FRANKLIN, Tenn., Nov. 9 /PRNewswire-FirstCall/ -- Delek US Holdings, Inc. (NYSE: DK) today reported net income of $26.3 million, or $0.52 per basic share and $0.51 per diluted share, for the third quarter 2006 compared to $32.5 million, or $0.82 per basic and diluted share, for the third quarter 2005. For the first nine months of 2006, Delek reported a record net income of $81.4 million, or $1.78 per basic share and $1.75 per diluted share compared to $39.5 million or $1.00 per basic and diluted share for the first nine months of 2005.
Consolidated: Net sales for the third quarter of 2006 were $920.9 million versus $698.7 million in the comparative 2005 third quarter, an increase of $222.2 million. The increase was primarily driven by sales from the new marketing segment, the additional retail stores which have been acquired from BP and Fast Petroleum in the previous twelve months, and improved sales at the Tyler refinery.
Our segment contribution margin for the third quarter of 2006 was $58.7 million compared to $78.6 million in the 2005 third quarter. The changes in the segment contribution margin were primarily related to the drop in the 5-3- 2 Gulf Coast crack spread, as well as a single purchase of initial inventory in our marketing and supply segment at a spot price which generated losses of $2.7 million due to an immediate drop in market value prior to the ultimate sale of such inventory.
Our net income for the third quarter of 2006 was $26.3 million including the spot inventory purchase loss noted above, an unrealized loss on interest rate derivatives and a write-off of costs associated with an unsuccessful acquisition which totaled $3.0 million after tax.
Uzi Yemin, President and Chief Executive Officer of Delek US, remarked, "We were especially pleased by the strong operational execution in our business during the third quarter and the first nine months of 2006. The third quarter was a quarter of tremendous growth for the Company with the completion of two major acquisitions, the completion of two projects at our Tyler refinery, and the start of a new marketing and supply business segment."
Refining Segment: The refining segment contribution margin was $36.5 million for the third quarter of 2006 compared to $60.3 million for the third quarter of 2005. The refinery operating gross margin for the quarter was $10.58 per barrel, which was 103% of the U.S. Gulf Coast 5-3-2 crack spread, compared to $15.01 per barrel, or 94% of the U.S. Gulf Coast 5-3-2 crack spread, for the same quarter of 2005. The year-over-year decrease of $5.64 in the Gulf Coast 5-3-2 crack spread was partially offset by the increase in our overall refinery utilization margin compared to the U.S. Gulf Coast 5-3-2.
Additionally, during the third quarter, we completed a major revamp project at our Tyler refinery that allows for the production of 22,000 barrels per day of Ultra Low Sulfur Diesel, an overall increase of over 83% from our prior capacity. This project was undertaken in order to comply with governmental regulations requiring a reduction in sulfur content for diesel. We also completed the construction of a new Sulfur Recovery Complex that increased our sulfur recovery capacity from 19 long tons per day to 35 long tons a day.
In spite of the shutdown of the diesel hydrotreater for approximately one month, the refining segment produced net sales of $424.5 million by selling 5.1 million barrels of refined product compared with $399.1 million on the sale of 5.1 million barrels for the third quarter of 2005.
Finally, our Board of Directors approved the commencement of engineering for a group of inter-related projects intended to improve profitability of the Tyler Refinery. These projects are anticipated to be implemented in conjunction with the completion of our Clean Fuels capital program, subject to deliveries of long-lead equipment, environmental permitting, and availability of skilled labor.
Retail Segment: The retail segment reported a record contribution margin for the third quarter of 2006 of $23.1 million. The retail segment reported net sales of $401.8 million, an increase of 33.8% compared to the third quarter last year. During the quarter, Delek US completed the acquisition of 43 convenience stores from Fast Petroleum, increasing our stores in operation to 392 at the end of the third quarter, up from 328 at the same time in 2005. This acquisition provides Delek US with additional geographic store density between its core markets of middle Tennessee and northern Alabama.
Merchandise sales for the quarter increased $12.5 million to $90.8 million compared to $78.3 million for the third quarter of 2005, an increase of 16%. The increase was driven by $11.2 million in merchandise sales associated with the acquired BP and Fast stores. Same-store merchandise sales increased 1.7% for the quarter. We continue to expand our focus on fountain and food service, realizing a same store sales increase of 12.9% in the category. The merchandise margin increased to 30.3% for the third quarter of 2006 from 29.2% for the same quarter last year. Consistent with the retail segment's performance throughout 2006, the year over year improvement reflected increased sales of higher margin items, such as food, coffee and fountain drinks.
The retail segment's total fuel sales for the third quarter of 2006 increased 40.3% to $290.0 million from $206.7 million for the same quarter of 2005, primarily due to both the 9.3% increase in the average retail price per gallon of fuel to $2.71 for the latest quarter from $2.48 for the third quarter last year, and a 28.3% increase in gallons sold to 107.0 million from 83.4 million. This increase in gallons sold was primarily driven by the increased number of stores in operation, as well as by a 5.5% growth in same- store gallons sold. The retail fuel margin was $0.207 per gallon for the third quarter of 2006 compared to $0.208 per gallon for the third quarter of 2005.
Marketing and Supply Segment: As part of Delek's overall strategy to diversify and integrate its operational segments, we established a new operating segment during the quarter in conjunction with the acquisition from The Pride Companies. The new marketing and supply segment contributed $94.4 million to net sales for the quarter. From the date of acquisition, August 1, 2006 through September 30, 2006, the marketing and supply segment reported a contribution loss of $958 thousand. As discussed above, included in the contribution loss is an inventory loss of $2.7 million associated with the initial purchase of inventory. The marketing and supply segment reported total sales volume of 17,535 barrels per day during the quarter.
Yemin added, "In addition to our operating performance for the third quarter, we are pleased to announce that the Delek US Board of Directors has voted to declare a cash dividend of $0.0375 per share, payable on December 7, 2006, to shareholders of record on November 20, 2006."
Conference Call: Delek US will hold a conference call to discuss this release today at 10:30 a.m. Eastern time. Investors will have the opportunity to listen to the conference call live over the Internet by going to http://www.delekus.com and clicking Investor Relations, or by going to http://www.earnings.com, at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a telephonic replay will be available for one week at 719/457-0820, code 1118491, and the replay will also be available on the Company's Web site for 90 days.
About the Company: Delek US Holdings, Inc. is a diversified energy business focused on petroleum refining, marketing and supply, and retail marketing. The refining segment operates a high conversion, independent refinery, with a design crude distillation capacity of 60,000 barrels per day, in Tyler, Texas. The marketing and supply segment markets refined products through its terminals in Abilene, Texas and San Angelo, Texas as well as other third party terminals. The retail segment markets gasoline, diesel and other refined petroleum products and convenience merchandise through a network of 392 company-operated retail fuel and convenience stores, operated under the MAPCO Express(R), MAPCO Mart(TM), East Coast(R) and Discount Food Mart(TM) brand names.
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 our current estimates, expectations and projections about our 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: our competitive position and the effects of competition; the projected growth of the industry in which we operate; changes in the scope, costs, and/or timing of capital projects; management's ability to execute its strategy of growth through acquisitions and transactional risks in acquisitions; general economic and business conditions, particularly levels of spending relating to travel and tourism or conditions affecting the southeastern United States; risks and uncertainties with the respect to the quantities of refined petroleum products shipped on our pipelines and/or held in our terminals; reductions in production or shutdowns at refineries utilizing our pipeline and terminal facilities; potential conflicts of interest between Delek US's major stockholder and other stockholders; and other risks contained in our filings with the 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. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
September 30, December 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $100,161 $62,568
Short-term investments 80,918 26,586
Accounts receivable 92,876 52,968
Inventory 117,361 101,294
Income tax receivable 1,018 -
Other current assets 24,502 8,405
Total current assets 416,836 251,821
Property, plant and equipment:
Property, plant and equipment 475,839 317,118
Less: accumulated depreciation (60,837) (46,523)
Total property, plant and equipment, net 415,002 270,595
Goodwill 82,484 63,711
Other Intangibles 13,701 549
Note receivable from a related party - 200
Other noncurrent assets 17,392 19,284
Total assets $945,415 $606,160
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $62,551 $35,392
Account payable to a related party 125 -
Fuel payable 135,386 109,154
Current portion of long-term debt 25,493 1,696
Interest payable 2,007 1,870
Related party interest payable - 2,870
Other taxes payable 13,032 11,760
Accrued employee costs 3,384 4,649
Income taxes payable - 202
Accrued expenses and other current liabilities 8,841 8,221
Total current liabilities 250,819 175,814
Noncurrent liabilities:
Long-term debt, net of current portion 260,813 224,559
Notes payable to related parties - 42,500
Accrued lease liability 4,241 3,754
Deferred revenue, net of current portion 1,588 1,434
Asset retirement obligations 3,895 3,393
Deferred tax liabilities 41,965 27,530
Other noncurrent liabilities 11,677 7,306
Total noncurrent liabilities 324,179 310,476
Shareholders' equity:
Preferred stock, $0.01 par value,
10,000,000 shares authorized, 0 shares
issued and outstanding - -
Common stock, $0.01 par value, 110,000,000
shares authorized, 50,889,869 shares
and 39,389,869 shares issued and
outstanding respectively 509 394
Additional paid-in capital 209,753 40,727
Retained earnings 160,155 78,749
Total shareholders' equity 370,417 119,870
Total liabilities and shareholders' equity $945,415 $606,160
DELEK US HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share data)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2006 2005 2006 2005
Net sales $920,851 $698,747 $ 2,400,200 $ 1,387,541
Operating costs and
expenses:
Cost of goods sold 817,413 581,184 2,094,072 1,179,495
Operating expenses 44,767 38,988 128,852 92,286
General and
administrative
expenses 10,032 7,405 27,171 17,037
Depreciation and
amortization 5,733 4,305 14,815 11,472
Loss (gain) on disposal
of assets 5 544 6 (1,638)
Losses on forward
contract activities - 10,923 54 10,923
877,950 643,349 2,264,970 1,309,575
Operating income 42,901 55,398 135,230 77,966
Interest expense 5,443 5,531 17,082 11,858
Interest income (2,430) (1,068) (4,975) (1,093)
Deferred finance cost
written off in connection
with Refinance - - - 3,466
Interest expense to
related parties - 852 1,019 2,287
(Gain) loss on interest rate
derivative instruments 1,363 (1,015) (161) (1,014)
Guarantee fees to related
parties - 188 210 313
4,376 4,488 13,175 15,817
Income before income tax
expense and cumulative
effect of change in
accounting policy 38,525 50,910 122,055 62,149
Income tax expense 12,182 18,418 40,649 22,362
Income before cumulative
effect of change in
accounting policy 26,343 32,492 81,406 39,787
Cumulative effect of change
in accounting policy, net - - - 267
Net income $26,343 $32,492 $81,406 $39,520
Basic earnings per share:
Income before cumulative
effect of change in
accounting policy $0.52 $0.82 $1.78 $0.99
Cumulative effect of
change in accounting
policy, net - - - 0.01
Net income $0.52 $0.82 $1.78 $1.00
Diluted earnings per share:
Income before cumulative
effect of change in
accounting policy $0.51 $0.82 $1.75 $0.99
Cumulative effect of
change in accounting
policy, net - - - 0.01
Net income $0.51 $0.82 $1.75 $1.00
Basic and diluted weighted
average common shares
outstanding
Basic 50,889,869 39,389,869 45,778,758 39,389,869
Diluted 52,005,795 39,389,869 46,516,789 39,389,869
DELEK US HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the Nine Months Ended
September 30,
2006 2005
Cash flows from operating activities:
Net income $ 81,406 $39,520
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 17,410 13,301
Accretion of asset retirement obligations 239 -
Deferred income taxes 12,623 (287)
(Gain) loss on interest rate derivative instruments (161) (1,014)
(Gain) loss on disposal of assets 6 (1,638)
Deferred financing costs written-off in connection
with refinance - 3,466
Unrealized (gain) loss on short-term investments (100) -
Unrealized (gain) loss on fuel derivative instruments - 10,923
Non-cash stock compensation expense 1,611 -
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable (39,908) (74,197)
Inventory (11,417) 18,630
Other current assets (19,000) (449)
Other noncurrent assets 1,511 564
Accounts payable 27,159 93,800
Accounts payable to a related party 125 -
Fuel payable 26,232 5,371
Interest payable 175 889
Related party interest payable (2,908) -
Other taxes payable 1,054 1,112
Accrued employee costs (1,265) 877
Income taxes payable (1,220) 21,719
Accrued expenses and other current liabilities 914 5,520
Asset retirement obligations (412) 395
Other noncurrent liabilities 1,193 728
Net cash provided by operating activities 95,267 139,230
Cash flows from investing activities:
Purchases of short-term investments (446,792) -
Sales of short-term investments 392,560 -
Return of escrow deposit made with Escrow Agent 5,000 (5,061)
Purchase price adjustments 187 (91)
Business combinations, net of cash acquired (107,285) (73,132)
Purchases of property, plant and equipment (84,574) (8,415)
Proceeds from the sale of convenience store assets - 3,111
Net cash used in investing activities (240,904) (83,588)
Cash flows from financing activities:
Proceeds from issuance of common stock 167,531 -
Net proceeds (payments) on short-term debt 24,300 -
Net proceeds (payments) on long-term debt 35,782 48,461
Net proceeds from notes receivable (payable)
related parties (42,300) 31,500
Payments on capital lease obligations - (616)
Proceed from (payments on) short-term notes - other (31) -
Decrease in restricted cash - 3,717
Deferred financing costs paid (2,052) (13,783)
Net cash provided by financing activities 183,230 69,279
Net increase in cash and cash equivalents 37,593 124,921
Cash and cash equivalents at beginning of period 62,568 22,106
Cash and cash equivalents at end of period $ 100,161 $ 147,027
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $18,722 $10,502
Income Taxes $29,557 $750
Assets acquired via the issuance of notes payable - $40
DELEK US HOLDINGS, INC. AND SUBSIDIARIES
Segment Statistics
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
REFINING SEGMENT (1) :
Days operated in period 92 92 273 155
Total sales volume
(average barrels per day) 55,181 55,511 55,498 52,646
Products manufactured
(average barrels per day):
Gasoline 30,500 27,816 29,974 27,366
Diesel/Jet 19,957 21,834 21,811 21,288
Petrochemicals, LPG, NGLs 2,508 2,586 2,401 2,517
Other 2,243 1,166 2,495 1,061
Total production 55,207 53,402 56,681 52,232
Throughput (average barrels
per day):
Crude oil 55,670 53,944 56,546 52,887
Other feedstocks 1,062 85 1,342 878
Total throughput 56,731 54,798 57,888 53,765
Per barrel of sales:
Refining operating margin (2) $10.58 $15.01 $11.98 $12.23
Direct operating expenses $3.39 $3.20 $3.44 $3.39
Pricing statistics (average for
the period presented):
WTI - Cushing crude oil
(per barrel) $70.69 $63.14 $68.30 $59.02
US Gulf Coast 5-3-2 crack
spread (per barrel) $10.29 $15.93 $11.28 $12.94
US Gulf Coast Unleaded
Gasoline (per gallon) $1.93 $1.93 $1.92 $1.74
Low sulfur diesel (per gallon) $2.08 $1.90 $2.00 $1.62
Natural gas - (per MMBTU) $6.18 $6.84 $6.89 $8.40
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
MARKETING SEGMENT:
Days operated in period 61 61
Total sales volume (average
barrels per day) 17,535 17,535
Products sold (average
barrels per day):
Gasoline 7,902 7,902
Diesel/Jet 9,590 9,590
Other 43 43
Total sales 17,535 17,535
Direct Operating Expenses
(per barrel of sales) $0.12 $0.12
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
RETAIL SEGMENT:
Number of stores (end of period) 392 328 392 328
Average number of stores 385 329 361 329
Retail fuel sales (thousands
of gallons) 107,003 83,433 292,424 249,507
Average retail gallons per
average number of stores
(in thousands) 278 254 810 761
Retail fuel margin
($ per gallon) $0.207 $0.208 $0.165 $0.164
Merchandise sales
(in thousands) $90,760 $78,339 $245,960 $219,840
Merchandise margin % 30.3% 29.2% 30.5% 30.0%
Credit expense (% of
gross margin) (3) 6.6% 5.8% 7.4% 5.7%
Merchandise and cash over/short
(% of net sales) (4) 0.3% 0.3% 0.3% 0.3%
Operating expense/merchandise
sales plus total gallons (5) 13.2% 13.4% 13.6% 13.2%
(1) 2005 comparative amounts reflect Refining operations from the date of
acquisition, April 29, 2005, through the end of the three months or
nine months ended period.
(2) Refining operating margin per barrel is calculated by dividing the
margin between net sales and cost of crude oil, feedstocks and related
transportation by the total barrels sold at our refinery. Industry-
wide refining results are driven and measured by the margins between
refined petroleum product prices and the prices for crude oil, which
are referred to as crack spreads: the differential in price between a
representative barrel of benchmark refined petroleum products, such as
gasoline or heating oil, and a barrel of benchmark crude oil. The US
Gulf Coast 5-3-2 crack spread represents the differential between
Platt's quotations for 3/5 of a barrel of US Gulf Coast Pipeline 87
Octane Conventional Gasoline and 2/5 of a barrel of US Gulf Coast
Pipeline No. 2 Heating Oil (high sulfur diesel) on the one hand, and
the first month futures price of 5/5 of a barrel of light sweet crude
oil on the New York Mercantile Exchange, on the other hand. We compare
our refining operating margin to these crack spreads to assess our
operating performance relative to other participants in our industry.
(3) Consists of third party credit, debit and fuel card processing fees as
a percentage of gross margin.
(4) Merchandise and cash over/short as a percentage of net sales is a
measure of merchandise loss or theft, motor fuel theft and cash
shortages as a percentage of net sales.
(5) Operating expense for our retail segment divided by merchandise sales
plus total gallons sold is a ratio we use to measure store operating
performance - especially operating expense control. Total gallons are
used rather than net fuel sales to eliminate the volatility of fuel
prices in the calculation and improve comparability.
DELEK US HOLDINGS, INC. AND SUBSIDIARIES
Segment Data
(In thousands)
The following is a summary of business segment operating performance as measured by contribution margin for the period indicated:
As of and for the Three Months Ended September 30, 2006
Marketing Corporate,
and Other and
Refining Retail Supply Eliminations Consolidated
Net sales $424,472 $401,801 $94,393 $185 $920,851
Operating costs
and expenses:
Cost of goods
sold 370,765 351,496 95,153 (1) 817,413
Operating expenses 17,221 27,220 198 128 44,767
Segment contribution
margin 36,486 23,085 (958) 58 58,671
General and
administrative
expenses 10,032
Depreciation and amortization 5,733
Loss on disposal of assets 5
Operating income $42,901
As of and for the Three Months Ended September 30, 2005
(Excluding Refining which was for the period from
April 29, 2005 though September 30, 2005)
Marketing Corporate,
and Other and
Refining Retail Supply Eliminations Consolidated
Net sales $399,119 $300,385 $- $(757) $698,747
Operating costs
and expenses:
Cost of goods
sold 322,450 259,635 - (901) 581,184
Operating
expenses 16,320 22,608 - 60 38,988
Segment contribution
margin 60,349 18,142 - 84 78,575
General and
administrative
expenses 7,405
Depreciation and amortization 4,305
Gain on disposal of assets 544
Losses on forward contract activities 10,923
Operating income $55,398
As of and for the Nine Months Ended September 30, 2006
Marketing Corporate,
and Other and
Refining Retail Supply Eliminations Consolidated
Net sales $1,240,574 $1,064,997 $94,393 $236 $2,400,200
Operating costs
and expenses:
Cost of goods
sold 1,058,997 940,078 95,153 (156) 2,094,072
Operating
expenses 52,121 76,214 198 319 128,852
Segment contribution
margin 129,456 48,705 (958) 73 177,276
General and
administrative
expenses 27,171
Depreciation and amortization 14,815
Loss on disposal of assets 6
Losses on forward contract activities 54
Operating income $135,230
As of and for the Nine Months Ended September 30, 2005
(Excluding Refining which was for the period from
April 29, 2005 though September 30, 2005)
Marketing Corporate,
and Other and
Refining Retail Supply Eliminations Consolidated
Net sales $589,214 $798,974 $- $(647) $1,387,541
Operating costs
and expenses:
Cost of goods
sold 489,401 690,982 - (888) 1,179,495
Operating expenses 27,636 64,402 - 248 92,286
Segment contribution
margin 72,177 43,590 - (7) 115,760
General and
administrative
expenses 17,037
Depreciation and amortization 11,472
Loss on disposal of assets (1,638)
Losses on forward contract activities 10,923
Operating income $77,966
SOURCE: Delek US Holdings, Inc.
CONTACT: Investor Relations: Assi Ginzburg, Vice President of Strategic Planning of Delek US Holdings, Inc., +1-615-224-1179; or Scott Brittain, or Kristina Korte, both of Corporate Communications Inc., +1-615-254-3376; or U.S. Media: Paula Lovell of Lovell Communications Inc., +1-615-297-7766, or cell: +1-615-972-2964; or Israel Media: Lior Chorev of Arad Communications, +011-972-3-644-0404, all for Delek US Holdings, Inc.