Delek US Holdings, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Delek operates refining, logistics and retail businesses, with four operating refineries totaling 302,000 barrels per day of nameplate capacity.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenue | $7.302 billion | $9.298 billion |
| Operating income (loss) | $(728.0) million | $492.3 million |
| Net income (loss) | $(570.4) million | $336.2 million |
| Net income (loss) attributable to Delek | $(608.0) million; $(8.26) per diluted share | $310.6 million; $4.06 per diluted share |
| Cash from operating activities | $(282.9) million | $575.2 million |
| Cash from investing activities | $(191.3) million | $(691.3) million |
| Cash from financing activities | $306.4 million | $(7.9) million |
Revenue declined 21.5% year over year. Refining margin fell to $72.2 million from $1.270 billion, and refining contribution margin turned negative at $(330.5) million. Logistics contribution margin increased to $238.1 million from $173.4 million; retail contribution margin rose to $67.6 million from $58.5 million. Retail fuel gallons sold fell 17.3% on a same-store basis, while same-store merchandise sales grew 6.2%.
At year-end, cash and cash equivalents were $787.5 million, total debt was $2.348 billion, and unused borrowing availability was $850.2 million. Delek reported total liquidity of approximately $1.6 billion, including cash and unused credit commitments. Debt increased from $2.067 billion in 2019. Capital spending was $239.6 million, below the initial forecast of $325.7 million. The filing reports no material off-balance-sheet arrangements.
Fourth quarter: Unaudited net revenue was $1.882 billion, operating loss was $(314.1) million, and net loss attributable to Delek was $(293.2) million.
Material changes and notable items
- COVID-19-related demand and pricing pressure, together with weaker crack spreads, substantially reduced refining results. Average Gulf Coast crack spreads were down about 48%–53%, depending on the benchmark.
- Refining throughput and product sales were affected by weaker demand and turnaround activity. Cost-reduction measures reduced operating expenses, but did not offset the deterioration in refining margins.
- Delek recorded a $126.0 million goodwill impairment related to refining reporting units and a $31.1 million inventory valuation reserve. It also recognized a $56.8 million gain on the sale of its non-operating Bakersfield refinery for $40.0 million cash consideration.
- Delek Logistics acquired the Big Spring Gathering System and trucking assets from Delek affiliates. The August IDR simplification transaction generated $45.0 million cash and 14.0 million newly issued Delek Logistics units for Delek.
- Delek suspended its common-stock dividend beginning in the fourth quarter and temporarily suspended share repurchases. It repurchased 58,713 shares for $1.9 million during 2020.
Outlook, risks and contingencies
Management said market forward curves indicated expected crack-spread recovery in 2022 and stabilization by 2023; this is an expectation, not a guarantee. For 2021, planned capital spending was approximately $150.5 million. Management emphasized cost containment, refinery optimization, liquidity and operational reliability, and stated it believed available resources were sufficient for the next 12 months, subject to market conditions and covenant compliance.
Key risks include prolonged weak refining margins or fuel demand, COVID-19 effects, commodity and RIN price volatility, reliance on J. Aron supply-and-offtake arrangements, debt and covenant constraints, and operational, environmental and regulatory exposures. Environmental liabilities were $112.6 million at year-end; approximately $5.2 million was expected to be spent over the following 12 months. A Delaware fiduciary-duty lawsuit concerning the Alon merger remained pending; the company said it could not estimate a possible loss. CVR Energy, which held approximately 15% of Delek’s shares, notified Delek of proposed director nominees and strategic changes for the 2021 annual meeting.
After year-end, February 2021 freezing weather temporarily shut down units and damaged facilities at the Tyler, El Dorado and Krotz Springs refineries; financial impact was still being assessed. An El Dorado refinery fire on February 27 injured six employees. The filing said the facility was already undergoing turnaround work and reported no resulting operational disruption, while damage assessment remained preliminary.
Important facts for investors to verify
- Whether refining margins, throughput and fuel demand recover as management expected, and whether 2021 cost savings are realized.
- Liquidity, borrowing availability, debt maturities and covenant headroom, including potential cash settlements under the J. Aron agreements and the maturity of $20.0 million in promissory notes in January 2021.
- The eventual repair costs, downtime, insurance recovery and operating effects from the February 2021 freeze and El Dorado fire.
- Potential additional impairments, RIN compliance costs, environmental remediation expenses and outcomes of pending litigation.
- Whether and when the board resumes dividends or share repurchases, and the outcome and costs of the CVR Energy proxy contest.