Delek us holdings reports second quarter 2015 results
Brentwood, tenn.--(business wire)--delek us holdings, inc. (nyse: dk) (“delek us”) today announced financial results for its second quarter ended june 30, 2015. delek us reported a second quarter net income of $48.3 million, or $0.79 per diluted share, versus net income of $54.9 million, or $0.92 per diluted share, for the quarter ended june 30, 2014. operating income in the second quarter 2014 included a one-time non-cash expense of approximately $22.6 million before tax related to the financial settlement under the restated supply and offtake agreement with j aron. second quarter 2015 results included a $15.3 million net hedging loss, of which $13.4 million was unrealized. there was approximately $22.8 million of costs that reduced performance in the period, which includes the unrealized hedging loss, expenses related to the alon usa transaction, higher depreciation due to asset disposals and unanticipated pipeline related expenses. the effect of the alon usa transaction for the period from may 14, 2015 to june 30, 2015 is included in results for the second quarter 2015. equity income related to the ownership in alon usa was $9.2 million, which was reduced by $1.7 million of depreciation expense for a net pre-tax equity income of $7.5 million. as part of the financing of this transaction, interest expense increased by $6.2 million in the second quarter 2015, which included $3.9 million of one-time interest expense related to financing costs. results in the second quarter 2015 benefited from increased throughput at the tyler, texas refinery and a higher wti gulf coast 5-3-2 crack spread on a year-over-year basis. in the first quarter 2015, as part of the inventory management strategy, crude oil and product inventory was built during a period of lower prices. in the second quarter 2015 there was a 1.2 million barrel inventory reduction that occurred, consisting primarily of crude oil, during a period of rising prices. this change in inventory during the second quarter 2015 was a portion of a $19.0 million net inventory benefit during the period. an offsetting factor was a narrower discount between midland wti and cushing wti on a year-over-year basis, which lowered the performance in the refining segment. uzi yemin, chairman, president and chief executive officer of delek us stated, "during the second quarter our tyler refinery reached a total throughput record following the completion of a 15,000 barrel per day expansion in march 2015. in addition, our refining segment achieved an operating cost of approximately $4.00 per barrel in the quarter. we took additional steps to improve our crude sourcing flexibility at the el dorado refinery through a new agreement that will provide access to the recently reversed exxon north pipeline. this new access allowed cushing wti to be delivered from longview, texas to finney, louisiana and then to el dorado beginning in july 2015. lastly, same store fuel gallons and merchandise sales increased year-over-year in our retail segment and we made progress on the joint venture crude oil pipeline projects in our logistics segment." yemin concluded, "also in may we completed a strategic step in our growth plan with the acquisition of 48 percent of the outstanding shares of alon usa, which added approximately $7.5 million of pre-tax income during the quarter. we look forward to continuing to work with alon's board and management team, and are excited about the potential to create additional value in the future. our financial position remains strong, and we expect to see declining capital expenditure needs in the second half of the year, which should create the potential for increased free cash flow from our operations. these factors should provide support for our growth initiatives, while allowing us the flexibility to continue to return cash to our shareholders." alon transaction on may 14, 2015, delek us purchased from alon israel oil company ltd. (“alon israel”) approximately 33.7 million shares, or approximately 48 percent of the outstanding shares, of alon usa energy, inc. (nyse: alj) (“alon usa”) common stock. consideration paid to alon israel included 6.0 million restricted shares of delek us, a $145.0 million unsecured promissory note and $200.0 million in cash. the cash payment was financed through a $176.0 million increase in lion oil's term loan facility and cash on hand. in addition to the effects discussed above of this transaction on interest and depreciation expense, the weighted average diluted shares outstanding for delek us increased by approximately 3.0 million in the second quarter 2015 reflecting a higher share count for the 48 days that followed the alon usa transaction. the depreciation expense is estimated to be approximately $3.4 million on a quarterly basis going forward, but is subject to change based on the final determination of fair value as of the acquisition date. regular quarterly dividend delek us announced today that its board of directors had declared its regular quarterly cash dividend of $0.15 per share. shareholders of record on august 25, 2015 will receive this cash dividend payable on september 15, 2015. liquidity as of june 30, 2015, delek us had a cash balance of $378.4 million and total debt of $971.9 million, resulting in net debt of $593.5 million. this compares to $297.8 million of net debt at march 31, 2015. as of june 30, 2015, delek us' subsidiary, delek logistics partners, lp (nyse: dkl) ("delek logistics"), had $316.9 million of debt, which is included in the consolidated amounts on delek us' balance sheet. excluding delek logistics, delek us had approximately $378.3 million in cash and $655.0 million of debt, or a $276.7 million net debt position. during the second quarter 2015, the increase in debt was primarily associated with the purchase of approximately 48 percent of the outstanding shares of alon usa. refining segment refining contribution margin decreased to $112.0 million from $122.9 million in the second quarter 2014. this decline in year-over-year performance can be attributed to several factors. first, the midland discount to wti cushing narrowed on a year-over-year basis. second, a net hedging loss of $15.2 million occurred in the second quarter 2015 compared to an $8.5 million hedging gain in the prior year period. in the prior year period, the contribution margin at el dorado was reduced by a before-tax $22.6 million one-time non-cash expense related to the financial settlement of the restated supply and offtake agreement with j aron. the wti midland crude discount to wti cushing declined on a year-over-year basis, averaging $0.60 per barrel in second quarter 2015 compared to an average of $8.37 per barrel in the second quarter 2014. this decline in the midland differential was partially offset by a crude oil futures market that was in contango of $1.77 per barrel in the second quarter 2015 compared to backwardation of $0.92 per barrel in the second quarter 2014. the gulf coast 5-3-2 crack spread averaged $18.60 per barrel during the second quarter 2015, an increase from $17.10 per barrel during second quarter 2014. tyler, texas refinery during the second quarter 2015, the tyler refinery benefited from the 15,000 barrel per day expansion completed in march 2015. this was the primary driver in higher throughputs and sales volume. direct operating expense decreased primarily due to lower utility, chemical/catalysts and insurance expense on a year-over year-basis. following the completion of the turnaround and expansion project, total depreciation increased for delek us beginning in the second quarter 2015. approximately $1.3 million of this amount in the second quarter 2015 was one-time accelerated depreciation expense related to disposal of equipment associated with work during the tyler turnaround. el dorado, arkansas refinery during the second quarter 2015, while crude throughput was lower on a year-over-year basis, sales volume increased to a record level of approximately 87,600 barrels per day. in the second quarter 2015, refining margin was reduced by approximately $15.0 million due to higher cost asphalt inventory that was sold during the period. in the prior year period, the refining margin was reduced by $22.6 million, or $2.89 per barrel, as a result of the financial settlement of the supply and offtake agreement. direct operating expense increased year-over-year due to maintenance, environmental remediation and employee related expenses compared to the second quarter 2014. included in the second quarter 2015, are approximately $4.2 million of unanticipated pipeline expenses that are primarily related to environmental remediation costs in the period. logistics segment delek us and its affiliates beneficially own approximately 62 percent (including the 2 percent general partner interest) of all outstanding delek logistics units. the logistics segment's results include 100 percent of the performance of delek logistics and adjustments for the minority interests are made on a consolidated basis. the logistics segment's contribution margin in the second quarter 2015 was $28.8 million compared to $30.1 million in the second quarter 2014. on a year-over-year basis, results benefited from delek logistics’ acquisitions over the past year, including the el dorado, arkansas rail offloading rack and the tyler, texas crude oil storage tank purchased on march 31, 2015 from subsidiaries of delek us. additionally, new agreements put in place on january 1, 2015 increased contribution from the paline pipeline, and higher throughputs on assets supporting the tyler, texas refinery benefited results. these factors were more than offset by a lower gross margin per barrel in the west texas wholesale business. retail segment retail segment contribution margin decreased year-over-year primarily due to lower fuel margins and higher operating expenses. operating expense increased primarily due to workers compensation and general liability claim settlements, which was partially offset by lower credit card expense on a year-over-year basis. fuel gallons sold increased to 116.2 million from 109.4 million in the prior-year period and merchandise sales increased to $109.2 million compared to $103.7 million. on a same store sales basis, fuel gallons sold increased 2.6% and merchandise sales increased 3.6% from second quarter 2014. the increase in same store fuel gallons was primarily driven by improved performance from the large-format store category on a year-over-year basis. at the end of the second quarter 2015, there were a total of 64 large-format stores in the portfolio. second quarter 2015 results | conference call information delek us will hold a conference call to discuss its second quarter 2015 results on tuesday, august 4, 2015 at 11:30 a.m. central time. investors will have the opportunity to listen to the conference call live by going to www.delekus.com and clicking on the investor relations tab. participants are encouraged to register at least 15 minutes early to download and install any necessary software. for those who cannot listen to the live broadcast, a telephonic replay will be available through november 4, 2015 by dialing (855) 859-2056, passcode 69603058. an archived version of the replay will also be available at www.delekus.com for 90 days. investors may also wish to listen to delek logistics’ (nyse: dkl) second quarter earnings conference call that will be held on august 4, 2015 at 7:00 a.m. central time and review delek logistics’ earnings press release. market trends and information disclosed by delek logistics may be relevant to the logistics segment reported by delek us. both a replay of the conference call and press release for delek logistics are available online at www.deleklogistics.com. about delek us holdings, inc. delek us holdings, inc. is a diversified downstream energy company with assets in petroleum refining, logistics and convenience store retailing. the refining segment consists of refineries operated in tyler, texas and el dorado, arkansas with a combined nameplate production capacity of 155,000 barrels per day. delek us holdings, inc. and its affiliates also own approximately 62 percent (including the 2 percent general partner interest) of delek logistics partners, lp. delek logistics partners, lp (nyse: dkl) is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets. the retail segment markets motor fuel and convenience merchandise through a network of approximately 360 company-operated convenience store locations operated under the mapco express®, mapco mart®, east coast®, fast food and fuel™, favorite markets®, delta express® and discount food mart™ brand names. delek us holdings, inc. also owns approximately 48 percent of the outstanding common stock of alon usa energy, inc. (nyse: alj). safe harbor provisions regarding forward-looking statements this press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. statements concerning current estimates, expectations and projections about future results, performance, prospects and opportunities and other statements, concerns, or matters that are not historical facts are “forward-looking statements,” as that term is defined under the federal securities laws. investors are cautioned that the following important factors, among others, may affect these forward-looking statements. these factors include but are not limited to: risks and uncertainties with respect to the quantities and costs of crude oil we are able to obtain and the price of the refined petroleum products we ultimately sell; gains and losses from derivative instruments; changes in the scope, costs, and/or timing of capital and maintenance projects; management's ability to execute its strategy of growth through acquisitions and the transactional risks associated with acquisitions; the effect on our financial results by the financial results of alon usa energy, inc., in which we hold a significant equity investment; operating hazards inherent in transporting, storing and processing crude oil and intermediate and finished petroleum products; our competitive position and the effects of competition; the projected growth of the industries in which we operate; general economic and business conditions, particularly levels of spending relating to travel and tourism or conditions affecting the southeastern united states; and other risks contained in our filings with the united states securities and exchange commission. forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by which such performance or results will be achieved. forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. delek us undertakes no obligation to update or revise any such forward-looking statements. delek us holdings, inc. consolidated balance sheets (unaudited) june 30, 2015 (in millions, except share and pershare data) delek us holdings, inc. consolidated statements of income corporate,other andeliminations corporate,other andeliminations corporate,other andeliminations corporate,other andeliminations refining segment tyler refinery el dorado refinery pricing statistics (average for the period presented): logistics segment retail segment
