Pursuant to Rule 424(b)(2)
Registration No. 333-171598
DELEK US HOLDINGS, INC.
The selling stockholders named herein may offer and sell from time to time up to
39,736,432 shares of our common stock covered by this prospectus. The selling stockholders will
receive all of the proceeds from any sales of their shares. We will not receive any of the
proceeds, but we will incur expenses in connection with the offering.
In making offers and sales pursuant to this prospectus, the selling stockholders are deemed to
be acting as underwriters, and their offers and sales are deemed to be made indirectly on our behalf.
Our common stock is listed and currently traded on the New York Stock Exchange (NYSE) under
the symbol DK. The last reported sale price of our common
stock on the NYSE on January 31, 2011
was $8.33 per share.
Our registration of the shares of common stock covered by this prospectus does not mean that
the selling stockholders will offer or sell any of the shares. The selling stockholders may sell
the shares of common stock covered by this prospectus in a number of different ways and at varying
prices. We provide more information about how the selling stockholders may sell the shares in the
section entitled Plan of Distribution beginning on page 25.
Investing in our common stock involves a high degree of risk. See Risk Factors beginning on
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
date of this prospectus is February 7, 2011.
TABLE OF CONTENTS
We have not authorized any person to give any information or make any statement that
differs from what is in this prospectus. If any person does make a statement that differs from
what is in this prospectus, you should not rely on it. This prospectus is not an offer to sell,
nor is it a solicitation of any offer to buy, these securities in any state in which the offer or
sale is not permitted. The information in this prospectus is complete and accurate as of its date,
but the information may change after that date. You should not assume that the information in this
prospectus is accurate as of any date after its date.
This prospectus is part of a registration statement that we filed with the Securities and
Exchange Commission, or SEC, utilizing a shelf registration statement. Under this shelf
process, the selling stockholders may from time to time sell the shares of our common stock that
they hold in one or more offerings. This prospectus provides you with a general description of the
shares being offered.
The registration statement that contains this prospectus, including the exhibits to the
registration statement and all documents incorporated herein by reference, contains additional
information about us and the shares being offered under this prospectus. The registration
statement, including all documents incorporated herein by reference, can be read and is available
to the public over the Internet at the SECs website at http://www.sec.gov as described under the
heading Where You Can Find More Information.
Unless the context otherwise requires, Delek, us, we and our refer to Delek US
Holdings, Inc. and its consolidated subsidiaries. References to fiscal years refer to the year
ended or ending on December 31 of that year. For example, our fiscal year ended December 31, 2009
may be referred to as fiscal 2009.
We are a diversified energy business focused on petroleum refining, wholesale sales of refined
products and retail marketing. Our business consists of three operating segments: refining,
marketing and retail. Our refining segment operates a high conversion, moderate complexity
independent refinery in Tyler, Texas, with a design crude distillation capacity of 60,000 barrels
per day (bpd), along with an associated light products loading facility. Our marketing segment
sells refined products on a wholesale basis in west Texas through company-owned and third-party
operated terminals and owns and/or operates crude oil pipelines and associated tank farms in east
Texas. Our retail segment markets gasoline, diesel, other refined petroleum products and
convenience merchandise through a network of approximately 400 company-operated retail fuel and
convenience stores located in Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi,
Tennessee and Virginia. Additionally, we own a minority interest in Lion Oil Company, a
privately-held Arkansas corporation, which operates a 75,000 bpd moderate complexity crude oil
refinery located in El Dorado, Arkansas and other pipeline and product terminals.
Delek US Holdings, Inc. is the sole shareholder of MAPCO Express, Inc. (Express), MAPCO
Fleet, Inc. (Fleet), Delek Refining, Inc. (Refining), Delek Finance, Inc. (Finance) and Delek
Marketing & Supply, Inc. (Marketing). We are a Delaware corporation formed in connection with our
acquisition in May 2001 of 198 retail fuel and convenience stores from a subsidiary of The Williams
Companies. Since then, we have completed several other acquisitions of retail fuel and convenience
stores. In April 2005, we expanded our scope of operations to include complementary petroleum
refining and wholesale and distribution businesses by acquiring the Tyler, Texas refinery. We
initiated operations of our marketing segment in August 2006 with the purchase of assets from Pride
Companies LP and affiliates.
Delek and Express were incorporated during April 2001 in the State of Delaware. Fleet,
Refining, Finance, and Marketing were incorporated in the State of Delaware during January 2004,
February 2005, April 2005 and June 2006, respectively.
We are a controlled company under the rules and regulations of the New York Stock Exchange
where our shares are traded under the symbol DK. As of December 31, 2010, approximately 73% of
our outstanding shares were beneficially owned by Delek Group Ltd. (Delek Group), a conglomerate
that is domiciled and publicly traded in Israel. Delek Group has significant interests in fuel
supply businesses and is controlled indirectly by Mr. Itshak Sharon (Tshuva).
Delek Group is the parent company of Delek Petroleum Ltd. (Delek Petroleum), which directly
holds 346,563 shares. Delek Petroleum is the parent company of Delek Hungary Holding Limited
Liability Company (Delek Hungary), which directly holds 39,389,869 shares.
We are registering for resale from time to time 39,389,869 shares of our common stock that we
issued to selling stockholder, Delek Hungary and the 346,563 shares of our common stock purchased
by selling stockholder Delek Petroleum.
Pursuant to the terms of a registration rights agreement with the Delek Group (and its
affiliates, including the selling stockholders), we have agreed to pay all expenses related to the
registration of shares covered by this prospectus, including, without limitation, all registration
and qualification fees, printing expenses, filing fees, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, expenses of any regular or special audits
incident to or required by any such registration and reasonable fees and disbursements of a single
special counsel for the selling stockholders, and the compensation of our regular employees. The
selling stockholders will bear the costs of any underwriting discounts or selling commissions, if
any, attributable to the sale of the shares. The registration rights agreement also provides that
we will indemnify the selling stockholders, persons affiliated with them, and any participating
underwriters against certain liabilities to which it may become subject in connection with the
offering and sale of the shares contemplated by this prospectus, including liabilities arising
under the Securities Act, or they will be entitled to contribution.
We are also registering for resale any additional shares of our common stock that may become
issuable for no additional consideration by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of consideration, which
results in an increase in the number of our shares of common stock outstanding.
We are a Delaware corporation formed in 2001. Our principal executive offices are located at
7102 Commerce Way, Brentwood, Tennessee 37027, and our telephone number at that address is (615)
771-6701. Our website is located at www.DelekUS.com. Information contained on our website does
not constitute a part of this prospectus.
In addition to the other information in this prospectus, you should carefully consider the
following factors in evaluating us and our business before purchasing the shares of common stock
offered hereby. This prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially.
Factors that could cause or contribute to such differences include, but are not limited to, those
discussed below, as well as those discussed elsewhere in this prospectus, including the documents
incorporated by reference.
Risk Factors Relating to Our Operations
Risks Relating to Our Industries
Our refining margins have been volatile and are likely to remain volatile, which may have a
material adverse effect on our earnings and cash flows.
Our earnings, cash flow and profitability from our refining operations are substantially determined
by the difference between the price of refined products and the price of crude oil, which is
referred to as the refining margin. Refining margins historically have been volatile and are
likely to continue to be volatile, as a result of numerous factors beyond our control, including
volatility in the prices of crude oil and other feedstocks purchased by our Tyler refinery,
volatility in the costs of natural gas and electricity used by our Tyler refinery, and volatility
in the prices of gasoline and other refined petroleum products sold by our Tyler refinery. For
example, during the year ended December 31, 2010, the price for West Texas Intermediate (WTI)
crude oil fluctuated between $68.01 and $91.51 per barrel, while the price for U.S. Gulf Coast
unleaded gasoline fluctuated between $1.83 and $2.41 per gallon. Such volatility is affected by,
among other things:
||changes in global and local economic conditions;
||domestic and foreign supply and demand for crude oil and refined products;
||investor speculation in commodities;
||worldwide political conditions, particularly in significant oil producing regions such as
the Middle East, Western Coastal Africa, the former Soviet Union, and South America;
||the level of foreign and domestic production of crude oil and refined petroleum products;
||the ability of the members of the Organization of Petroleum Exporting Countries to maintain
oil price and production controls;
||pricing and other actions taken by competitors that impact the market;
||the level of crude oil, other feedstocks and refined petroleum products imported into the
||excess capacity and utilization rates of refineries worldwide;
||development and marketing of alternative and competing fuels, such as ethanol and
||changes in fuel specifications required by environmental and other laws, particularly with
respect to oxygenates and sulfur content;
||events that cause disruptions in our distribution channels;
||local factors, including market conditions, adverse weather conditions and the level of
operations of other refineries and pipelines in our markets;
||accidents, interruptions in transportation, inclement weather or other events that can
cause unscheduled shutdowns or otherwise adversely affect our refinery, or the supply and
delivery of crude oil from third parties; and
||U.S. government regulations.
The crude oil we purchase and the refined products we sell are commodities whose prices are
determined by market forces beyond our control. While an increase or decrease in the price of
crude oil will often result in a corresponding increase or decrease in the wholesale price of
refined products, a change in the price of one commodity does not always result in a corresponding
change in the other. A substantial or prolonged increase in crude oil prices without a
corresponding increase in refined product prices or a substantial or
prolonged decrease in refined product
prices without a corresponding decrease in crude oil prices could have a
significant negative effect on our results of operations and cash flows. This is especially true
for non-transportation refined products such as asphalt, butane, coke, sulfur, propane and slurry
whose prices are less likely to correlate to fluctuations in the price of crude oil.
In addition, our Tyler refinery has historically processed primarily light sweet crude oils as
opposed to light to medium sour crude oils. Due to increasing demand for lower sulfur fuels, light
sweet crude oils have historically been more costly than heavy sour crude oils, and an increase in
the cost of light sweet crude oils could have a material adverse effect on our business, financial
condition and results of operations. The capital improvements completed at the Tyler refinery in
2009 allow it to process more sour crude oils. As the Tyler refinery begins to process more sour
crude oils, a substantial or prolonged decrease in the differential between the price of sweet and
sour crude oils could negatively impact our earnings and cash flows.
Finally, higher refined product prices often result in negative consequences for our retail
operations such as higher credit card expenses (because credit card fees are typically calculated
as a percentage of the transaction amount rather than a percentage of gallons sold), lower retail
fuel gross margin per gallon, reduced demand for refined products, fewer retail gallons sold and
fewer retail merchandise transactions.
We are subject to loss of market share or pressure to reduce prices in order to compete effectively
with a changing group of competitors in a fragmented retail industry.
The markets in which we operate our retail fuel and convenience stores are highly competitive and
characterized by ease of entry and constant change in the number and type of retailers offering the
products and services found in our stores. We compete with other convenience store chains, gas
stations, supermarkets, drug stores, discount stores, club stores, mass merchants, fast food
operations and other retail outlets. In some of our markets, our competitors have been in
existence longer and have greater financial, marketing and other resources than we do. As a
result, our competitors may be able to respond better to changes in the economy and new
opportunities within the industry.
In recent years, several non-traditional retailers, such as supermarkets, club stores and mass
merchants, have affected the convenience store industry by entering the retail fuel business and/or
selling merchandise traditionally found in convenience stores. These non-traditional gasoline
and/or convenience merchandise retailers have obtained a significant share of the motor fuels
market, may obtain a significant share of the convenience merchandise market and their market share
in each market is expected to grow. Because of their diversity, integration of operations,
experienced management and greater resources, these companies may be better able to withstand
volatile market conditions or levels of low or no profitability in the retail segment. In
addition, these retailers may use promotional pricing or discounts, both at the pump and in the
store, to encourage in-store merchandise sales. These activities by our competitors could pressure
us to offer similar discounts, adversely affecting our profit margins. Additionally, the loss of
market share by our retail fuel and convenience stores to these and other retailers relating to
either gasoline or merchandise could have a material adverse effect on our business, financial
condition and results of operations.
Independent owner-operators can generally operate stores with lower overhead costs than ours.
Should significant numbers of independent owner-operators enter our market areas, retail prices in
some of our categories may be negatively affected, as a result of which our profit margins may
decline at affected stores.
Our stores compete, in large part, based on their ability to offer convenience to customers.
Consequently, changes in traffic patterns and the type, number and location of competing stores
could result in the loss of customers and reduced sales and profitability at affected stores.
Other major competitive factors include ease of access, pricing, timely deliveries, product and
service selections, customer service, fuel brands, store appearance, cleanliness and safety.
We operate in a highly regulated industry and increased costs of compliance with, or liability for
violation of, existing or future laws, regulations and other requirements could significantly
increase our costs of doing business, thereby adversely affecting our profitability.
Our industry is subject to extensive laws, regulations and other requirements including, but not
limited to, those relating to the environment, employment, labor, immigration, minimum wages and
overtime pay, health care and benefits, working conditions, public accessibility, the sale of
alcohol and tobacco and other requirements. A violation of any of these requirements could have a
material adverse effect on our business, financial condition and results of operations. For
example, the U.S. Department of Labors Occupational Safety and Health Administration (OSHA) and
the U.S. Environmental Protection Agency (EPA) commenced investigations of our refinery following
the accident that occurred there in November 2008. OSHA concluded its inspection in May 2009 and
issued citations assessing an aggregate penalty of approximately $0.2 million. We are contesting
the citations and fines and do not believe the outcome will have a material effect on our business.
The EPAs investigation is ongoing and we cannot assure you as to the outcome of the EPAs
investigation including any possible penalties that may arise.
Ongoing compliance with laws, regulations and other requirements could also have a material adverse
effect on our business, financial condition and results of operations. Under various federal,
state and local environmental requirements, as the owner or operator of our refinery and retail
locations, we may be liable for the costs of removal or remediation of contamination at our
existing or former locations, whether we knew of, or were responsible for, the presence of such
contamination. We have incurred such liability in the past and several of our current and former
locations are the subject of ongoing remediation projects. The failure to timely report and
properly remediate contamination may subject us to liability to third parties and may adversely
affect our ability to sell or rent our property or to borrow money using our property as
collateral. Additionally, persons who arrange for the disposal or treatment of hazardous
substances also may be liable for the costs of removal or remediation of these substances at sites
where they are located, regardless of whether the site is owned or operated by that person. We
typically arrange for the treatment or disposal of hazardous substances in our refining operations.
We do not typically do so in our retail operations, but we may nonetheless be deemed to have
arranged for the disposal or treatment of hazardous substances. Therefore, we may be liable for
removal or remediation costs, as well as other related costs, including fines, penalties and
damages resulting from injuries to persons, property and natural resources. In the future, we may
incur substantial expenditures for investigation or remediation of contamination that has not been
discovered at our current or former locations or locations that we may acquire.
In addition, new legal requirements, new interpretations of existing legal requirements, increased
legislative activity and governmental enforcement and other developments could require us to make
additional unforeseen expenditures. Companies in the petroleum industry, such as us, are often the
target of activist and regulatory activity regarding pricing, safety, environmental compliance and
other business practices which could result in price controls, fines, increased taxes or other
actions affecting the conduct of our business. For example, consumer activists are lobbying
various authorities to enact laws and regulations mandating the use of temperature compensation
devices for fuel dispensed at our retail stores. In addition, we are required to pay an Oil Spill
Liability Trust Fund fee of $0.08 per barrel of crude oil that we purchase and federal legislation
has recently been proposed that would increase the fee to as much as $0.78 per barrel. Finally,
various legislative and regulatory measures to address climate change and greenhouse gas (GHG)
emissions (including carbon dioxide, methane and nitrous oxides) are in various phases of
discussion or implementation. These include proposed federal regulation and state actions to
develop statewide, regional or nationwide programs designed to control and reduce greenhouse gas
emissions. Although it is not possible to predict the requirements of any cap-and-trade
legislation that may be enacted, any laws or regulations that may be adopted to restrict or reduce
emissions of GHGs would likely require us to incur increased operating costs. If we are unable to
maintain sales of our refined products at a price that reflects such increased costs, there could
be a material adverse effect on our business, financial condition and results of operations.
Further, any increase in prices of refined products resulting from such increased costs could have
an adverse effect on our financial condition, results of operations and cash flows.
Various legislative and regulatory measures to address climate change and greenhouse gas (GHG)
emissions (including carbon dioxide, methane and nitrous oxides) are in various phases of
discussion or implementation. They include proposed and newly enacted federal regulation and state
actions to develop statewide, regional or nationwide programs designed to control and reduce GHG
emissions from fixed sources, such as our refinery, as well as mobile transportation sources.
Although it is not possible to predict the requirements of any GHG legislation that may be enacted,
any laws or regulations that have been or may be adopted to restrict or reduce GHG emissions will
likely require us to incur increased operating costs. If we are unable to maintain sales of our
refined products at a price that reflects such increased costs, there could be a material adverse
effect on our business, financial condition and results of operations.
Beginning with the 2010 calendar year, EPA rules require us to report GHG emissions from our
refinery operations and consumer use of products produced at our refinery on an annual basis.
While the cost of compliance with the rule is not material, data gathered under the rule may be
used in the future to support additional regulation of GHGs. Beginning in January 2011, the EPA
will begin regulating GHG emissions from refineries and other major sources through the Prevention
of Significant Deterioration (PSD) and Federal Operating Permit (Title V) programs. While these
rules do not impose any limits or controls on GHG emissions from current operations, emission
increases from future projects or operational changes, such as capacity increases, may be impacted
and required to meet emission limits or technological requirements such as Best Available Control
Technologies. EPA has announced their intent for further regulation of refinery GHG emissions
through New Source Performance Standards (NSPS) to be finalized in late 2011 or 2012. GHG
regulation could also impact the consumption of refined products, thereby affecting our refinery
operations. Finally, the EPA has issued final rules for gasoline formulation that require the
reduction of average benzene content by January 1, 2011. It may be necessary for us to purchase
credits to comply with these content requirements and there can be no assurance that such credits
will be available or that we will be able to purchase available credits at reasonable prices.
Compliance with any future legislation or regulation of temperature compensation, greenhouse gas
emissions or benzene content may result in increased capital and operating costs and may have a
material adverse effect on our results of operations and financial condition.
Environmental regulation is becoming more stringent and new environmental laws and regulations are
continuously being enacted or proposed. While it is impractical to predict the impact that
potential regulatory and activist activity may have, such future activity may result in increased
costs to operate and maintain our facilities, as well as increased capital outlays to improve our
facilities. Such future activity could also adversely affect our ability to expand production,
result in damaging publicity about us, or reduce demand for our products. Our need to incur costs
associated with complying with any resulting new legal or regulatory requirements that are
substantial and not adequately provided for, could have a material adverse effect on our business,
financial condition and results of operations.
We operate an independent refinery in Tyler, Texas which may not be able to withstand volatile
market conditions, compete on the basis of price or obtain sufficient quantities of crude oil in
times of shortage to the same extent as integrated, multinational oil companies.
We compete with a broad range of companies in our refining and petroleum product marketing
operations. Many of these competitors are integrated, multinational oil companies that are
substantially larger than we are. Because of their diversity, integration of operations, larger
capitalization, larger and more complex refineries and greater resources, these companies may be
better able to withstand volatile market conditions relating to crude oil and refined product
pricing, to compete on the basis of price and to obtain crude oil in times of shortage.
We do not engage in the petroleum exploration and production business and therefore do not produce
any of our own crude oil feedstocks. Certain of our competitors, however, obtain a portion of
their feedstocks from company-owned production. Competitors that have their own crude production
are at times able to offset losses from refining operations with profits from producing operations
and may be better positioned to withstand periods of depressed refining margins or feedstock
shortages. In addition, we compete with other industries, such as wind, solar and hydropower that
provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial
and individual customers. If we are unable to compete effectively with these competitors, both
within and outside our industry, there could be a material adverse effect on our business,
financial condition, results of operations and cash flows.
If the market value of our inventory declines to an amount less than our cost basis, we would
record a write-down of inventory and a non-cash charge to cost of sales, which may affect our
The nature of our business requires us to maintain substantial quantities of crude oil, refined
petroleum product and blendstock inventories. Because crude oil and refined petroleum products are
commodities, we have no control over the changing market value of these inventories. Because
inventory is valued at the lower of cost or market value, we would record a write-down of inventory
and a non-cash charge to cost of sales if the market value of our inventory were to decline to an
amount below our cost.
A terrorist attack on our assets, or threats of war or actual war, may hinder or prevent us from
conducting our business.
Terrorist attacks in the United States and the wars with Iraq and Afghanistan, as well as events
occurring in response or similar to or in connection with them, may harm our business.
Energy-related assets (which could include refineries, pipelines and terminals such as ours) may be
at greater risk of future terrorist attacks than other possible targets in the United States. In
addition, the State of Israel, where our majority stockholder, Delek Group Ltd. (Delek Group), is
based, has suffered armed conflicts and political instability in recent years. We may be more
susceptible to terrorist attack as a result of our connection to an Israeli owner. On the date of
this prospectus, four of our directors reside in Israel.
A direct attack on our assets or the assets of others used by us could have a material adverse
effect on our business, financial condition and results of operations. In addition, any terrorist
attack could have an adverse impact on energy prices, including prices for our crude oil, other
feedstocks and refined petroleum products, and an adverse impact on the margins from our refining
and petroleum product marketing operations. Disruption or significant increases in energy prices
could also result in government-imposed price controls.
Increased consumption of renewable fuels could lead to a decrease in fuel prices and/or a reduction
in demand for refined fuels.
Regulatory initiatives have required an increase in the consumption of renewable fuels such as
ethanol and biodiesel. In the future, renewable fuels may continue to be blended with, or may
replace, refined fuels. Such increased use of renewable fuels may result in an increase in fuel
supply and corresponding decrease in fuel prices. Increased use of renewable fuels may also result
in a decrease in demand for refined fuels. A significant decrease in fuel prices or refined fuel
demand could have an adverse impact on our financial results. For example, the Energy Policy Act
of 2005 required increasing amounts of renewable fuel be incorporated into the gasoline pool
through 2012. The Energy Independence and Security Act of 2007 (EISA) increases the amounts of
renewable fuel required by the Energy Policy Act of 2005. A rule finalized by the EPA in 2010
(RFS-2) to implement the EISA requires us to displace increasing amounts of refined products
produced by our refinery with biofuels, beginning with approximately 7.8% in 2011 and escalating to
18% or more in 2022, depending on demand for motor fuels. The proposed rule could cause decreased
crude runs and materially affect our profitability unless fuel demand rises at a comparable rate or
other outlets are found for the displaced products. Although the Tyler refinery has been exempt
from renewable fuel standards through 2010, it began supplying an E-10 gasoline-ethanol blend in
Increases in required fuel economy and regulation of CO2 emissions from motor vehicles may reduce
demand for transportation fuels.
In 2010, the EPA and the Department of Transportations National Highway Traffic Safety
Administration (NHTSA) finalized new standards, raising the required Corporate Average Fuel Economy
(CAFE) of the nations passenger fleet by 40% to approximately 35 mpg by 2016 and imposing the
first-ever federal GHG emissions standards on cars and light trucks. Later in the year, EPA and
the Department of Transportation also announced their intention to propose first-time standards for
fuel economy of medium and heavy duty trucks in 2011, as well as further increases in the CAFE
standard for passenger vehicles after 2016. Such increases in fuel economy standards and potential
electrification of the vehicle fleet, along with mandated increases in use of renewable fuels
discussed above, could result in decreasing demand for petroleum fuels. Decreasing demand for
petroleum fuels could materially affect profitability at our refinery, as well as at our
Risks Relating to Our Business
We are particularly vulnerable to disruptions to our refining operations, because our refining
operations are concentrated in one facility.
Because all of our refining operations are concentrated in the Tyler refinery, significant
disruptions at the Tyler facility could have a material adverse effect on our business, financial
condition or results of operations. Refining segment contribution margin comprised approximately
57.6%, 42.9% and 62.2% of our consolidated contribution margin for the 2009, 2008 and 2007 fiscal
years, respectively. We expect to perform a maintenance turnaround of each processing unit at the Tyler refinery
every three to five years. Depending on which units are affected,
all or a portion of the refinerys production will be disrupted during a turnaround.
In addition, the Tyler refinery consists of many processing units, a number of which have been in
operation for many years. Even if properly maintained, equipment may require significant capital
expenditures to maintain desired efficiencies. One or more of the units may require additional
unscheduled down time for unanticipated maintenance or repairs that are more frequent than our
scheduled turnaround. For example, refinery operations were suspended for approximately one week
of unscheduled down time in the third quarter of 2010 and an explosion and fire at our Tyler
refinery in November 2008 suspended operations at the refinery for more than five months.
Refinery operations may also be disrupted by external factors such as an interruption of
electricity, natural gas, water treatment or other utilities. Other potentially disruptive factors
discussed elsewhere in these risk factors include natural disasters, severe weather conditions,
workplace or environmental accidents, interruptions of supply, work stoppages, losses of permits or
authorizations or acts of terrorism. Disruptions to our refining operations could reduce our
revenues during the period of time that our units are not operating.
General economic conditions may adversely affect our business, operating results and financial
The domestic economy and economic slowdowns may have serious negative consequences for our business
and operating results because our performance is subject to domestic economic conditions and their
impact on levels of consumer spending. Some of the factors affecting consumer spending include
general economic conditions, unemployment, consumer debt, reductions in net worth based on recent
declines in equity markets and residential real estate values, adverse developments in mortgage
markets, taxation, energy prices, interest rates, consumer confidence and other macroeconomic
factors. During a period of economic weakness or uncertainty, current or potential customers may
travel less, reduce or defer purchases, go out of business or have insufficient funds to buy or pay
for our products and services.
Substantially all of our retail fuel and convenience stores are located in the southeastern United
States, primarily in the states of Alabama, Georgia and Tennessee. As a result, our results of
operations are particularly vulnerable to general economic conditions in that region. An economic
downturn in the Southeast could cause our sales and the value of our assets to decline and have a
material adverse effect on our business, financial condition and results of operations.
Moreover, a financial market crisis may have a material adverse impact on financial institutions
and limit access to capital and credit. This could, among other things, make it more difficult for
us to obtain (or increase our cost of obtaining) capital and financing for our operations. Our
access to additional capital may not be available on terms acceptable to us or at all.
The costs, scope, timelines and benefits of our refining projects may deviate significantly from
our original plans and estimates.
We may experience unanticipated increases in the cost, scope and completion time for our
improvement, maintenance and repair projects at our Tyler refinery. Our refinery projects are
generally initiated to increase the yields of higher-value products, increase our ability to
process lower cost crude oils, increase production capacity, meet new regulatory requirements or
maintain the safe operations of our existing assets. Equipment that we require to complete these
projects may be unavailable to us at expected costs or within expected time periods. Additionally,
employee or contractor labor expense may exceed our expectations. Due to these or other factors
beyond our control, we may be unable to complete these projects within anticipated cost parameters
and timelines. In addition, the benefits we realize from completed projects may take longer to
achieve and/or be less than we anticipated. Our inability to complete and/or realize the benefits
of our refinery projects in a cost-efficient and timely manner could have a material adverse effect
on our business, financial condition and results of operations.
The dangers inherent in our operations could cause disruptions and expose us to potentially
significant costs and liabilities.
Our refining operations are subject to significant hazards and risks inherent in refining
operations and in transporting and storing crude oil, intermediate and refined petroleum products.
These hazards and risks include, but are not limited to, natural or weather-related disasters,
fires, explosions, pipeline ruptures and spills, third party interference and mechanical failure of
equipment at our or third-party facilities, and other events beyond our control. The occurrence of
any of these events could result in production and distribution difficulties and disruptions,
environmental pollution, personal injury or death and other damage to our properties and the
properties of others. Because of these inherent dangers, our refining operations are subject to
various laws and regulations relating to occupational health and safety and environmental
protection. Continued efforts to comply with applicable laws and regulations related to health,
safety and the environment, or a finding of non-compliance with current regulations, could result
in additional capital expenditures or operating expenses, as well as fines and penalties.
In addition, the Tyler refinery is located in a populated area. Any release of hazardous material
or catastrophic event could affect our employees and contractors at the refinery as well as persons
outside the refinery grounds. In the event that personal injuries or deaths result from such
events, we would likely incur substantial legal costs and liabilities. The extent of these costs
and liabilities could exceed the limits of our available insurance. As a result, any such event
could have a material adverse effect on our business, results of operations and cash flows.
For example, the incident at our Tyler refinery in November 2008 resulted in two employee deaths
and a suspension of production that continued until May 2009. We are a party to lawsuits, claims
and government investigations as a result of this incident. Amounts we may pay in connection with
these claims and investigations may not be covered by insurance.
We also operate approximately forty fuel delivery trucks. These trucks regularly transport highly
combustible motor fuels on public roads. A motor vehicle accident involving one of our trucks
could result in significant personal injuries and/or property damage.
From time to time, our cash and credit needs may exceed our internally generated cash flow and available credit, and our business
could be materially and adversely affected if we are not able to obtain the necessary cash or credit from
We have significant short-term cash needs to satisfy working capital requirements such as crude oil
purchases which fluctuate with the pricing and sourcing of crude oil. We rely in part on our
access to credit to purchase crude oil for our Tyler refinery. If the price of crude oil increases
significantly, we may not have sufficient available credit, and may not be able to sufficiently
increase such availability, under our existing credit facilities or other arrangements to purchase enough
crude oil to operate the Tyler refinery at full capacity. Our failure to operate the Tyler
refinery at full capacity could have a material adverse effect on our business, financial condition
and results of operations. We also have significant long-term needs for cash, including any
expansion and upgrade plans, as well as for regulatory compliance.
Depending on the conditions in credit markets, it may become more difficult to obtain cash or credit from
third party sources. If we cannot generate cash flow or otherwise secure sufficient liquidity to
support our short-term and long-term capital requirements, we may not be able to comply with
regulatory deadlines or pursue our business strategies, in which case our operations may not
perform as well as we currently expect.
Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other
We have a significant amount of debt. As of September 30, 2010, we had total debt of $274.2
million, including current maturities of $150.4 million. In addition to our outstanding debt, as
of September 30, 2010, our letters of credit issued under our various credit facilities were $122.1
million. Our borrowing availability under our various credit facilities as of September 30, 2010
was $141.7 million.
Our significant level of debt could have important consequences for us. For example, it could:
||increase our vulnerability to general adverse economic and industry conditions;
||require us to dedicate a substantial portion of our cash flow from operations to service
our debt and lease obligations, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures and other general corporate purposes;
||limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
||place us at a disadvantage relative to our competitors that have less indebtedness or
better access to capital by, for example, limiting our ability to enter into new markets,
renovate our stores or pursue acquisitions or other business opportunities;
||limit our ability to borrow additional funds in the future; and
||increase the interest cost of our borrowed funds.
In addition, a substantial portion of our debt has a variable rate of interest, which increases our
exposure to interest rate fluctuations, to the extent we elect not to hedge such exposures.
If we are unable to service our debt (principal and interest) and lease obligations, we could be
forced to restructure or refinance our obligations, seek additional equity financing or sell
assets, which we may not be able to do on satisfactory terms or at all. Our default on any of
those obligations could have a material adverse effect on our business, financial condition and
results of operations. In addition, if new debt is added to our current debt levels, the related
risks that we now face could intensify.
Our debt agreements contain operating and financial restrictions that might constrain our business
and financing activities.
The operating and financial restrictions and covenants in our credit facilities and any future
financing agreements could adversely affect our ability to finance future operations or capital
needs or to engage, expand or pursue our business activities. For example, to varying degrees our
credit facilities restrict our ability to:
||declare dividends and redeem or repurchase capital stock;
||prepay, redeem or repurchase debt;
||make loans and investments, issue guaranties and pledge assets;
||incur additional indebtedness or amend our debt and other material agreements;
||make capital expenditures;
||engage in mergers, acquisitions and asset sales; and
||enter into some intercompany arrangements and make some intercompany payments, which in
some instances could restrict our ability to use the assets, cash flow or earnings of one
segment to support the other segment.
Other restrictive covenants require that we meet fixed charge coverage, interest charge coverage,
net worth and leverage tests as described in the credit facility agreements. In addition, the
covenant requirements of our various credit agreements require us to make many subjective
determinations pertaining to our compliance thereto and exercise good faith judgment in determining
our compliance. Our ability to comply with the covenants and restrictions contained in our debt
instruments may be affected by events beyond our control, including prevailing economic, financial
and industry conditions. If market or other economic conditions deteriorate, our ability to comply
with these covenants and restrictions may be impaired. If we breach any of the restrictions or
covenants in our debt agreements, a significant portion of our indebtedness may become immediately
due and payable, and our lenders commitments to make further loans to us may terminate. We might
not have, or be able to obtain, sufficient funds to make these immediate payments. In addition,
our obligations under our credit facilities are secured by substantially all of our assets. If we
are unable to timely repay our indebtedness under our credit facilities, the lenders could seek to
foreclose on the assets or we may be required to contribute additional capital to our subsidiaries.
Any of these outcomes could have a material adverse effect on our business, financial condition
and results of operations.
Changes in our credit profile could affect our relationships with our suppliers, which could have a
material adverse effect on our liquidity and our ability to operate the Tyler refinery at full
Changes in our credit profile could affect the way crude oil suppliers view our ability to make
payments. As a result, suppliers could shorten the payment terms of their invoices with us or
require us to provide significant collateral to them that we do not currently provide. Due to the
large dollar amounts and volume of
our crude oil and other feedstock purchases, as well as the historical volatility of crude oil
pricing, any imposition by our suppliers of more burdensome payment terms may have a material
adverse effect on our liquidity and our ability to make payments to our suppliers. This in turn
could cause us to be unable to operate the Tyler refinery at full capacity. A failure to operate
the Tyler refinery at full capacity could adversely affect our profitability and cash flows.
Interruptions or limitations in the supply and delivery of crude oil may negatively affect our
refining interests and inhibit the growth of our refining interests.
Our Tyler refinery processes primarily light sweet crude oils, which are less readily available to
us than heavier, more sour crude oils. The refinery receives substantially all of its crude oil
from third parties and received more than 50% of its crude oil during the year ended December 31,
2010 through a crude delivery pipeline owned by a third party. We could experience an interruption
or reduction of supply and delivery, or an increased cost of receiving crude oil, if the ability of
these third parties to transport crude oil is disrupted because of accidents, governmental
regulation, terrorism, maintenance or failure of pipelines or other delivery systems, other
third-party action or other events beyond our control. The unavailability for our use for a
prolonged period of time of any system of delivery of crude oil could have a material adverse
effect on our business, financial condition or results of operations.
Moreover, interruptions in delivery or limitations in delivery capacity may not allow our refining
interests to draw sufficient crude oil to support current refinery production or increases in
refining output. In order to maintain or materially increase refining output, existing crude
delivery systems may require upgrades or supplementation, which may require substantial additional
Our insurance policies do not cover all losses, costs or liabilities that we may experience, and
insurance companies that currently insure companies in the energy industry may cease to do so or
substantially increase premiums.
While we carry property, business interruption, pollution and casualty insurance, we do not
maintain insurance coverage against all potential losses. We could suffer losses for uninsurable or
uninsured risks or in amounts in excess of existing insurance coverage. In addition, because our
business interruption policy does not cover losses during the first 45 days of the interruption, a
significant part or all of a business interruption loss could be uninsured. The occurrence of an
event that is not fully covered by insurance could have a material adverse effect on our business,
financial condition and results of operations.
The energy industry is highly capital intensive, and the entire or partial loss of individual
facilities or multiple facilities can result in significant costs to both industry companies, such
as us, and their insurance carriers. In recent years, several large energy industry claims have
resulted in significant increases in the level of premium costs and deductible periods for
participants in the energy industry. For example, hurricanes in recent years have caused
significant damage to several petroleum refineries along the Gulf Coast, in addition to numerous
oil and gas production facilities and pipelines in that region. As a result of large energy
industry claims, insurance companies that have historically participated in underwriting
energy-related facilities may discontinue that practice, may reduce the insurance capacity they are
willing to offer or demand significantly higher premiums or deductible periods to cover these
facilities. If significant changes in the number or financial solvency of insurance underwriters
for the energy industry occur, or if other adverse conditions over which we have no control prevail
in the insurance market, we may be unable to obtain and maintain adequate insurance at reasonable
In addition, we cannot assure you that our insurers will renew our insurance coverage on acceptable
terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event
of non-renewal. The unavailability of full insurance coverage to cover events in which we suffer
significant losses could have a material adverse effect on our business, financial condition and
results of operations.
We may not be able to successfully execute our strategy of growth through acquisitions.
A significant part of our growth strategy is to acquire assets such as refineries, pipelines,
terminals, and retail fuel and convenience stores that complement our existing sites or broaden our
geographic presence. If attractive opportunities arise, we may also acquire assets in new lines
of business that are complementary to
our existing businesses. Through eight major transactions spanning from our inception in 2001
through April 2007, we acquired our refinery and refined products terminals in Tyler, acquired
approximately 500 retail fuel and convenience stores and developed our wholesale fuel business. We
expect to continue to acquire retail fuel and convenience stores, refinery assets and product
terminals and pipelines as a major element of our growth strategy, however:
||we may not be able to identify suitable acquisition candidates or acquire additional assets
on favorable terms;
||we usually compete with others to acquire assets, which competition may increase, and, any
level of competition could result in decreased availability or increased prices for
||we may experience difficulty in anticipating the timing and availability of acquisition
||since the convenience store industry is dominated by small, independent operators that
own fewer than ten stores, we will likely need to complete numerous small acquisitions, rather
than a few major acquisitions, to substantially increase our number of retail fuel and
||the need to complete numerous acquisitions will require significant amounts of our
||we may not be able to obtain the necessary financing, on favorable terms or at all, to
finance any of our potential acquisitions; and
||as a public company, we are subject to reporting obligations, internal controls and other
accounting requirements with respect to any business we acquire, which may prevent or
negatively affect the valuation of some acquisitions we might otherwise deem favorable or
increase our acquisition costs.
The occurrence of any of these factors could adversely affect our growth strategy. We have not
completed any major acquisitions since April 2007.
Acquisitions involve risks that could cause our actual growth or operating results to differ
adversely compared with our expectations.
Due to our emphasis on growth through acquisitions, we are particularly susceptible to
transactional risks. For example:
||during the acquisition process, we may fail or be unable to discover some of the
liabilities of companies or businesses that we acquire;
||we may assume contracts or other obligations in connection with particular acquisitions on
terms that are less favorable or desirable than the terms that we would expect to obtain if we
negotiated the contracts or other obligations directly;
||we may fail to successfully integrate or manage acquired assets;
||acquired assets may not perform as we expect or we may not be able to obtain the cost
savings and financial improvements we anticipate;
||acquisitions may require us to incur additional debt or issue additional equity;
||we may fail to grow our existing systems, financial controls, information systems,
management resources and human resources in a manner that effectively supports our growth; and
||to the extent that we acquire assets in complementary new lines of business, we may become
subject to additional regulatory requirements and additional risks that are characteristic or
typical of these new lines of business.
The occurrence of any of these factors could adversely affect our business, financial condition and
results of operations.
We may incur significant costs and liabilities with respect to investigation and remediation of
existing environmental conditions at our Tyler refinery.
Prior to our purchase of the Tyler refinery and pipeline, the previous owner had been engaged for
many years in the investigation and remediation of liquid hydrocarbons which contaminated soil and
groundwater at the purchased facilities. Upon purchase of the facilities, we became responsible
and liable for certain costs associated with the continued investigation and remediation of known
and unknown impacted areas at the refinery. In the future, it may be necessary to conduct further
assessments and remediation efforts at the refinery and pipeline locations. In
addition, we have identified and self-reported certain other environmental matters subsequent to
our purchase of the refinery.
Based upon environmental evaluations performed internally and by
third parties subsequent to our purchase of the Tyler refinery, we recorded an environmental
liability of approximately $4.6 million as of September 30, 2010 for the estimated costs of
environmental remediation for our refinery. We expect remediation of groundwater at the refinery
to continue for the foreseeable future. The need to make future expenditures for these purposes
that exceed the amounts we estimate and accrue for could have a material adverse effect on our
business, financial condition and results of operations.
We may incur significant costs and liabilities in connection with site contamination and
environmental, health and safety regulations.
In the future, we may incur substantial expenditures for investigation or remediation of
contamination that has not been discovered at our current or former locations or locations that we
may acquire. In addition, new legal requirements, new interpretations of existing legal
requirements, increased legislative activity and governmental enforcement and other developments
could require us to make additional unforeseen expenditures. We anticipate that compliance with
environmental, health and safety regulations will require us to spend approximately $4.0 million in
capital costs in 2011 and approximately $81.0 million during the next five years.
We could incur substantial costs or disruptions in our business if we cannot obtain or maintain
necessary permits and authorizations or otherwise comply with health, safety, environmental and
other laws and regulations.
Our operations require numerous permits and authorizations under various laws and regulations.
These authorizations and permits are subject to revocation, renewal or modification and can require
operational changes to limit impacts or potential impacts on the environment and/or health and
safety. A violation of authorization or permit conditions or other legal or regulatory
requirements could result in substantial fines, criminal sanctions, permit revocations,
injunctions, and/or facility shutdowns. In addition, major modifications of our operations could
require modifications to our existing permits or upgrades to our existing pollution control
equipment. Any or all of these matters could have a negative effect on our business, results of
operations and cash flows.
Our Tyler refinery has only limited access to an outbound pipeline, which we do not own, for
distribution of our refined petroleum products.
For the year ended December 31, 2010, nearly all of our refinery sales volume in Tyler was
completed through a rack system located at the refinery. Unlike other refiners, we do not own, and
currently have limited access to, an outbound pipeline for distribution of our refinery products to
our Tyler customers. Our lack of access to an outbound pipeline may limit our ability to attract
new customers for our refined petroleum products or increase sales of our refinery products.
An interruption or termination of supply and delivery of refined products to our wholesale business
could result in a decline in our sales and earnings.
Our marketing segment sells refined products produced by refineries owned by third parties. In
2010, our marketing segment received nearly all of its supply of refined products from two
suppliers. We could experience an interruption or termination of supply or delivery of refined
products if our suppliers partially or completely ceased operations, temporarily or permanently.
The ability of these refineries and our suppliers to supply refined products to us could be
disrupted by anticipated events such as scheduled upgrades or maintenance, as well as events beyond
their control, such as unscheduled maintenance, fires, floods, storms, explosions, power outages,
accidents, acts of terrorism or other catastrophic events, labor difficulties and work stoppages,
governmental or private party litigation, or legislation or regulation that adversely impacts
refinery operations. In addition, any reduction in capacity of other pipelines that connect with
our suppliers pipelines or our pipelines due to testing, line repair, reduced operating pressures,
or other causes could result in reduced volumes of refined product supplied to our marketing
business. A reduction in the volume of refined products supplied to our marketing segment could
adversely affect our sales and earnings.
An increase in competition and/or reduction in demand in the market in which we sell our refined
products could lower prices and adversely affect our sales and profitability.
Our Tyler refinery is currently the only supplier of a full range of refined petroleum products
within a radius of approximately 100 miles of its location and there are no competitive fuel
loading terminals within approximately 90 miles of our San Angelo terminal. If competitors
commence operations within these niche markets, we could lose our niche market advantage, which
could have a material adverse effect on our business, financial condition and results of
In addition, the maintenance or replacement of our existing customers depends on a number of
factors outside of our control, including increased competition from other suppliers and demand for
refined products in the markets we serve. Loss of, or reduction in, amounts purchased by our major
customers could have an adverse effect on us to the extent that we are not able to correspondingly
increase sales to other purchasers.
We may be unable to negotiate market price risk protection in contracts with unaffiliated suppliers
of refined products.
During the year ended December 31, 2010, we obtained most of our supply of refined products for our
marketing segment under contracts that contain provisions that mitigate the market price risk
inherent in the purchase and sale of refined products. We cannot assure you that in the future we
will be able to negotiate similar market price protections in other contracts that we enter into
for the supply of refined products or ethanol. To the extent that we purchase inventory at prices
that do not compare favorably to the prices at which we are able to sell refined products, our
sales and margins may be adversely affected.
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to extensive tax liabilities, including federal and state and transactional taxes
such as excise, sales/use, payroll, franchise, withholding, and ad valorem taxes. New tax laws and
regulations and changes in existing tax laws and regulations are continuously being enacted or
proposed that could result in increased expenditures for tax liabilities in the future. Certain of
these liabilities are subject to periodic audits by the respective taxing authority which could
increase our tax liabilities. Subsequent changes to our tax liabilities as a result of these
audits may also subject us to interest and penalties.
may seek to diversify our retail fuel and convenience store operations by entering new geographic
areas, which may present operational and competitive challenges.
Since our inception, we have grown our retail fuel and convenience store operations primarily by
acquiring stores in the southeastern United States. In the future, we may seek to grow by
selectively operating stores in geographic areas other than those in which we currently operate, or
in which we currently have a relatively small number of stores. This growth strategy would present
numerous operational and competitive challenges to our senior management and employees and would
place significant pressure on our operating systems. In addition, we cannot assure you that
consumers located in the regions in which we may expand our operations would be as receptive to our
stores as consumers in our existing markets. The success of our development plans will depend in
part upon our ability to:
||select, and compete successfully in, new markets;
||obtain suitable sites at acceptable costs;
||identify and contract with financially stable developers;
||realize an acceptable return on the capital invested in new facilities;
||hire, train, and retain qualified personnel;
||integrate new retail fuel and convenience stores into our existing distribution, inventory
control, and information systems;
||expand relationships with our suppliers or develop relationships with new suppliers; and
||secure adequate financing, to the extent required.
We cannot assure you that we will achieve our development goals, manage our growth effectively, or
operate our existing and new retail fuel and convenience stores profitability. The failure to
achieve any of the foregoing could have a material adverse effect on our business, financial
condition and results of operations.
Adverse weather conditions or other unforeseen developments could damage our facilities, reduce
customer traffic and impair our ability to produce and deliver refined petroleum products or
receive supplies for our retail fuel and convenience stores.
The regions in which we operate are susceptible to severe storms including hurricanes,
thunderstorms, tornadoes, extended periods of rain, ice storms and snow, all of which we have
experienced in the past few years. Inclement weather conditions could damage our facilities,
interrupt production, adversely impact consumer behavior, travel and retail fuel and convenience
store traffic patterns or interrupt or impede our ability to operate our locations. If such
conditions prevail in Texas, they could interrupt or undermine our ability to produce and transport
products from our Tyler refinery and receive and distribute products at our terminals. Regional
occurrences, such as energy shortages or increases in energy prices, fires and other natural
disasters, could also hurt our business. The occurrence of any of these developments could have a
material adverse effect on our business, financial condition and results of operations.
Our operating results are seasonal and generally lower in the first and fourth quarters of the year
for our refining and marketing segments and in the first quarter of the year for our retail
segment. We depend on favorable weather conditions in the spring and summer months.
Demand for gasoline and other merchandise is generally higher during the summer months than during
the winter months due to seasonal increases in motor vehicle traffic. As a result, the operating
results of our refining segment and wholesale fuel segment are generally lower for the first and
fourth quarters of each year. Seasonal fluctuations in traffic also affect sales of motor fuels
and merchandise in our retail fuel and convenience stores. As a result, the operating results of
our retail segment are generally lower for the first quarter of the year.
Weather conditions in our operating area also have a significant effect on our operating results.
Customers are more likely to purchase higher profit margin items at our retail fuel and convenience
stores, such as fast foods, fountain drinks and other beverages and more gasoline during the spring
and summer months, thereby typically generating higher revenues and gross margins for us in these
periods. Unfavorable weather conditions during these months and a resulting lack of the expected
seasonal upswings in traffic and sales could have a material adverse effect on our business,
financial condition and results of operations.
We depend on one wholesaler for a significant portion of our convenience store merchandise; we may
not be able to maintain favorable arrangements with vendors.
We purchase a majority of our general merchandise, including most tobacco products and grocery
items, from a single wholesale grocer, Core-Mark International, Inc., including approximately 59%
of such merchandise during the year ended December 31, 2009. A change of merchandise suppliers, a
disruption in supply or a significant change in our relationship or pricing with our principal
merchandise supplier could lead to an increase in our cost of goods or a reduction in the
reliability of timely deliveries and could have a material adverse effect on our business,
financial condition and results of operations.
In addition, we believe that our arrangements with vendors with respect to allowances, payment
terms and operational support commitments, have enabled us to decrease the operating expenses of
convenience stores that we acquire. If we are unable to maintain favorable arrangements with these
vendors, we may be unable to continue to effect operating expense reductions at convenience stores
we have acquired or will acquire.
A substantial portion of our refinery workforce is unionized, and we may face labor disruptions
that would interfere with our operations.
As of December 31, 2010, we employed 283 people at our Tyler refinery and pipeline. From among
these employees, 158 of our operations and maintenance hourly employees and 40 truck drivers at the
refinery were covered by separate collective bargaining agreements which each expire on January 31,
2012. Although these
collective bargaining agreements contain provisions to discourage strikes or work stoppages, we
cannot assure you that strikes or work stoppages will not occur. A strike or work stoppage could
have a material adverse effect on our business, financial condition and results of operations.
We are dependent on fuel sales at our retail fuel and convenience stores which makes us susceptible
to increases in the cost of gasoline and interruptions in fuel supply.
Net fuel sales at stores representing the continuing operations of our retail segment represented
approximately 73%, 80% and 77% of total net sales of our retail segment for 2009, 2008 and 2007
respectively. Our dependence on fuel sales makes us susceptible to increases in the cost of
gasoline and diesel fuel. As a result, fuel profit margins have a significant impact on our
earnings. The volume of fuel sold by us and our fuel profit margins are affected by numerous
factors beyond our control, including the supply and demand for fuel, volatility in the wholesale
fuel market and the pricing policies of competitors in local markets. Although we can rapidly
adjust our pump prices to reflect higher fuel costs, a material increase in the price of fuel could
adversely affect demand. A material, sudden increase in the cost of fuel that causes our fuel sales
to decline could have a material adverse effect on our business, financial condition and results of
Our dependence on fuel sales also makes us susceptible to interruptions in fuel supply. Fuel from
the U.S. Gulf Coast transported to us through the Colonial and Plantation pipelines is the primary
source of fuel supply for the majority of our retail fuel and convenience stores. For example, at
December 31, 2009, fuel transported to us through these pipelines was the primary source of fuel
supply for approximately 87% of our stores. To mitigate the risks of cost volatility, we typically
have no more than a five day supply of fuel at each of our stores. Our fuel contracts do not
guarantee an uninterrupted, unlimited supply in the event of a shortage. Gasoline sales generate
customer traffic to our retail fuel and convenience stores. As a result, decreases in gasoline
sales, in the event of a shortage or otherwise, could adversely affect our merchandise sales. A
serious interruption in the supply of gasoline could have a material adverse effect on our
business, financial condition and results of operations.
If there is negative publicity concerning the Shell, Exxon, BP, Marathon and Conoco brand names,
fuel and merchandise sales at certain of our stores may suffer.
We are an independent retailer of fuel that markets some of our products under the major oil
company brands Shell, Exxon, BP, Marathon and Conoco. Fuel sold under these major brands
represented approximately 43% of total fuel sales volume for our retail segment during the year
ended December 31, 2009. Negative publicity concerning any of these major oil companies could
adversely affect fuel and merchandise sales volumes in our retail segment. For example, the
Deepwater Horizon accident in the Gulf of Mexico in April 2010 has resulted in consumer boycotts of
independent retailers of BP branded fuels. Fuel sold under the BP brand represented approximately
12.5% of total fuel sales volume for our retail segment during the year ended December 31, 2009.
If negative publicity pertaining to BP or any of the other major brands adversely affects our sales
volumes, it could have a material adverse effect on our business, financial condition and results
We may incur losses as a result of our forward contract activities and derivative transactions.
We occasionally use derivative financial instruments, such as interest rate swaps and interest rate
cap agreements, and fuel-related derivative transactions to partially mitigate the risk of various
financial exposures inherent in our business. We expect to continue to enter into these types of
transactions. In connection with such derivative transactions, we may be required to make payments
to maintain margin accounts and to settle the contracts at their value upon termination. The
maintenance of required margin accounts and the settlement of derivative contracts at termination
could cause us to suffer losses or limited gains. In particular, derivative transactions could
expose us to the risk of financial loss upon unexpected or unusual variations in the sales price of
crude oil and that of wholesale gasoline. We cannot assure you that the strategies underlying
these transactions will be successful. If any of the instruments we utilize to manage our exposure
to various types of risk is not effective, we may incur losses.
In addition, we evaluate the creditworthiness of each of our counterparties but we may not always
be able to fully anticipate or detect deterioration in their creditworthiness and overall financial
condition. The deterioration of creditworthiness or overall financial condition of a material
counterparty (or counterparties) could expose us to an increased risk of nonpayment or other
default under our contracts with them. If a material counterparty (or counterparties) default on their obligations to us, this could materially adversely affect our
financial condition, results of operations or cash flows.
Due to our minority ownership position in Lion Oil Company, we cannot control the operations of the
El Dorado refinery or the corporate and management policies of Lion Oil.
As of December 31, 2010, we owned approximately 34.6% of the issued and outstanding common stock of
Lion Oil Company, a privately held Arkansas corporation that owns and operates a refinery in El
Dorado, Arkansas. Approximately 53.7% of the issued and outstanding common stock of Lion Oil is
owned by one shareholder. This controlling shareholder is party to a management agreement with
Lion Oil and, due to its majority equity ownership position, is able to elect a majority of the
Lion Oil board of directors. As a result of our minority ownership position and the controlling
shareholders majority equity ownership position and contractual management rights, we are unable
to control or influence the operations of the refinery in El Dorado, Arkansas.
So long as there is a controlling shareholder of Lion Oil that maintains a majority equity
ownership position in, and the contractual management rights with, Lion Oil, the controlling
shareholder will continue to control the election of a majority of Lion Oils directors, influence
Lion Oils corporate and management policies (including the declaration of dividends and the timing
and preparation of its financial statements) and determine, without our consent, the outcome of any
corporate transaction or other matter submitted to Lion Oil shareholders for approval, including
potential mergers or acquisitions, asset sales and other significant corporate transactions.
Our minority ownership position in Lion Oil is illiquid because there is no active trading market
for shares of Lion Oil common stock.
Because Lion Oil is a privately held corporation, there is no active trading market for shares of
Lion Oil common stock. As a result, we cannot assure you that we will be able to increase or
decrease our interest in Lion Oil, or that if we do, we will be able to do so upon favorable terms
or at favorable prices.
We rely on information technology in our operations, and any material failure, inadequacy,
interruption or security failure of that technology could harm our business.
We rely on information technology systems across our operations, including for management of our
supply chain, point of sale processing at our sites, and various other processes and transactions.
We rely on commercially available systems, software, tools and monitoring to provide security for
processing, transmission and storage of confidential customer information, such as payment card and
personal credit information. In addition, the systems currently used for certain transmission and
approval of payment card transactions, and the technology utilized in payment cards themselves, may
put certain payment card data at risk, and these systems are determined and controlled by the
payment card industry, and not by us. In recent years, several retailers have experienced data
breaches resulting in the exposure of sensitive customer data, including payment card information.
Any compromise or breach of our information and payment technology systems could cause
interruptions in our operations, damage our reputation, reduce our customers willingness to visit
our sites and conduct business with us or expose us to litigation from customer or sanctions from
the payment card industry. Further, the failure of these systems to operate effectively, or
problems we may experience with transitioning to upgraded or replacement systems, could
significantly harm our business and operations and cause us to incur significant costs to remediate
If we lose any of our key personnel, our ability to manage our business and continue our growth
could be negatively impacted.
Our future performance depends to a significant degree upon the continued contributions of our
senior management team and key technical personnel. We do not currently maintain key person life
insurance policies for any of our senior management team. The loss or unavailability to us of any
member of our senior management team or a key technical employee could significantly harm us. We
face competition for these professionals from our competitors, our customers and other companies
operating in our industry. To the extent that the services of members of our senior management
team and key technical personnel would be unavailable to us for any reason, we would be required to
hire other personnel to manage and operate our company and to develop our products and technology.
We cannot assure you that we would be able to locate or employ such qualified personnel on
acceptable terms or at all.
It may be difficult to serve process on or enforce a United States judgment against those of our
directors who reside in Israel.
On the date of this report, four of our seven directors reside in the State of Israel. As a
result, you may have difficulty serving legal process within the United States upon any of these
persons. You may also have difficulty enforcing, both in and outside the United States, judgments
you may obtain in United States courts against these persons in any action, including actions based
upon the civil liability provisions of United States federal or state securities laws, because a
substantial portion of the assets of these directors is located outside of the United States.
Furthermore, there is substantial doubt that the courts of the State of Israel would enter
judgments in original actions brought in those courts predicated on U.S. federal or state
If we are, or become, a U.S. real property holding corporation, special tax rules may apply to a
sale, exchange or other disposition of common stock and non-U.S. holders may be less inclined to
invest in our stock as they may be subject to U.S. federal income tax in certain situations.
A non-U.S. holder may be subject to U.S. federal income tax with respect to gain recognized on the
sale, exchange or other disposition of common stock if we are, or were, a U.S. real property
holding corporation or USRPHC, at any time during the shorter of the five-year period ending on
the date of the sale or other disposition and the period such non-U.S. holder held our common stock
(the shorter period referred to as the lookback period). In general, we would be a USRPHC if the
fair market value of our U.S. real property interests, as such term is defined for U.S. federal
income tax purposes, equals or exceeds 50% of the sum of the fair market value of our worldwide
real property interests and our other assets used or held for use in a trade or business. The test
for determining USRPHC status is applied on certain specific determination dates and is dependent
upon a number of factors, some of which are beyond our control (including, for example,
fluctuations in the value of our assets). If we are or become a USRPHC, so long as our common
stock is regularly traded on an established securities market such as the New York Stock Exchange
(NYSE), only a non-U.S. holder who, actually or constructively, holds or held during the lookback
period more than 5% of our common stock will be subject to U.S. federal income tax on the
disposition of our common stock.
Litigation and/or negative publicity concerning food or beverage quality, health and other related
issues could result in significant liabilities or litigation costs and cause consumers to avoid our
Negative publicity, regardless of whether the concerns are valid, concerning food or beverage
quality, food or beverage safety or other health concerns, facilities, employee relations or other
matters related to our operations may materially adversely affect demand for food and beverages
offered in our convenience stores and could result in a decrease in customer traffic to our stores.
Additionally, we may be the subject of complaints or litigation arising from food or
beverage-related illness or injury in general which could have a negative impact on our business.
It is critical to our reputation that we maintain a consistent level of high quality food and
beverages in our stores. Health concerns, poor food or beverage quality or operating issues
stemming from one store or a limited number of stores can materially adversely affect the operating
results of some or all of our stores and harm our proprietary brands.
Risks Related to Our Common Stock
The price of our common stock may fluctuate significantly, and you could lose all or part of your
The market price of our common stock may be influenced by many factors, some of which are beyond
our control, including:
||our quarterly or annual earnings or those of other companies in our industry;
||changes in accounting standards, policies, guidance, interpretations or principles;
||general economic and stock market conditions;
||the failure of securities analysts to cover our common stock or changes in financial
estimates by analysts;
||future sales of our common stock;
||announcements by us or our competitors of significant contracts or acquisitions;
||sales of common stock by us, our senior officers or our affiliates; and
||the other factors described in these Risk Factors.
In recent years, the stock market has experienced extreme price and volume fluctuations. This
volatility has had a significant impact on the market price of securities issued by many companies,
including companies in our industry. The changes often occur without any apparent regard to the
operating performance of these companies. The price of our common stock could fluctuate based upon
factors that have little or nothing to do with our company, and these fluctuations could materially
reduce our stock price. In addition, the recent distress in the credit and financial markets has
resulted in extreme volatility in trading prices of securities and diminished liquidity, and we
cannot assure you that our liquidity will not be affected by changes in the financial markets and
the global economy.
In the past, some companies that have had volatile market prices for their securities have been
subject to securities class action suits filed against them. The filing of a lawsuit against us,
regardless of the outcome, could have a material adverse effect on our business, financial
condition and results of operations, as it could result in substantial legal costs and a diversion
of our managements attention and resources.
You may suffer substantial dilution.
We may sell securities in the public or private equity markets if and when conditions are
favorable, even if we do not have an immediate need for capital. In addition, if we have an
immediate need for capital, we may sell securities in the public or private equity markets even
when conditions are not otherwise favorable. You will suffer dilution if we issue currently
unissued shares of our stock in the future in furtherance of our growth strategy. You will also
suffer dilution if stock, restricted stock units, restricted stock, stock options, stock
appreciation rights, warrants or other equity awards, whether currently outstanding or subsequently
granted, are exercised.
We are exposed to risks relating to evaluations of internal controls required by Section 404 of the
Sarbanes-Oxley Act of 2002.
To comply with the management certification and auditor attestation requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 (Section 404), we are required to evaluate our internal controls
systems to allow management to report on, and our independent auditors to audit, our internal
controls over financial reporting. During this process, we may identify control deficiencies of
varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board
rules and regulations that remain unremediated. As a public company, we are required to report,
among other things, control deficiencies that constitute a material weakness or changes in
internal controls that, or are reasonably likely to, materially affect internal controls over
financial reporting. A material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim financial statements will not be prevented
or detected on a timely basis.
If we fail to comply with the requirements of Section 404, we may be subject to sanctions or
investigation by regulatory authorities such as the SEC or the NYSE. Additionally, failure to
comply with Section 404 or the report by us of a material weakness may cause investors to lose
confidence in our financial statements and our stock price may be adversely affected. If we fail
to remedy any material weakness, our financial statements may be inaccurate, we may face restricted
access to the capital markets, and our stock price may decline.
We are a controlled company within the meaning of the NYSE rules and, as a result, we qualify
for, and intend to rely on, exemptions from certain corporate governance requirements.
A company of which more than 50% of the voting power is held by an individual, a group or another
company is a controlled company and may elect not to comply with certain corporate governance
requirements of the NYSE, including:
||the requirement that a majority of its board of directors consist of independent directors;
||the requirement to have a nominating/corporate governance committee consisting entirely of
independent directors with a written charter addressing the committees purpose and
||the requirement to have a compensation committee consisting entirely of independent
directors with a written charter addressing the committees purpose and responsibilities.
We utilize all of these exemptions except that our compensation committee does have a written
charter addressing its purpose and responsibilities. Accordingly, you will not have the same
protections afforded to stockholders of companies that are subject to all of the corporate
governance requirements of the NYSE.
Our controlling stockholder may have conflicts of interest with other stockholders in the future.
At December 31, 2010, Delek Group beneficially owned approximately 73% of our outstanding common
stock. As a result, Delek Group and its controlling shareholder, Mr. Sharon, will continue to be
able to control the election of our directors, influence our corporate and management policies
(including the declaration of dividends) and determine, without the consent of our other
stockholders, the outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including potential mergers or acquisitions, asset sales and other
significant corporate transactions. So long as Delek Group continues to own a significant amount
of the outstanding shares of our common stock, Delek Group will continue to be able to influence or
effectively control our decisions, including whether to pursue or consummate potential mergers or
acquisitions, asset sales, and other significant corporate transactions. We cannot assure you that
the interests of Delek Group will coincide with the interests of other holders of our common stock.
Future sales of shares of our common stock could depress the price of our common stock.
The market price of our common stock could decline as a result of the introduction of a large
number of shares of our common stock into the market or the perception that these sales could
occur. These sales, or the possibility that these sales may occur, also might make it more
difficult for us to sell equity securities in the future at a time and at a price that we deem
appropriate. At December 31, 2010, 39,736,432 shares of our common stock were controlled by Delek
Group. Through this prospectus, and in accordance with Delek Groups registration rights agreement
with us, these 39,736,432 shares have been registered for resale by the selling stockholders, in
one or more transactions, at their discretion in the future.
We depend upon our subsidiaries for cash to meet our obligations and pay any dividends.
We are a holding company. Our subsidiaries conduct substantially all of our operations and own
substantially all of our assets. Consequently, our cash flow and our ability to meet our
obligations or pay dividends to our stockholders depend upon the cash flow of our subsidiaries and
the payment of funds by our subsidiaries to us in the form of dividends, tax sharing payments or
otherwise. Our subsidiaries ability to make any payments will depend on many factors, including
their earnings, cash flows, the terms of their indebtedness, tax considerations and legal
We may be unable to pay future dividends in the anticipated amounts and frequency set forth herein.
We will only be able to pay dividends from our available cash on hand and funds received from our
subsidiaries. Our ability to receive dividends and other cash payments from our subsidiaries is
restricted under the terms of their respective credit facilities. For example, under the terms of
their credit facilities, our subsidiaries are subject to certain customary covenants that limit
their ability to, subject to certain exceptions as defined in their respective credit agreements,
remit cash to, distribute assets to, or make investments in, us as the parent company.
Specifically, these covenants limit the payment, in the form of cash or other assets, of dividends
or other cash payments, to us. The declaration of future dividends on our common stock will be at
the discretion of our board of directors and will depend upon many factors, including our results
of operations, financial condition, earnings, capital requirements, restrictions in our debt
agreements and legal requirements. Although we currently intend to pay quarterly cash dividends on
our common stock at an annual rate of $0.15 per share, we cannot assure you that any dividends will
be paid in the anticipated amounts and frequency set forth herein, if at all.
Provisions of Delaware law and our organizational documents may discourage takeovers and business
combinations that our stockholders may consider in their best interests, which could negatively
affect our stock price.
In addition to the fact that Delek Group owns the majority of our common stock, provisions of
Delaware law and our amended and restated certificate of incorporation and amended and restated
bylaws may have the effect of delaying or preventing a change in control of our company or
deterring tender offers for our common stock that other stockholders may consider in their best
Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock
in one or more different series with terms to be fixed by our board of directors. Stockholder
approval is not necessary to issue preferred stock in this manner. Issuance of these shares of
preferred stock could have the effect of making it more difficult and more expensive for a person
or group to acquire control of us and could effectively be used as an anti-takeover device. On the
date of this report, no shares of our preferred stock are outstanding.
Our bylaws provide for an advance notice procedure for stockholders to nominate director candidates
for election or to bring business before an annual meeting of stockholders and require that special
meetings of stockholders be called only by our chairman of the board, president or secretary after
written request of a majority of our board of directors.
The anti-takeover provisions of Delaware law and provisions in our organizational documents may
prevent our stockholders from receiving the benefit from any premium to the market price of our
common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt,
the existence of these provisions may adversely affect the prevailing market price of our common
stock if they are viewed as discouraging takeover attempts in the future.
Risk Factors Relating to this Offering
Historically we have relied on our parent company and its affiliates for guarantees, letters of
credit and other financing.
Since our inception, from time to time our parent company, Delek Group and its affiliates, have
guaranteed our crude oil purchases, forward contract exposure and some of our indebtedness, have
issued letters of credit for retail fuel purchases, and have otherwise provided financing to us.
If these entities do not continue to provide some or all of these guarantees, issue letters of
credit or otherwise provide financing to us, we cannot assure you that we could secure financing
from other sources on the same or equally favorable terms, if at all, which could have a material
adverse effect on our business, financial condition and results of operations.
Our parent company may not continue to provide management and consulting services to us.
As of January 1, 2006, we entered into a management and consulting agreement with Delek Group
pursuant to which key management personnel of Delek Group provide management and consulting
services to us, including matters relating to long-term planning, operational issues and financing
strategies. The agreement had an initial term of one year and continues thereafter until either
party terminates the agreement upon 30 days advance notice. We cannot assure you that Delek Group
will not terminate the agreement and cease providing services to us.
Sales of our common stock by the selling stockholders could depress the price of our common stock.
The market price of our common stock could decline as a result of sales of a large number of shares
of our common stock in the market by the selling stockholder or the perception that these sales
could occur. These sales, or the possibility that these sales may occur, also might make it more
difficult for us to sell equity securities in the future at a time and at a price that we deem
Upon the sale of a sufficient number of shares by the selling stockholder in this offering, we
would no longer be a controlled company, and we may have difficulties complying with New York Stock
Exchange rules relating to the composition of our board of directors.
Our common stock is listed on the New York Stock Exchange (NYSE). As a controlled company under
NYSE rules, we have not been subject to a number of corporate governance rules relating to
composition of our board of directors and certain committees. Upon the sale of a sufficient number
of shares by the selling stockholder in this offering, we would no longer be a controlled company
and, in accordance with NYSE rules, would have to phase into compliance with certain requirements
from which we are now exempt, including:
||the requirement that a majority of the board of directors consist of independent directors;
||the requirement that we have a nominating/corporate governance committee that is composed
entirely of independent directors with a written charter addressing the committees purpose
||the requirement that we have a compensation committee that is composed entirely of
independent directors with a written charter addressing the committees purpose and
||the requirement for an annual performance evaluation of the nominating/corporate governance
and compensation committees.
We intend to comply with these NYSE rules if we cease to be a controlled company. We may not be
able to attract and retain the number of independent directors needed to comply with NYSE rules
during the phase-in period for compliance.
FORWARD LOOKING STATEMENTS
Statements in this prospectus (including the documents incorporated by reference in this
prospectus) contain forward looking statements that reflect our current estimates, expectations
and projections about our future results, performance, prospects and opportunities.
Forward-looking statements include, among other things, the information concerning our possible
future results of operations, business and growth strategies, financing plans, expectations that
regulatory developments or other matters will not have a material adverse effect on our business or
financial condition, our competitive position and the effects of competition, the projected growth
of the industry in which we operate, and the benefits and synergies to be obtained from our
completed and any future acquisitions, and statements of managements goals and objectives, and
other similar expressions concerning matters that are not historical facts. Words such as may,
will, should, could, would, predicts, potential, continue, expects, anticipates,
future, intends, plans, believes, estimates, appears, projects and similar
expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results,
and will not necessarily 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 managements 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. Important factors that could cause such differences include, but are
not limited to:
||reliability of our operating assets;
||changes in, or the failure to comply with, the extensive government regulations applicable to
our industry segments;
||decreases in our refining margins or fuel gross profit as a result of increases in the prices
of crude oil, other feedstocks and refined petroleum products;
||our ability to execute our development plans and strategy of growth through acquisitions, and
the transactional risks inherent in each;
||general economic and business conditions, particularly levels of spending relating to travel
and tourism or conditions affecting the southeastern United States;
||dependence on one wholesaler for a significant portion of our convenience store merchandise;
||unanticipated increases in cost or scope of, or significant delays in the completion of our
capital improvement projects;
||risks and uncertainties with respect to the quantities and costs of refined petroleum
products supplied to our pipelines and/or held in our terminals;
||operating hazards, natural disasters, casualty losses and other matters beyond our control;
||increases in our debt levels;
||compliance with, or failure to comply with, restrictive and financial covenants in our
various debt agreements;
||acts of terrorism aimed at either our facilities or other facilities that could impair our
ability to produce or transport refined products or receive feedstocks;
||changes in the cost or availability of transportation for feedstocks and refined products;
||volatility of derivative instruments;
||potential conflicts of interest between our major stockholder and other stockholders; and
||other factors discussed under the heading Managements Discussion and Analysis and in our
other filings with the SEC.
In light of these risks, uncertainties and assumptions, our actual results of operations and
execution of our business strategy could differ materially from those expressed in, or implied by,
the forward-looking statements, and you should not place undue reliance upon them. In addition,
past financial and/or operating performance is not necessarily a reliable indicator of future
performance and you should not use our historical performance to anticipate results or future
period trends. We can give no assurances that any of the events anticipated by the forward-looking
statements will occur or, if any of them do, what impact they will have on our results of
operations and financial condition.
Forward-looking statements speak only as of the date the statements are made. We assume no
obligation to update forward-looking statements to reflect actual results, changes in assumptions
or changes in other factors affecting forward-looking information except to the extent required by
applicable securities laws. If we do update one or more forward-looking statements, no inference
should be drawn that we will make additional updates with respect thereto or with respect to other
USE OF PROCEEDS
All of the shares of common stock offered by the selling stockholders pursuant to this
prospectus will be sold by the selling stockholders for their account. We will not receive any
proceeds from the sale by the selling stockholders of the common stock offered by this prospectus.
In connection with our initial public offering in May 2006, our Board of Directors announced
its intention to pay a regular quarterly cash dividend of $0.0375 per share of our common stock
beginning in the fourth quarter of 2006. As of the date of this filing, we intend to continue to
pay quarterly cash dividends on our common stock at the same annual rate of $0.15 per share. The
declaration and payment of future dividends to holders of our common stock will be at the
discretion of our Board of Directors and will depend upon many factors, including our financial
condition, earnings, legal requirements, restrictions in our debt agreements and other factors our
Board of Directors deems relevant.
We are registering the shares of our common stock in order to permit the selling stockholders
to offer the shares for resale from time to time.
As a result of their status as our affiliates, the selling stockholders are deemed to be acting as underwriters on our behalf.
The table below lists the selling stockholders and other information regarding the beneficial
ownership of the shares of our common stock held by them. The second column lists the number of
shares of our common stock beneficially owned by the selling stockholders, based on its ownership
of the shares of our common stock, as of December 31, 2010. The third column lists the shares of
our common stock being offered by this prospectus by the selling stockholders. The fourth column
assumes the sale of all of the shares offered by the selling stockholders pursuant to this
The selling stockholders may sell all, some or none of its shares in this offering. See
Plan of Distribution.
||Number of Shares
||Number of Shares
||Beneficially Owned (1)
||To Be Offered
||After the Offering (2)
Delek Hungary Holding
Delek Petroleum, Ltd.(5)
||Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting power and/or investment power with respect to securities.
||Assumes that the selling stockholder disposes of all of the shares of common stock covered by
this prospectus and does not acquire beneficial ownership of any additional shares. The
registration of these shares does not necessarily mean that the selling stockholder will sell
all or any portion of the shares covered by this prospectus.
||Applicable percentage of ownership is based on 54,403,208 shares of our common stock
outstanding on December 31, 2010.
||The address of Delek Hungary is 1134 Budapest, Vaci ut 35, Hungary.
||The address of Delek Petroleum is 7, Giborei-Israel St., P.O.B. 8464, Netanya 42504, Israel.
Delek Petroleum directly holds 346,563 shares. Delek Petroleum is the parent company of Delek
Hungary which directly holds 39,389,869 shares.
Management and Consulting Agreement. Effective January 1, 2006, we entered into a management
and consulting agreement with Delek Group, pursuant to which key management personnel of Delek
Group provide management and consulting services to us, including matters relating to long-term
planning, operational issues and financing strategies. The agreement had an initial term of one
year and continues thereafter until either party terminates the agreement upon 30 days advance
notice. As compensation, the agreement provides for payment to Delek Group of $125,000 per
calendar quarter payable within 90 days of the end of each quarter and reimbursement for reasonable
out-of-pocket costs and expenses incurred.
Registration Rights Agreement. We are party to a registration rights agreement with Delek
Group granting Delek Group (including any affiliate of Delek Group that is the record holder of
shares of common stock) registration rights with respect to Delek Groups ownership (directly or
through its affiliates) of shares. Pursuant to the registration rights agreement, Delek Group may
require us to register all or part of their shares three times on a Form S-3 (including the Form
S-3 of which this prospectus is a part), provided that the aggregate offering value of the
securities to be registered must equal at least $10 million. In addition, Delek Group may require
us to include their shares in future registration statements that we file, subject to reduction at
the option of the underwriters of such an offering. We will be obligated under the registration
rights agreement to pay the registration expenses incurred in connection with any registration,
qualification or compliance relating to the exercise of Delek Groups (and its affiliates)
registration rights, other than underwriting discounts and commissions. Additionally, we agreed
to indemnify and hold harmless Delek Group (and its affiliates) and any participating underwriters
against certain liabilities, including liabilities arising under the Securities Act, or they will be entitled to contribution.
Directors and Officers. Asaf Bartfeld and Gabriel Last have each served as a member of our
board of directors since January 2002. Mr. Bartfeld has served as the president and chief
executive officer of Delek Group since 2003, and Mr. Last has served as the chairman of the board
of directors of Delek Group since 2003.
PLAN OF DISTRIBUTION
We are registering the shares of our common stock issued or sold to the selling stockholders
to permit the resale of these shares of our common stock by the selling stockholders from time to
time after the date of this prospectus. We will not receive any of the proceeds from the sale by
the selling stockholders of the shares of our common stock. We will bear all fees and expenses
incident to our obligation to register the shares of our common stock.
The selling stockholders may sell all or a portion of the shares of our common stock
beneficially owned by them and offered hereby from time to time directly or through one or more
underwriters, broker-dealers or agents. If the shares of our common stock are sold through
underwriters or broker-dealers, the selling stockholders will be responsible for underwriting
discounts or commissions or agents commissions. The shares of our common stock may be sold in one
or more transactions at fixed prices, at prevailing market prices at the time of the sale, at
varying prices determined at the time of sale, or at negotiated prices. These sales may be
effected in transactions, which may involve crosses or block transactions:
||on any national securities exchange or quotation service on which the securities may be
listed or quoted at the time of sale;
||in the over-the-counter market;
||in transactions otherwise than on these exchanges or systems or in the over-the-counter
||through the writing of options, whether such options are listed on an options exchange or
||ordinary brokerage transactions and transactions in which the broker-dealer solicits
||block trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction;
||purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
||an exchange distribution in accordance with the rules of the applicable exchange;
||privately negotiated transactions;
||sales pursuant to Rule 144;
||broker-dealers may agree with the selling security holders to sell a specified number of
such shares at a stipulated price per share;
||a combination of any such methods of sale; and
||any other method permitted pursuant to applicable law.
If the selling stockholders effect such transactions by selling shares of our common stock to
or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of the shares of our common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those customary in the types
of transactions involved). In connection with sales of the shares of our common stock or
otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which
may in turn engage in short sales of the shares of our common stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of our common stock short and
deliver shares of our common stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales. The selling stockholders may also loan
or pledge shares of our common stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or all of the shares
of our common stock owned by it and, if it defaults in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of our common stock from
time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act of 1933, as amended, or Securities Act,
amending, if necessary, the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus. The selling
stockholders also may transfer and donate the shares of our common stock in other circumstances in
which case the transferees, donees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
As a result of their status as our affiliates, the selling stockholders are deemed to be acting as underwriters on our behalf.
Any broker-dealers participating in the distribution of the shares of our common stock may
be deemed to be underwriters within the meaning of the Securities Act, and any commission paid,
or any discounts or concessions allowed to, any such broker-dealers may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a particular offering
of the shares of our common stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of our common stock being offered
and the terms of the offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the selling stockholders and
any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of our common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in some states the
shares of our common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied
There can be no assurance that the selling stockholders will sell any or all of the shares of
our common stock registered pursuant to the shelf registration statement, of which this prospectus
forms a part.
The selling stockholders and any other person participating in such distribution will be
subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder,
including, without limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of our common stock by the selling stockholders and any
other participating person. Regulation M may also restrict the ability of any person engaged in
the distribution of the shares of our common stock to engage in market-making activities with
respect to the shares of our common stock. All of the foregoing may affect the marketability of
the shares of our common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of our common stock.
We will pay all expenses of the registration of the shares of our common stock pursuant to the
registration rights agreement, estimated to be $100,000 in total, including, without limitation,
SEC filing fees and expenses of compliance with state securities or blue sky laws; provided,
however, that a selling shareholder will pay all underwriting discounts and selling commissions, if
any and any related legal expenses incurred by it. We will indemnify the selling stockholders
against liabilities, including some liabilities under the Securities Act, in accordance with the
registration rights agreement, or the selling stockholders will be entitled to contribution. We
may be indemnified by the selling stockholders against civil liabilities, including liabilities
under the Securities Act, that may arise from any written information furnished to us by the
selling shareholders specifically for use in this prospectus, in accordance with the related
registration rights agreements, or we may be entitled to contribution.
We and the selling stockholders may enter agreements under which underwriters, dealers and
agents who participate in the distribution of our common stock may be entitled to indemnification
by us and/or the selling stockholders against various liabilities, including liabilities under the
Securities Act, and to contribution with respect to payments which the underwriters, dealers or
agents may be required to make.
Once sold under the shelf registration statement, of which this prospectus forms a part, the
shares of our common stock will be freely tradable in the hands of persons other than our
The validity of the shares of common stock offered in this prospectus will be passed upon for
us by Fulbright & Jaworski L.L.P., New York, New York.
The consolidated financial statements of Delek US Holdings, Inc. appearing in Delek US
Holdings, Inc.s Annual Report (Form 10-K) for the year ended December 31, 2009 (including the
schedule appearing therein), and the effectiveness of Delek US Holdings, Inc.s internal control
over financial reporting as of December 31, 2009, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their report thereon, included
therein, and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the Securities Act with
respect to the shares being offered pursuant to this prospectus. This prospectus is part of this
registration statement and does not contain all of the information set forth in the registration
statement. Statements contained in this prospectus as to the content of any agreement or other
document filed or incorporated by reference as an exhibit are not necessarily complete, and you
should consult a copy of those agreements or other documents filed or incorporated by reference as
exhibits to the registration statement. For further information, reference is made to the
registration statement and to the exhibits and schedules filed with it, which are available for
inspection without charge at the SECs Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. You can request copies of those documents upon payment of
a duplicating fee to the SEC. Please call the SEC
for further information on the operation of the public reference room. You can review our SEC
filings and the registration statement by accessing the SECs internet site at http://www.sec.gov.
We are subject to the informational requirements of the Exchange Act and, accordingly, file
reports, proxy statements and other information with the SEC. The SEC maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and other information
regarding registrants that file electronically on EDGAR with the SEC. You may also read and copy
any document we file with the SEC at the SECs public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference facilities and their copy charges.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference in this prospectus the information that we
have filed with them. This means that we can disclose important information to you in this
document by referring you to other filings we have made with the SEC. The information incorporated
by reference is considered to be part of this prospectus. We incorporate by reference the
documents listed below:
||Our annual report on Form 10-K for the year ended December 31, 2009 filed on March
||Our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2010,
June 30, 2010 and September 30, 2010, filed on May 7, 2010, August 6, 2010 and November
5, 2010, respectively;
||Our current reports on Form 8-K filed on February 25, 2010, March 26, 2010, August
26, 2010, October 4, 2010, October 6, 2010 and December 29, 2010; and
||the description of our capital stock contained in our Form 424B4, filed on May 4,
2006, and any amendment or report filed for the purpose of updating such description.
This prospectus may contain information that updates, modifies or is contrary to information
in one or more of the documents incorporated by reference in this prospectus.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of filing of such
Upon your written or oral request, we will provide at no cost to you, a copy of any and all of
the reports or documents that are incorporated by reference in this prospectus. Copies of any and
all reports or documents that are incorporated by reference in this prospectus may be accessed at
our internet address at http://www.DelekUS.com.
Requests for such documents should be directed to:
Kent B. Thomas
Delek US Holdings, Inc.
7102 Commerce Way
Brentwood, Tennessee 37027