Inventory

3 Months Ended

Mar. 31, 2022

Crude oil, work in process, refined products, blendstocks and asphalt inventory for all of our operations, excluding merchandise inventory in our retail segment, are stated at the lower of cost determined using FIFO basis or net realizable value. Retail merchandise inventory consists of cigarettes, beer, convenience merchandise and food service merchandise and is stated at estimated cost as determined by the retail inventory method.

Effective January 1, 2022, we changed our method for valuing the inventory held at the Tyler Refinery to the FIFO inventory valuation method from the LIFO inventory valuation method. Total inventories accounted for using LIFO, prior to the accounting method change, comprised 28.0% of the Company’s total inventories as of December 31, 2021. This change in accounting method is preferable because it provides better consistency across our refineries and improved transparency, and results in recognition that better reflects the physical flow of inventory and more accurately reflects the current value of inventory. After this change, we no longer utilize the LIFO valuation method and the majority of our inventories are now valued using the FIFO cost method, with the remainder valued using the Retail method for the retail segment inventory. The effects of this change have been retrospectively applied to all periods presented. This change resulted in a decrease to retained earnings of $8.7 million as of January 1, 2021 in accordance with ASC 250, Accounting Changes and Error Corrections.

The following table presents the components of inventory for each period presented reflecting the accounting method change discussed above:

(In millions):


			December 31, 2021
	March 31, 2022		As Adjusted (1)
Refinery raw materials and supplies	$	774.1	$	516.0
Refinery work in process	186.3		156.2
Refinery finished goods	622.8		550.6
Retail fuel	11.0		9.3
Retail merchandise	28.2		26.2
Logistics refined products	1.8		2.4
Total inventories	$	1,624.2	$	1,260.7

(1) Adjusted to reflect the retrospective change in accounting policy from LIFO to FIFO for certain inventories, as described above.

In addition, certain financial statement line items in our Condensed Consolidated Statement of Income and our Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2021 and our Consolidated Condensed Balance Sheet as of December 31, 2021, were retrospectively adjusted as follows:


	Three Months Ended March 31, 2021
(In millions)	As Reported (using LIFO)		Adjustment		As Adjusted (using FIFO)
Condensed Consolidated Statements of Income
Cost of materials and other	$	2,205.5	$	(32.7)	$	2,172.8
Total cost of sales	2,397.7		(32.7)		2,365.0
Loss before income tax benefit	(103.7)		32.7		(71.0)
Income tax benefit	(12.4)		4.1		(8.3)
Net loss	(91.3)		28.6		(62.7)
Net loss attributable to Delek	(98.6)		28.6		(70.0)

Net loss per share attributable to Delek
Basic	$	(1.34)	$	0.39	$	(0.95)
Diluted	$	(1.34)	$	0.39	$	(0.95)


	December 31, 2021
(In millions)	As Reported (using LIFO)		Adjustment		As Adjusted (using FIFO)
Condensed Consolidated Balance Sheet
Inventories, net of inventory valuation reserves	$	1,176.1	$	84.6	$	1,260.7

Total Assets	6,728.0		84.6		6,812.6

Deferred tax liabilities	196.4		18.1		214.5
Retained Earnings	318.2		66.5		384.7
Total liabilities and stockholders' equity	6,728.0		84.6		6,812.6


	Three Months Ended March 31, 2021
(In millions)	As Reported (using LIFO)		Adjustment		As Adjusted (using FIFO)
Condensed Consolidated Statements of Cash Flows
Net loss	$	(91.3)	$	28.6	$	(62.7)
Non-cash lower of cost or market/net realizable value adjustment	(20.4)		21.2		0.8
Deferred income taxes	5.1		3.8		8.9
Inventories and other current assets	(304.2)		(39.4)		(343.6)
Accounts payable and other current liabilities	524.5		(14.2)		510.3

The following tables reflect the effect of the change in the accounting principle on the current period Condensed Consolidated Financial Statements:


	Three Months Ended March 31, 2022
(In millions)	As Computed (using LIFO)		As Reported (using FIFO)		Effect of Change
Condensed Consolidated Statements of Income
Cost of materials and other	$	4,273.6	$	4,152.5	$	121.1
Total cost of sales	4,475.8		4,354.7		121.1
(Loss) income before income tax (benefit) expense	(103.2)		17.9		(121.1)
Income tax (benefit) expense	(21.2)		3.1		(24.3)
Net (loss) income attributable to Delek	(90.2)		6.6		(96.8)

Net (loss) income per share attributable to Delek
Basic	$	(1.23)	$	0.09	$	(1.32)
Diluted	$	(1.23)	$	0.09	$	(1.32)


	March 31, 2022
(In millions)	As Computed (using LIFO)		As Reported (using FIFO)		Effect of Change
Condensed Consolidated Balance Sheet
Inventories, net inventory valuation reserves	$	1,449.2	$	1,624.2	$	(175.0)

Total Assets	7,771.7		7,946.7		(175.0)
Accrued expenses and other current	1,057.0		1,032.3		24.7
Deferred tax liabilities	182.3		218.7		(36.4)
Retained Earnings	228.0		391.3		(163.3)
Total liabilities and stockholders' equity	7,771.7		7,946.7		(175.0)


	Three Months Ended March 31, 2022
(In millions)	As Computed (using LIFO)	As Reported (using FIFO)		Effect of Change
Condensed Consolidated Statements of Cash Flows
Net (loss) income	(82.0)	$	14.8	$	(96.8)
Non-cash lower of cost or market/net realizable value adjustment	(8.0)	(8.5)		0.5
Deferred income taxes	(7.9)	10.4		(18.3)
Inventories and other current assets	(375.3)	(465.2)		89.9
Accounts payable and other current liabilities	1,013.3	988.6		24.7

At March 31, 2022, we recorded a pre-tax inventory valuation reserve of $0.8 million due to a market price decline below our cost of certain inventory products. At December 31, 2021, we recorded a pre-tax inventory valuation reserve of $9.3 million. We recognized a net reduction (increase) in cost of materials and other in the accompanying condensed consolidated statements of income related to the change in pre-tax inventory valuation of $8.5 million and $(0.9) million for the three months ended March 31, 2022 and 2021, respectively.