Delek US Holdings, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Delek is an integrated downstream energy company with refining, logistics and retail segments; it owned 79.8% of publicly traded Delek Logistics at year-end. This is an annual report, not a standalone fourth-quarter filing.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net revenues | $10.648 billion | $7.302 billion |
| Operating loss | $130.4 million | $728.0 million |
| Net loss attributable to Delek | $203.5 million; $(2.75) per share | $608.0 million; $(8.26) per share |
| Net cash provided by operating activities | $371.4 million | Net cash used of $282.9 million |
| Capital expenditures | $227.1 million | $269.4 million of PP&E purchases |
- Revenue increased 45.8%, mainly reflecting higher refined-product and fuel prices. Refinery contribution margin improved to $82.4 million from a $330.5 million loss; logistics contribution margin rose to $255.7 million from $238.1 million; retail contribution margin rose to $72.0 million from $67.6 million.
- Refining margin was $516.5 million versus $72.2 million. Higher crack spreads and the inventory reserve reversal helped, while higher RIN and energy costs constrained margin capture. The filing reports no consolidated operating margin percentage; segment contribution margin percentages were 0.8% for refining, (5.7)% in 2020, and 0.8% for retail in 2021 versus 9.9% in 2020.
- Year-end cash and cash equivalents were $856.5 million; unused credit commitments were approximately $1.322 billion. Management reported total liquidity of approximately $2.2 billion.
- Debt was $2.218 billion, including $92.2 million of current maturities. Separately, the J. Aron supply-and-offtake obligation was $487.5 million, and product-financing liabilities were $249.6 million, all due within 12 months. Letters of credit were $270.4 million.
- Current assets were $2.935 billion and current liabilities $3.127 billion. Environmental liabilities totaled $112.2 million, primarily for remediation.
Changes versus 2020
- Results improved materially but remained loss-making. Revenue rose as market prices recovered; refining margins improved sharply from the pandemic-affected prior year.
- Operating cash flow swung to positive $371.4 million. Cash increased by $69.0 million during 2021, compared with a $167.8 million decrease in 2020.
- 2020 included a $126.0 million goodwill impairment and a $56.8 million gain on sale of a non-operating refinery; neither recurred in 2021. No goodwill impairment was recorded in 2021.
- Delek issued $400 million of Delek Logistics 7.125% notes due 2028; proceeds supported repayment of borrowings under the Logistics credit facility. Total debt declined by $130.4 million year over year.
- The common-stock dividend remained suspended, and Delek made no common-stock repurchases in 2021.
Outlook, commentary and notable risks
- Management expected improving demand and crack spreads in 2022 and anticipated returns from the Wink-to-Webster pipeline investment. These are expectations, not quantified earnings guidance.
- Planned 2022 capital spending was $253.4 million, compared with $227.1 million in 2021. Management said it expected sufficient resources for the next 12 months, while noting that weaker markets or higher costs could adversely affect liquidity.
- Management’s strategy emphasizes operating discipline, margin improvement, digital transformation and sustainability-oriented investment. The company announced a goal to reduce Scope 1 and 2 emissions 34% from a 2012 baseline through reductions and offsets.
- Winter Storm Uri disrupted all refineries in February 2021; a February fire at the El Dorado refinery also caused damage, downtime and employee injuries. Insurance recoveries were recognized, and additional property, casualty and business-interruption claims remained pending.
- RIN obligations and prices are a material uncertainty. The EPA’s proposed rule included revised renewable-fuel volumes and proposed denial of pending small-refinery-exemption petitions; Delek’s 2019 and 2020 applications remained unresolved at filing. The company reported a $172.2 million consolidated net RIN obligation deficit at year-end.
- Other principal risks include volatile refining margins and crude differentials, COVID-19 and demand uncertainty, natural-gas and power costs, concentrated refinery operations, environmental and climate regulation, debt and refinancing needs, variable interest rates, and reliance on J. Aron agreements scheduled to expire in December 2022 unless extended.
- The filing reports audited financial statements with an unqualified opinion and effective internal control over financial reporting. A $21.5 million prior-period inventory-costing correction was described as immaterial; $14.0 million reduced operating expenses and $7.5 million reduced depreciation in 2021.
Important facts for investors to verify
- Track refinery utilization, crack-spread capture, crude differentials and energy costs against management’s recovery expectations.
- Confirm final EPA RFS volume requirements, decisions on Delek’s exemption petitions, RIN compliance deadlines and resulting cash costs.
- Review liquidity and covenant headroom, particularly the $249.6 million of product financing due within 12 months and the J. Aron agreement’s expiration and potential price-adjustment payments.
- Monitor the timing and amount of insurance recoveries for Winter Storm Uri and the El Dorado fire, and assess remaining claims and repair costs.
- Assess whether 2022 capital spending and sustainability plans proceed as described, and whether the dividend remains suspended.