Segment Data

3 Months Ended

Mar. 31, 2019

We aggregate our operating units into three reportable segments: refining, logistics and retail.

Included in our corporate, other and elimination segment are the following: our corporate activities; results of certain immaterial operating segments, including our Canadian crude trading operations (as discussed in Note 11); Alon's asphalt terminal operations acquired as part of the Delek/Alon Merger and subsequently substantially disposed in the second quarter of 2018 (see Note 7 for further discussion); the California Discontinued Entities which were acquired as part of the Delek/Alon Merger and subsequently disposed over the first seven months of 2018 (see Note 7 for further discussion); and intercompany eliminations.

Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of the reportable segments based on the segment contribution margin. Segment contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization. Operations that are not specifically included in the reportable segments are included in the corporate and other category, which primarily consists of net revenues, operating costs and expenses, depreciation and amortization expense and interest income and expense associated with our discontinued operations and with our corporate headquarters.

The refining segment processes crude oil and other feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel and aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals. The refining segment has a combined nameplate capacity of 302,000 barrels per day ("bpd") as of March 31, 2019, including the 75,000 bpd Tyler, Texas refinery (the "Tyler refinery"), the 80,000 bpd El Dorado, Arkansas refinery (the "El Dorado refinery"), the 73,000 bpd Big Spring, Texas refinery (the "Big Spring refinery"), and the 74,000 bpd Krotz Springs, Louisiana refinery (the "Krotz Springs refinery"),

as well as a non-operating refinery located in Bakersfield, California. The refining segment also owns and operates two biodiesel facilities involved in the production of biodiesel fuels and related activities, located in Crossett, Arkansas and Cleburn, Texas. The refining segment's petroleum-based products are marketed primarily in the south central, southwestern and western regions of the United States, and the refining segment also ships and sells gasoline into wholesale markets in the southern and eastern United States. Motor fuels are sold under the Alon or Delek brand through various terminals to supply Alon or Delek branded retail sites. In addition, we sell motor fuels through our wholesale distribution network on an unbranded basis.

Our refining segment has service agreements with our logistics segment, which, among other things, requires the refining segment to pay service fees based on the number of gallons sold and a sharing of a portion of the margin achieved in return for providing marketing, sales and customer services at the Tyler refinery, and effective March 1, 2018, at the Big Spring refinery (see Note 5 for further discussion regarding the Big Spring marketing agreement). These intercompany transaction fees in regards to the Tyler refinery were $4.8 million and $5.0 million during the three months ended March 31, 2019 and 2018, respectively. The intercompany transaction fees in regards to the Big Spring refinery were $3.7 million and $1.1 million for the three months ended March 31, 2019 and 2018, respectively. Additionally, the refining segment purchases finished product and pays crude transportation, terminalling and storage fees to the logistics segment for the utilization of pipeline, terminal and storage assets, including, effective March 1, 2018, those related to the Big Spring Logistic Assets Acquisition discussed further in Note 5. These costs and fees were $52.2 million and $54.3 million during the three months ended March 31, 2019 and 2018, respectively. The logistics segment also sold $0.4 million and $1.2 million of renewable identification numbers ("RINs") to the refining segment during the three months ended March 31, 2019 and 2018, respectively. The refining segment recorded refined product sales revenues from the retail segment of $90.2 million and $96.3 million during the three months ended March 31, 2019 and 2018, respectively. The refining segment includes refined product sales revenues from our logistics segment of $79.5 million and $83.4 million during the three months ended March 31, 2019 and 2018, respectively. The refining segment also includes sales revenues of $14.9 million and $3.4 million from sales of asphalt to our corporate, other and eliminations segment during the three months ended March 31, 2019 and 2018.

Our logistics segment owns and operates crude oil and refined products logistics and marketing assets. The logistics segment generates revenue by charging fees for gathering, transporting and storing crude oil and for marketing, distributing, transporting and storing intermediate and refined products in select regions of the southeastern United States and west Texas for our refining segment and third parties, and sales of wholesale products in the west Texas market. The logistics segment is currently managing a long-term capital project on our behalf for the construction of a gathering system in the Permian Basin. The logistics segment received management fees of $1.8 million during the three months ended March 31, 2019, from the corporate, other and eliminations segment for the management of this project. The logistics segment incurs some of the costs in connection with the construction of the assets and is subsequently reimbursed by the corporate, other and eliminations segment.

Our retail segment consists of approximately 281 owned and leased convenience store sites as of March 31, 2019, located primarily in central and west Texas and New Mexico. These convenience stores typically offer various grades of gasoline and diesel primarily under the Alon or Delek brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery, which is transferred to the retail segment at prices substantially determined by reference to published commodity pricing information. In November 2018, we terminated the license agreement with 7-Eleven, Inc. and the terms of such termination require the removal of all 7-Eleven branding on a store-by-store basis by the earlier of December 31, 2021 or the date upon which our last 7-Eleven store is de-identified or closed. Merchandise sales at our convenience store sites will continue to be sold under the 7-Eleven brand name until 7-Eleven branding is removed at such convenience store sites pursuant to the termination.

All inter-segment transactions have been eliminated in consolidation.

The following is a summary of business segment operating performance as measured by contribution margin for the period indicated (in millions):



	Three Months Ended March 31, 2019
(In millions)	Refining		Logistics		Retail		Corporate, Other and Eliminations			Consolidated
Net revenues (excluding intercompany fees and sales)	$	1,907.4	$	89.6	$	197.2	$	5.7		$	2,199.9
Intercompany fees and sales	184.6		62.9		—		(247.5		)	—
Operating costs and expenses:
Cost of materials and other	1,676.7		96.3		163.4		(237.0		)	1,699.4
Operating expenses (excluding depreciation and amortization presented below)	121.0		16.1		23.6		6.0			166.7
Segment contribution margin	$	294.3	$	40.1	$	10.2	$	(10.8	)	333.8
Depreciation and amortization	31.1		6.5		4.3		4.9			46.8
General and administrative expenses										62.2
Other operating expense, net										2.4
Operating income										$	222.4
Total assets	$	6,607.2	$	640.2	$	339.0	$	(1,214.6	)	$	6,371.8
Capital spending (excluding business combinations)	$	81.7	$	0.9	$	5.1	$	40.7		$	128.4



	Three Months Ended March 31, 2018
	Refining		Logistics		Retail		Corporate, Other and Eliminations			Consolidated
Net revenues (excluding intercompany fees and sales)	$	1,942.8	$	106.3	$	209.6	$	94.5		$	2,353.2
Intercompany fees and sales	183.1		61.6		—		(244.7		)	—
Operating costs and expenses:
Cost of materials and other	1,878.0		119.0		173.2		(127.4		)	2,042.8
Operating expenses (excluding depreciation and amortization presented below)	114.7		12.6		24.5		6.3			158.1
Segment contribution margin	$	133.2	$	36.3	$	11.9	$	(29.1	)	152.3
Depreciation and amortization	32.2		6.0		6.9		2.9			48.0
General and administrative expenses										65.2
Other operating expense, net										0.3
Operating income										$	38.8
Total assets ⁽¹⁾	$	5,565.8	$	665.9	$	325.9	$	(472.9	)	$	6,084.7
Capital spending (excluding business combinations) ⁽²⁾	$	51.5	$	2.2	$	2.0	$	14.4		$	70.1


⁽¹⁾	Assets held for sale of $120.7 million are included in the corporate, other and eliminations segment as of March 31, 2018.


⁽²⁾	Capital spending excludes transaction costs capitalized in the amount of $0.4 million during the three months ended March 31, 2018, that relate to the Big Spring Logistic Assets Acquisition (as defined in Note 5).

Property, plant and equipment and accumulated depreciation as of March 31, 2019 and depreciation expense by reporting segment for the three months ended March 31, 2019 are as follows (in millions):



	Refining			Logistics			Retail			Corporate, Other and Eliminations			Consolidated
Property, plant and equipment	$	2,306.5		$	453.6		$	150.8		$	210.5		$	3,121.4
Less: Accumulated depreciation	(613.1		)	(146.7		)	(33.3		)	(56.0		)	(849.1		)
Property, plant and equipment, net	$	1,693.4		$	306.9		$	117.5		$	154.5		$	2,272.3
Depreciation expense	$	28.9		$	6.5		$	4.1		$	4.9		$	44.4

In accordance with Accounting Standards Codification ("ASC") 360, Property, Plant and Equipment ("ASC 360"), Delek evaluates the realizability of property, plant and equipment as events occur that might indicate potential impairment. There were no indicators of impairment related to our property, plant and equipment as of March 31, 2019.