0001694426-18-000184.txt : 20180809 0001694426-18-000184.hdr.sgml : 20180809 20180809140519 ACCESSION NUMBER: 0001694426-18-000184 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 140 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180809 DATE AS OF CHANGE: 20180809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Delek US Holdings, Inc. CENTRAL INDEX KEY: 0001694426 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 352581557 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38142 FILM NUMBER: 181004436 BUSINESS ADDRESS: STREET 1: 7102 COMMERCE WAY CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 615-721-3715 MAIL ADDRESS: STREET 1: 7102 COMMERCE WAY CITY: BRENTWOOD STATE: TN ZIP: 37027 FORMER COMPANY: FORMER CONFORMED NAME: Delek Holdco, Inc. DATE OF NAME CHANGE: 20170111 10-Q 1 dk-10qx063018.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the quarterly period ended June 30, 2018
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                      to                     
Commission file number 001-38142
DELEK US HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
35-2581557
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
7102 Commerce Way
 
 
Brentwood, Tennessee
 
37027
(Address of principal executive offices)
 
(Zip Code)
(615) 771-6701
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
At August 3, 2018, there were 83,946,302 shares of common stock, $0.01 par value, outstanding (excluding securities held by, or for the account of, the Company or its subsidiaries).



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Part I.
FINANCIAL INFORMATION
Item 1.
Financial Statements

Delek US Holdings, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
 
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,132.8

 
$
931.8

Accounts receivable, net
 
785.1

 
579.6

Accounts receivable from related parties
 
17.0

 
2.1

Inventories, net of inventory valuation reserves
 
881.5

 
808.4

Assets held for sale
 
25.2

 
160.0

Other current assets
 
107.7

 
129.9

Total current assets
 
2,949.3

 
2,611.8

Property, plant and equipment:
 
 
 
 
Property, plant and equipment
 
2,812.4

 
2,772.5

Less: accumulated depreciation
 
(708.8
)
 
(631.7
)
Property, plant and equipment, net
 
2,103.6

 
2,140.8

Goodwill
 
857.8

 
816.6

Other intangibles, net
 
106.1

 
101.1

Equity method investments
 
130.5

 
138.1

Other non-current assets
 
64.5

 
126.8

Total assets
 
$
6,211.8

 
$
5,935.2

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
1,050.6

 
$
973.4

Accounts payable to related parties
 
1.8

 
1.7

Current portion of long-term debt
 
180.8

 
590.2

Obligation under Supply and Offtake Agreements
 
471.2

 
435.6

Liabilities associated with assets held for sale
 
12.0

 
105.9

Accrued expenses and other current liabilities
 
445.0

 
564.9

Total current liabilities
 
2,161.4

 
2,671.7

Non-current liabilities:
 
 
 
 
Long-term debt, net of current portion
 
1,861.7

 
875.4

Environmental liabilities, net of current portion
 
135.7

 
68.9

Asset retirement obligations
 
71.8

 
72.1

Deferred tax liabilities
 
127.2

 
199.9

Other non-current liabilities
 
74.7

 
83.0

Total non-current liabilities
 
2,271.1

 
1,299.3

Stockholders’ equity:
 
 
 
 
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding
 

 

Common stock, $0.01 par value, 110,000,000 shares authorized, 87,631,115 shares and 81,533,548 shares issued at June 30, 2018 and December 31, 2017, respectively
 
0.9

 
0.8

Additional paid-in capital
 
1,041.8

 
900.1

Accumulated other comprehensive (loss) income
 
(42.4
)
 
6.9

Treasury stock, 3,703,826 shares and 762,623 shares, at cost, as of June 30, 2018 and December 31, 2017, respectively
 
(140.3
)
 
(25.0
)
Retained earnings
 
742.8

 
767.8

Non-controlling interests in subsidiaries
 
176.5

 
313.6

Total stockholders’ equity
 
1,779.3

 
1,964.2

Total liabilities and stockholders’ equity
 
$
6,211.8

 
$
5,935.2

See accompanying notes to condensed consolidated financial statements

3



Delek US Holdings, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except share and per share data)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Net revenues
 
$
2,563.5

 
$
1,230.7

 
$
4,916.7

 
$
2,412.8

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
2,176.8

 
1,157.8

 
4,219.6

 
2,193.5

Operating expenses
 
157.5

 
62.1

 
315.6

 
123.3

General and administrative expenses
 
52.9

 
27.5

 
118.1

 
54.0

Depreciation and amortization
 
49.2

 
29.5

 
97.2

 
58.5

Other operating (income) expense, net
 
(8.0
)
 
0.3

 
(7.7
)
 
0.3

Total operating costs and expenses
 
2,428.4

 
1,277.2

 
4,742.8

 
2,429.6

Operating income (loss)
 
135.1

 
(46.5
)
 
173.9

 
(16.8
)
Interest expense
 
31.5

 
14.9

 
64.0

 
28.4

Interest income
 
(0.9
)
 
(0.8
)
 
(1.6
)
 
(1.8
)
Income from equity method investments
 
(2.9
)
 
(1.5
)
 
(2.9
)
 
(4.6
)
Gain on sale of business
 
(13.2
)
 

 
(13.2
)
 

Impairment loss on assets held for sale
 

 

 
27.5

 

Loss on extinguishment of debt
 

 

 
9.0

 

Other expense (income), net
 
0.3

 
0.1

 
(0.4
)
 
0.1

Total non-operating expenses, net
 
14.8

 
12.7

 
82.4

 
22.1

Income (loss) from continuing operations before income tax expense (benefit)
 
120.3

 
(59.2
)
 
91.5

 
(38.9
)
Income tax expense (benefit)
 
32.8

 
(27.0
)
 
15.8

 
(22.0
)
Income (loss) from continuing operations, net of tax
 
87.5

 
(32.2
)
 
75.7

 
(16.9
)
Discontinued operations:
 
 
 
 
 
 
 
 
Loss from discontinued operations, including loss on sale of discontinued operations
 
(1.0
)
 

 
(11.5
)
 

Income tax benefit
 
(0.2
)
 

 
(2.5
)
 

Loss from discontinued operations, net of tax
 
(0.8
)
 

 
(9.0
)
 

Net income (loss)
 
86.7

 
(32.2
)
 
66.7

 
(16.9
)
Net income attributed to non-controlling interests
 
7.6

 
5.7

 
22.5

 
9.8

Net income (loss) attributable to Delek
 
$
79.1

 
$
(37.9
)
 
$
44.2

 
$
(26.7
)
Basic income (loss) per share:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.95

 
$
(0.61
)
 
$
0.74

 
$
(0.43
)
Loss from discontinued operations
 
$
(0.01
)
 
$

 
$
(0.21
)
 
$

Total basic income (loss) per share
 
$
0.94

 
$
(0.61
)
 
$
0.53

 
$
(0.43
)
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.90

 
$
(0.61
)
 
$
0.71

 
$
(0.43
)
Loss from discontinued operations
 
$
(0.01
)
 
$

 
$
(0.20
)
 
$

Total diluted income (loss) per share
 
$
0.89

 
$
(0.61
)
 
$
0.51

 
$
(0.43
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
84,041,358

 
62,054,485

 
83,151,823

 
62,016,489

Diluted
 
90,244,357

 
62,054,485

 
85,773,587

 
62,016,489

Dividends declared per common share outstanding
 
$
0.25

 
$
0.15

 
$
0.45

 
$
0.30

See accompanying notes to condensed consolidated financial statements

4



Delek US Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss) attributable to Delek
 
$
79.1

 
$
(37.9
)
 
$
44.2

 
$
(26.7
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Commodity contracts designated as cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized losses, net of ineffectiveness gains of $0.7 million for both the three months and six months ended June 30, 2018 and $0.2 million and $0.4 million for the three and six months ended June 30, 2017, respectively
 
(74.7
)
 
(3.8
)
 
(72.0
)
 
(9.8
)
Realized losses reclassified to cost of goods sold
 
8.8

 
31.7

 
8.8

 
39.5

(Decrease) increase related to commodity cash flow hedges, net
 
(65.9
)
 
27.9

 
(63.2
)
 
29.7

Income tax benefit (expense)
 
13.9

 
(9.8
)
 
13.3

 
(10.4
)
Net comprehensive (loss) income on commodity contracts designated as cash flow hedges
 
(52.0
)
 
18.1

 
(49.9
)
 
19.3

 
 
 
 
 
 
 
 
 
Interest rate contracts designated as cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized losses
 

 

 
(1.3
)
 

Realized losses reclassified to interest expense
 

 

 
0.7

 

Decrease related to interest rate cash flow hedges, net
 

 

 
(0.6
)
 

Income tax benefit
 

 

 
0.1

 

Net comprehensive loss on interest rate contracts designated as cash flow hedges
 

 

 
(0.5
)
 

 
 
 
 
 
 
 
 
 
Foreign currency translation (loss) gain
 
(0.2
)
 
0.1

 
(0.6
)
 
0.1

 
 
 
 
 
 
 
 
 
Other comprehensive income from equity method investments, net of tax expense of a nominal amount for the six months ended June 30, 2017
 

 

 

 
0.1

 
 
 
 
 
 
 
 
 
Postretirement benefit plans:
 
 
 
 
 
 
 
 
Unrealized gain arising during the year related to:
 
 
 
 
 
 
 
 
  Net actuarial gain
 

 

 
0.2

 

Gain reclassified to earnings:
 
 
 
 
 
 
 
 
   Recognized due to settlement
 

 

 
(0.1
)
 

Increase related to postretirement benefit plans, net
 

 

 
0.1

 

Income tax expense
 

 

 

 

Net comprehensive income on postretirement benefit plans
 

 

 
0.1

 

Total other comprehensive (loss) income
 
(52.2
)
 
18.2

 
(50.9
)
 
19.5

Comprehensive income (loss) attributable to Delek
 
$
26.9

 
$
(19.7
)
 
$
(6.7
)
 
$
(7.2
)
See accompanying notes to condensed consolidated financial statements

5



Delek US Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 
 
Six Months Ended June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
66.7

 
$
(16.9
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 

 
 
Depreciation and amortization
 
97.2

 
58.5

Amortization of deferred financing costs and debt discount
 
4.8

 
2.0

Accretion of environmental liabilities and asset retirement obligations
 
1.8

 
0.2

Amortization of unfavorable contract liability
 
(2.2
)
 
(2.9
)
Deferred income taxes
 
(70.8
)
 
(12.4
)
Income from equity method investments
 
(2.9
)
 
(4.6
)
Dividends from equity method investments
 
2.3

 
0.2

Loss on disposal of assets
 
1.3

 
0.3

Loss on extinguishment of debt
 
9.0

 

Gain on sale of business
 
(13.2
)
 

Impairment of assets held for sale
 
27.5

 

Equity-based compensation expense
 
10.4

 
7.9

Loss from discontinued operations
 
9.0

 

Changes in assets and liabilities, net of acquisitions:
 
 

 
 

Accounts receivable
 
(177.7
)
 
(22.0
)
Inventories and other current assets
 
(46.2
)
 
(4.9
)
Fair value of derivatives
 
(112.6
)
 
10.5

Accounts payable and other current liabilities
 
43.6

 
(72.4
)
Obligation under Supply and Offtake Agreement
 
24.7

 
20.8

Non-current assets and liabilities, net
 
6.5

 
(11.2
)
Cash used in operating activities - continuing operations
 
(120.8
)
 
(46.9
)
Cash used in operating activities - discontinued operations
 
(15.6
)
 

Net cash used in operating activities
 
(136.4
)
 
(46.9
)
Cash flows from investing activities:
 
 

 
 
Business combinations, net of cash acquired
 

 
(4.8
)
Equity method investment contributions
 
(0.2
)
 
(2.9
)
Distributions from equity method investments
 
0.7

 
10.6

Purchases of property, plant and equipment
 
(142.5
)
 
(35.0
)
Purchase of intangible assets
 
(0.5
)
 

Proceeds from sale of property, plant and equipment
 
0.3

 

Proceeds from sale of business
 
110.8

 

Proceeds from sales of discontinued operations
 
39.7

 

Cash provided by (used in) investing activities - continuing operations
 
8.3

 
(32.1
)
Cash provided by investing activities - discontinued operations
 
5.5

 

Net cash provided by (used in) investing activities
 
13.8

 
(32.1
)
Cash flows from financing activities:
 
 

 
 
Proceeds from long-term revolvers
 
1,569.6

 
434.5

Payments on long-term revolvers
 
(1,017.6
)
 
(627.6
)
Proceeds from term debt
 
690.6

 
248.1

Payments on term debt
 
(672.9
)
 
(60.4
)
Proceeds from product financing agreements
 

 
21.0

Repayments of product financing agreements
 
(72.4
)
 
(6.0
)
Taxes paid due to the net settlement of equity-based compensation
 
(8.8
)
 
(2.2
)
Repurchase of common stock
 
(115.3
)
 

Repurchase of non-controlling interest
 

 
(7.3
)
Distribution to non-controlling interest
 
(14.1
)
 
(13.2
)
Dividends paid
 
(37.8
)
 
(19.0
)
Deferred financing costs paid
 
(7.8
)
 
(5.8
)
Cash provided by (used in) financing activities - continuing operations
 
313.5

 
(37.9
)
Cash used in financing activities - discontinued operations
 

 

Net cash provided by (used in) financing activities
 
313.5

 
(37.9
)
Net increase (decrease) in cash and cash equivalents
 
190.9

 
(116.9
)
Cash and cash equivalents at the beginning of the period
 
941.9

 
689.2

Cash and cash equivalents at the end of the period
 
1,132.8

 
572.3

Less cash and cash equivalents of discontinued operations at the end of the period
 

 

Cash and cash equivalents of continuing operations at the end of the period
 
$
1,132.8

 
$
572.3




Delek US Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)(Continued)
(In millions)

 
 
Six Months Ended June 30,
 
 
2018
 
2017
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest of $0.4 million and $0.1 million in the 2018 and 2017 periods, respectively
 
$
62.7

 
$
28.3

Income taxes
 
$
5.7

 
$
59.3

Non-cash investing activities:
 
 
 
 
Common stock issued in connection with the buyout of Alon Partnership non-controlling interest
 
$
127.0

 
$

Decrease in accrued capital expenditures
 
$
(17.9
)
 
$
(4.8
)

See accompanying notes to condensed consolidated financial statements

6



Delek US Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization and Basis of Presentation
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 2), 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."
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 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 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. The assets and liabilities and results of operations related to the Long Beach refinery remained classified as held for sale and discontinued operations as of June 30, 2018. See Note 5 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 percent 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 5 for further information regarding the disposal of these assets held for sale.
Our condensed consolidated financial statements include the accounts of Delek and its subsidiaries. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP applied on a consistent basis with those of the annual audited financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 1, 2018 (the "Annual Report on Form 10-K") and in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2017 included in our Annual Report on Form 10-K.
Our condensed consolidated financial statements include Delek Logistics Partners, LP ("Delek Logistics"), Alon USA Partners, LP (the "Alon Partnership") and AltAir Paramount LLC ("AltAir"), all variable interest entities as of December 31, 2017. However, Delek acquired the non-controlling interest in the Alon Partnership on February 7, 2018 and sold AltAir on March 16, 2018. Thus, Delek Logistics is Delek's only remaining variable interest entity as of June 30, 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 its 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

7



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.
In the opinion of management, all adjustments necessary for a fair presentation of the financial condition and the results of operations for the interim periods have been included. All significant intercompany transactions and account balances have been eliminated in consolidation. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year.
Certain prior period amounts have been reclassified in order to conform to the current year presentation.
New Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (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 Cuts and Jobs Act (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. The effect of the Tax Reform Act on temporary differences related to amounts initially recorded in AOCI are provisional.  As we finalize the accounting for tax effects of the Tax Reform Act on the related temporary differences, additional reclassification adjustments may be recorded in future periods.
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.
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.
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 will retrospectively impact 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 18, only the service cost component of net periodic benefit costs are included as part of general and administrative expenses in the accompanying condensed 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 will use 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 in our third quarter 2018 Quarterly Report on Form 10-Q and in our 2018 Annual Report on Form 10-K. This will require recasting of prior periods subsequent to the Delek/Alon Merger.
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.
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

8



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. We expect to adopt this guidance on or before the effective date and we do not anticipate that the adoption will have a material impact on our business, financial condition or results of operations.

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 $29.9 million for the cumulative effect as of January 1, 2018.

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 $10.6 million of distributions received in the six months ended June 30, 2017 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 condensed consolidated statements of cash flows.
 
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.
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. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In January 2018, the FASB amended the guidance to provide an optional practical expedient to rights of way. The practical expedient permits an entity to not evaluate under the new lease accounting guidance existing or expired rights of way that were not previously accounted for as leases. However, any new or modified rights of way should be evaluated under the new lease accounting guidance. If not elected, an entity should evaluate all existing or expired rights of way in connection with the adoption of the new lease requirement to assess whether they meet the definition of a lease. In July 2018, the FASB amended the guidance to provide a practical expedient regarding the requirement to recast prior periods for the new lease guidance. If elected, comparative periods in transition are not required to be recast, and a cumulative effect of initially applying the guidance will be recognized to the opening balance of retained earnings in the period of adoption. If not elected, we are required to use the modified retrospective adoption method to apply this guidance, under which the cumulative effect of initially applying the guidance will be recognized as an adjustment to the opening balance of retained earnings in the earliest period presented as of the adoption period. We expect to adopt the new lease standard on January 1, 2019 and elect the practical expedient regarding transition. We are currently evaluating the impact adopting this new guidance will have on our business, financial condition and results of operations. As part of our efforts to prepare for adoption, beginning in 2018, we formed a project implementation team, as well as a project timeline, to evaluate this guidance. We have also reviewed and gained an understanding of the new lease accounting guidance and substantially completed lease classification analysis for existing leases. We continue to perform scoping to identify and evaluate arrangements that will qualify as leases under the new standard, as well as to review industry specific implementation guidance. We are continuing to evaluate the impact of the guidance on our business processes, accounting systems, controls and financial statement disclosures, and expect to implement any changes to accommodate the new accounting and disclosure requirements prior to adoption on January 1, 2019.
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

9



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.
In May 2014, the FASB issued guidance as codified in Accounting Standards Codification ("ASC") 606, “Revenue from Contracts with Customers ("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.
The Company has updated its policies as it relates to revenue recognition. Revenue is measured based on consideration specified in a contract with a customer. 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 did not materially change our revenue recognition patterns, which are described below by reportable segment:
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 and net amounts, as appropriate, in accordance with the principal versus agent provisions in ASC 606.
Refer to Note 14 for disclosure of our revenue disaggregated by segment, as well as a description of our reportable segment operations.
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. Sales, use and excise taxes were also excluded from revenue historically in accordance with the applicable guidance in ASC 605, Revenue Recognition.
2. Acquisitions
In January 2017, we announced that Old Delek (and various related entities) entered into a merger agreement with Alon, as amended (the "Merger Agreement"). The related Merger (the "Merger" or the "Delek/Alon Merger") was effective July 1, 2017 (as previously defined, the “Effective Time”), resulting in a new post-combination consolidated registrant renamed as Delek US Holdings, Inc. (as previously defined, “New Delek”), with Alon and Old Delek surviving as wholly-owned subsidiaries of New Delek. New Delek is the successor issuer to Old Delek and Alon pursuant to Rule 12g-3(c) under the Exchange Act, as amended. In addition, as a result of the Delek/Alon Merger, the shares of common stock of Old Delek and Alon were delisted from the NYSE in July 2017, and their respective reporting obligations under the Exchange Act were terminated. 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 4).
Subject to the terms and conditions of 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

10



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 provides 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 provides that, as of the Effective Time, New Delek fully and unconditionally guaranteed, on a senior basis, Alon’s obligations under the Convertible Notes.
In connection with the Indenture, Alon also entered into equity instruments, including Call 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 mitigate 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 8 for further discussion.
Alon is a refiner and marketer of petroleum products, operating primarily in the south central, southwestern and western regions of the United States. As of December 31, 2017, Alon owned 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 bpd and an integrated wholesale marketing business. Delek acquired the non-controlling interest in the Alon Partnership on February 7, 2018. In addition, Alon directly owns a crude oil refinery in Krotz Springs, Louisiana with a crude oil throughput capacity of 74,000 barrels per day ("bpd"). As of December 31, 2017, Alon also owned 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 our 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. The assets and liabilities and results of operations related to the Long Beach refinery remained classified as held for sale and discontinued operations as of June 30, 2018. 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 Notes 1 and 5. Alon is the largest 7-Eleven licensee in the United States and operates 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 $1.8 million and $6.6 million for the three and six months ended June 30, 2018, respectively. Such costs were included in general and administrative expenses in the accompanying condensed consolidated statements of income.
The Merger is accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired at their fair values and liabilities assumed be recognized on the balance sheet as of the acquisition date.

11



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


The final allocation of the aggregate purchase price as of June 30, 2018 is summarized as follows (in millions), and is inclusive of the California Discontinued Entities discussed in Note 5:

Cash
 
$
215.3

Receivables
 
176.8

Inventories
 
266.3

Prepaids and other current assets
 
38.7

Property, plant and equipment (3)
 
1,130.3

Equity method investments
 
31.0

Acquired intangible assets (4)
 
86.7

Goodwill (5)
 
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 (6)
 
(95.6
)
Fair value of net assets acquired
 
$
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.
(3) 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.
(4) 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 will be amortized over a 10-year useful life. We recognized amortization expense for the three and six months ended June 30, 2018 of $1.2 million and $2.4 million, respectively. The estimated annual amortization is $4.9 million for the current and the four succeeding fiscal years.

12



Fuel trade name intangible valued at $4.0 million, which will be amortized over 5 years. We recognized amortization expense for the three and six months ended June 30, 2018 of $0.2 million and $0.4 million, respectively. The estimated annual amortization is $0.8 million for the current and the three succeeding fiscal years, with $0.4 million in the fourth succeeding year.
License agreements intangible valued at $2.6 million, which will be amortized over 8.7 years. We recognized amortization expense for the three and six months ended June 30, 2018 of $0.1 million and $0.2 million, respectively. The estimated annual amortization is $0.3 million for the current and the four succeeding fiscal years.
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 will be amortized over the remaining lease term.
(5) 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 is 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 six months ended June 30, 2018.
(6) The assumed other non-current liabilities include liabilities related to above-market leases fair valued at $15.8 million, which will be amortized over the remaining lease term.
The following unaudited pro forma financial information presents the condensed combined results of operations of Delek and Alon for the three and six months ended June 30, 2017 as if the Delek/Alon Merger had occurred on January 1, 2017. 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, 2017, 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.
(in millions, except per share data)
 
Three Months Ended June 30, 2017
Six Months Ended June 30, 2017
Net revenues
 
$
2,303.3

$
4,623.5

Net (loss) income attributable to Delek
 
(17.9
)
$
15.5

(Loss) earnings per share:
 
 
 
Basic
 
$
(0.22
)
$
0.19

Diluted
 
$
(0.22
)
$
0.19



13



The unaudited pro forma statements of operations reflect the following adjustments:
To eliminate transactions between Delek and Alon for purchases and sales of refined products, reducing revenue and the associated cost of goods sold. Such pro forma eliminations resulted in a decrease to combined pro forma revenue by $46.5 million and $59.0 million for the three and six months ended June 30, 2017, 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 $5.8 million and $11.5 million for the three and six months ended June 30, 2017, respectively.
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, 2017, 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 $16.9 million and $34.7 million for the three and six months ended June 30, 2017, 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 $0.4 million and $0.8 million for the three and six months ended June 30, 2017.
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 $6.2 million and $9.4 million for the three and six months ended June 30, 2017, 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 a decrease to pro forma pre-tax income attributable to Delek totaling $0.4 million and $3.2 million for the three and six months ended June 30, 2017, respectively.
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 both the three and six months ended June 30, 2017.
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 June 30, 2018, reflecting the elimination of Alon historical weighted average shares outstanding and the addition of the estimated New Delek incremental shares issued.
Delek began consolidating Alon's results of operations on July 1, 2017. Alon operations contributed $833.5 million and $1,612.6 million to net revenues and $104.2 million and $57.3 million to pre-tax income for the three and six months ended June 30, 2018, respectively, inclusive of the contribution of the California Discontinued Entities.

14



Updates to the Preliminary Purchase Price Allocation
During the three months ended June 30, 2018, we finalized our procedures to determine the fair value of assets and liabilities assumed in the Delek/Alon Merger, as anticipated and disclosed in our Annual Report on Form 10-K. As a result, the following changes were made to the preliminary purchase price allocation disclosed in our 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 Renewable Identification Numbers ("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 three and six months ended June 30, 2018, certain immaterial catch-up adjustments were recorded related to accretion of environmental liabilities and amortization of leasehold intangibles identified and valued during those periods.


15



3. 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 June 30, 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 497,861 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 condensed consolidated statements of income and in non-controlling interest in subsidiaries in the accompanying condensed 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, subject to certain post-closing adjustments, and the cash paid for the marketing agreement was $144.2 million. The transactions were financed with borrowings under the DKL Revolver (as defined in Note 8 of the condensed consolidated financial statements in Item 1, Financial Statements). Prior periods have not been recast in our Segment Data Note 14, as these assets do 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 condensed consolidated financial statements, representing our logistics segment. With the exception of intercompany balances and the marketing agreement intangible and related deferred revenue which are eliminated in consolidation, the Delek Logistics condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017, as presented below, are included in the consolidated balance sheets of Delek (unaudited, in millions).
 
 
June 30,
2018
 
December 31,
2017
 
 
 
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
5.2

 
$
4.7

Accounts receivable
 
21.9

 
23.0

Accounts receivable from related parties
 
9.7

 
1.1

Inventory
 
12.7

 
20.9

Other current assets
 
0.7

 
0.7

Property, plant and equipment, net
 
319.3

 
255.1

Equity method investments
 
106.4

 
106.5

Goodwill
 
12.2

 
12.2

Intangible assets, net
 
157.6

 
15.9

Other non-current assets
 
4.6

 
3.4

Total assets
 
$
650.3

 
$
443.5

LIABILITIES AND DEFICIT
 
 
 
 
Accounts payable
 
$
9.3

 
$
19.1

Accrued expenses and other current liabilities
 
11.9

 
12.6

Long-term debt
 
737.1

 
422.6

Asset retirement obligations
 
5.0

 
4.1

Other non-current liabilities
 
16.0

 
14.3

Deficit
 
(129.0
)
 
(29.2
)
Total liabilities and deficit
 
$
650.3

 
$
443.5



16



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 11,492,800 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 as of December 31, 2017 are reflected in non-controlling interest in subsidiaries in the accompanying condensed consolidated balance sheet.
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 condensed 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 (required disclosure for a consolidated variable interest entity), 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 deficit
 
$
2,177.7


17



Transaction costs incurred by the Company in connection with the Alon Partnership Merger totaled approximately $3 million for the six months ended June 30, 2018. Such costs were included in general and administrative expenses in the accompanying condensed consolidated statements of income.
As of June 30, 2018, the Alon Partnership is included in Delek's condensed consolidated balance sheet as a wholly-owned subsidiary.
4. 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. Effective July 1, 2017, Alon became a wholly-owned subsidiary of New Delek in connection with the Delek/Alon Merger. See Note 2 for further discussion.
Below are the summarized results of operations of Alon (in millions) for the previous periods when Alon was accounted for as an equity method investment:
Income Statement Information
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
Revenue
 
$
1,119.1

 
$
2,269.7

Gross profit
 
173.5

 
351.2

Pre-tax income
 
7.1

 
20.0

Net income
 
4.8

 
15.0

Net income attributable to Alon
 
2.2

 
9.5

Delek Logistics has two joint ventures that own and operate logistics assets, and which serve third parties and subsidiaries of Delek. As of June 30, 2018 and December 31, 2017, Delek Logistics' investment balance in these joint ventures was $106.4 million and $106.5 million, respectively, and was accounted for using the equity method.
In February, 2018, Delek Logistics and an affiliate of Green Plains Partners LP (NYSE: GPP, "Green Plains") entered into a joint venture engaging in the light products terminalling business. The companies formed DKGP Energy Terminals, LLC ("DKGP Energy"). Delek Logistics and Green Plains each own a 50% membership interest in DKGP Energy. DKGP Energy signed a membership interest purchase agreement (the "Membership Interest Purchase Agreement") to acquire two light products terminals located in Caddo Mills, Texas and North Little Rock, Arkansas from an affiliate of American Midstream Partners, L.P. ("American Midstream"), subject to certain closing conditions and regulatory approvals (the "DKGP Transaction"). The Membership Interest Purchase Agreement expired on August 1, 2018 pursuant to its terms (primarily due to delays in receiving federal regulatory approval for the acquisition), and the contemplated DKGP Transaction terminated (the "DKGP Termination"). As a result of the DKGP Termination, the contemplated contribution of certain Delek Logistics terminals to DKGP Energy, in connection with the DKGP Transaction, terminated. At this time, Delek Logistics and Green Plains do not have any further transaction or development plans with respect to DKGP Energy.
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 both June 30, 2018 and December 31, 2017, Delek Renewables, LLC's investment balance in this joint venture was $2.2 million 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 (see Note 5 for further discussion). As of June 30, 2018, Delek's investment balance in the Brownwood, Texas joint venture was $21.9 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.



18



5. Discontinued Operations and Assets Held for Sale
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 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, Delek expects to receive net cash proceeds of approximately $85.9 million, subject to 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 $41.2 million during the six months ended June 30, 2018 (none during the three months ended June 30, 2018). Of the total expected proceeds, $54.6 million was received in March 2018 ($14.9 million of which proceeds were included in net cash flows from investing activities in discontinued operations), with the remainder expected to be collected in the third quarter of 2018. 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 June 30, 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 $14.9 million. The assets and liabilities and results of operations related to the Long Beach refinery remained classified as held for sale and discontinued operations as of June 30, 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):

 
 
June 30, 2018
 
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
 
23.7

 
130.0

Deferred tax assets
 
1.5

 

Other intangibles, net
 

 
6.6

Other non-current assets
 

 
2.2

Assets held for sale
 
$
25.2

 
$
160.0

Liabilities associated with assets held for sale:
 
 
 
 
Accrued expenses and other current liabilities
 
$
0.2

 
$
9.5

Deferred tax liabilities
 

 
63.9

Other non-current liabilities
 
11.8

 
32.5

Liabilities associated with assets held for sale
 
$
12.0

 
$
105.9


19



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 condensed consolidated statements of income and the notes to the condensed 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):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2018
Net revenues
 
$

 
32.5

Cost of goods sold
 

 
3.8

Operating expenses
 
(1.0
)
 
(8.8
)
General and administrative expenses
 

 
(1.1
)
Other operating expense, net
 

 
0.3

Interest income
 

 
3.0

Loss on sale of California Discontinued Entities
 

 
(41.2
)
Loss from discontinued operations before taxes
 
(1.0
)
 
(11.5
)
Income tax benefit
 
(0.2
)
 
(2.5
)
Loss from discontinued operations, net of tax
 
$
(0.8
)
 
$
(9.0
)
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. Net income attributable to non-controlling interest included $8.1 million related to AltAir for the six months ended June 30, 2018 (none for the three months ended June 30, 2018).

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 percent 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 six months ended June 30, 2018 (none for the three months ended June 30, 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 $13.2 million, resulting primarily from the recognition of certain additional proceeds at closing associated with the asphalt terminals which were not previously determinable/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 nor as discontinued operations in the consolidated financial statements as of and for the year ended December 31, 2017.

6. Inventory
Crude oil, work in process, refined products, blendstocks and asphalt inventory for all of our operations, excluding the Tyler, Texas refinery (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 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.

20



Carrying value of inventories consisted of the following (in millions):
 
 
June 30,
2018
 
December 31,
2017
Refinery raw materials and supplies
 
$
385.1

 
$
308.0

Refinery work in process
 
92.8

 
79.2

Refinery finished goods
 
355.7

 
366.4

Retail fuel
 
8.3

 
8.3

Retail merchandise
 
26.9

 
25.6

Logistics refined products
 
12.7

 
20.9

Total inventories
 
$
881.5

 
$
808.4

At June 30, 2018, we recorded a pre-tax inventory valuation reserve of $0.8 million, $0.5 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, as the inventories associated with the valuation adjustment at the end of 2017 were sold or used. We recognized net LIFO inventory valuation gains (losses) of $0.3 million and $0.7 million for the three and six months ended June 30, 2018, respectively, and $(10.8) million and $(13.5) million for the three and six months ended June 30, 2017, respectively. These gains (losses) were recorded as a component of cost of goods sold in the accompanying condensed consolidated statements of income.
At June 30, 2018 and December 31, 2017, the excess of replacement cost over the carrying value (LIFO) of the Tyler refinery inventories was $7.4 million and $9.0 million, respectively.
Permanent Liquidations
We incurred a permanent reduction in a LIFO layer resulting in liquidation loss in our refinery inventory of $1.0 million and $0.2 million during the three and six months ended June 30, 2018, respectively, and $0.2 million during the three and six months ended June 30, 2017. These liquidation losses were recognized as a component of cost of goods sold in the accompanying condensed consolidated statements of income.
7. 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 (payable) receivable related to this monthly settlement of $(6.9) million and $0.3 million as of June 30, 2018 and December 31, 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. Delek incurred fees payable to J. Aron under the El Dorado Supply and Offtake Agreement of $2.9 million and $5.6 million during the three and six months ended June 30, 2018, respectively, and $2.5 million and $4.9 million during the three and six months ended June 30, 2017, 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.
Upon the expiration of the El Dorado Supply and Offtake Agreement on April 30, 2020, or upon any earlier termination, Delek will be required to repurchase the consigned crude oil and refined products from J. Aron at then prevailing market prices. At June 30, 2018 and December 31,

21



2017, Delek had 2.9 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 $202.6 million and $181.9 million, respectively, in the condensed consolidated balance sheets.
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 14) 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 $(17.9) million and $(4.4) million as of June 30, 2018 and December 31, 2017, respectively.
These arrangements are accounted for as product financing arrangements. Delek incurred fees payable to J. Aron of $3.6 million and $6.9 million during the three and six months ended June 30, 2018, respectively. These amounts are included as a component of interest expense in the condensed 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.
Upon the expiration of the Alon Supply and Offtake Agreements, or upon any earlier termination, Delek will be required to repurchase the consigned crude oil and refined products from J. Aron at then prevailing market prices. At June 30, 2018 and December 31, 2017, Delek had 3.2 million barrels and 3.5 million barrels, respectively, of inventory consigned from J. Aron under the Alon Supply and Offtake Agreements, and we have recorded liabilities associated with this consigned inventory of $268.6 million and $253.7 million, respectively, in the condensed consolidated balance sheet.
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.

22



8. 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):
 
 
June 30,
2018
 
December 31,
2017
Revolving Credit Facility
 
$
370.0

 
$

Term Loan Credit Facility (1)
 
686.5

 

DKL Revolver
 
493.9

 
179.9

DKL Notes (2)
 
243.3

 
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 Facility(4)
 

 
203.4

Alon Partnership Credit Facility
 

 
100.0

Alon Partnership Term Loan
 

 
237.5

Convertible Notes (5)
 
148.8

 
146.0

Alon Term Loan Credit Facilities (6)
 

 
72.4

Alon Retail Credit Facilities (7)
 

 
86.1

 
 
2,042.5

 
1,465.6

Less: Current portion of long-term debt and notes payable
 
180.8

 
590.2

 
 
$
1,861.7

 
$
875.4

                        
(1)
The Term Loan Credit Facility is net of deferred financing costs of $2.6 million and debt discount of $9.2 million at June 30, 2018.

(2) 
The DKL Notes are net of deferred financing costs of $5.1 million and $5.6 million, respectively, and debt discount of $1.6 million and $1.7 million, respectively, at June 30, 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 are net of debt discount of $1.2 million and $4.0 million at June 30, 2018 and December 31, 2017, respectively.

(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.


23



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 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 $9.0 million during the six months ended June 30, 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 applicable margin for all Term Loan Credit Facility borrowings is 1.50% per annum with respect to base rate borrowings and 2.50% per annum with respect to LIBOR borrowings. The initial applicable margin for Revolving Credit Facility borrowings is 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 will be 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% 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 0.250% or 0.375% per annum, depending on average commitment usage for such quarter. The initial unused line fee is set at 0.375% per annum through September 30, 2018.
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 1.00% in connection with certain customary repricing events that may occur within six months after the Closing 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.

24



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 the Delek's and each guarantor's other assets, including all of the equity interests of any subsidiary held by 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 June 30, 2018, the weighted average borrowing rate under the Revolving Credit Facility was 5.25% and was comprised entirely of a base rate borrowing, and the principal amount outstanding thereunder was $370.0 million. Additionally, there were letters of credit issued of approximately $133.3 million as of June 30, 2018 under the Revolving Credit Facility. Unused credit commitments under the Revolving Credit Facility, as of June 30, 2018, were approximately $496.7 million
At June 30, 2018, the weighted average borrowing rate under the Term Loan Credit Facility was approximately 4.59% comprised entirely of a LIBOR base borrowing and the principal amount outstanding thereunder was approximately $698.3 million.
DKL Revolver
Delek Logistics has a $700.0 million senior secured revolving credit agreement with Fifth Third Bank, as administrative agent, and a syndicate of lenders (the "DKL Revolver"). Delek Logistics and all of its existing wholly-owned subsidiaries are borrowers or guarantors under the DKL Revolver. The DKL Revolver contains a dual currency borrowing tranche that permits draw downs in U.S. or Canadian dollars and an accordion feature whereby Delek Logistics may increase the size of the credit facility to an aggregate of $800.0 million, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent.
The obligations under the DKL Revolver are secured by a first priority lien 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 DKL Revolver. 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 DKL Revolver lenders. As of both June 30, 2018 and December 31, 2017, the principal amount of the Holdings Note was $102.0 million.
The DKL Revolver will mature on December 30, 2019. Borrowings under the DKL Revolver bear interest at either a U.S. base rate, Canadian prime rate, LIBOR, or a Canadian Dealer Offered 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, varies based upon Delek Logistics' leverage ratio for the most recently ended four fiscal quarters. At June 30, 2018, the weighted average borrowing rate was approximately 4.94%. Additionally, the DKL Revolver requires Delek Logistics to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of June 30, 2018, this fee was 0.50% per year. As of June 30, 2018, Delek Logistics had $493.9 million of outstanding borrowings under the DKL Revolver, with no letters of credit in place. Unused credit commitments under the DKL Revolver, as of June 30, 2018, were $206.1 million.

DKL 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 “DKL Notes”) at a discount. The DKL Notes are general unsecured senior obligations of the Issuers. The DKL 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 DKL 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 DKL 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 DKL 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 redeem all or part of the DKL 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

25



all or part of the DKL 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 DKL Notes from holders at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

In connection with the issuance of the DKL Notes, the Issuers and the Guarantors entered into a registration rights agreement, whereby the Issuers and the Guarantors were required to exchange the DKL Notes for new notes with terms substantially identical in all material respects with the DKL 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 DKL 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 are substantially identical to the terms of the original DKL Notes.
As of June 30, 2018, we had $250.0 million in outstanding principal amount under the DKL Notes.
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.
Reliant Bank Revolver
Delek has an unsecured revolving credit agreement with Reliant Bank (the "Reliant Bank Revolver"), which was amended on June 20, 2018 to extend the maturity by two years to June 28, 2020, reduce the fixed interest rate from 5.25% to 4.75% per annum and increase 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 June 30, 2018, we had $30.0 million outstanding and had 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 4.0% 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 5.5% 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

26



Note commensurate to such note's pro rata share of $120.0 million in assigned principal. As of June 30, 2018, a total principal amount of $70.0 million was outstanding under the Alon Successor Notes.
As of December 31, 2017, one of our retail companies had a loan that was to mature in 2019 with an outstanding balance of $0.1 million and the interest rate was fixed at 9.70%. This loan was extinguished in connection with the Refinancing on March 30, 2018.
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 was amended and restated on May 14, 2015 in connection with the Company’s closing of the Alon Acquisition to, among other things, increase the total loan size from $99.0 million to $275.0 million (the "Lion Term Loan"), and was amended on April 13, 2017 to incorporate technical modifications related to the Delek/Alon Merger. 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) substantially all the assets of Lion Oil and its subsidiaries (excluding inventory and accounts receivable), (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 5.50% 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 equal to the sum of (i) the Eurodollar rate (with a floor of 1.25% per annum) plus (ii) a margin of 8.0% per annum. 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 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 provides that, as of the Effective Time, New Delek fully and unconditionally guarantees, on a senior basis, Alon’s obligations under the Convertible Notes.
Interest on the Convertible Notes is payable in arrears in March and September of each year. The Convertible Notes are not redeemable at our option prior to maturity. Under the terms of the Convertible Notes, the holders of the Convertible Notes cannot require us to repurchase all or part of the notes except for instances of a fundamental change, as defined in the indenture.

27



The holders of the Convertible Notes may convert their notes at any time after June 15, 2018 into a settlement amount determined in accordance with the terms of the Indenture.
Prior to June 15, 2018, holders may convert their Convertible Notes only upon the occurrence of certain triggering events described in the Indenture. The Convertible Notes may 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 is subject to adjustment upon the occurrence of certain events, including cash dividend adjustments, but will not be adjusted for any accrued and unpaid interest. As of June 30, 2018, the adjusted conversion rate was 74.8635 shares of Alon Common Stock per each $1,000 principal amount of Convertible Notes, equivalent to a per share conversion price for New Delek Common Stock of approximately $27, to reflect cash dividend adjustments and the merger stock exchange rate of 0.504 (for a post-Merger conversion ratio of approximately 37.73). As of June 30, 2018, there have been no conversions of the Convertible Notes.
The fair value of the conversion feature met the definition for recognition as a bifurcated equity instrument. As of both June 30, 2018 and December 31, 2017, the conversion feature equity instrument totals $26.6 million and is included in additional paid-in capital on the accompanying condensed consolidated balance sheets. The total value of the Convertible Notes on an if-converted basis exceeds the outstanding principal amount by $133.9 million as of June 30, 2018.
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. As of June 30, 2018, the Call Options had an adjusted strike price of approximately $27 per share of New Delek Common Stock. The Call Options will expire in September 2018.
The Call Options are 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 debt in shares, as well as offset any potential cash payments we are required to make in excess of the principal amount upon any conversion of the notes. As of both June 30, 2018 and December 31, 2017, the Call Options totaling $23.3 million have been included as a reduction of additional paid-in capital on the condensed consolidated balance sheets.
The Call Options 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 do not have any rights with respect to the Call Options.
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. As of June 30, 2018, the Warrants had an adjusted strike price of approximately $35 per share of New Delek Common Stock. The Warrants require settlement on a net-share basis and will expire in April 2019. As of both June 30, 2018 and December 31, 2017, Warrants totaling $14.3 million have been included in additional paid-in capital on the condensed consolidated balance sheets.
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 do not have any rights with respect to the Warrants.
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 a margin of 3.75%. Additionally, Delek guaranteed all obligations under the New Alon Energy Term Loan.

28



Alon Asphalt Term Loan
Alon had a term loan owed 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 a margin of 3.75% per annum.
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 when it expired. 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 undrawn amount of the accordion feature 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. As of and during the period from the Delek/Alon Merger through the extinguishment date of March 30, 2018, Alon had no outstanding borrowings under the revolving portion of the credit facility.
Restrictive Covenants
Under the terms of our Revolving Credit Facility, Term Loan Credit Facility, DKL Revolver, DKL 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. The Convertible Notes do not contain any maintenance financial covenants. We believe we were in compliance with all covenant requirements under each of our credit facilities as of June 30, 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 certain 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.

29



Principal maturities of Delek's existing third-party debt instruments for the next five years and thereafter are as follows as of June 30, 2018 (in millions):
 
 
July1 to December 31, 2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Revolving Credit Facility
 
$

 
$

 
$

 
$

 
$

 
$
370.0

 
$
370.0

Term Loan Credit Facility
 
5.3

 
7.0

 
7.0

 
7.0

 
7.0

 
665.0

 
698.3

DKL Revolver
 

 
493.9

 

 

 

 

 
493.9

DKL Notes
 

 

 

 

 

 
250.0

 
250.0

Reliant Bank Revolver
 

 

 
30.0

 

 

 

 
30.0

Promissory Notes
 

 
25.0

 
25.0

 
20.0

 

 

 
70.0

Convertible Notes
 
150.0

 

 

 

 

 

 
150.0

Total
 
$
155.3

 
$
525.9

 
$
62.0

 
$
27.0

 
$
7.0

 
$
1,285.0

 
$
2,062.2

Interest-Rate Derivative Instruments
Effective with the Delek/Alon Merger, we assumed Alon's interest rate swap agreements, that were to mature in March 2019, which 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 16 for further information regarding the interest rate swap agreements.

9. Other Assets and Liabilities
The detail of other current assets is as follows (in millions):

Other Current Assets
June 30,
2018
 
December 31,
2017
Prepaid expenses
$
13.5

 
$
17.6

Short-term derivative assets (see Note 16)
39.9

 
15.9

Income and other tax receivables
15.5

 
75.7

RINs Obligation surplus (see Note 15)
4.1

 
1.1

Commodity investments
18.1

 

Other
16.6

 
19.6

Total
$
107.7

 
$
129.9


The detail of other non-current assets is as follows (in millions):

Other Non-Current Assets
June 30,
2018
 
December 31,
2017
Prepaid tax asset
$

 
$
56.2

Deferred financing costs
7.0

 
5.9

Long-term income tax receivables
14.0

 
2.1

Supply and Offtake receivable
32.7

 
46.3

Long-term derivative assets (see Note 16)
0.7

 

Other
10.1

 
16.3

Total
$
64.5

 
$
126.8


30



The detail of accrued expenses and other current liabilities is as follows (in millions):

Accrued Expenses and Other Current Liabilities
June 30,
2018
 
December 31,
2017
Income and other taxes payable
$
221.4

 
$
154.1

Short-term derivative liabilities (see Note 16)
31.0

 
54.4

Interest payable
9.3

 
13.0

Employee costs
33.3

 
46.6

Environmental liabilities (see Note 17)
7.6

 
7.2

Product financing agreements

 
72.3

RINs Obligation deficit (see Note 15)
6.4

 
130.8

Accrued utilities
7.4

 
9.4

Tank inspection liabilities
8.7

 
10.7

Crude liabilities
87.7

 
34.5

Other
32.2

 
31.9

Total
$
445.0

 
$
564.9

The detail of other non-current liabilities is as follows (in millions):

Other Non-Current Liabilities
June 30,
2018
 
December 31,
2017
Pension and other postemployment benefit liabilities, net
(see Note 18)
$
37.0

 
$
37.0

Long-term derivative liabilities (see Note 16)
0.2

 
0.9

Liability for unrecognized tax benefits
7.2

 
6.1

Above-market lease
10.1

 
11.2

Tank inspection liabilities
10.1

 
11.7

Other
10.1

 
16.1

Total
$
74.7

 
$
83.0



31



10. Stockholders' Equity
Changes to equity during the six months ended June 30, 2018 are presented below (in millions, except per share amounts):
 
 
Delek Stockholders' Equity
 
Non-Controlling Interest in Subsidiaries
 
Total Stockholders' Equity
Balance at December 31, 2017
 
$
1,650.6

 
$
313.6

 
$
1,964.2

Net income
 
44.2

 
22.5

 
66.7

Net unrealized loss on cash flow hedges, net of income tax benefit of $13.3 million and ineffectiveness gain of $0.7 million
 
(49.9
)
 

 
(49.9
)
Foreign currency translation loss
 
(0.6
)
 

 
(0.6
)
Other comprehensive income related to postretirement benefit plans
 
0.1

 

 
0.1

Other comprehensive income related to interest rate contracts
 
(0.5
)
 

 
(0.5
)
Common stock dividends ($0.45 per share)
 
(37.8
)
 

 
(37.8
)
Distributions to non-controlling interests
 

 
(14.1
)
 
(14.1
)
Equity-based compensation expense
 
10.2

 
0.2

 
10.4

Issuance of stock for non-controlling interest repurchase, net of tax
 
140.5

 
(127.0
)
 
13.5

De-recognition of non-controlling interest
 

 
(18.7
)
 
(18.7
)
Cumulative effect of adopting accounting principle regarding income tax effect of intra-equity transfers (see Note 1)
 
(29.9
)
 

 
(29.9
)
Repurchase of common stock
 
(115.3
)
 

 
(115.3
)
Taxes due to the net settlement of equity-based compensation
 
(8.8
)
 

 
(8.8
)
Balance at June 30, 2018
 
$
1,602.8

 
$
176.5

 
$
1,779.3



Dividends
During the six months ended June 30, 2018, our Board of Directors declared the following dividends:

Date Declared
 
Dividend Amount Per Share
 
Record Date
 
Payment Date
February 26, 2018
 
$0.20
 
March 12, 2018
 
March 26, 2018
May 7, 2018
 
$0.25
 
May 21, 2018
 
June 4, 2018


32