Discontinued Operations and Assets Held for Sale

12 Months Ended

Dec. 31, 2018

Discontinued Operations and Disposal Groups [Abstract]

Discounted Operations and Assets Held for Sale

Discontinued Operations and Assets Held for Sale

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% 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 year ended December 31, 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 $13.3 million, resulting primarily from the recognition of certain additional proceeds at closing associated with the asphalt terminals which were not previously determinable or 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 as of December 31, 2017 nor as discontinued operations in the consolidated financial statements for the years ended December 31, 2018 and 2017.

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 (both non-operating 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 (excluding contingent components), Delek expects to receive net cash proceeds of approximately $85.2 million, which includes 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 $41.4 million for the year ended December 31, 2018. Of the total expected proceeds, $70.4 million was received in 2018 ($14.9 million of which were included in net cash flows from investing activities in discontinued operations). Additionally, Delek will be entitled to its pro rata portion of any tax credits relating to AltAir activities in 2018 earned through the sale date if the 2018 biodiesel tax credit 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 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 December 31, 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 $14.5 million, net of expenses, and resulting in a gain on sale of discontinued operations of approximately $1.4 million for the year ended December 31, 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):

	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	130.0
Other intangibles, net	6.6
Other non-current assets	2.2
Assets held for sale	$	160.0
Liabilities associated with assets held for sale:
Accrued expenses and other current liabilities	$	9.5
Deferred tax liabilities	63.9
Other non-current liabilities	32.5
Liabilities associated with assets held for sale	$	105.9

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 consolidated statements of income and the notes to the 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):

	Year Ended
	December 31, 2018			December 31, 2017
Net revenues	$	32.5		$	82.4
Cost of sales:
Cost of materials and other	3.8			(68.7		)
Operating expenses (excluding depreciation and amortization)	(9.4		)	(14.4		)
Total cost of sales	(5.6		)	(83.1		)
General and administrative expenses	(1.1		)	(6.0		)
Other operating income, net	0.3			(0.2		)
Interest expense	—			(1.7		)
Interest income	3.0			—
Other expense, net	—			—
Loss on sale of California Discontinued Entities	(40.0		)	—
Loss from discontinued operations before taxes	(10.9		)	(8.6		)
Income tax benefit	(2.2		)	(2.7		)
Loss from discontinued operations, net of tax	$	(8.7	)	$	(5.9	)

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. The income (loss) attributable to the non-controlling interest included $8.1 million and $(0.6) million related to AltAir for the years ended December 31, 2018 and 2017.

Retail Entities

In August 2016, Delek entered into a Purchase Agreement to sell the Retail Entities to COPEC. As a result of the Purchase Agreement, we met the requirements of ASC 205-20 and ASC 360 to report the results of the Retail Entities as discontinued operations and to classify the Retail Entities as a group of assets held for sale. The fair value assessment of the Retail Entities as of August 27, 2016 did not result in an impairment. We ceased depreciation of these assets as of August 27, 2016. The Retail Transaction closed in November 2016, and we received net cash consideration of $378.9 million, net of debt repayments and transaction costs, and retained approximately $62.8 million of net liabilities from the Retail Entities. The Retail Transaction resulted in a gain on sale of the Retail Entities, before income tax, of $134.1 million in 2016.

Under the terms of the Purchase Agreement, Lion Oil and MAPCO Express entered into a supply agreement at the closing of the Retail Transaction pursuant to which Lion Oil would supply fuel to retail locations owned by MAPCO Express for a period of 18 months following the closing of the Retail Transaction (the "Fuel Supply Agreement"). We recorded net revenues of $148.5 million, $410.5 million and $54.3 million and net cash inflows of $166.2 million, $411.5 million and $43.5 million for the years ended December 31, 2018, 2017 and 2016, respectively, associated with the Fuel Supply Agreement.

Once the Retail Entities were identified 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 consolidated statements of income and the notes to the consolidated financial statements have been adjusted to exclude the discontinued operations. Components of amounts reflected in income from discontinued operations are as follows (in millions):

	Year Ended
	December 31, 2016
Net revenues	$	1,216.3
Cost of materials and other	(1,041.2		)
Operating expenses	(116.4		)
General and administrative expenses	(21.8		)
Depreciation and amortization	(20.4		)
Interest expense	(6.4		)
Gain on sale of Retail Entities	134.1
Income from discontinued operations before taxes	144.2
Income tax expense	57.9
Income from discontinued operations, net of tax	$	86.3