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Acquisitions (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Noncash or Part Noncash Acquisitions

The components of the consideration transferred were as follows (dollars in millions, except per share amounts):



Delek common stock issued	19,250,795
Ending price per share of Delek Common Stock immediately before the Effective Time	$	26.44
Total value of common stock consideration			$	509.0
Additional consideration⁽¹⁾			21.7
Fair value of Delek's pre-existing equity method investment in Alon ⁽²⁾			449.0
			$	979.7

⁽¹⁾Additional consideration includes the fair value of certain equity instruments originally indexed to Alon stock that were exchanged for instruments indexed to New Delek's stock, as well as the fair value of certain share-based payments that were required to be exchanged for awards indexed to New Delek's stock in connection with the Delek/Alon Merger.

⁽²⁾The fair value of Delek's pre-existing equity method investment in Alon was based on the quoted market price of shares of Alon.

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The final allocation of the aggregate purchase price as of December 31, 2018 (which was finalized as of June 30, 2018) is summarized as follows (in millions), and is inclusive of the California Discontinued Entities discussed in Note 8:



Cash	$	215.3
Receivables	176.8
Inventories	266.3
Prepaids and other current assets	38.7
Property, plant and equipment ⁽¹⁾	1,130.3
Equity method investments	31.0
Acquired intangible assets ⁽²⁾	86.7
Goodwill ⁽³⁾	870.7
Other non-current assets	37.0
Accounts payable	(263.4		)
Obligation under Supply & Offtake Agreements	(208.9		)
Current portion of environmental liabilities	(7.9		)
Other current liabilities	(308.6		)
Environmental liabilities and asset retirement obligations, net of current portion	(226.7		)
Deferred income taxes	(194.0		)
Debt	(568.0		)
Other non-current liabilities ⁽⁴⁾	(95.6		)
Fair value of net assets acquired	$	979.7

⁽¹⁾This fair value of property, plant and equipment is based on a valuation using a combination of the income, cost and market approaches. The useful lives are based upon guidelines for similar equipment, chronological age since installation and consideration of costs spent on upgrades, repairs, turnarounds and rebuilds.

⁽²⁾The acquired intangible assets amount includes the following identified intangibles:


•	Third-party fuel supply agreement intangible that is subject to amortization with a fair value of $49.0 million, which is being amortized over a 10-year useful life. We recognized amortization expense for the year ended December 31, 2018 of $4.9 million. The estimated annual amortization is $4.9 million for the four succeeding fiscal years.


•	Fuel trade name intangible valued at $4.0 million, which will be amortized over 5 years. We recognized amortization expense for the year ended December 31, 2018 of $0.8 million. The estimated annual amortization is $0.8 million for the three succeeding fiscal years, with $0.4 million in the fourth succeeding year.


•	License agreements intangible valued at $2.6 million, which is being amortized over 8.7 years. We recognized amortization expense for the year ended December 31, 2018 of $0.1 million, as this intangible was sold in the first quarter of 2018.


•	Rights-of-way intangible valued at $9.5 million, which has an indefinite life.


•	Liquor license intangible valued at $8.5 million, which has an indefinite life.


•	Colonial Pipeline shipping rights intangible valued at $1.7 million, which has an indefinite life.


•	Refinery permits valued at $3.1 million, which have an indefinite life.


•	Below-market lease intangibles valued at $8.3 million, which is being amortized over the remaining lease term.

⁽³⁾Goodwill generated as a result of the Delek/Alon Merger consists of the value of expected synergies from combining operations, the acquisition of an existing integrated refining, marketing and retail business located in areas with access to cost–advantaged feedstocks with an assembled workforce that cannot be duplicated at the same costs by a new entrant, and the strategic advantages of having a larger market presence. The total amount of goodwill that is expected to be deductible for tax purposes is $15.5 million. Goodwill has been allocated to reportable segments based on various relevant factors. The updated allocation of goodwill to reportable segments in connection with the purchase price allocation is as follows: Refining - $801.3 million and Retail - $44.3 million. The remainder relates to the asphalt operations, which was included in the corporate, other and eliminations segment, and which was subsequently written off as part of the impairment on assets held for sale during the first quarter of 2018.

⁽⁴⁾The assumed other non-current liabilities include liabilities related to above-market leases fair valued at $15.8 million, which is being amortized over the remaining lease term. During the year ended December 31, 2018, we continued our procedures to determine the fair value of assets acquired and liabilities assumed in the Delek/Alon Merger, as anticipated and disclosed in our 2017 Annual Report on Form 10-K (all of which were completed by June 30, 2018, within the permitted measurement period). As a result, the following changes were made to the preliminary purchase price allocation disclosed in our 2017 Annual Report on Form 10-K:



Subsequent increases (decreases) to initial allocation of fair value of net assets acquired:
Receivables ⁽¹⁾	$	10.7
Inventories	(0.5		)
Prepaids and other current assets ⁽²⁾	9.7
Property, plant and equipment	(0.2		)
Acquired intangible assets ⁽³⁾	7.7
Accounts payable ⁽⁴⁾	6.0
Obligation under Supply & Offtake Agreements ⁽⁵⁾	10.9
Current portion of environmental liabilities	0.4
Other current liabilities ⁽⁶⁾	22.3
Environmental liabilities and asset retirement obligations, net of current portion ⁽⁷⁾	65.3
Deferred income taxes ⁽⁸⁾	(8.4		)
Other non-current liabilities ⁽⁹⁾	(2.8		)
Resulting increase to goodwill	$	66.3

⁽¹⁾Change primarily relates to the recognition of a receivable associated with a third-party indemnification agreement for asset retirement obligations for one of the acquired refineries that was previously under review, and finalization of an accrued receivable estimate.

⁽²⁾Change primarily relates to a reclassification of RINs assets from other current liabilities to other current assets.

⁽³⁾Change is primarily due to the addition of an intangible asset for certain below-market leases that had previously been identified but for which the evaluation and determination of fair value was not complete at December 31, 2017.

⁽⁴⁾Change is primarily due to the elimination of amounts in accounts payable in the retail segment that were determined not to have value combined with reclassifications of amounts to accounts receivable.

⁽⁵⁾Change relates to true-up of certain accounts related to one of the acquired supply and offtake agreements for contractual terms that were previously under review.

⁽⁶⁾Change is primarily due to an increase related to the reclassification of RINs assets from other current liabilities to other current assets and an increase related to the accrual of certain executive bonuses that were required under existing Alon employment agreements and related to service provided prior to the Delek/Alon Merger, net of adjustments to current income taxes payable to true up income taxes related to the acquired net assets.

⁽⁷⁾Change is to record the long-term portion of additional asset retirement obligations and environmental liabilities identified and/or to update preliminary estimates based on additional information.

⁽⁸⁾Change is related to adjustments to net deferred tax liabilities based on the updated purchase price allocation and revisions of preliminary tax estimates.

⁽⁹⁾Change is related to the reversal of an accrual established in the purchase price allocation related to a pre-acquisition legal contingency that was resolved during the first quarter 2018 in our favor.

Business Acquisition, Pro Forma Information

The following unaudited pro forma financial information presents the condensed combined results of operations of Delek and Alon for the years ended December 31, 2017 and 2016, as if the Delek/Alon Merger had occurred on January 1, 2016, and reflects the final purchase price allocation. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations that would have been reported had the Delek/Alon merger been completed as of January 1, 2016, and should not be taken as indicative of New Delek's future consolidated results of operations. In addition, the unaudited pro forma condensed combined results of operations do not reflect any cost savings or associated costs to achieve such savings from operating efficiencies, synergies, debt refinancing or other restructuring that may result from the Delek/Alon Merger. The pro forma financial information also does not reflect certain non-recurring adjustments that have been, or are expected to be, recorded in connection with the Delek/Alon Merger, including any accrual for integration costs or transaction costs or additional transactions costs related to the Merger, nor any retrospective adjustments related to the conforming of Alon's accounting policies to Delek's accounting policies, as such adjustments are impracticable to determine, and such adjustments are not expected to be indicative of on-going operations of the combined company. Finally, the pro forma presentation of net revenues and net income is inclusive of the revenue and net income (loss) attributable to the California Discontinued Entities (which are generally not material as the majority of the California Discontinued Entities were non-operating during the pro forma period). Pro forma adjustments are tax-effected at the Company's estimated statutory tax rates.



	Year Ended
	December 31,
(in millions, except per share data)	2017 ^{(1) (2)}		2016 ^{(1) (2)}
	(unaudited)
Net revenues	$	9,477.8	$	8,100.9
Net income attributable to Delek	223.6		16.3
Earnings per share:
Basic	$	2.75	$	0.20
Diluted	$	2.73	$	0.20

⁽¹⁾The pro forma information for the years ended December 31, 2017 and 2016 has been updated to reflect the final purchase price allocation in the table above.


⁽²⁾	The unaudited pro forma statements of operations reflect the following adjustments:


•	To eliminate transactions between Delek and Alon for purchases and sales of refined products, reducing revenue and the associated cost of materials and other. Such pro forma eliminations resulted in a decrease to combined pro forma revenues by $59.0 million and $10.4 million million for the years ended December 31, 2017 and 2016, respectively.


•	To eliminate the non-recurring transaction costs incurred during the historical periods. Such adjustments to general and administrative expense have been estimated to result in an increase to pro forma pre-tax income attributable to Delek totaling $32.2 million and $13.7 million million for the years ended December 31, 2017 and 2016.

•

To retrospectively reflect depreciation of property, plant and equipment and amortization of intangibles based on the fair value of the assets as of the acquisition date, as if that fair value had been reflected beginning January 1, 2016, and to retrospectively eliminate the amortization of any previously recorded intangibles. Such adjustments to depreciation and amortization have been estimated to result in an increase to pro forma pre-tax income attributable to Delek totaling $34.7 million and $70.8 million million for the years ended December 31, 2017 and 2016, respectively.


•	To retrospectively reflect the accretion of asset retirement obligations and certain environmental liabilities. Such adjustments to general and administrative expense have been estimated to result in a decrease to pro forma pre-tax income attributable to Delek totaling $0.8 million and $1.6 million million for the years ended December 31, 2017 and 2016, respectively.

•

To retrospectively reflect adjustments to interest expense, including the impact of discounts or premiums created by the difference in fair value and outstanding amounts as of the acquisition date (collectively, the “new effective yield”), by applying the new effective yield to historical outstanding amounts in the pro forma period and reversing previously recognized interest expense. Such net adjustments to interest expense have been estimated to result in an increase to pro forma pre-tax income attributable to Delek totaling $9.4 million and $20.7 million million for the years ended December 31, 2017 and 2016, respectively.


•	To eliminate Delek’s equity income previously recorded on its equity method investment in Alon, prior to the Merger. Such pro forma elimination resulted in an (increase) decrease to pro forma pre-tax income totaling $3.2 million and $(42.2) million million for the years ended December 31, 2017 and 2016, respectively.


•	To eliminate the impairment charge on the equity method investment in Alon totaling $245.3 million recognized in the year ended December 31, 2016, and to eliminate the gain on remeasurement of the equity method investment in Alon totaling $190.1 million recognized during the year ended December 31, 2017.


•	To record the tax effect on pro forma adjustments and additional tax benefit associated with dividends received from Alon at a combined U.S. (federal and state) income tax statutory blended rate of approximately 37% for the year ended December 31, 2017, and approximately 35% for the year ended December 31, 2016.

•

To adjust the weighted average number of shares outstanding based on 0.504 of a share of Delek common stock for each share of Alon common stock outstanding as of July 1, 2017, as if they were outstanding for the entire year ended December 31, 2017, reflecting the elimination of Alon historical weighted average shares outstanding and the addition of the estimated New Delek incremental shares issued.

Schedule of Asset Acquisitions, by Acquisition

The following table summarizes the allocation of the relative fair value assigned to the asset groups for the acquisitions (in millions):



Land	$	0.2
Property, plant and equipment	6.4
Intangible assets ⁽¹⁾	6.4
Total	$	13.0

⁽¹⁾ Intangible assets acquired represent rights-of-way assets with indefinite useful lives. Rights-of-way assets are not subject to amortization.