Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the quarterly period ended September 30, 2016
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                      to                     
Commission file number 001-32868
DELEK US HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
52-2319066
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
7102 Commerce Way
 
 
Brentwood, Tennessee
 
37027
(Address of principal executive offices)
 
(Zip Code)
(615) 771-6701
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
At October 28, 2016, there were 61,873,512 shares of common stock, $0.01 par value, outstanding (excluding securities held by, or for the account of, the Company or its subsidiaries).


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 2.1
 
Exhibit 10.1
 
Exhibit 10.2
 
Exhibit 31.1
 
Exhibit 31.2
 
Exhibit 32.1
 
Exhibit 32.2
 
EX-101 INSTANCE DOCUMENT
 
EX-101 SCHEMA DOCUMENT
 
EX-101 CALCULATION LINKBASE DOCUMENT
 
EX-101 LABELS LINKBASE DOCUMENT
 
EX-101 PRESENTATION LINKBASE DOCUMENT
 

2

Part I.
FINANCIAL INFORMATION
Item 1.
Financial Statements

Delek US Holdings, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
 
 
September 30, 2016
 
December 31, 2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
315.3

 
$
287.2

Accounts receivable
 
197.2

 
217.4

Accounts receivable from related party
 
—

 
0.5

Inventories, net of lower of cost or market valuation
 
375.1

 
271.0

Assets held for sale
 
471.5

 
478.8

Other current assets
 
57.4

 
142.6

Total current assets
 
1,416.5

 
1,397.5

Property, plant and equipment:
 
 
 
 
Property, plant and equipment
 
1,568.3

 
1,546.9

Less: accumulated depreciation
 
(454.8
)
 
(369.5
)
Property, plant and equipment, net
 
1,113.5

 
1,177.4

Goodwill
 
12.2

 
12.2

Other intangibles, net
 
27.0

 
27.3

Equity method investments
 
366.2

 
605.2

Other non-current assets
 
84.1

 
105.3

Total assets
 
$
3,019.5

 
$
3,324.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
383.0

 
$
364.7

Current portion of long-term debt
 
84.4

 
93.9

Obligation under Supply and Offtake Agreement
 
111.3

 
132.0

Liabilities associated with assets held for sale
 
286.7

 
298.7

Accrued expenses and other current liabilities
 
162.3

 
110.7

Total current liabilities
 
1,027.7

 
1,000.0

Non-current liabilities:
 
 
 
 
Long-term debt, net of current portion
 
743.3

 
711.3

Environmental liabilities, net of current portion
 
6.6

 
7.9

Asset retirement obligations
 
5.1

 
5.3

Deferred tax liabilities
 
64.3

 
192.7

Other non-current liabilities
 
25.2

 
53.8

Total non-current liabilities
 
844.5

 
971.0

Stockholders’ equity:
 
 
 
 
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding
 
—

 
—

Common stock, $0.01 par value, 110,000,000 shares authorized, 67,069,071 shares and 66,946,721 shares issued at September 30, 2016 and December 31, 2015, respectively
 
0.7

 
0.7

Additional paid-in capital
 
648.4

 
639.2

Accumulated other comprehensive loss
 
(27.6
)
 
(45.3
)
Treasury stock, 5,195,791 shares and 4,809,701 shares, at cost, as of September 30, 2016 and December 31, 2015, respectively
 
(160.8
)
 
(154.8
)
Retained earnings
 
487.5

 
713.5

Non-controlling interest in subsidiaries
 
199.1

 
200.6

Total stockholders’ equity
 
1,147.3

 
1,353.9

Total liabilities and stockholders’ equity
 
$
3,019.5

 
$
3,324.9

See accompanying notes to condensed consolidated financial statements

3

Delek US Holdings, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except share and per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 
$
1,079.9

 
$
1,293.5

 
$
3,113.3

 
$
3,659.0

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
965.6

 
1,152.8

 
2,806.7

 
3,213.7

Operating expenses
 
61.0

 
71.5

 
187.8

 
201.3

Insurance proceeds — business interruption
 
—

 
—

 
(42.4
)
 
—

General and administrative expenses
 
24.9

 
27.5

 
77.5

 
81.9

Depreciation and amortization
 
29.0

 
27.5

 
86.6

 
76.5

Other operating expense, net
 
2.2

 
0.2

 
2.2

 
0.2

Total operating costs and expenses
 
1,082.7

 
1,279.5

 
3,118.4

 
3,573.6

Operating (loss) income
 
(2.8
)
 
14.0

 
(5.1
)
 
85.4

Interest expense
 
13.9

 
14.2

 
40.7

 
38.5

Interest income
 
(0.2
)
 
(0.3
)
 
(0.9
)
 
(0.9
)
Loss (income) from equity method investments
 
5.1

 
(16.5
)
 
33.7

 
(23.9
)
Loss on impairment of equity method investment
 
245.3

 
—

 
245.3

 
—

Other expense (income), net
 
0.1

 
—

 
0.6

 
(1.0
)
Total non-operating expenses (income), net
 
264.2

 
(2.6
)
 
319.4

 
12.7

(Loss) income from continuing operations before income tax (benefit) expense
 
(267.0
)
 
16.6

 
(324.5
)
 
72.7

Income tax (benefit) expense
 
(103.3
)
 
(0.5
)
 
(136.8
)
 
9.1

(Loss) income from continuing operations
 
(163.7
)
 
17.1

 
(187.7
)
 
63.6

Income from discontinued operations, net of tax
 
6.0

 
8.3

 
5.5

 
6.2

Net (loss) income
 
(157.7
)
 
25.4

 
(182.2
)
 
69.8

Net income attributed to non-controlling interest
 
4.0

 
6.7

 
15.7

 
18.9

Net (loss) income attributable to Delek
 
$
(161.7
)
 
$
18.7

 
$
(197.9
)
 
$
50.9

Basic (loss) earnings per share:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
$
(2.71
)
 
$
0.16

 
$
(3.28
)
 
$
0.74

Income from discontinued operations
 
0.10

 
0.13

 
0.09

 
0.10

Total basic (loss) earnings per share
 
$
(2.61
)
 
$
0.29

 
$
(3.19
)
 
$
0.84

Diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
$
(2.71
)
 
$
0.16

 
$
(3.28
)
 
$
0.74

Income from discontinued operations
 
0.10

 
0.13

 
0.09

 
0.10

Total diluted (loss) earnings per share
 
$
(2.61
)
 
$
0.29

 
$
(3.19
)
 
$
0.84

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
61,834,968

 
63,189,399

 
61,931,040

 
60,366,532

Diluted
 
61,834,968

 
63,658,386

 
61,931,040

 
60,894,206

Dividends declared per common share outstanding
 
$
0.15

 
$
0.15

 
$
0.45

 
$
0.45

See accompanying notes to condensed consolidated financial statements

4

Delek US Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net (loss) income attributable to Delek
 
$
(161.7
)
 
$
18.7

 
$
(197.9
)
 
$
50.9

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Commodity contracts designated as cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized (losses) gains, net of ineffectiveness (gains) losses of $(2.2) million and $(2.7) million for the three and nine months ended September 30, 2016, respectively, and $12.4 million and $21.3 million for the three and nine months ended September 30, 2015, respectively
 
(2.2
)
 
(24.3
)
 
5.7

 
(20.8
)
Realized losses (gains) reclassified to cost of goods sold
 
7.0

 
0.6

 
21.3

 
(1.7
)
Gain (loss) on cash flow hedges, net
 
4.8

 
(23.7
)
 
27.0

 
(22.5
)
Income tax (expense) benefit
 
(1.7
)
 
8.3

 
(9.4
)
 
7.9

Net comprehensive (loss) income on commodity contracts designated as cash flow hedges
 
3.1

 
(15.4
)
 
17.6

 
(14.6
)
Foreign currency translation gain (loss)
 
—

 
(0.1
)
 
0.2

 
(0.2
)
Other comprehensive income (loss) from equity method investments, net of tax expense of a nominal amount and a benefit of $0.1 for the three and nine months ended September 30, 2016, respectively, and a benefit of $1.8 million for both the three and nine months ended September 30, 2015
 
0.1

 
(1.9
)
 
(0.1
)
 
(3.4
)
Total other comprehensive income (loss)
 
3.2

 
(17.4
)
 
17.7

 
(18.2
)
Comprehensive income (loss) attributable to Delek
 
$
(158.5
)
 
$
1.3

 
$
(180.2
)
 
$
32.7

See accompanying notes to condensed consolidated financial statements


5

Delek US Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net (loss) income
 
$
(182.2
)
 
$
69.8

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
86.6

 
76.5

Amortization of deferred financing costs and debt discount
 
3.5

 
2.8

Accretion of asset retirement obligations
 
0.3

 
0.2

Deferred income taxes
 
(138.6
)
 
5.6

Loss (income) from equity method investments
 
33.7

 
(23.9
)
Dividends from equity method investments
 
15.2

 
10.1

Gain on disposal of assets
 
2.2

 
0.2

Impairment of equity method investment
 
245.3

 
—

Equity-based compensation expense
 
12.5

 
12.3

Income tax expense (benefit) of equity-based compensation
 
2.0

 
(1.7
)
Income from discontinued operations
 
(5.5
)
 
(6.2
)
Changes in assets and liabilities, net of acquisitions:
 
 

 
 

Accounts receivable
 
20.7

 
(32.4
)
Inventories and other current assets
 
(44.2
)
 
107.6

Market value of derivatives
 
28.0

 
30.4

Accounts payable and other current liabilities
 
18.0

 
(30.3
)
Obligation under Supply and Offtake Agreement
 
(0.5
)
 
(40.1
)
Non-current assets and liabilities, net
 
(1.7
)
 
(15.1
)
Cash provided by operating activities - continuing operations
 
95.3

 
165.8

Cash provided by operating activities - discontinued operations
 
26.2

 
26.0

Net cash provided by operating activities
 
121.5

 
191.8

Cash flows from investing activities:
 
 
 
 
Business combinations
 
—

 
(0.4
)
Equity method investment contributions
 
(54.7
)
 
(230.6
)
Purchases of property, plant and equipment
 
(28.2
)
 
(164.5
)
Purchase of intangible assets
 
(0.7
)
 
(7.2
)
Proceeds from sales of assets
 
0.2

 
1.2

Cash used in investing activities - continuing operations
 
(83.4
)
 
(401.5
)
Cash used in investing activities - discontinued operations
 
(14.2
)
 
(9.5
)
Net cash used in investing activities
 
(97.6
)
 
(411.0
)
Cash flows from financing activities:
 
 
 
 
Proceeds from long-term revolvers
 
235.6

 
341.1

Payments on long-term revolvers
 
(212.2
)
 
(267.7
)
Proceeds from term debt
 
40.4

 
174.7

Payments on term debt
 
(42.3
)
 
(39.9
)
Proceeds from product financing agreements
 
50.4

 
—

Proceeds from exercise of stock options
 
—

 
0.2

Taxes paid due to the net settlement of equity-based compensation
 
(0.8
)
 
(3.6
)
Income tax (expense) benefit of equity-based compensation
 
(2.0
)
 
1.7

Repurchase of common stock
 
(6.0
)
 
(29.0
)
Distribution to non-controlling interest
 
(17.7
)
 
(15.3
)
Dividends paid
 
(28.1
)
 
(27.6
)
Deferred financing costs paid
 
(1.9
)
 
(2.7
)
Cash provided by financing activities - continuing operations
 
15.4

 
131.9

Cash (used in) provided by financing activities - discontinued operations
 
(11.2
)
 
10.5

Net cash provided by financing activities
 
4.2

 
142.4

Net increase (decrease) in cash and cash equivalents
 
28.1

 
(76.8
)
Cash and cash equivalents at the beginning of the period
 
287.2

 
429.8

Cash and cash equivalents at the end of the period
 
$
315.3

 
$
353.0




Delek US Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)(Continued)
(In millions)

 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest of $0.1 million and $0.7 million in the 2016 and 2015 periods, respectively
 
$
36.6

 
$
32.1

Income taxes
 
$
1.7

 
$
5.4

Non-cash investing activities:
 
 
 
 
Equity method investments
 
$
—

 
$
3.8

Decrease in accrued capital expenditures
 
$
(4.0
)
 
$
(1.0
)
Non-cash financing activities:
 
 
 
 
Stock issued in connection with the Alon Acquisition
 
$
—

 
$
230.8

Note payable issued in connection with the Alon Acquisition
 
$
—

 
$
145.0


See accompanying notes to condensed consolidated financial statements

6

Delek US Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization and Basis of Presentation
Delek US Holdings, Inc. is the sole shareholder or owner of membership interests of Delek Refining, Inc. ("Refining"), Delek Finance, Inc., Delek Marketing & Supply, LLC, Lion Oil Company ("Lion Oil"), Delek Renewables, LLC, Delek Rail Logistics, Inc., Delek Logistics Services Company, MAPCO Express, Inc. ("MAPCO Express"), MAPCO Fleet, Inc., NTI Investments, LLC, GDK Bearpaw, LLC, Delek Helena, LLC, Commerce Way Insurance Company, Inc., Delek Transportation, LLC and Delek Land Holdings, LLC. Unless otherwise indicated or the context requires otherwise, the terms "we," "our," "us," "Delek" and the "Company" are used in this report to refer to Delek US Holdings, Inc. and its consolidated subsidiaries. Delek is listed on the New York Stock Exchange under the symbol "DK."
In August 2016, we entered into a definitive equity purchase agreement (the "Purchase Agreement") with Compañía de Petróleos de Chile COPEC S.A. and its subsidiary, Copec Inc., a Delaware corporation (collectively, "COPEC"). Under the terms of the Purchase Agreement, Delek has agreed to sell, and COPEC has agreed to purchase, 100% of the equity interests in Delek's wholly-owned subsidiaries MAPCO Express, Inc., MAPCO Fleet, Inc., Delek Transportation, LLC, NTI Investments, LLC and GDK Bearpaw, LLC (collectively, the “Retail Entities”) for cash consideration of $535 million, subject to customary adjustments (the “Transaction”). At closing, Delek will also be required to prepay substantially all of the existing indebtedness held by the Retail Entities and related prepayment fees. The closing of the Transaction is currently anticipated to occur by the end of 2016, subject to certain customary closing conditions.
As a result of the Purchase Agreement, we met the requirements under the provisions of Accounting Standards Codification ("ASC") 205-20, Presentation of Financial Statements - Discontinued Operations and ASC 360, Property, Plant and Equipment, 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. See Note 4 for further information regarding the Retail Entities.
Our condensed consolidated financial statements include the accounts of Delek and its consolidated subsidiaries. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP applied on a consistent basis with those of the annual audited financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 29, 2016 (the "Annual Report on Form 10-K") and in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2015 included in our Annual Report on Form 10-K.
Our condensed consolidated financial statements include Delek Logistics Partners, LP ("Delek Logistics"), a variable interest entity. As the general partner of Delek Logistics, we have the sole ability to direct the activities of Delek Logistics that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes and are Delek Logistics' primary customer. As Delek Logistics does not derive an amount of gross margin material to us from third parties, there is limited risk to Delek associated with Delek Logistics' operations. However, in the event that Delek Logistics incurs a loss, our operating results will reflect Delek Logistics' loss, net of intercompany eliminations, to the extent of our ownership interest in Delek Logistics.
In the opinion of management, all adjustments necessary for a fair presentation of the financial condition and the results of operations for the interim periods have been included. All significant intercompany transactions and account balances have been eliminated in consolidation. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year.
Having classified the Retail Entities as assets held for sale, the condensed consolidated balance sheets for all periods presented have been reclassified to reflect assets held for sale and liabilities associated with assets held for sale. The condensed consolidated statements of income for all periods presented have been reclassified to reflect the results of the Retail Entities as income from discontinued operations, net of taxes.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board ("FASB") issued guidance that clarifies eight cash flow classification issues pertaining to cash receipts and cash payments. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for any interim or annual financial statements that have not yet been issued. We

7

expect to adopt this guidance on or before the effective date and are currently evaluating the impact that adopting this new guidance will have on our business, financial condition and results of operations.
In June 2016, the FASB issued guidance that requires organizations to use historical experience, current conditions, reasonable and supportable forecasts and forward-looking information in the measurement of all expected credit losses on financial instruments to more accurately estimate those losses. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted after December 15, 2018, and interim periods within those fiscal years. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact adopting this new guidance will have on our business, financial condition and results of operations.
In March 2016, the FASB issued guidance that simplifies several aspects of the accounting for share-based payment award transactions, including the accounting for excess tax benefits and deficiencies, classification of awards as either equity or liabilities and classification of excess tax benefits on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and can be early adopted for any interim or annual financial statements that have not yet been issued. Early adoption is permitted. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact adopting this new guidance will have on our business, financial condition and results of operations.
In February 2016, the FASB issued guidance that requires the recognition of a lease liability and a right-of-use asset, initially measured at the present value of the lease payments, in the statement of financial condition for all leases previously accounted for as operating leases. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact adopting this new guidance will have on our business, financial condition and results of operations.
In February 2015, the FASB issued guidance that amends and simplifies the requirements for consolidation and provides additional guidance to reporting entities in evaluating whether certain legal entities, such as limited partnerships, limited liability corporations and securitization structures, should be consolidated. This guidance is effective for interim and annual periods beginning after December 15, 2015. We adopted this guidance on the effective date and the adoption did not have a material impact on our business, financial condition or results of operations.
In May 2014, the FASB issued guidance regarding “Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires improved interim and annual disclosures that enable the users of financial statements to better understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and can be adopted either retrospectively to each prior reporting period presented using a practical expedient as allowed by the new guidance or retrospectively with a cumulative effect adjustment to retained earnings as of the date of initial application. Early adoption is not permitted. We are currently evaluating the impact adopting this new standard will have on our business, financial condition or results of operations.
2. Delek Logistics
Delek Logistics is a publicly traded limited partnership that was formed by Delek to own, operate, acquire and construct crude oil and refined products logistics and marketing assets. A substantial majority of Delek Logistics' assets are integral to Delek’s refining and marketing operations. As of September 30, 2016, we owned a 59.7% limited partner interest in Delek Logistics, consisting of 14,798,516 common units, and a 95.1% interest in Logistics GP, which owns the entire 2.0% general partner interest, consisting of 496,020 general partner units, in Delek Logistics and all of the incentive distribution rights.
We have agreements with Delek Logistics that, among other things, establish fees for certain administrative and operational services provided by us and our subsidiaries to Delek Logistics, provide certain indemnification obligations and establish terms for fee-based commercial logistics and marketing services provided by Delek Logistics and its subsidiaries to us.

8

Delek Logistics is a variable interest entity as defined under GAAP and is consolidated into our condensed consolidated financial statements. With the exception of intercompany balances which are eliminated in consolidation, the Delek Logistics condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015, as presented below, are included in the consolidated balance sheets of Delek (unaudited, in millions).
 
 
September 30,
2016
 
December 31,
 2015
 
 
 
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
—

Accounts receivable
 
13.5

 
35.0

Inventory
 
7.3

 
10.5

Other current assets
 
0.9

 
1.6

Net property, plant and equipment
 
245.1

 
253.8

Equity method investments
 
94.6

 
40.7

Goodwill
 
12.2

 
12.2

Intangible assets, net
 
14.7

 
15.5

Other non-current assets
 
4.9

 
6.0

Total assets
 
$
393.2

 
$
375.3

LIABILITIES AND DEFICIT
 
 
 
 
Accounts payable
 
$
8.7

 
$
6.9

Accounts payable to related parties
 
—

 
4.0

Accrued expenses and other current liabilities
 
8.2

 
9.8

Revolving credit facility
 
375.0

 
351.6

Asset retirement obligations
 
3.7

 
3.5

Other non-current liabilities
 
11.6

 
10.5

Deficit
 
(14.0
)
 
(11.0
)
Total liabilities and deficit
 
$
393.2

 
$
375.3


9

3. Equity Method Investments
On May 14, 2015, Delek acquired from Alon Israel Oil Company, Ltd. ("Alon Israel") approximately 33.7 million shares of common stock (the "ALJ Shares") of Alon USA Energy, Inc. (NYSE: ALJ) ("Alon USA") pursuant to the terms of a stock purchase agreement with Alon Israel dated April 14, 2015 (the "Alon Acquisition"). The ALJ Shares represent an equity interest in Alon USA of approximately 47%. We acquired the ALJ Shares for the following combination of cash, stock and seller-financed debt:

•
Delek issued 6,000,000 restricted shares of its common stock, par value $0.01 per share, to Alon Israel;

•
Delek issued an unsecured $145.0 million term promissory note payable to Alon Israel (the "Alon Israel Note") (see Note 7 for further information);

•
Delek paid Alon Israel $200.0 million in cash at closing funded with a combination of cash on hand and borrowings under the Lion Term Loan (as defined in Note 7); and

•
Delek agreed to pay Alon Israel $5.0 million of additional cash consideration, to be paid ratably in annual installments over a period of five years.
Delek will also issue an additional 200,000 restricted shares of its common stock to Alon Israel if the closing price of Delek's common stock is greater than $50.00 per share for at least 30 consecutive trading days that end on or before May 14, 2017.
In October 2016, Delek delivered a non-binding letter to a special committee of the board of directors of Alon USA proposing a potential business transaction in the form of a stock-for-stock acquisition of all remaining outstanding shares of Alon USA common stock not owned by Delek, as a result of which each such outstanding share of Alon USA common stock would be converted into the right to receive shares of Delek common stock at a fixed ratio of 0.44 shares of Delek common stock for each such outstanding share of Alon USA common stock. See Note 17 for further information.
As of September 30, 2016, our investment balance in Alon USA was $271.6 million and the excess of our initial investment over our net equity in the underlying net assets of Alon USA was approximately $12.3 million. This excess is included in equity method investments in our consolidated balance sheet and a portion has been attributed to property, plant and equipment and definite lived intangible assets. These portions of the excess are being amortized as a reduction to earnings from equity method investments on a straight-line basis over the lives of the related assets. The earnings or losses from this equity method investment reflected in our consolidated statements of income include our share of net earnings or losses directly attributable to this equity method investment, and amortization of the excess of our investment balance over the underlying net assets of Alon USA. As of September 30, 2016, the market value of our ALJ Shares was $271.6 million, based on quoted market prices. We evaluated our investment in Alon USA as of September 30, 2016 and have determined that the decline in the market value of the ALJ Shares is other than temporary and, therefore, it was necessary to record an impairment charge of $245.3 million on our investment based on the quoted market price of our ALJ Shares, which is a Level 1 fair value measurement, at September 30, 2016. Our decision that the decline in market value of the ALJ shares is other than temporary was primarily based on the following factors: the duration of the period in which the fair market value had been below our investment balance and the decreased possibility of a recovery in the near term as a result of Alon USA's recent financial performance, as well as expectations of Alon USA's future operating performance. This impairment is reflected in the loss on impairment of equity method investment in our condensed consolidated statements of income for the three and nine months ended September 30, 2016.
Below is summarized financial information of the financial condition and results of operations of Alon USA (in millions):
Balance Sheet Information
 
September 30, 2016
 
December 31, 2015
Current assets
 
$
622.7

 
$
504.6

Non-current assets
 
1,654.5

 
1,671.5

Current liabilities
 
533.3

 
425.9

Non-current liabilities
 
1,135.5

 
1,086.1

Non-controlling interests
 
61.6

 
25.0



10

 
 
Three Months Ended
 
Nine Months Ended
Income Statement Information
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenue
 
$
1,043.7

 
$
1,151.2

 
$
2,902.1

 
$
3,555.8

Gross profit
 
147.8

 
237.0

 
399.6

 
677.2

Pre-tax (loss) income
 
(13.0
)
 
69.7

 
(99.4
)
 
187.4

Net (loss) income
 
(7.3
)
 
52.4

 
(64.0
)
 
134.3

Net (loss) income attributable to Alon USA
 
(8.8
)
 
41.9

 
(64.7
)
 
105.3

Also, in March 2015, Delek Logistics entered into two joint ventures that are currently constructing or have constructed logistics assets, which will serve third parties and subsidiaries of Delek. Delek Logistics' investment in these joint ventures is being financed through a combination of cash from operations and borrowings under the DKL Revolver (as defined in Note 7). As of September 30, 2016, Delek Logistics' investment balance in these joint ventures was $94.6 million and was accounted for using the equity method. One of the joint venture projects has been completed and began operations in September 2016. The other is expected to be completed in January 2017.

4. Discontinued Operations and Assets Held for Sale
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, Presentation of Financial Statements - Discontinued Operations and ASC 360, Property, Plant and Equipment, 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 closing of the Transaction is currently anticipated to occur by the end of 2016, subject to certain customary closing conditions. 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.
Under the terms of the Purchase Agreement, Delek and COPEC have also agreed to enter into a supply agreement at the closing of the Transaction pursuant to which Delek will supply fuel to retail locations owned by the Retail Entities for a period of 18 months following the closing of the Transaction.
The carrying amount of the major classes of assets and liabilities of the Retail Entities included in assets held for sale and liabilities associated with assets held for sale are as follows (in millions):

 
 
September 30, 2016
 
December 31, 2015
Assets held for sale:
 
 
 
 
Cash and cash equivalents
 
$
17.9

 
$
15.0

Accounts receivable
 
17.3

 
15.6

Inventory
 
36.5

 
36.6

Other current assets
 
2.2

 
2.9

Property, plant & equipment, net of accumulated depreciation of $217.9 million and $209.5 million as of September 30, 2016 and December 31, 2015, respectively
 
332.6

 
343.7

Goodwill
 
62.2

 
62.2

Other non-current assets
 
2.8

 
2.8

Assets held for sale
 
$
471.5

 
$
478.8

Liabilities associated with assets held for sale:
 
 
 
 
Accounts payable
 
$
35.4

 
$
32.9

Current portion of long-term debt
 
1.4

 
1.3

Accrued expenses and other current liabilities
 
23.4

 
24.2

Long-term debt and capital lease obligations, net of current portion
 
157.9

 
169.2

Asset retirement obligations
 
4.5

 
4.4

Deferred tax liabilities
 
52.4

 
55.2

Other non-current liabilities
 
11.7

 
11.5

Liabilities associated with assets held for sale
 
$
286.7

 
$
298.7


11

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 condensed consolidated statements of income and the notes to the condensed 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):
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenue
 
361.7

 
398.7

 
1,034.7

 
1,148.3

Cost of goods sold
 
(306.6
)
 
(340.7
)
 
(884.5
)
 
(995.5
)
Operating expenses
 
(34.2
)
 
(35.1
)
 
(99.7
)
 
(102.8
)
General and administrative expenses
 
(5.4
)
 
(6.7
)
 
(16.7
)
 
(19.3
)
Depreciation and amortization
 
(4.5
)
 
(6.7
)
 
(20.3
)
 
(20.9
)
Other operating income, net
 
—

 
0.3

 
—

 
0.4

Interest expense
 
(1.8
)
 
(1.6
)
 
(5.4
)
 
(4.6
)
Income from discontinued operations before taxes
 
9.2

 
8.2

 
8.1

 
5.6

Income tax expense (benefit)
 
3.2

 
(0.1
)
 
2.6

 
(0.6
)
Income from discontinued operations, net of tax
 
$
6.0

 
$
8.3

 
$
5.5

 
$
6.2


5. Inventory
Refinery inventory consists of crude oil, work-in-process, refined products and blendstocks which are stated at the lower of cost or market. Cost of inventory for the Tyler refinery is determined under the last-in, first- out ("LIFO") valuation method. Cost of inventory for the El Dorado refinery is determined on a first-in, first-out ("FIFO") basis. Cost of crude oil, refined product and feedstock inventories in excess of market value are charged to cost of goods sold.
Logistics inventory consists of refined products which are stated at the lower of FIFO cost or market.
Carrying value of inventories consisted of the following (in millions):
 
 
September 30,
2016
 
December 31,
2015
Refinery raw materials and supplies
 
$
157.1

 
$
85.9

Refinery work in process
 
43.9

 
27.8

Refinery finished goods
 
166.9

 
146.8

Logistics refined products
 
7.2

 
10.5

Total inventories
 
$
375.1

 
$
271.0

Due to a lower crude oil and refined product pricing environment experienced since the end of 2014, market prices have declined to a level below the average cost of our inventories. At September 30, 2016, we recorded a pre-tax lower of cost or market reserve of $23.8 million, all of which related to LIFO inventory, which is subject to reversal in subsequent periods, not to exceed LIFO cost, should market prices recover. At December 31, 2015, we recorded a pre-tax lower of cost or market reserve of $50.9 million, of which $49.8 million related to LIFO inventory, which reversed in the first quarter of 2016, as the inventories associated with the valuation adjustment at the end of 2015 were sold or used. We recognized net lower of cost or market gains (losses) of $7.8 million and $26.0 million for the three and nine months ended September 30, 2016, respectively, and $(22.7) million and $9.7 million for the three and nine months ended September 30, 2015, respectively. These gains (losses) were recorded as a component of cost of goods sold in the consolidated statements of income.
At September 30, 2016 and December 31, 2015, the excess of replacement cost (FIFO) over the carrying value (LIFO) of the Tyler refinery inventories was $0.5 million and $0.1 million, respectively.

12

Permanent Liquidations
We incurred a permanent reduction in a LIFO layer resulting in liquidation losses in our refinery inventory of $2.4 million during the nine months ended September 30, 2016, and $8.9 million and $19.1 million during the three and nine months ended September 30, 2015, respectively. These liquidation losses were recognized as a component of cost of goods sold.
6. Crude Oil Supply and Inventory Purchase Agreement
Delek has a Master Supply and Offtake Agreement (the "Supply and Offtake Agreement") with J. Aron & Company ("J. Aron"). Throughout the term of the Supply and Offtake Agreement, which will expire on April 30, 2017, Lion Oil and J. Aron will identify mutually acceptable contracts for the purchase of crude oil from third parties and J. Aron will supply up to 100,000 barrels per day ("bpd") of crude to the El Dorado refinery. Crude oil supplied to the El Dorado refinery by J. Aron will be purchased daily at an estimated average monthly market price by Lion Oil. J. Aron will also purchase all refined products from the El Dorado refinery at an estimated daily market price, as they are produced. These daily purchases and sales are trued-up on a monthly basis in order to reflect actual average monthly prices. We have recorded a payable related to this monthly settlement of $3.1 million and $11.4 million as of September 30, 2016 and December 31, 2015, respectively. Also pursuant to the Supply and Offtake Agreement and other related agreements, Lion Oil will endeavor to arrange potential sales by either Lion Oil or J. Aron to third parties of the products produced at the El Dorado refinery or purchased from third parties. In instances where Lion Oil is the seller to such third parties, J. Aron will first transfer the applicable products to Lion Oil.
While title to the inventories is retained by J. Aron, this arrangement is accounted for as a product financing arrangement. Delek incurred fees payable to J. Aron of $2.6 million and $7.4 million during the three and nine months ended September 30, 2016, respectively, and $2.6 million and $7.9 million during the three and nine months ended September 30, 2015, respectively. These amounts are included as a component of interest expense in the condensed consolidated statements of income. Upon any termination of the Supply and Offtake Agreement, including in connection with a force majeure event, the parties are required to negotiate with third parties for the assignment to us of certain contracts, commitments and arrangements, including procurement contracts, commitments for the sale of product, and pipeline, terminalling, storage and shipping arrangements.
Upon the expiration of the Supply and Offtake Agreement on April 30, 2017, or upon any earlier termination, Delek will be required to repurchase the consigned crude oil and refined products from J. Aron at then prevailing market prices. At September 30, 2016, Delek had 2.7 million barrels of inventory consigned for J. Aron, and we have recorded liabilities associated with this consigned inventory of $111.3 million in the condensed consolidated balance sheet.
7. Long-Term Obligations and Notes Payable
Outstanding borrowings under Delek’s existing debt instruments are as follows (in millions):
 
 
September 30,
2016
 
December 31,
2015
DKL Revolver
 
375.0

 
351.6

Wells Term Loan(1)
 
69.4

 
40.6

Reliant Bank Revolver
 
17.0

 
17.0

Promissory Notes
 
130.0

 
140.0

Lion Term Loan Facility(2)
 
236.3

 
256.0

 
 
827.7

 
805.2

Less: Current portion of long-term debt and notes payable
 
84.4

 
93.9

 
 
$
743.3

 
$
711.3

                        
(1)
The Wells Term Loan is net of deferred financing costs of $0.1 million and $0.2 million as of September 30, 2016 and December 31, 2015, respectively, and debt discount $0.5 million at September 30, 2016. There were no debt discounts associated with the Wells Term Loan as of December 31, 2015.
(2)
The Lion Term Loan Facility is net of deferred financing costs of $3.2 million and $3.8 million, respectively, and debt discounts of $1.2 million and $1.4 million, respectively, at September 30, 2016 and December 31, 2015.

13

DKL Revolver
Delek Logistics has a $700.0 million senior secured revolving credit agreement with Fifth Third Bank, as administrative agent, and a syndicate of lenders (the "DKL Revolver"). Delek Logistics and each of its existing subsidiaries are borrowers under the DKL Revolver. The DKL Revolver contains a dual currency borrowing tranche that permits draw downs in U.S. or Canadian dollars and an accordion feature whereby Delek Logistics can increase the size of the credit facility to an aggregate of $800.0 million, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent.
The obligations under the DKL Revolver are secured by a first priority lien on substantially all of Delek Logistics' tangible and intangible assets. Additionally, a subsidiary of Delek provides a limited guaranty of Delek Logistics' obligations under the DKL Revolver. The guaranty is (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek in favor of the subsidiary guarantor (the "Holdings Note") and (ii) secured by the subsidiary guarantor's pledge of the Holdings Note to the DKL Revolver lenders. As of September 30, 2016, the principal amount of the Holdings Note was $102.0 million.
The DKL Revolver will mature on December 30, 2019. Borrowings under the DKL Revolver bear interest at either a U.S. base rate, Canadian prime rate, LIBOR, or a Canadian Dealer Offered Rate, in each case plus applicable margins, at the election of the borrowers and as a function of draw down currency. The applicable margin, in each case, varies based upon Delek Logistics' leverage ratio, which is defined as the ratio of total funded debt to EBITDA for the most recently ended four fiscal quarters. At September 30, 2016, the weighted average borrowing rate was approximately 2.9%. Additionally, the DKL Revolver requires Delek Logistics to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of September 30, 2016, this fee was 0.40% per year. As of September 30, 2016, Delek Logistics had $375.0 million of outstanding borrowings under the credit facility, as well as letters of credit issued of $6.5 million. Unused credit commitments under the DKL Revolver, as of September 30, 2016, were $318.5 million.
Wells ABL
Our subsidiary, Delek Refining, Ltd., has an asset-based loan credit facility with Wells Fargo Bank, National Association, as administrative agent, and a syndicate of lenders, which was amended and restated on September 29, 2016 (the "Wells ABL"). The Wells ABL consists of (i) a $450.0 million revolving loan (the "Wells Revolving Loan"), which includes a $45.0 million swing line loan sub-limit and a $200.0 million letter of credit sub-limit, (ii) a $70.0 million term loan (the "Wells Term Loan"), and (iii) an accordion feature which permits an increase in the size of the revolving credit facility to an aggregate of $725.0 million, subject to additional lender commitments and the satisfaction of certain other conditions precedent. The Wells Revolving Loan matures on September 29, 2021 and the Wells Term Loan matures on September 29, 2019. The Wells Term Loan is subject to repayment in level principal installments of approximately $5.8 million per quarter, with the final installment due on September 29, 2019. As of September 30, 2016, under the Wells ABL, we had letters of credit issued totaling approximately $91.5 million and no other amounts used under the Wells Revolving Loan; under the Wells Term Loan we had $70.0 million outstanding. The obligations under the Wells ABL are secured by (i) substantially all the assets of Refining and its subsidiaries, with certain limitations, (ii) guaranties provided by the general partner of Delek Refining, Ltd., as well as by the parent of Delek Refining, Ltd., Delek Refining, Inc. (iii) a limited guarantee provided by Delek in an amount up to $15.0 million and (iv) a limited guarantee provided by Lion Oil in an amount equal to the sum of the face amount of all letters of credit issued on behalf of Lion Oil under the Wells ABL and any loans made by Refining or its subsidiaries to Lion Oil. Under the facility, revolving loans and letters of credit are provided subject to availability requirements which are determined pursuant to a borrowing base calculation as defined in the credit agreement. The borrowing base as calculated is primarily supported by cash, certain accounts receivable and certain inventory. Borrowings under the Wells Revolving Loan and Wells Term Loan bear interest based on separate predetermined pricing grids which allow us to choose between base rate loans or LIBOR rate loans. At September 30, 2016, the weighted average borrowing rate under the Wells Term Loan was approximately 4.3%. Additionally, the Wells ABL requires us to pay a quarterly unused credit commitment fee. As of September 30, 2016, this fee was approximately 0.38% per year. Unused borrowing base availability, as calculated and reported under the terms of the Wells ABL credit facility, as of September 30, 2016, was approximately $161.2 million.
Reliant Bank Revolver
We have a revolving credit agreement with Reliant Bank, which was amended on May 26, 2016 (the "Reliant Bank Revolver"). The Reliant Bank Revolver provides for unsecured loans of up to $17.0 million. As of September 30, 2016, we had $17.0 million outstanding under this facility. The Reliant Bank Revolver matures on June 28, 2018, and bears interest at a fixed rate of 5.25% per annum. The Reliant Bank Revolver requires us to pay a quarterly fee of 0.50% per year on the average available revolving commitment. As of September 30, 2016, we had no unused credit commitments under the Reliant Bank Revolver.
Promissory Notes
On April 29, 2011, Delek entered into a $50.0 million promissory note (the "Ergon Note") with Ergon, Inc. ("Ergon") in connection with the closing of our acquisition of Lion Oil. As of September 30, 2016, $10.0 million was outstanding under the Ergon Note. The Ergon Note requires Delek to make annual amortization payments of $10.0 million each, commencing April 29, 2013. The Ergon Note matures on April 29, 2017. Interest under the Ergon Note is computed at a fixed rate equal to 4.00% per annum.

14

On May 14, 2015, in connection with the closing of the Company’s acquisition of the ALJ Shares, the Company issued the Alon Israel Note in the amount of $145.0 million, which was payable to Alon Israel. The Alon Israel Note bears interest at a fixed rate of 5.50% per annum and requires five annual principal amortization payments of $25.0 million beginning in January 2016 followed by a final principal amortization payment of $20.0 million at maturity on January 4, 2021. In October 2015, we prepaid the first annual principal amortization payment in the amount of $25.0 million, along with all interest due on the prepaid amount. On December 22, 2015, Alon Israel assigned the remaining $120.0 million of principal and all accrued interest due under the Alon Israel Note to assignees under four new notes in substantially the same form and on the same terms as the Alon Israel Note (collectively, the "Alon Successor Notes"). The $120.0 million in total principal of the four Alon Successor Notes collectively require the same principal amortization payments and schedule as under the Alon Israel Note, with payments due under each Alon Successor Note commensurate to such note's pro rata share of $120.0 million in assigned principal. As of September 30, 2016, a total principal amount of $120.0 million was outstanding under the Alon Successor Notes.
Lion Term Loan
Our subsidiary, Lion Oil, has a term loan credit facility with Fifth Third Bank, as administrative agent, and a syndicate of lenders, which was amended and restated on May 14, 2015 in connection with the Company’s closing of the Alon Acquisition to, among other things, increase the total loan size from $99.0 million to $275.0 million (the "Lion Term Loan"). The Lion Term Loan requires Lion Oil to make quarterly principal amortization payments of approximately $6.9 million each, commencing on September 30, 2015, with a final balloon payment due at maturity on May 14, 2020. The Lion Term Loan is secured by, among other things, (i) substantially all the assets of Lion Oil and its subsidiaries (excluding inventory and accounts receivable), (ii) all shares in Lion Oil, (iii) any subordinated and common units of Delek Logistics held by Lion Oil, and (iv) the ALJ Shares. Additionally, the Lion Term Loan is guaranteed by Delek and the subsidiaries of Lion Oil. Interest on the unpaid balance of the Lion Term Loan is computed at a rate per annum equal to LIBOR or a base rate, at our election, plus the applicable margins, subject in each case to an all-in interest rate floor of 5.50% per annum. As of September 30, 2016, approximately $240.7 million was outstanding under the Lion Term Loan and the weighted average borrowing rate was 5.50%.
Restrictive Covenants
Under the terms of our Wells ABL, DKL Revolver, Reliant Bank Revolver and Lion Term Loan, we are required to comply with certain usual and customary financial and non-financial covenants. Further, although we were not required to comply with separate fixed charge coverage ratio financial covenants under the Wells ABL and the Lion Term Loan during the three and nine months ended September 30, 2016, we may be required to comply with these covenants at times when certain trigger thresholds are met, as defined in each of the Wells ABL and Lion Term Loan agreements. We believe we were in compliance with all covenant requirements under each of our credit facilities as of September 30, 2016.
Certain of our credit facilities contain limitations on the incurrence of additional indebtedness, making of investments, creation of liens, dispositions of property, making of restricted payments and transactions with affiliates. Specifically, these covenants may limit the payment, in the form of cash or other assets, of dividends or other distributions, or the repurchase of shares with respect to the equity of our subsidiaries. Additionally, certain of our credit facilities limit our ability to make investments, including extensions of loans or advances to, or acquisitions of equity interests in, or guarantees of obligations of, any other entities.
Interest-Rate Derivative Instruments
Delek had an interest rate cap agreement in place for a notional amount of $45.0 million, which matured in February 2016. This agreement, and similar interest rate hedge agreements in place that matured during 2015, were intended to economically hedge floating interest rate risk related to a portion of our existing debt. However, as we have elected not to apply the permitted hedge accounting treatment, including formal hedge designation and documentation, in accordance with the provisions of ASC 815, Derivatives and Hedging ("ASC 815"), the fair value of the derivatives is recorded in other current assets in the accompanying condensed consolidated balance sheets with the offset recognized in interest expense in the accompanying condensed consolidated statements of income. The interest rate cap agreement had no fair value as of December 31, 2015.
In accordance with ASC 815, we recorded expense representing cash settlements and changes in estimated fair value of the interest rate derivative agreements of a nominal amount and $0.2 million for the three and nine months ended September 30, 2015. This amount is included in interest expense in the accompanying consolidated statement of income. There was no expense related to interest rate derivative agreements for the three and nine months ended September 30, 2016.
While Delek has not elected to apply permitted hedge accounting treatment for these interest rate derivatives in accordance with the provisions of ASC 815 in the past, we may choose to apply that treatment for future transactions.


15

8. Other Assets and Liabilities
The detail of other current assets is as follows (in millions):

Other Current Assets
September 30,
2016
 
December 31,
2015
Prepaid expenses
$
12.2

 
$
9.7

Short-term derivative assets (see Note 15)
5.4

 
30.7

Income and other tax receivables
26.4

 
86.6

RINs Obligation surplus (see Note 14)
8.5

 
12.9

Other
4.9

 
2.7

Total
$
57.4

 
$
142.6


The detail of other non-current assets is as follows (in millions):

Other Non-Current Assets
September 30,
2016
 
December 31,
2015
Prepaid tax asset
$
61.9

 
$
65.7

Deferred financing costs
8.8

 
9.4

Long-term income tax receivables
7.5

 
3.0

Supply and Offtake receivable
—

 
20.2

Other
5.9

 
7.0

Total
$
84.1

 
$
105.3

The detail of accrued expenses and other current liabilities is as follows (in millions):

Accrued Expenses and Other Current Liabilities
September 30,
2016
 
December 31,
2015
Income and other taxes payable
$
33.3

 
$
50.6

Short-term derivative liabilities (see Note 15)
14.0

 
10.2

Interest payable
8.3

 
7.7

Employee costs
6.9

 
6.1

Environmental liabilities (see Note 16)
1.7

 
0.9

Product financing agreements
50.4

 
—

RINs Obligation deficit (see Note 14)
20.2

 
22.0

Other
27.5

 
13.2

Total
$
162.3

 
$
110.7

The detail of other non-current liabilities is as follows (in millions):

Other Non-Current Liabilities
September 30,
2016
 
December 31,
2015
Long-term derivative liabilities (see Note 15)
$
20.7

 
$
48.9

Other
4.5

 
4.9

Total
$
25.2

 
$
53.8



16

9. Stockholders' Equity
Changes to equity during the nine months ended September 30, 2016 are presented below (in millions, except per share amounts):
 
 
Delek Stockholders' Equity
 
Non-Controlling Interest in Subsidiaries
 
Total Stockholders' Equity
Balance at December 31, 2015
 
$
1,153.3

 
$
200.6

 
$
1,353.9

Net (loss) income
 
(197.9
)
 
15.7

 
(182.2
)
Net unrealized gain on cash flow hedges, net of income tax expense of $9.4 million and ineffectiveness gain of $2.7 million
 
17.6

 
—

 
17.6

Foreign currency translation gain
 
0.2

 
—

 
0.2

Other comprehensive loss from equity method investments, net of income tax benefit of $0.1 million
 
(0.1
)
 
—

 
(0.1
)
Common stock dividends ($0.45 per share)
 
(28.1
)
 
—

 
(28.1
)
Distribution to non-controlling interest
 
—

 
(17.7
)
 
(17.7
)
Equity-based compensation expense
 
12.0

 
0.5

 
12.5

Repurchase of common stock
 
(6.0
)
 
—

 
(6.0
)
Income tax expense from equity-based compensation expense
 
(2.0
)
 
—

 
(2.0
)
Taxes due to the net settlement of equity-based compensation
 
(0.8
)
 
—

 
(0.8
)
Balance at September 30, 2016
 
$
948.2

 
$
199.1

 
$
1,147.3


Dividends
During the nine months ended September 30, 2016, our Board of Directors declared the following dividends:

Date Declared
 
Dividend Amount Per Share
 
Record Date
 
Payment Date
February 25, 2016
 
$0.15
 
March 15, 2016
 
March 29, 2016
May 4, 2016
 
$0.15
 
May 24, 2016
 
June 14, 2016
August 2, 2016
 
$0.15
 
August 23, 2016
 
September 13, 2016

Stock Repurchase Program
In February 2016, our Board of Directors authorized common stock repurchases in the aggregate amount of up to $125.0 million. Any repurchases may be implemented through open market transactions or in privately negotiated transactions, in accordance with applicable securities laws. The timing, price, and size of repurchases will be made at the discretion of management and will depend upon prevailing market prices, general economic and market conditions and other considerations. The stock repurchase authorization does not obligate us to acquire any particular amount of stock and any unused portion of the authorization will expire on December 31, 2016. During the nine months ended September 30, 2016, 386,090 shares of our common stock were repurchased, for a total of $6.0 million, under the stock repurchase authorization. There were no shares repurchased during the three months ended September 30, 2016.

10. Income Taxes
Under ASC 740, Income Taxes (“ASC 740”), companies are required to apply an estimated annual tax rate to interim period results on a year-to-date basis; however, the estimated annual tax rate should not be applied to interim financial results if a reliable estimate cannot be made.  In this situation, the interim tax rate should be based on actual year-to-date results.  Based on our current projections, which have fluctuated as a result of changes in oil prices and the related crack spread, we believe that using actual year-to-date results to compute our effective tax rate will produce a more reliable estimate of our tax expense or benefit for the three and nine months ended September 30, 2016.  As such, in contrast with our previous methods of recording income tax expense, we recorded a tax provision for the three and nine months ended September 30, 2016 based on actual year-to-date results, in accordance with ASC 740.

17

Our effective tax rate was 38.7% and 42.2% for the three and nine months ended September 30, 2016, respectively, compared to (3.0)% and 12.5% for the three and nine months ended September 30, 2015, respectively. The increase in our effective tax rate in the three and nine months ended September 30, 2016 was primarily due to the change in methodology from using an estimated annual effective tax rate to an actual three and nine month effective tax rate, as well as the impact of certain tax credits and other favorable permanent items due to the pre-tax loss in three and nine months ended September 30, 2016, compared to the pre-tax income in the three and nine months ended September 30, 2015.
11. Equity-Based Compensation
Delek US Holdings, Inc. 2006 Long-Term Incentive Plan
Compensation expense for Delek equity-based awards amounted to $3.8 million ($2.5 million, net of taxes) and $11.2 million ($7.3 million, net of taxes) for the three and nine months ended September 30, 2016, respectively, and $3.6 million ($2.3 million, net of taxes) and $10.7 million ($7.0 million, net of taxes) for the three and nine months ended September 30, 2015, respectively. These amounts, excluding amounts related to discontinued operations of $0.4 million and $1.2 million for the three and nine months ended September 30, 2016, respectively, and $0.4 million and $1.2 million for the three and nine months ended September 30, 2015, respectively, are included in general and administrative expenses in the accompanying condensed consolidated statements of income.
As of September 30, 2016, there was $26.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.0 years.
We issued 49,718 and 122,350 shares of common stock as a result of exercised stock options, stock appreciation rights, and vested restricted stock units during the three and nine months ended September 30, 2016, respectively, and 56,567 and 255,250 shares during the three and nine months ended September 30, 2015, respectively. These amounts do not include shares withheld to satisfy employee tax obligations related to the exercises and vestings. Such withheld shares totaled 29,621 and 57,200 during the three and nine months ended September 30, 2016, respectively, and 38,235 and 240,392 shares during the three and nine months ended September 30, 2015, respectively.
Delek US Holdings, Inc. 2016 Long-Term Incentive Plan
On May 5, 2016, our stockholders approved our 2016 Long-Term Incentive Plan (the “2016 Plan”). The 2016 Plan succeeds our 2006 Long-Term Incentive Plan, which expired in April 2016. The 2016 Plan allows Delek to grant stock options, SARs, restricted stock, RSUs, performance awards and other stock-based awards of up to 4,400,000 shares of Delek's common stock to certain directors, officers, employees, consultants and other individuals who perform services for Delek or its affiliates.  Stock options and SARs issued under the 2016 Plan are granted at prices equal to (or greater than) the fair market value of Delek's common stock on the grant date and are generally subject to a vesting period of one year or more. No awards will be made under the 2016 Plan after May 5, 2026.
Delek Logistics GP, LLC 2012 Long-Term Incentive Plan
Compensation expense for Delek Logistics GP equity-based awards was $0.4 million ($0.3 million, net of taxes) and $1.3 million ($0.8 million, net of taxes) for the three and nine months ended September 30, 2016, respectively, and $0.4 million ($0.3 million, net of taxes) and $1.5 million ($1.0 million, net of taxes) for the three and nine months ended September 30, 2015, respectively. These amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of income.
As of September 30, 2016, there was $2.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.7 years.

18

12. Earnings (Loss) Per Share
Basic and diluted earnings per share are computed by dividing net income (loss) by the weighted average common shares outstanding. The common shares used to compute Delek’s basic and diluted earnings (loss) per share are as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016

2015
 
2016
 
2015
Weighted average common shares outstanding
 
61,834,968

 
63,189,399

 
61,931,040

 
60,366,532

Dilutive effect of equity instruments
 
—

 
468,987

 
—

 
527,674

Weighted average common shares outstanding, assuming dilution
 
61,834,968

 
63,658,386

 
61,931,040

 
60,894,206

Outstanding common share equivalents totaling 2,984,667 and 2,953,971 were excluded from the diluted earnings per share calculation for the three and nine months ended September 30, 2016, respectively, compared to 2,240,684 and 2,157,852 common share equivalents for the three and nine months ended September 30, 2015, respectively, as these common share equivalents did not have a dilutive effect under the treasury stock method. These amounts include outstanding common share equivalents totaling 324,574 and 241,958 that were excluded from the diluted earnings per share calculation due to the net loss for the period for the three and nine months ended September 30, 2016, respectively.
13. Segment Data
Prior to August 2016, we aggregated our operating units into three reportable segments: refining, logistics and retail. However, in August 2016, Delek entered into a Purchase Agreement to sell the Retail Entities, which consist of all of the retail segment and a portion of the corporate, other and eliminations segment, to COPEC. As a result of the Purchase Agreement, we met the requirements of ASC 205-20, Presentation of Financial Statements - Discontinued Operations and ASC 360, Property, Plant and Equipment, 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 operating results for the Retail Entities, in all periods presented, have been reclassified to discontinued operations.
Our corporate activities, results of certain immaterial operating segments, our equity method investment in Alon USA and intercompany eliminations are reported in the corporate, other and eliminations segment. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of the reportable segments based on the segment contribution margin.
Segment contribution margin is defined as net sales less cost of sales and operating expenses, excluding depreciation and amortization. Operations which are not specifically included in the reportable segments are included in the corporate and other category, which primarily consists of operating expenses, depreciation and amortization expense and interest income and expense associated with our corporate headquarters.
The refining segment processes crude oil and other purchased feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel, aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals. The refining segment has a combined nameplate capacity of 155,000 bpd, including the 75,000 bpd Tyler refinery and the 80,000 bpd El Dorado refinery. The refining segment also owns and operates two biodiesel facilities involved in the production of biodiesel fuels and related activities.
Our refining segment has a services agreement with our logistics segment, which, among other things, requires the refining segment to pay service fees based on the number of gallons sold at the Tyler refinery and a sharing of a portion of the margin achieved in return for providing marketing, sales and customer services. This intercompany transaction fee was $4.1 million and $12.2 million during the three and nine months ended September 30, 2016, respectively, and $4.4 million and $11.2 million during the three and nine months ended September 30, 2015, respectively. Additionally, the refining segment pays crude transportation, terminalling and storage fees to the logistics segment for the utilization of pipeline, terminal and storage assets. These fees were $30.4 million and $92.1 million during the three and nine months ended September 30, 2016, respectively, and $31.2 million and $90.7 million during the three and nine months ended September 30, 2015, respectively. The logistics segment also sold $1.8 million and $4.7 million of Renewable Identification Numbers ("RINs") to the refining segment during the three and nine months ended September 30, 2016, respectively, and $1.0 million and $4.9 million during the three and nine months ended September 30, 2015, respectively. The refining segment recorded sales and fee revenues from the logistics segment and the Retail Entities, the operations of which are included in discontinued operations, in the amount of $78.1 million and $266.6 million during the three and nine months ended September 30, 2016, respectively, and $180.7 million and $495.9 million during the three and nine months ended September 30, 2015, respectively. All inter-segment transactions have been eliminated in consolidation.

19

Our logistics segment owns and operates crude oil and refined products logistics and marketing assets. The logistics segment generates revenue and contribution margin by charging fees for gathering, transporting and storing crude oil and for marketing, distributing, transporting and storing intermediate and refined products.
The following is a summary of business segment operating performance as measured by contribution margin for the period indicated (in millions):
 
 
Three Months Ended September 30, 2016
(In millions)
 
Refining
 
Logistics
 
Corporate,
Other and Eliminations
 
Consolidated
Net sales (excluding intercompany fees and sales)
 
$
935.1

 
$
71.2

 
$
—

 
$
1,006.3

Intercompany fees and sales(1)
 
78.1

 
36.3

 
(40.8
)
 
73.6

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
927.0

 
73.5

 
(34.9
)
 
965.6

Operating expenses
 
51.7

 
9.2

 
0.1

 
61.0

Segment contribution margin
 
$
34.5

 
$
24.8

 
$
(6.0
)
 
53.3

General and administrative expenses
 
 
 
 
 
 
 
24.9

Depreciation and amortization
 
 
 
 
 
 
 
29.0

Other operating expense
 
 
 
 
 
 
 
2.2

Operating loss
 
 
 
 
 
 
 
$
(2.8
)
Total assets(2)
 
$
1,854.3

 
$
393.2

 
$
772.0

 
$
3,019.5

Capital spending (excluding business combinations)(3)
 
$
7.5

 
$
3.2

 
$
0.1

 
$
10.8


 
 
Three Months Ended September 30, 2015
 
 
Refining
 
Logistics
 
Corporate,
Other and Eliminations(4)
 
Consolidated
Net sales (excluding intercompany fees and sales)
 
$
1,027.3

 
$
128.5

 
$
0.8

 
$
1,156.6

Intercompany fees and sales(1)
 
180.7

 
36.6

 
(80.4
)
 
136.9

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
1,100.7

 
124.4

 
(72.3
)
 
1,152.8

Operating expenses
 
59.9

 
11.6

 
—

 
71.5

Segment contribution margin
 
$
47.4

 
$
29.1

 
$
(7.3
)
 
69.2

General and administrative expenses
 
 
 
 
 
 
 
27.5

Depreciation and amortization
 
 
 
 
 
 
 
27.5

Other operating expense
 
 
 
 
 
 
 
0.2

Operating income
 
 
 
 
 
 
 
$
14.0

Total assets(2)
 
$
1,960.9

 
$
361.8

 
$
1,106.5

 
$
3,429.2

Capital spending (excluding business combinations)(3)
 
$
23.6

 
$
4.1

 
$
1.2

 
$
28.9


20

 
 
Nine Months Ended September 30, 2016
 
 
Refining
 
Logistics
 
Corporate,
Other and Eliminations
 
Consolidated
Net sales (excluding intercompany fees and sales)
 
$
2,651.6

 
$
214.4

 
$
0.5

 
$
2,866.5

Intercompany fees and sales(1)
 
266.6

 
109.0

 
(128.8
)
 
246.8

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
2,703.0

 
213.4

 
(109.7
)
 
2,806.7

Operating expenses
 
159.6

 
28.4

 
(0.2
)
 
187.8

Insurance proceeds — business interruption
 
(42.4
)
 
—

 
—

 
(42.4
)
Segment contribution margin
 
$
98.0

 
$
81.6

 
$
(18.4
)
 
161.2

General and administrative expenses
 
 
 
 
 
 
 
77.5

Depreciation and amortization
 
 
 
 
 
 
 
86.6

Other operating expense
 
 
 
 
 
 
 
$
2.2

Operating loss
 
 
 
 
 
 
 
$
(5.1
)
Capital spending (excluding business combinations)(3)
 
$
14.4

 
$
5.1

 
$
4.7

 
$
24.2


 
 
Nine Months Ended September 30, 2015
 
 
Refining
 
Logistics
 
Corporate,
Other and Eliminations(4)
 
Consolidated
Net sales (excluding intercompany fees and sales)
 
$
2,875.9

 
$
373.8

 
$
1.6

 
$
3,251.3

Intercompany fees and sales(1)
 
495.9

 
106.9

 
(195.1
)
 
407.7

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
3,022.4

 
365.3

 
(174.0
)
 
3,213.7

Operating expenses
 
168.1

 
33.2

 
—

 
201.3

Segment contribution margin
 
$
181.3

 
$
82.2

 
$
(19.5
)
 
244.0

General and administrative expenses
 
 
 
 
 
 
 
81.9

Depreciation and amortization
 
 
 
 
 
 
 
76.5

Other operating expense
 
 
 
 
 
 
 
0.2

Operating income
 
 
 
 
 
 
 
$
85.4

Capital spending (excluding business combinations)(3)
 
$
146.8

 
$
13.9

 
$
2.9

 
$
163.6

            
(1) 
Intercompany fees and sales for the refining segment include revenues of $73.6 million and $246.8 million during the three and nine months ended September 30, 2016, respectively, and $136.9 million and $407.7 million during the three and nine months ended September 30, 2015, respectively, to the Retail Entities, the operations of which are reported in discontinued operations.
(2) 
Assets held for sale of $471.5 million and $469.9 million are included in the corporate, other and eliminations segment as of September 30, 2016 and September 30, 2015, respectively.
(3) 
Capital spending excludes capital spending associated with the Retail Entities of $6.0 million and $12.2 million during the three and nine months ended September 30, 2016, respectively, and $6.3 million and $10.0 million during the three and nine months ended September 30, 2015, respectively.
(4) 
The corporate, other and eliminations segment operating results for the three and nine months ended September 30, 2015 have been restated to reflect the reclassification of the Retail Entities to discontinued operations.


21

Property, plant and equipment and accumulated depreciation as of September 30, 2016 and depreciation expense by reporting segment for the three and nine months ended September 30, 2016 are as follows (in millions):
 
 
Refining
 
Logistics
 
Corporate,
Other and Eliminations
 
Consolidated
Property, plant and equipment
 
$
1,196.5

 
$
331.1

 
$
40.7

 
$
1,568.3

Less: Accumulated depreciation
 
(348.0
)
 
(86.0
)
 
(20.8
)
 
(454.8
)
Property, plant and equipment, net
 
$
848.5

 
$
245.1

 
$
19.9

 
$
1,113.5

Depreciation expense for the three months ended September 30, 2016
 
$
21.7

 
$
5.2

 
$
1.9

 
$
28.8

Depreciation expense for the nine months ended September 30, 2016
 
$
66.0

 
$
14.4

 
$
5.3

 
$
85.7

In accordance with ASC 360, Property, Plant & Equipment, Delek evaluates the realizability of property, plant and equipment as events occur that might indicate potential impairment.
14. Fair Value Measurements
The fair values of financial instruments are estimated based upon current market conditions and quoted market prices for the same or similar instruments. Management estimates that the carrying value approximates fair value for all of Delek’s assets and liabilities that fall under the scope of ASC 825, Financial Instruments.
Delek applies the provisions of ASC 820, Fair Value Measurements ("ASC 820"), which defines fair value, establishes a framework for its measurement and expands disclosures about fair value measurements. ASC 820 applies to our interest rate and commodity derivatives that are measured at fair value on a recurring basis. The standard also requires that we assess the impact of nonperformance risk on our derivatives. Nonperformance risk is not considered material to our financial statements at this time.
ASC 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
Over the counter ("OTC") commodity swaps, physical commodity purchase and sale contracts and interest rate swaps and caps are generally valued using industry-standard models that consider various assumptions, including quoted forward prices, spot prices, interest rates, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines the classification as Level 2 or 3. Our contracts are valued based on exchange pricing and/or price index developers such as Platts or Argus and are, therefore, classified as Level 2.
The U.S. Environmental Protection Agency ("EPA") requires certain refiners to blend biofuels into the fuel products they produce pursuant to the EPA’s Renewable Fuel Standard - 2.  Alternatively, credits called RINs, which may be generated and/or purchased, can be used to satisfy this obligation instead of physically blending biofuels ("RINs Obligation"). Our RINs Obligation surplus or deficit is based on the amount of RINs we must purchase, net of amounts internally generated and the price of those RINs as of the balance sheet date. The RINs Obligation surplus or deficit is categorized as Level 2 and is measured at fair value based on quoted prices from an independent pricing service.

22

The fair value hierarchy for our financial assets and liabilities accounted for at fair value on a recurring basis at September 30, 2016 and December 31, 2015, was as follows (in millions):
 
 
As of September 30, 2016
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
OTC commodity swaps
 
$
—

 
$
75.6

 
$
—

 
$
75.6

RINs Obligation surplus
 
—

 
8.5

 
—

 
8.5

Total assets
 
—

 
84.1

 
—

 
84.1

Liabilities
 
 
 
 
 
 
 
 
OTC commodity swaps
 
—

 
(122.6
)
 
—

 
(122.6
)
RINs Obligation deficit
 
—

 
(20.2
)
 
—

 
(20.2
)
Total liabilities
 
—

 
(142.8
)
 
—

 
(142.8
)
Net liabilities
 
$
—

 
$
(58.7
)
 
$
—

 
$
(58.7
)

 
 
As of December 31, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
OTC commodity swaps
 
$
—

 
$
295.2

 
$
—

 
$
295.2

RINs Obligation surplus
 
—

 
12.9

 
—

 
12.9

Total assets
 
—

 
308.1

 
—

 
308.1

Liabilities
 
 
 
 
 
 
 
 
OTC commodity swaps

—


(347.5
)

—


(347.5
)
RINs Obligation deficit
 
—

 
(22.0
)
 
—

 
(22.0
)
Total liabilities
 
—

 
(369.5
)
 
—

 
(369.5
)
Net liabilities
 
$
—

 
$
(61.4
)
 
$
—

 
$
(61.4
)
The derivative values above are based on analysis of each contract as the fundamental unit of account as required by ASC 820. Derivative assets and liabilities with the same counterparty are not netted where the legal right of offset exists. This differs from the presentation in the financial statements which reflects our policy under the guidance of ASC 815-10-45, wherein we have elected to offset the fair value amounts recognized for multiple derivative instruments executed with the same counterparty and where the legal right of offset exists. As of September 30, 2016 and December 31, 2015, $17.6 million and $23.9 million, respectively, of cash collateral was held by counterparty brokerage firms and has been netted with the net derivative positions with each counterparty.

15. Derivative Instruments

We use derivatives to reduce normal operating and market risks with the primary objective of reducing the impact of market price volatility on our results of operations. As such, our use of derivative contracts is aimed at:

•
limiting the exposure to price fluctuations of commodity inventory above or below target levels at each of our segments;
•
managing our exposure to commodity price risk associated with the purchase or sale of crude oil, feedstocks and finished grade fuel products at each of our segments; and
•
limiting the exposure to interest rate fluctuations on our floating rate borrowings.
We primarily utilize OTC commodity swaps, generally with maturity dates of three years or less, and interest rate swap and cap agreements to achieve these objectives. OTC commodity swap contracts require cash settlement for the commodity based on the difference between a fixed or floating price and the market price on the settlement date. Interest rate swap and cap agreements economically hedge floating rate debt by exchanging interest rate cash flows, based on a notional amount from a floating rate to a fixed rate. At this time, we do not believe there is any material credit risk with respect to the counterparties to these contracts.


23

In accordance with ASC 815, certain of our OTC commodity swap contracts have been designated as cash flow hedges and the effective portion of the change in fair value between the execution date and the end of period has been recorded in other comprehensive income. The effective portion of the fair value of these contracts is recognized in income at the time the positions are closed and the hedged transactions are recognized in income.

From time to time, we also enter into futures contracts with supply vendors that secure supply of product to be purchased for use in the normal course of business at our refining segment. These contracts are priced based on an index that is clearly and closely related to the product being purchased, contain no net settlement provisions and typically qualify under the normal purchase exemption from derivative accounting treatment under ASC 815.

The following table presents the fair value of our derivative instruments as of September 30, 2016 and December 31, 2015. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under our master netting arrangements, including cash collateral on deposit with our counterparties. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below differ from the amounts presented in our condensed consolidated balance sheets (in millions):
 
 
 
September 30, 2016
 
December 31, 2015
Derivative Type
Balance Sheet Location
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
OTC commodity swaps(1)
Other current assets
 
$
44.0

 
$
(36.6
)
 
$
199.4

 
$
(162.3
)
OTC commodity swaps(1)
Other current liabilities
 
31.6

 
(43.8
)
 
74.0

 
(83.6
)
OTC commodity swaps(1)
Other long term liabilities
 
—

 
—

 
6.6

 
(5.6
)