
|
|
$
|
151.2
|
|
|
$
|
2,772.5
|
|
Less: Accumulated depreciation
|
|
(474.8
|
)
|
|
(112.1
|
)
|
|
(6.7
|
)
|
|
(38.1
|
)
|
|
(631.7
|
)
|
Property, plant and equipment, net
|
|
$
|
1,637.4
|
|
|
$
|
255.1
|
|
|
$
|
135.2
|
|
|
$
|
113.1
|
|
|
$
|
2,140.8
|
|
Depreciation expense
|
|
$
|
106.8
|
|
|
$
|
20.9
|
|
|
$
|
6.6
|
|
|
$
|
15.2
|
|
|
$
|
149.5
|
|
18
. Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired and is not amortized.
Delek performs an annual assessment of whether goodwill retains its value. This assessment is done more frequently if indicators of potential impairment exist. We performed our annual goodwill impairment review in the fourth quarter of
2018
,
2017
and
2016
. This review was performed at the reporting unit level, which is at or one level below our reportable segment. We performed a discounted cash flows test to estimate the value of each of our reporting units using a market participant weighted average cost of capital, estimated growth rates for revenue, gross profit and capital expenditures based on history and our best estimate of future forecasts. We also estimated the fair values of the reporting units using a multiple of expected future cash flows, such as those used by third-party analysts. With respect to the goodwill associated with the reporting units within the logistic segment, we performed a qualitative assessment in 2018. For the years ended
December 31, 2018
,
2017
and
2016
, the annual impairment review resulted in the determination that
no
impairment of goodwill had occurred, and we had
no
accumulated goodwill impairment losses as of
December 31, 2018
.
A summary of our goodwill by segment is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining
|
Logistics
|
Retail
|
Corporate, Other and Eliminations
|
Total
|
Balance,
|
December 31, 2015
|
|
$
|
—
|
|
$
|
12.2
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12.2
|
|
Acquisitions
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Balance,
|
December 31, 2016
|
|
—
|
|
12.2
|
|
—
|
|
—
|
|
12.2
|
|
Acquisitions
|
|
750.9
|
|
—
|
|
30.8
|
|
22.7
|
|
804.4
|
|
Balance,
|
December 31, 2017
|
|
750.9
|
|
12.2
|
|
30.8
|
|
22.7
|
|
816.6
|
|
Finalization of purchase price allocation for 2017 Delek/Alon Merger
|
|
50.4
|
|
—
|
|
13.5
|
|
2.4
|
|
66.3
|
|
Write-down resulting from asset held for sale impairment
(1)
|
|
—
|
|
—
|
|
—
|
|
(25.1
|
)
|
(25.1
|
)
|
Balance,
|
December 31, 2018
|
|
$
|
801.3
|
|
$
|
12.2
|
|
$
|
44.3
|
|
$
|
—
|
|
$
|
857.8
|
|
|
|
(1)
|
This impairment of goodwill resulted from the write-down of assets held for sale associated with the asphalt business to net realizable value, as discussed in
Note 8
.
|
Goodwill associated with the Delek/Alon Merger has been updated to reflect the final purchase price allocation in the table above for acquisitions during the year ended
December 31, 2017
. There was no goodwill allocated to the California Discontinued Entities as of
December 31, 2018
.
19
. Other Intangible Assets
A summary of our identifiable intangible assets are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Useful Life
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Intangible Assets subject to amortization:
|
|
|
|
|
|
|
|
|
Supply contract
|
|
11.5 years
|
|
$
|
12.2
|
|
|
$
|
(12.2
|
)
|
|
$
|
—
|
|
Third-party fuel supply agreement
|
|
10 years
|
|
49.0
|
|
|
(7.4
|
)
|
|
41.6
|
|
Capacity contract
|
|
8 years
|
|
9.3
|
|
|
(9.3
|
)
|
|
—
|
|
Fuel trade name
|
|
5 years
|
|
4.0
|
|
|
(1.2
|
)
|
|
2.8
|
|
Below market leases
|
|
13 - 15 years
|
|
8.3
|
|
|
(0.3
|
)
|
|
8.0
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Rights-of-way
|
|
Indefinite
|
|
30.0
|
|
|
|
|
30.0
|
|
Line space history
|
|
Indefinite
|
|
11.3
|
|
|
|
|
11.3
|
|
Liquor licenses
|
|
Indefinite
|
|
8.5
|
|
|
|
|
8.5
|
|
Refinery permits
|
|
Indefinite
|
|
2.2
|
|
|
|
|
2.2
|
|
Total
|
|
|
|
$
|
134.8
|
|
|
$
|
(30.4
|
)
|
|
$
|
104.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
Useful Life
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Intangible Assets subject to amortization:
|
|
|
|
|
|
|
|
|
Supply contract
|
|
11.5 years
|
|
$
|
12.2
|
|
|
$
|
(12.2
|
)
|
|
$
|
—
|
|
Third-party fuel supply agreement
|
|
10 years
|
|
49.0
|
|
|
(2.4
|
)
|
|
46.6
|
|
Capacity contract
|
|
8 years
|
|
9.3
|
|
|
(9.2
|
)
|
|
0.1
|
|
Fuel trade name
|
|
5 years
|
|
4.0
|
|
|
(0.4
|
)
|
|
3.6
|
|
Below market leases
|
|
13 - 15 years
|
|
0.6
|
|
|
(0.1
|
)
|
|
0.5
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Rights-of-way
|
|
Indefinite
|
|
30.1
|
|
|
|
|
30.1
|
|
Line space history
|
|
Indefinite
|
|
9.6
|
|
|
|
|
9.6
|
|
Liquor licenses
|
|
Indefinite
|
|
8.5
|
|
|
|
|
8.5
|
|
Refinery permits
|
|
Indefinite
|
|
2.1
|
|
|
|
|
2.1
|
|
Total
|
|
|
|
$
|
125.4
|
|
|
$
|
(24.3
|
)
|
|
$
|
101.1
|
|
Amortization of intangible assets was
$6.1 million
,
$3.8 million
, and
$1.3 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively, and is included in depreciation and amortization on the accompanying consolidated statements of income, with the exception of an immaterial amount related to below market leases.
Amortization expense for the next five years is estimated to be as follows:
|
|
|
|
|
|
2019
|
|
$
|
5.9
|
|
2020
|
|
5.9
|
|
2021
|
|
5.9
|
|
2022
|
|
5.5
|
|
2023
|
|
5.1
|
|
20
. Other Assets and Liabilities
The detail of other current assets is as follows (in millions):
|
|
|
|
|
|
|
|
|
Other Current Assets
|
December 31,
2018
|
|
December 31,
2017
|
Prepaid expenses
|
$
|
15.8
|
|
|
$
|
17.6
|
|
Short-term derivative assets (see Note 12)
|
61.9
|
|
|
15.9
|
|
Income and other tax receivables
|
24.3
|
|
|
74.9
|
|
RINs Obligation surplus (see Note 13)
|
—
|
|
|
1.1
|
|
Commodity investments
|
15.6
|
|
|
—
|
|
Other
|
18.1
|
|
|
20.4
|
|
Total
|
$
|
135.7
|
|
|
$
|
129.9
|
|
The detail of other non-current assets is as follows (in millions):
|
|
|
|
|
|
|
|
|
Other Non-Current Assets
|
December 31,
2018
|
|
December 31,
2017
|
Prepaid tax asset
|
$
|
—
|
|
|
$
|
56.2
|
|
Deferred financing costs
|
10.6
|
|
|
5.9
|
|
Long-term income tax receivables
|
—
|
|
|
2.1
|
|
Supply and Offtake receivable
|
32.7
|
|
|
46.3
|
|
Long-term derivative assets (see Note 12)
|
1.0
|
|
|
—
|
|
Other
|
8.6
|
|
|
16.3
|
|
Total
|
$
|
52.9
|
|
|
$
|
126.8
|
|
The detail of accrued expenses and other current liabilities is as follows (in millions):
|
|
|
|
|
|
|
|
|
Accrued Expenses and Other Current Liabilities
|
December 31,
2018
|
|
December 31,
2017
|
Income and other taxes payable
|
$
|
126.0
|
|
|
$
|
154.1
|
|
Short-term derivative liabilities (see Note 12)
|
16.2
|
|
|
54.4
|
|
Interest payable
|
10.2
|
|
|
13.0
|
|
Employee costs
|
46.5
|
|
|
46.6
|
|
Environmental liabilities (see Note 14)
|
3.8
|
|
|
7.2
|
|
Product financing agreements
|
—
|
|
|
72.3
|
|
RINs Obligation deficit (see Note 13)
|
11.8
|
|
|
130.8
|
|
Accrued utilities
|
10.6
|
|
|
9.4
|
|
Tank inspection liabilities
|
7.0
|
|
|
10.7
|
|
Crude liabilities
|
42.3
|
|
|
34.5
|
|
Other
|
33.3
|
|
|
31.9
|
|
Total
|
$
|
307.7
|
|
|
$
|
564.9
|
|
The detail of other non-current liabilities is as follows (in millions):
|
|
|
|
|
|
|
|
|
Other Non-Current Liabilities
|
December 31,
2018
|
|
December 31,
2017
|
Pension and other postemployment benefit liabilities, net
(see Note 22)
|
$
|
17.6
|
|
|
37.0
|
|
Long-term derivative liabilities (see Note 12)
|
1.0
|
|
|
0.9
|
|
Liability for unrecognized tax benefits
|
19.2
|
|
|
6.1
|
|
Above-market leases
|
9.2
|
|
|
11.2
|
|
Tank inspection liabilities
|
9.9
|
|
|
11.7
|
|
Other
|
6.0
|
|
|
16.1
|
|
Total
|
$
|
62.9
|
|
|
$
|
83.0
|
|
21
. Equity-Based Compensation
Delek US Holdings, Inc. 2006 Long-Term Incentive Plan
The Delek US Holdings, Inc. 2006 Long-Term Incentive Plan, as amended (the "2006 Plan"), allowed Delek to grant stock options, SARs, restricted stock, RSUs, performance awards and other stock-based awards of up to
5,053,392
shares of Delek's common stock to certain directors, officers, employees, consultants and other individuals who performed services for Delek or its affiliates. Stock options and SARs granted under the 2006 Plan were generally granted at market price or higher. The vesting of all outstanding awards was subject to continued service to Delek or its affiliates except that vesting of awards granted to certain executive employees could, under certain circumstances, accelerate upon termination of their employment and the vesting of all outstanding awards could accelerate upon the occurrence of an Exchange Transaction (as defined in the 2006 Plan). In the second quarter of 2010, Delek's Board of Directors and its Incentive Plan Committee began using stock-settled SARs, rather than stock options, as the primary form of appreciation award under the 2006 Plan. The 2006 Plan expired in April 2016.
Delek US Holdings, Inc. 2016 Long-Term Incentive Plan
On May 5, 2016, our stockholders approved our 2016 Long-Term Incentive Plan (the “2016 Plan”). The 2016 Plan succeeds our 2006 Plan, which expired in April 2016. The 2016 Plan allows Delek to grant stock options, SARs, restricted stock, RSUs, performance awards and other stock-based awards of up to
4,400,000
shares of Delek's common stock to certain directors, officers, employees, consultants and other individuals who perform services for Delek or its affiliates. On May 18, 2018, the Company's stockholders approved an amendment to the 2016 plan that increased the number of Common Stock available under this plan by
4,500,000
shares to
8,900,000
shares. Stock options and SARs issued under the 2016 Plan are granted at prices equal to (or greater than) the fair market value of Delek's common stock on the grant date and are generally subject to a vesting period of one year or more. No awards will be made under the 2016 Plan after May 5, 2026.
Alon USA Energy, Inc. 2005 Long-Term Incentive Plan
In connection with the Delek/Alon Merger, Delek assumed the Alon USA Energy, Inc. Second Amended and Restated 2005 Incentive Compensation Plan (“the Alon 2005 Plan” and, collectively with the 2006 Plan and the 2016 Plan, the "Incentive Plans" ) as a component of its overall executive incentive compensation program. The Alon 2005 Plan permits the granting of awards to Alon's officers and key employees in the form of options to purchase common stock, stock appreciation rights, restricted shares of common stock, restricted common stock units, performance shares, performance units and senior executive plan bonuses. Effective with the Delek/Alon Merger, all contractually unvested share-based awards were converted into share-based awards denominated in New Delek Common Stock. Committed but unissued share-based awards were exchanged and converted into rights to receive share-based awards indexed to New Delek Common Stock.
Option and SAR Assumptions
The table below provides the assumptions used in estimating the fair values of our outstanding stock options and SARs under the Incentive Plans. For all awards granted, we calculated volatility using historical volatility and implied volatility of a peer group of public companies using weekly stock prices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Grants
|
|
2017 Grants
|
|
2016 Grants
|
|
|
(Graded Vesting)
|
|
(Graded Vesting)
|
|
(Graded Vesting)
|
|
|
4 years
|
|
4 years
|
|
4 years
|
Expected volatility
|
|
47.52%-49.42%
|
|
47.49%-49.18%
|
|
51.31%-54.12%
|
Dividend yield
|
|
2.00%-2.33%
|
|
2.41%-3.72%
|
|
1.84%-3.72%
|
Expected term
|
|
4.38-4.62 years
|
|
4.37-4.82 years
|
|
4.75-4.87 years
|
Risk free rate
|
|
1.56%-2.92%
|
|
0.60%-2.58%
|
|
0.18%-2.47%
|
Fair value per share
|
|
$
|
15.00
|
|
|
$
|
8.08
|
|
|
$
|
5.67
|
|
Stock Option and SAR Activity
The following table summarizes the stock option and SAR activity under the Incentive Plans for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted-Average Strike Price
|
|
Weighted-Average Contractual Term (in years)
|
|
Average Intrinsic Value
(in millions)
|
Options outstanding, December 31, 2015
|
3,032,143
|
|
|
$
|
28.60
|
|
|
|
|
|
Granted
|
|
347,800
|
|
|
$
|
16.26
|
|
|
|
|
|
Exercised
|
|
(68,510
|
)
|
|
$
|
14.69
|
|
|
|
|
|
Forfeited
|
|
(743,050
|
)
|
|
$
|
31.17
|
|
|
|
|
|
Options and SARs outstanding, December 31, 2016
|
2,568,383
|
|
|
$
|
26.56
|
|
|
|
|
|
Granted
|
|
2,460,500
|
|
|
$
|
25.95
|
|
|
|
|
|
Exercised
|
|
(303,049
|
)
|
|
$
|
17.04
|
|
|
|
|
|
Forfeited
|
|
(534,827
|
)
|
|
$
|
28.00
|
|
|
|
|
|
Options and SARs outstanding, December 31, 2017
|
4,191,007
|
|
|
$
|
26.71
|
|
|
|
|
|
Granted
|
|
1,497,400
|
|
|
$
|
43.49
|
|
|
|
|
|
Exercised
|
|
(1,286,527
|
)
|
|
$
|
30.55
|
|
|
|
|
|
Forfeited
|
|
(827,775
|
)
|
|
$
|
29.01
|
|
|
|
|
|
Options and SARs outstanding, December 31, 2018
|
3,574,105
|
|
|
$
|
32.67
|
|
|
8.4
|
|
$
|
42.7
|
|
Vested options and SARs exercisable, December 31, 2018
|
768,955
|
|
|
$
|
26.40
|
|
|
6.7
|
|
$
|
4.7
|
|
Restricted Stock Units
The Incentive Plans provide for the award of RSUs and PRSUs to certain employees and non-employee directors. RSUs granted to employees vest ratably over three to five years from the date of grant, and RSUs granted to non-employee directors vest quarterly over the year following the date of grant. The grant date fair value of RSUs is determined based on the closing price of Delek's common stock on the grant date. PRSUs initially granted to employees will typically vest in two tranches, the first of which vests on December 31 of the year following the grant date and the second on the subsequent December 31. PRSUs subsequently granted to employees will typically vest at the end of a three calendar year performance period. The number of PRSUs that will ultimately vest is based on the Company's total shareholder return over the performance period. The grant date fair value of PRSUs is determined using a Monte-Carlo simulation model. We record compensation expense for these awards based on the grant date fair value of the award, recognized ratably over the measurement period.
Performance-Based Restricted Stock Unit Assumptions
The table below provides the assumptions used in estimating the fair values of our outstanding PRSUs under the Plan. For all awards granted, we calculated volatility using historical volatility and implied volatility of a peer group of public companies using weekly stock prices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Grants
|
|
2017 Grants
|
|
2016 Grants
|
Expected volatility
|
36.11%-44.66%
|
|
|
44.03%-46.54%
|
|
|
41.77
|
%
|
Expected term
|
2.06-2.81
|
|
|
2.06-3.06
|
|
|
2.81
|
|
Risk free rate
|
2.40%-2.73%
|
|
|
1.43%-1.93%
|
|
|
1.08
|
%
|
Fair value per share
|
$
|
57.93
|
|
|
$
|
37.80
|
|
|
$
|
14.31
|
|
The following table summarizes the RSU and PRSU activity under the Incentive Plans for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs
|
|
Weighted-Average Grant Date Price
|
Balance
|
December 31, 2015
|
384,567
|
|
|
$
|
33.6
|
|
Granted
|
|
858,296
|
|
|
$
|
12.94
|
|
Vested
|
|
(246,657
|
)
|
|
$
|
21.17
|
|
Forfeited
|
|
(114,393
|
)
|
|
$
|
17.23
|
|
Balance
|
December 31, 2016
|
881,813
|
|
|
$
|
19.08
|
|
Granted
|
|
614,035
|
|
|
$
|
31.56
|
|
Vested
|
|
(351,713
|
)
|
|
$
|
21.95
|
|
Forfeited
|
|
(78,676
|
)
|
|
$
|
13.44
|
|
Performance Not Achieved
|
|
(5,789
|
)
|
|
$
|
38.03
|
|
Balance
|
December 31, 2017
|
1,059,670
|
|
|
$
|
25.68
|
|
Granted
|
|
440,896
|
|
|
$
|
53.10
|
|
Vested
|
|
(341,774
|
)
|
|
$
|
25.62
|
|
Forfeited
|
|
(154,780
|
)
|
|
$
|
36.96
|
|
Balance
|
December 31, 2018
|
1,004,012
|
|
|
$
|
36.00
|
|
Compensation Expense Related to Equity-based Awards Granted Under the Incentive Plans
Compensation expense for Delek equity-based awards amounted to
$20.9 million
(
$16.5 million
, net of taxes),
$15.9 million
(
$10.3 million
, net of taxes) and
$14.6 million
(
$9.5 million
, net of taxes) for the years ended
December 31, 2018
,
2017
and
2016
, respectively. These amounts, excluding amounts related to discontinued operations of
$1.1 million
for
December 31, 2016
, are included in general and administrative expenses in the accompanying consolidated statements of income. We recognized income tax benefits for equity-based awards of
$2.2 million
and
$1.4 million
for the years ended
December 31, 2018
and
2017
, respectively, versus income tax expense for equity-based awards of
$2.9 million
for the year ended
December 31, 2016
.
As of
December 31, 2018
, there was
$48.4 million
of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of
2.4
years.
The aggregate intrinsic value, which represents the difference between the underlying stock's market price and the award's exercise price, of the share-based awards exercised or vested during the years ended
December 31, 2018
,
2017
and
2016
was
$39.4 million
,
$12.2 million
and
$4.8 million
, respectively. During the years
December 31, 2018
,
2017
and
2016
, respectively, we issued
580,455
,
332,156
and
203,631
shares of common stock as a result of exercised or vested equity-based awards. These amounts are net of
1,027,398
,
306,659
and
111,536
shares, respectively, withheld to satisfy employee tax obligations related to the exercises and vestings for the years ended
December 31, 2018
,
2017
and
2016
. Delek paid approximately
$11.5 million
,
$5.0 million
and
$1.5 million
of taxes in connection with the settlement of these awards both for the years ended
December 31, 2018
,
2017
and
2016
. We issue new shares of common stock upon exercise or vesting of share-based awards.
Delek Logistics GP, LLC 2012 Long-Term Incentive Plan
Delek Logistics GP maintains a unit-based compensation plan for officers, directors and employees of Logistics GP or its affiliates and certain consultants, affiliates of Logistics GP or other individuals who perform services for Delek Logistics. The Delek Logistics GP, LLC 2012 Long-Term Incentive Plan ("Logistics LTIP") permits the grant of unit options, restricted units, phantom units, unit appreciation rights, distribution equivalent rights, other unit-based awards, and unit awards. The Logistics LTIP limits the number of units that may be delivered pursuant to vested awards to
612,207
common units, subject to proportionate adjustment in the event of unit splits and similar events. Awards granted under the Logistics LTIP will be settled with Delek Logistics units. Compensation expense for awards granted under the Logistics LTIP was
$0.5 million
(
$0.4 million
, net of taxes),
$1.7 million
(
$1.1 million
, net of taxes) and
$1.7 million
(
$1.1 million
, net of taxes) for the years ended
December 31, 2018
,
2017
and
2016
, respectively. These amounts are included in general and administrative expenses in the accompanying consolidated statements of income. As of
December 31, 2018
, there was
$0.3 million
of total unrecognized compensation cost related to non-vested Logistics LTIP awards, which is expected to be recognized over a weighted-average period of
0.4
years.
22
. Employees
Workforce
As of
December 31, 2018
, operations, maintenance and warehouse hourly employees along with truck drivers at the Tyler refinery were represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union and its Local 202. Of these Tyler labor employees,
63.0%
of operations, maintenance and warehouse hourly employees are currently covered by a collective bargaining agreement that expires
January 31, 2022
. In addition of these employees,
84.1%
of Tyler truck drivers are currently covered by a collective bargaining agreement that expires
May 1, 2021
. As of
December 31, 2018
, operations and maintenance hourly employees at the El Dorado refinery were represented by the International Union of Operating Engineers and its Local 381. Of these employees,
61.2%
are covered by a collective bargaining agreement which expires on
August 1, 2021
. As of
December 31, 2018
, our El Dorado and Texas based truck drivers for Lion Oil Company were represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL - CIO while our El Dorado refinery warehouse hourly employees were represented by the International Union of Operating Engineers and its Local 381; none are currently covered by a collective bargaining agreement. As of
December 31, 2018
, approximately
70.1%
of employees who work at our Big Spring refinery are covered by a collective bargaining agreement that expires
March 31, 2022
. None of our employees in our logistics segment, retail segment or in our corporate office are represented by a union. We consider our relations with our employees to be satisfactory.
Postretirement Benefits
Pension Plans
Effective with the Delek/Alon Merger on July 1, 2017 (see Note
3
), we had four defined benefit pension plans covering substantially all of Alon's employees, excluding employees of the retail segment. The benefits are based on years of service and the employee’s final average monthly compensation. Our funding policy is to contribute annually no 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. The plans were frozen for non-union employees effective September 30, 2017.
During the year ended
December 31, 2018
, we completely settled the supplemental retirement income plan of the retail segment, and we had a partial settlement of Alon's executive non-qualified restoration plan. In addition, we entered into an agreement with the International Union of Operating Engineers (the "Union") to extend the Union agreement to March 31, 2022, and to freeze Alon's qualified pension plan for union employees effective July 31, 2018. As part of the extended Union agreement, the Company agreed to compensate each pension-eligible employee in the Union for the loss of the pension benefit over the remaining union contract period in
four
annual installments, where payments are contingent upon continued employment at each annual payment date. The payments, the first of which was made in July 2018, are expected to total approximately
$6.9 million
in the aggregate without considering forfeitures (which cannot yet be estimated). The related expense has been or will be recognized over the remaining union contract period as follows (estimated without considering forfeitures): approximately
$0.8 million
for the year ended
December 31, 2018
; approximately
$2.0 million
during each of the years 2019, 2020 and 2021, and approximately
$0.1 million
in 2022.
On October 1, 2018, we spun off a portion of the Alon's qualified pension plan into a new plan - The Alon USA Pension Plan for Collective Bargained Employees. This new plan consist of Union employees. The assets were allocated as required under IRC Section 414. The remaining accumulated other comprehensive income at that date was split between the two plans based on their respective portions of Projected Benefit Obligation.
Financial information related to our pension plans is presented below:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Change in projected benefit obligation:
|
|
|
|
Benefit obligation at beginning of the period (July 1, 2017 business combination)
|
$
|
146.9
|
|
|
$
|
145.2
|
|
Service cost
|
0.4
|
|
|
1.2
|
|
Interest cost
|
5.2
|
|
|
2.7
|
|
Actuarial (gain) loss
|
(9.9
|
)
|
|
6.5
|
|
Benefits paid
|
(9.1
|
)
|
|
(2.4
|
)
|
Other (effect of curtailment/settlement)
|
(2.5
|
)
|
|
(6.3
|
)
|
Projected benefit obligations at end of year
|
$
|
131.0
|
|
|
$
|
146.9
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of the period (July 1, 2017 business combination)
|
$
|
108.8
|
|
|
$
|
96.1
|
|
Actual (loss) gain on plan assets
|
(8.2
|
)
|
|
9.8
|
|
Employer contribution
|
24.2
|
|
|
5.3
|
|
Benefits paid
|
(9.1
|
)
|
|
(2.4
|
)
|
Fair value of plan assets at end of year
|
$
|
115.7
|
|
|
$
|
108.8
|
|
Reconciliation of funded status:
|
|
|
|
Fair value of plan assets at end of year
|
$
|
115.7
|
|
|
$
|
108.8
|
|
Less projected benefit obligations at end of year
|
131.0
|
|
|
146.9
|
|
Under-funded status at end of year
|
$
|
(15.3
|
)
|
|
$
|
(38.1
|
)
|
The pre-tax amounts related to the defined benefit plans recognized as pension benefit liability in the consolidated balance sheets as of
December 31, 2018
was
$15.3 million
.
The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Net actuarial loss
|
$
|
5.5
|
|
|
$
|
0.8
|
|
Prior service credit
|
—
|
|
|
—
|
|
Projected benefit obligations at end of year
|
$
|
5.5
|
|
|
$
|
0.8
|
|
The accumulated benefit obligation for each of our pension plans was in excess of the fair value of plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Projected benefit obligation
|
$
|
131.0
|
|
|
$
|
146.9
|
|
Accumulated benefit obligation
|
$
|
131.0
|
|
|
143.8
|
|
Fair value of plan assets
|
$
|
115.7
|
|
|
108.8
|
|
The weighted-average assumptions used to determine benefit obligations were as follows:
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Discount rate
|
4.15
|
%
|
|
3.60
|
%
|
Rate of compensation increase
|
N/A
|
|
|
3.00
|
%
|
The discount rate used reflects the expected future cash flow based on our funding valuation assumptions and participant data as of the beginning of the plan period. The expected future cash flow is discounted by the Principal Pension Discount Yield Curve for the fiscal year end because it has been specifically designed to help pension funds comply with statutory funding guidelines.
The weighted-average assumptions used to determine net periodic benefit costs were as follows:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
Discount rate
|
3.60
|
%
|
|
3.80
|
%
|
Expected long-term rate of return on plan assets
|
7.33
|
%
|
|
7.45
|
%
|
Rate of compensation increase
|
3.00
|
%
|
|
3.00
|
%
|
The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.
The components of net periodic benefit cost related to our benefit plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Components of net periodic benefit cost:
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
0.4
|
|
|
$
|
1.2
|
|
Interest cost
|
|
5.2
|
|
|
2.7
|
|
Expected return on plan assets
|
|
(8.0
|
)
|
|
(2.7
|
)
|
Recognition of gain due to settlement
|
|
(0.1
|
)
|
|
—
|
|
Recognition of gain due to curtailment
|
|
(2.4
|
)
|
|
(6.1
|
)
|
Net periodic benefit cost
|
|
$
|
(4.9
|
)
|
|
$
|
(4.9
|
)
|
The service cost component of net periodic benefit costs are included as part of general and administrative expenses in the accompanying statements of income. The other components of net benefit costs are included as part of other non-operating expense (income), net.
The weighted-average asset allocation of our pension benefits plan assets were as follows:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
Asset Category:
|
|
|
|
Equity securities
|
66.4
|
%
|
|
78.5
|
%
|
Debt securities
|
26.8
|
%
|
|
13.0
|
%
|
Real estate investment trust
|
6.8
|
%
|
|
8.5
|
%
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
The fair value of our pension assets by category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
For Identical
Assets or
Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Consolidated
Total
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
—
|
|
|
$
|
62.8
|
|
|
$
|
—
|
|
|
$
|
62.8
|
|
International companies
|
—
|
|
|
14.0
|
|
|
—
|
|
|
14.0
|
|
Debt securities:
|
|
|
|
|
|
|
|
Preferred securities
|
—
|
|
|
4.4
|
|
|
—
|
|
|
4.4
|
|
Bond securities
|
—
|
|
|
26.6
|
|
|
—
|
|
|
26.6
|
|
Real estate securities
|
—
|
|
|
7.9
|
|
|
—
|
|
|
7.9
|
|
Total
|
$
|
—
|
|
|
$
|
115.7
|
|
|
$
|
—
|
|
|
$
|
115.7
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
67.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67.1
|
|
International companies
|
18.3
|
|
|
—
|
|
|
—
|
|
|
18.3
|
|
Debt securities:
|
|
|
|
|
|
|
|
Preferred securities
|
4.6
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Bond securities
|
—
|
|
|
9.5
|
|
|
—
|
|
|
9.5
|
|
Real estate securities
|
9.3
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
Total
|
$
|
99.3
|
|
|
$
|
9.5
|
|
|
$
|
—
|
|
|
$
|
108.8
|
|
The investment policies and strategies for the assets of our pension benefits is to, over a five-year period, provide returns in excess of the benchmark. The portfolio is expected to earn long-term returns from capital appreciation and a stable stream of current income. This approach recognizes that assets are exposed to price risk and the market value of the plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our specific risk management policies. In line with the investment return objective and risk parameters, the plans’ mix of assets includes a diversified portfolio of equity, fixed-income and real estate investments. Equity investments include domestic and international stocks of various sizes of capitalization. The asset allocation of the plan is reviewed on at least an annual basis.
We contributed
$24.2 million
to the pension plans for the year ended
December 31, 2018
, and expect to contribute
$5.8 million
to the pension plans in
2019
. There were
no
employee contributions to the plans.
The benefits expected to be paid in each year
2019
–
2023
are
$5.8 million
,
$6.0 million
,
$6.3 million
,
$6.7 million
, and
$6.7 million
, respectively. The aggregate benefits expected to be paid in the five years from
2024
–
2028
are
$37.1 million
. The expected benefits are based on the same assumptions used to measure our benefit obligation at
December 31, 2018
and include estimated future employee service.
401(k) Plans
For the years ended
December 31, 2018
,
2017
and
2016
, we sponsored a voluntary 401(k) Employee Retirement Savings Plans for eligible employees. Employees must be at least 21 years of age and have 45 days of service to be eligible to participate in the plan. Employee contributions are matched on a fully-vested basis by us up to a maximum of
8%
of eligible compensation. Eligibility for the Company matching contribution begins on the first of the month following one year of employment. For the years ended
December 31, 2018
,
2017
and
2016
, the 401(k) plans expense recognized was
$9.6 million
,
$6.5 million
, and
$3.8 million
, respectively.
Postretirement Medical Plan
In addition to providing pension benefits, Alon has an unfunded postretirement medical plan covering certain health care and life insurance benefits for certain employees of Alon that retired prior to January 2, 2017, who met eligibility requirements in the plan documents. This plan is closed to new participants. The health care benefits in excess of certain limits are insured. The accrued benefit liability related to this plan reflected in the consolidated balance sheet was
$3.3 million
and
$3.9 million
at
December 31, 2018
and
2017
, respectively.
23
. Selected Quarterly Financial Data (Unaudited)
Quarterly financial information for the years ended
December 31, 2018
and
2017
is summarized below. The sum of the quarterly results may differ from the annual results presented on our consolidated income statement due to rounding. The quarterly financial information summarized below has been prepared by Delek's management and is unaudited (in millions, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods Ended
|
|
|
March 31, 2018
(1)
|
|
June 30, 2018
(2)
|
|
September 30, 2018
(2)
|
|
December 31, 2018
|
Net revenues
|
|
$
|
2,353.2
|
|
|
$
|
2,636.9
|
|
|
$
|
2,768.9
|
|
|
$
|
2,474.1
|
|
Operating income
|
|
$
|
38.8
|
|
|
$
|
135.1
|
|
|
$
|
255.2
|
|
|
$
|
182.8
|
|
Net income (loss) from continuing operations
|
|
$
|
(17.3
|
)
|
|
$
|
87.5
|
|
|
$
|
185.8
|
|
|
$
|
127.6
|
|
Net income (loss) attributable to Delek
|
|
$
|
(40.4
|
)
|
|
$
|
79.1
|
|
|
$
|
179.8
|
|
|
$
|
121.6
|
|
Basic income (loss) per share from continuing operations
|
|
$
|
(0.29
|
)
|
|
$
|
0.95
|
|
|
$
|
2.15
|
|
|
$
|
1.50
|
|
Diluted income (loss) per share from continuing operations
|
|
$
|
(0.29
|
)
|
|
$
|
0.90
|
|
|
$
|
2.02
|
|
|
$
|
1.48
|
|
|
|
(1)
|
Net loss from continuing operations and net loss attributable to Delek for the quarter ended March 31, 2018 reflect a correction to record additional deferred tax expense totaling
$5.5 million
related to the recognition of a valuation allowance on deferred tax assets previously recognized in connection with the Big Spring Logistic Assets Acquisition (see Note
6
) not previously reported in our March 31, 2018 Quarterly Report on Form 10-Q filed on May 10, 2018. Such amount was not considered material to the financial statements or the trend of earnings for that period.
|
|
|
(2)
|
Net revenues for the quarter ended
September 30, 2018
reflects a correction of an intercompany elimination which resulted in an increase in net revenues and cost of materials and other of
$273.7 million
not previously reflected on the unaudited consolidated financial statements in our
September 30, 2018
Quarterly Report on Form 10-Q filed on November 9, 2018, and net revenues for the quarter ended June 30, 2018 reflects a similar correction resulting in an increase in net revenues and cost of materials and other of
$73.4 million
not previously reflected on the unaudited consolidated financial statements in our June 30, 2018 Quarterly Report on Form 10-Q filed on August 9, 2018. Such amounts are not considered material to the financial statements and had no impact to operating income or segment contribution margin for those periods.
|
The table above includes the following infrequently occurring item in the fourth quarter of 2018:
|
|
•
|
Net income from continuing operations for the quarter ended
December 31, 2018
includes an environmental indemnification settlement totaling
$20.0 million
, where
$16.0 million
is attributable to additional recoveries of remediation costs incurred by the Company and is included as a reduction of operating expenses, and
$4.0 million
is considered additional consideration for concessions made under the Settlement Agreement and is included as other income in the accompanying consolidated statements of income for the year ended
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods Ended
|
|
|
March 31, 2017
|
|
June 30, 2017
|
|
September 30, 2017
|
|
December 31, 2017
|
Net revenues
|
|
$
|
1,182.2
|
|
|
$
|
1,230.7
|
|
|
$
|
2,370.6
|
|
|
$
|
2,483.7
|
|
Operating income (loss)
|
|
$
|
29.8
|
|
|
$
|
(46.5
|
)
|
|
$
|
90.8
|
|
|
$
|
112.5
|
|
Net income (loss) from continuing operations
|
|
$
|
15.3
|
|
|
$
|
(32.2
|
)
|
|
$
|
118.5
|
|
|
$
|
226.9
|
|
Net income (loss) attributable to Delek
|
|
$
|
11.2
|
|
|
$
|
(37.9
|
)
|
|
$
|
104.4
|
|
|
$
|
211.1
|
|
Basic income (loss) per share from continuing operations
|
|
$
|
0.18
|
|
|
$
|
(0.61
|
)
|
|
$
|
1.30
|
|
|
$
|
2.62
|
|
Diluted income (loss) per share from continuing operations
|
|
$
|
0.18
|
|
|
$
|
(0.61
|
)
|
|
$
|
1.29
|
|
|
$
|
2.58
|
|
The table above includes the following infrequently occurring items:
|
|
•
|
Net income from continuing operations for the quarter ended September 30, 2017 includes gain on remeasurement of the Alon equity method investment, before tax, of
$190.1 million
(see Note
3
) and the income tax effect of the write-off of deferred taxes in connection with the Delek/Alon Merger of
$46.9 million
;
|
|
|
•
|
Net income attributable to Delek for the quarter ended December 31, 2017 includes the income tax effect of the Tax Reform Act of
$166.9 million
.
|
Results subsequent to the Delek/Alon Merger (see Note
3
) include 100% of Alon's various income statement items for the applicable quarters, whereas results for the three months ended June 30, 2017 and prior include Delek's proportionate share of its equity method investment in Alon in (Income) loss from equity method investments in our consolidated statements of income (see Note
7
).
The quarterly earnings per share calculations for the three months ended
December 31, 2018
and
2017
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
Numerator for EPS - continuing operations
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
127.6
|
|
|
$
|
226.9
|
|
Less: Income from continuing operations attributed to non-controlling interest
|
|
5.8
|
|
|
14.0
|
|
Income (loss) from continuing operations attributable to Delek (numerator for basic EPS - continuing operations attributable to Delek)
|
|
121.8
|
|
|
212.9
|
|
Interest on convertible debt, net of tax
|
|
—
|
|
|
0.7
|
|
Numerator for diluted EPS - continuing operations attributable to Delek
|
|
$
|
121.8
|
|
|
$
|
213.6
|
|
|
|
|
|
|
Numerator for EPS - discontinued operations
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
(0.2
|
)
|
|
$
|
(1.8
|
)
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted average common shares outstanding (denominator for basic EPS)
|
|
81,321,240
|
|
|
81,338,755
|
|
Dilutive effect of convertible debt
|
|
—
|
|
|
526,464
|
|
Dilutive effect of warrants
|
|
260,838
|
|
|
—
|
|
Dilutive effect of stock-based awards
|
|
946,261
|
|
|
779,841
|
|
Weighted average common shares outstanding, assuming dilution
|
|
82,528,339
|
|
|
82,645,060
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.50
|
|
|
$
|
2.62
|
|
(Loss) income from discontinued operations
|
|
—
|
|
|
(0.02
|
)
|
Total basic income (loss) per share
|
|
$
|
1.50
|
|
|
$
|
2.60
|
|
Diluted income (loss) per share:
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.48
|
|
|
$
|
2.58
|
|
(Loss) income from discontinued operations
|
|
—
|
|
|
(0.02
|
)
|
Total diluted income (loss) per share
|
|
$
|
1.48
|
|
|
$
|
2.56
|
|
The following equity instruments were excluded from the diluted weighted average common shares outstanding because their effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
Antidilutive stock-based compensation
|
|
1,749,569
|
|
|
3,660,354
|
|
Antidilutive due to loss
|
|
—
|
|
|
—
|
|
Total antidilutive stock-based compensation
|
|
1,749,569
|
|
|
3,660,354
|
|
|
|
|
|
|
Antidilutive convertible debt instruments
|
|
—
|
|
|
5,623,304
|
|
Antidilutive warrants
|
|
—
|
|
|
5,612,581
|
|
24
. Subsequent Events
Dividend Declaration
On
February 19, 2019
, Delek's Board of Directors voted to declare a quarterly cash dividend of
$0.27
per share, payable on
March 19, 2019
, to stockholders of record on
March 5, 2019
. Our previous quarterly cash dividend amount was
$0.26
per share.
2019 Amendments to Supply and Offtake Agreements
During January 2019, we amended the El Dorado refinery and the Krotz Springs refinery Supply and Offtake Agreements with J. Aron so that the repurchase of baseline volumes at the end of the Supply and Offtake Agreement term (representing the Baseline Step-Out Liabilities) will be based upon a fixed price instead of a market-indexed price. Such Baseline Step-Out Liabilities will continue to be recorded at fair value, where the fair value will reflect changes in interest rate risk rather than commodity price risk. As a result, we expect to record a gain on the change in fair value resulting from the modification of the instruments from commodities-based risk to interest rate risk in cost of materials and other totaling approximately
$7.6 million
in the first quarter of 2019. Subsequent accounting will result in the presentation of a long-term liability for the fair value of the fixed obligation on baseline volumes and current asset/liability fair value presentation of monthly short-term financing/funding activities, similar to the accounting for the amended Big Spring refinery Supply and Offtake Agreement described in Note
10
.
Financial Statements and Schedules
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Delek US Holdings, Inc.
By:
/s/ Kevin L. Kremke
Kevin Kremke
Executive Vice President and Chief Financial Officer
Dated:
March 1, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by or on behalf of the following persons on behalf of the registrant and in the capacities indicated on
March 1, 2019
:
/s/ Ezra Uzi Yemin
Ezra Uzi Yemin
Director (Chairman), President and Chief Executive Officer
(Principal Executive Officer)
/s/ William J. Finnerty
William J. Finnerty
Director
/s/ Carlos E. Jorda
Carlos E. Jorda
Director
/s/ Gary M. Sullivan, Jr
Gary M. Sullivan, Jr.
Director
/s/ Shlomo Zohar
Shlomo Zohar
Director
/s/ David Wiessman
David Wiessman
Director
/s/ Vicky Sutil
Vicky Sutil
Director
/s/ Kevin Kremke
Kevin Kremke
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Delek US (NYSE:DK)
Historical Stock Chart
From Mar 2024 to Apr 2024
Delek US (NYSE:DK)
Historical Stock Chart
From Apr 2023 to Apr 2024