Discontinued Operations and Assets Held for Sale

9 Months Ended

Sep. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations and Assets Held for Sale

Asphalt Terminals

On February 12, 2018, Delek announced it had reached a definitive agreement to sell certain assets and operations of four asphalt terminals (included in corporate, other and eliminations in our segment disclosure), as well as an equity method investment in an additional asphalt terminal located in Femley, Nevada, to an affiliate of Andeavor. 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 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, Presentation of Financial Statements - Discontinued Operations ("ASC 205-20"), as the sale of these asphalt assets did not represent a strategic shift that would 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 nine months ended September 30, 2018 (none for the three months then ended). 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 in the second quarter of 2018, 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).

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 (as previously defined, the "California Discontinued Entities"). Such operations were designated and reported as discontinued operations.

Sale of Paramount Refinery Assets and Altair

On March 16, 2018, Delek sold to World Energy, LLC ("World Energy") (i) all of Delek’s membership interests in the California renewable fuels facility ("AltAir") (ii) certain refining assets and other related assets located in Paramount, California and (iii) certain associated tank farm and pipeline assets and other related assets located in California. Upon final settlement (excluding contingent components), Delek expects to receive net cash proceeds of approximately $85.2 million, which included a post-closing working capital settlement, Delek’s portion of the biodiesel tax credit (the "BTC") for 2017 and certain customary adjustments. The sale resulted in a loss on sale of discontinued operations totaling approximately $41.4 million of which $41.2 million was recorded during the nine months ended September 30, 2018 (none for the three months ended September 30, 2018). Of the total expected proceeds, $70.4 million was received during the nine months ended September 30, 2018 ($14.9 million of which were included in net cash flows from investing activities in discontinued operations). Prior to the agreement reached with World Energy in August 2019 (see below), we had a remaining receivable from the buyer totaling approximately $14.8 primarily related to the working capital settlement. Additionally, Delek is entitled to its pro rata portion of any tax credits relating to AltAir activities in 2018 earned through the sale date if the 2018 BTC is re-enacted. A receivable for such additional contingent proceeds will be recorded when the criteria for recognition are met, which is predicated upon reenactment of the tax credit and determination of the amounts earned by AltAir.

In August 2019, we reached an agreement with World Energy to offset amounts payable by Delek under our seller obligations for the Ten-Tex Litigation matter (defined and further discussed in Note 13) against the working capital settlement receivable referenced above, and to convert the net receivable to a promissory note in the amount of $12.3 million (the "World Energy Note Receivable" or the "Note Receivable"). The World Energy Note Receivable bears interest at a fixed rate of 6.0% per annum payable monthly, and requires monthly principal payments totaling approximately $0.5 million beginning in January 2020. The Note Receivable matures on December 31, 2021, subject to acceleration clauses if certain events occur. In the event that the BTC is re-enacted for 2018 and/or 2019 resulting in proceeds to World Energy for Altair's qualifying credits, pre-payment of the lesser of the remaining outstanding balance (and all accrued interest) or the amount of the BTC proceeds received will be payable to Delek within 15 days of such receipt.

Sale of Long Beach Refinery Net Assets

The transaction to dispose of certain assets and liabilities associated with our Long Beach, California refinery to Bridge Point Long Beach, LLC closed July 17, 2018 resulting in initial cash proceeds of approximately $14.5 million, net of expenses, and resulting in a gain on sale of discontinued operations of approximately $1.4 million during the third quarter of 2018.

Operating Results

The operating results, net of tax, from discontinued operations associated with the California Discontinued Entities 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. Components of amounts reflected in income (loss) from discontinued operations prior to their disposal are as follows (in millions):



	Three Months Ended			Nine Months Ended
	September 30, 2018				September 30, 2018
Net revenues	$	—			$	32.5
Cost of sales:
Cost of materials and other	—				3.8
Operating expenses (excluding depreciation and amortization)	(0.6		)		(9.4		)
Total cost of sales	(0.6		)		(5.6		)
General and administrative expenses	—				(1.1		)
Other operating income, net	—				0.3
Interest income	—				3.0
Loss on sale of California Discontinued Entities	1.4				(39.8		)
Loss from discontinued operations before taxes	0.8				(10.7		)
Income tax benefit	0.3				(2.2		)
Loss from discontinued operations, net of tax ⁽¹⁾	$	0.5			$	(8.5	)


⁽¹⁾	Included in loss from discontinued operations is net income attributable to non-controlling interest totaling $8.1 million related to AltAir for the nine months ended September 30, 2018 (none for the three months ended September 30, 2018).

Related to the California Discontinued Entities, all of which were disposed of by December 31, 2018, we retained certain obligations associated with various matters, including (but not necessarily limited to) California emissions credits requirements that were attributable to operations of the California Discontinued Entities for periods prior to disposition, litigations, claims or assessments related to matters/events that occurred prior to disposition, or indemnification of certain liabilities that related to the California Discontinued Entities and arose prior to disposition. Related to these matters, we recorded liabilities of $3.4 million and $5.0 million as of September 30, 2019 and December 31, 2018, respectively based on amounts that were deemed probable and could be reasonably estimated as of those dates. During the nine months ended September 30, 2019, we recorded an additional accrual for California emission credit obligation based upon our revised estimates totaling $3.4 million, none of which was recorded in the third quarter. Additionally, in July 2019, we resolved a pending litigation matter (the Ten-Tex Litigation -- see Note 13) that resulted in a decrease in our accrual totaling $2.4 million during the nine months ended September 30, 2019. Such adjustments are included in loss from discontinued operations on the accompanying condensed consolidated statements of income for those periods.