Keith Johnson - VP, IR Assaf Ginzburg - EVP & CFO Danny Norris - VP & CAO Ezra Yemin - Chairman, President & CEO Mark Smith - EVP Frederec Green - EVP & President, Refining.

Brad Heffern - RBC Capital Markets Paul Cheng - Barclays Phil Gresh - JPMorgan Blake Fernandez - Scotia Howard Weil Jeff Dietert - Simmons Roger Read - Wells Fargo Paul Sankey - Wolfe Research Neil Mehta - Goldman Sachs.

Good morning. My name is Shelly and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek US Holdings Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Keith Johnson, you may begin your conference..

Thank you, Shelly. Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US Holdings first quarter 2016 financial results.

Joining me on today's call will be Uzi Yemin, our Chairman, President and CEO; Assi Ginzburg, our CFO; Danny Norris, our CAO; as well as other members of our management team. As a reminder, this conference call may contain forward-looking statements, as that term is defined under Federal Securities laws.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Today's call is being recorded and will be available for replay, beginning today and ending May the 26, by dialing 855-859-2056 with the ID number 28236908.

An online replay may also be accessed for the next 90 days at the company's website. Last night, we distributed a press release that provides a summary of our fourth quarter and full-year 2015 results. This press release is available on our corporate website and through various news outlets.

On today's call, Assi will begin with a few opening remarks on financial performance for the quarter. Danny will cover additional financial details before turning it over to Uzi to offer a few closing comments. With that, I'll turn the call over to Assi..

Thank you, Keith. In the first quarter of 2016, Delek US reported a net loss of $29.2 million or $0.47 per basic share compared to net loss of $16.1 million or $0.28 per basic share in the first quarter of last year.

We ended the first quarter with $350 million of cash on a consolidated basis and $612 million of net debt which is approximately $60 million of decline from the net debt as of the year end. Excluding debt and cash of logistics we had a net debt of $254 million at Delek US at the end of the quarter.

We began with purchasing stock in mid-March and through April 29 we have repurchased 386,000 shares for $5.9 million. During the first quarter of 2016, we received approximately $100 million of cash from a combination of business interruption proceeds and tax refunds.

Of this amount approximately $42 million was booked as a business interruption proceeds in the first quarter. We expect to achieve approximately $135 million to $140 million in the first quarter in 2016 and up to $160 million by year-end. Now I will turn it over to Danny to discuss additional financial details. .

Thank you, Assi. For the first quarter 2016, Delek US reported a net loss of $53.3 million or $0.86 per basic share compared to net income of $10.1 million or $0.18 per basic share in the prior year period. A reconciliation of reported results to adjusted results is included in the financial tables of our press release.

The primary driver of this change on the year-over-year basis was reduced performance and we are refining segment due to a lower tax rate environment and narrowing of crude oil price differentials. Our adjusted pre-tax results was also reduced by $21.5 million or $0.22 per basic share after tax using a 35% marginal tax-rate.

This amount consists of $16.1 million of other inventory charges including LCM resulting from the impact of higher cost of inventory compared to replacement costs during a volatile market pricing environment during the quarter.

In addition, we incurred costs of $2.7 million related to increased general liability expense, $1.1 million for more spill cleanup cost and $1.6 million of cost related to product contamination at two terminal locations during the first quarter of 2016. The pre-tax equity loss from our 48% investment in Alon USA was approximately $17.8 million.

We also incurred approximately $3.9 million in the interest cost during the first quarter this year related to borrowings associated with the acquisition of the Alon USA shares in May of 2015. The combination of the pre-tax loss and associated interest expense reduced first quarter 2016 after tax results by approximately $0.23 per basic share.

Depreciation and amortization expense was $36.1 million in the first quarter of 2016 compared to $23.8 million in the first quarter of 2015. This increase was primarily due to capital spending related to the taller turnaround and expansion project.

Finally, our income tax rate including the non-controlling interest income associated with Delek Logistics of $5.3 million was 46.2% in the first quarter of this year.

The increase in our effective tax-rate for the quarter was due to the benefit that we received from certain tax-credits and other favorable permanent items impacting our quarterly results.

Turning now to capital spending; our capital expenditures during the period were approximately $9.9 million compared to $90.7 million in the first quarter 2015 which included spending on the taller turnaround and expansion projects.

During the first quarter of 2016, we spent $3.3 million in our refining segment, $1.1 million in our logistics segment, $1.9 million in our retail segment and $3.6 million at the corporate level. Our 2016 capital expenditures are forecast to decline by approximately $64.5 million.

This amount includes $27.8 million in our refining segment, $14.3 in our logistics segment, $13.8 million in our retail segment and $8.6 million at the corporate level. This is the reduction from our previous forecast of $89 million. The current forecast doesn't include any significant spending on growth related capital projects.

Now, I would like to discuss our results by segment. In our refining segment we reported a contribution margin of $23.5 million which included a benefit of $42.4 million from business, interruption and insurance proceeds.

Excluding this amount refining had a loss of $18.9 million compared to a contribution margin of $21.9 million in the first quarter of 2015. Several factors decreased our refining sector contribution margin.

First, the Gulf coast 5-3-2 crack spread $7.68 per barrel in the first quarter of this year compared to $14.99 per barrel in the prior year period. Second, the differential between Midland and Cushing averaged $0.14 per barrel premium in the first quarter this year compared to a discount of $1.98 per barrel in the prior year period.

Which was partially offset by the crude oil futures market and contained of the $1.80 per barrel in the first quarter 2016 compared to contango $0.68 per barrel in the prior year period. The net effect of the change in the Midland differential and contango on a year-over-year basis was an increase of $1 per barrel of Midland crude.

There were other inventory charges excluding cost to market which reduced refining performance by $16.1 million in the first quarter this year compared to a reduction of $29.6 million during the prior year period.

Also, the first quarter this year included a net hedging loss of $7.6 million compared to a net hedging gain of $8 million in the prior year period. Now I would like to review our logistics segment which is comprised of the results from Delek Logistics partners.

Our logistics segment contribution margin was $26.8 million in the first quarter of this year compared to $24.3 million in the first quarter of last year. On a year-over-year basis, results benefited from these associated with the El Dorado rail offloading racks and the Tyler crude oil storage tank dropdown on March 31 of 2015.

Also, the performance in the East Texas assets that support the Tyler Texas refinery improved as that refinery underwent a scheduled turnaround in the first quarter of last year. These benefits were partially offset by lower margin in the West Texas wholesale business as compared to the prior year period. Moving on to the retail segment.

Retail's contribution margin was $12 million in the first quarter of this year compared to $12.3 million in the first quarter of prior year. This change was primarily due to lower fuel margins, partially offset by higher fuel gallons sold in merchandise sales. We ended the quarter with 69 large-format stores out of our total store count of 355.

During the first quarter of 2016, our same store fuel gallon sold increased four-tenths of a percent. This increase was negatively affected back in terminated fuel incident in one of our large markets during January. The average same store increase in March was 4.4%. Now, I will turn the call over to Uzi for his closing remarks..

Thank you, Danny, and good morning everybody. We remain focused on the factors under our control as we want to create long term value for our shareholders. As far as these efforts evaluation to unlock the value of our retail segment are underway which could include drop down to decay.

From a standpoint we continue to evaluate additional opportunities one of which includes our investment in Alon USA with the expiration of the shareholder agreement on May 14, we're excited about the potential values that may be created. But we remain patient in light of changing market environments.

We will continue to match our capital allocation program which includes $125 million share repurchase of 2016 based on market conditions and growth opportunities as we move through the year.

With that operator, could you please open the call for questions?.

[Operator Instructions] Your first question comes from Doug [ph] from Bank of America, Merrill Lynch. Your line is now open..

I am glad I'm still at the same firm. Obviously the first question would be on the Alon situation. Looks like you have setup your buybacks a little bit after the end of the quarter. Given -- first of all, I complement you in saying, you are one of the few refiners that buybacks stock when your stock is weak.

So -- but should we take that as signaling that right now your own stock is a better option for cash than a loan given the relative value?.

That's a great question; we ask ourselves that question every day. We've said in the past, many times I've said in the past that we're not in the business of owning 48% of -- in other company. And obviously, if we like that company at $16 there is no reason why not to like their stock at $9.

We -- at the same time first quarter was challenging, that's not a secret. And what we need to do is to think how to balance between the ideas of doing alone, maybe with some cash versus buying our own stock. And as the agreement there, our shareholder agreement is expiring shortly.

Then, we were doing a lot of evaluations, what is the right step for our company. This is a challenged market, or was in the first quarter, obviously things improved dramatically or in April it was much better. So we need to ask ourselves how we balance between the two, and that's the reason you see what you see..

Okay.

Maybe a follow-on to that, what level of cash are you comfortable with carrying on the balance sheet Uzi?.

It depends if it's a combined company or one company. We are very comfortable with where we are today. I just do increase our cash position by $60 million which we said at the end of the year call; we said we expect the cash to grow up. We actually expect the cash -- if markets continue the way it is, cash will continue to go up for the second quarter.

We are very comfortable with our cash position for DK standalone. Now, if you are talking about four refineries, this is a different animal. So that's the evaluation that we are doing as we speak..

Okay. And last one for me, just on the cash; your maintenance capital obviously is the only capital you've got this year is fairly low numbers.

Is that maintenance capital sustainable, Uzi, at this level? What would you say is the same business capital at this point for the standalone Delek business? I'm just wondering if you're deferring anything this year given the environment or if I say good run rate going forward. I'll leave it there. Thanks..

Perfect. Deferring, I wouldn't say we deferred much. May say that we have some growth CapEx of $10 million or $50 million, we're looking to do it in the fourth quarter or first quarter next year. But maintenance CapEx, I think we said all along and we didn't change our mind, that's the level.

Now obviously the year -- our calendar year, the numbers will be higher but in normal years, and also the huge investment that we've put into the refineries; that's finally what you should expect going forward..

Okay. Thanks for your answer Uzi..

Thank you..

Your next question comes from Brad Heffern from RBC Capital Markets. Your line is now open..

Good morning, Uzi..

Good morning..

Kind of a big picture question to start, I mean obviously the first quarter was a rough quarter. I'm curios if there is anything you can think of on the self-help front or maybe the expense front, that you could do that hasn't been done yet with the existing system to maybe make quarters like the first quarter hurt a little bit less..

Absolutely. We are doing these steps. Actually we think that -- you will see the results, we are actually already seeing the results of the expense side in April. We are taking measures to control our expenses there. And we have an internal target of below $4 per barrel, all-in. I think that we are coming better than that.

So we don't want to promise anything just yet but expenses are something that we are touching very carefully as we speak..

Okay, great. And then I was wondering if you could give an update on the potential retail drop.

What are the steps that you need to take as you make that decision and what ultimately pushes you one way or the other on that?.

That's another great question. In that area we actually have some news. We think that we have a culture, we have a structure that may result in dropdown with favorable tax treatment. Now we're still looking at it, we still need the lawyers. When it still need the CPA, we need RCs, it's probably going to say something about it.

But I think we found a structure that works with very favorable tax treatments.

Assaf, you want to add anything to that?.

Sure. Brad, if you remember in the initial IPO of DKL, they were able to differ the majority of the taxes to the later years.

And we're looking at the MAPCO transaction, we believe that using the same tools there is a good chance we'll be able to differ the majority of the gain to later years and basically enjoy 100% of the cash proceeds, most of the cash proceeds without any text impact. We are looking at the structure that are available for us in the market right now.

I'm sure everybody is aware of the big dropdown into Sun in the last two years and we've looked at that structure and it works for us.

We saw what CST is doing with their dropdown and everything that you see in the -- right now in the MLP market is available to Delek because we own the majority of our real estate, we supply the majority of our stores, it's not a branded deal.

So we meet all the criteria that will allow us to both generate a sufficient qualified cash at the MLP and also to do a transaction that it can be well below any material tax payments with a results of the transaction.

Now the tax payment would be deferred, we'll have to pay it over 20 years eventually but at the upfront it is very, very good for DK to be able to release so much value to the MLP, and basically enjoy the uplift in the value through cash and maybe some decay [ph]..

Okay, thanks for that color..

Your next question comes from Paul Cheng from Barclays. Your line is now open..

Hey guys, good morning..

Good morning, Paul..

Uzi, I'm just curious that now that with the time of expansion and upgrade is one year marked.

Have you seen the look -- have you done the look back over the last 12 months? What was the EBITDA contribution from those two projects?.

Of course we did. Let me be clear, the market changed as you know. One thing that we are seeing as we enter the second quarter is that Tyler is going to run or running closer and closer to capacity without giving up margins like we did last year. Now we are building our market share while trying to maintain the profitability.

Obviously transfers that existed two years ago, three years ago when we announced or when we start thinking about this project don't exist today, so it's very hard to compare that situation today. But we still think that this was a great movement and long-term that will bring tremendous amount of value to our company and to our shareholders..

Sure.

But can you give us a number, what was the actually EBITDA contribution the last 12 months from those two quarters?.

I'm sure we can provide you that after the call, I don't have it in front of me..

Okay.

And maybe that Keith can just send me an email afterwards?.

Okay..

On Tyler, and that's actually the second question; based on your best estimate what is the one way you can run before you start to exit the local market demand?.

I'm not sure I understand the question.

Can you clarify?.

For Tyler, what is the maximum run rate that you can run before your supply wheel also whammed the local demand?.

I understand. I actually think that we are very close. We are running close to capacity, let's call it little less than $70 as we ramp up. And we think it is being sold in the local market now. It takes time to find the customers one by one, to pick them by hand. But I think almost everything is found in the local market.

I don't have it in front of me but even if the few barrels at our side of the market; we're talking about 50, 60, 70 miles away; we're not talking about 200 miles away..

For February and March, and also for April we moved basically no barrels to the Dallas market. And you can see already that it's at decent level and right now it's running closer to 70,000 barrels a day without going to those markets.

So as we said on the call last time, we will build -- we will expand our local markets which is much better for us through trucking and going to different terminal compared to selling our products in the West Texas market which we all know the Dallas market in the last year wasn't good.

So I will say in 2016 our plan is not to cheat -- go to the Dallas market unless it will be good. And we hope that we'll be able to earn it at 70-mark..

And also you're talking about 70,000 barrels a day, the capacity 75,000 right now, officially?.

The official capacity is 75,000 but when you add -- when I saw 70,000 in a day, you add to it some condensate that we are running, you add to it the ethanol -- the buyer that we are blending and everything, it will get to a sales of roughly, probably 76,000 to 77,000 a day..

The 70,000 you're referring to is crude oil. [Cross Talks]..

Crude oil capacity is 75,000?.

The crude oil capacity is 75,000 but as you know, the crude is becoming lighter and lighter and therefore, we will run probably target closer to 73,000 on a full-year base. Right now we are getting to that March.

We didn't write it in Q1 as demand was lower, we're shifting more and more towards the gasoline mode running which should also improve profitability as we go to Q2/..

And Uzi, I think you provided first quarter same-store sales year-over-year, just about say 0.4% gain in gasoline.

Do you have a similar number that you can provide for the second quarter? And also the insight about the diesel demand in your market?.

Let's start by saying that the 0.4% is misleading because the February and March, those numbers were already 4.4% on average. We had an issue in January as Uzi mentioned in the prior call, so market was very strong in February/March.

In April when we saw fuel prices coming up, we were focusing on achieving fuel margin and I think sensed that it wasn't as good as the February and March. I think it was closer to flat..

Assaf, you said closer to what?.

Flat..

Flat, okay.

And the insight about the diesel demand?.

We are not a big diesel distributor in our stores. So I don't think our comments will have any value. The numbers we've given basically all the fuel between gas and diesel..

And that one of your competitor have said they lost money because of the F&O branding, because F&O price is higher than the gasoline prices in their market. In your results, does it -- did it include any F&O branding loss? I believe in the past you have a F&O fixed price contract.

Don't know whether you still have it for 2016, and if you do, is that making money or losing money?.

We didn't have any material losses related to fixed price contract that you mentioned. But as our peers said, in some cases where we blend ethanol and we sell rack prices, we did lost roughly $4.5 million in the -- mainly in the El Dorado systems as a result of that.

I will tell you that right now the dips between ethanol and gasoline has shrinked by almost half from where it was in Q1. In Q1 ethanol prices were roughly about $1.50 delivered to the Alon system while we sold our gasoline at roughly around $1.

And now those numbers have shifted, the dip is only $0.30 between the price we sell the gasoline and the price we buy the ethanol. And that's naturally happening when oil prices and gas cracks are improving. So as we go to the summer and we expect higher gasoline cracks, it should have less impact on our business.

On the other businesses, in West Texas we did suffer from this in some cases and that impacted our margin. In Tyler, we didn't have as much of impact as most of the ethanol for us, it's a pass-through..

Okay. And that you have $160 million of business insurance and tax adjustment, cash payment this year so far as that expected.

If that total or is there additional tax dispute that you guys are still going after that we may see additional cash coming in for the rest of the year?.

No, we don't have any tax dispute. We have tax return as we have filed and we expect them together with a business interruption to generate for 2016 and $160 million in total..

Okay. Final one, this is for Uzi. Uzi, given the last 18 months, refining profits, is there any concern if we continue to offset including the retail into logistic.

And off that, you're going to make the sea-corp become more vulnerable and correspondingly while you get the cash from that but your sea-corp multiple will end up that compress?.

Obviously the last 18 months were challenging, I rather said the last 12 months, 18 months include the turnaround and I don't think the turnaround should be included in this thing. I must say that we've been in this environment in the past, we are taking the measure, cutting expenses, making sure that the balance sheet is very strong.

And in that period of time with cash, another two could possible will be a little bit and differentials will come back. We've seen that -- we experienced that in the past, we have long-term view.

And we have obviously one more thing, we have a loan which is obviously something that we believe long-term combination of the two companies is the right thing..

All right, thank you..

Your next question comes from the line of Phil Gresh from JPMorgan. Your line is now open..

As soon startup for the clarification Tyler, in the range you're talking about, would you say that the 73,000 target is a bit more of a longer term target? And that given that you're kind of running more around 70,000 now, that's a reasonable way to think about 2016?.

I would 70,000 formally, if we surprise, we surprise. We believe that we will get to the 73,000 mark in the next couple of months but it depends on the market conditions and what gasoline is doing. So for more purposes, 70,000 is a good number..

Okay. And it's kind of sticking with the refining macro, I mean know that the toner almost causes -- we've been talking about good gasoline demand but obviously the cracks has been fading here and in early May we've seen fixed step up and gasoline imports have laid 321 crash overall.

So I'm just curious what you think here in terms of your outlook for the summer?.

Honestly, we have mixed bags. On one end I know the demand is very strong, we see it in the coming new stores, very, very strong. On the other hand, we see inventories are $14 million over last year.

So in a way I think that the demand will continue, I don't know if we will be able to overcome this inventory issue within 2-3 weeks but long-term, being in this business, we are probably at the bottom of the cycle and cracks should improve there or already improved.

And also the fact that all these new costs are being bought and all the customers that we see are increasing their mileages. I do believe that long-term, gasoline demand will outpace the supply situation that we see currently..

Okay. And then just my last question, there has been a couple of questions about the buybacks and uses of capital; I did notice and there is clearly a change in tone -- and the release much more focused on building cash balances or reducing debt balance.

So I mean how do you kind of compare that priority in the near-term versus the buybacks?.

Well, similar to our peers and we're not different than our peers; we are not aloof with the current situations. And while if the situation in the second quarter will be good, there is no reason to believe that there is no intent to continue and to increase the buyback.

However, I want to make sure that we all understand one thing; we have an investment in our loan and that investment of 48%, we're looking the business of being in 48%. While we don't like the ratio between us and our loan on the stock price, eventually we want to consolidate that business.

And we need to think about the needs of both companies and that's one of the things that we are looking at. So for me, the situation for us is little different than others as we have a pending fuel acquisition..

Yes, understood. Thank you..

Thank you, Phil..

Your next question comes from the line of Blake Fernandez. Your line is now open..

Hey, can you hear me guys? Yes, I'm coming through okay? Hello?.

You are Blake, go ahead..

Sorry about that. So oozing on that last point with regard to finalizing the ALJ transaction, I'm not sure how much of this you can elaborate on but I'm just kind of curious, I mean you have Boards -- almost half of the stock.

How should we think about the premium that might be required to get it done? I mean obviously we've got public markers here to look at enterprise value but I'm just curious if there is any help you can guide us toward on what ultimate kind of transaction value we might be looking at here?.

That's a great question. Obviously, these are two public companies, I can't get into much details. However, I'm going to try to -- as you know us Blake, for years, we try to be direct. So I'll try to answer that as much as I can, as directly I can. We don't like the ratio between us and our loan.

And we actually think to some certainty that we can get this deal done at no premium as the current ratio but we don't like it at this current ratio. So there is almost -- if you will, a ceiling of that ratio because we don't like it. So now you need to ask us if -- I like this stock at $16, how come I don't like it at $9.

Well, of course you do if you have long-term view. And as you look at that you say, okay, then what are my cash needs or what my cash needs are in order to support, maybe an acquisition and maybe after day one maybe something more than that. So for me these are the questions that we're asked, that we need to juggle.

I want to say one thing, and it wasn't emphasized on this call, we said it earlier. There is one big component in this; as we look at the dropdown of the retail, we think that this favorable tax treatment will generate big amount of cash. So there is something that in the equation we need to take into account.

And all this will unfold over the next couple of quarters..

That's super helpful, appreciate that Uzi, and that's actually a good segway because my second question was actually on the retail drop. I'm assuming that kind of part finalizing ALJ, we'll have to do with cash coming in the door from the retail drop.

And I know Assaf kind of covered a lot of comments on that earlier as far as tax treatment and obviously you got to get some separate financials done and all that stuff.

But is it fair to think that the ultimate deal needs to be done where the parent DK actually takes cash from that deal, and I guess where I'm going with that is, is there a component here where DKL needs to have access to the equity markets and is that a factor that is going to kind of drive the timing of this coming to fruition?.

I always thought that you are a smart guy, you can probably work for us because you described it the right way..

Fair enough, thanks..

That's exactly what we're thinking Blake..

Okay, appreciate it..

Your next question comes from the line of Jeff Dietert from Simmons. Your line is now open..

Good morning. I had a question for Fred, as we look at the gasoline markets being favorable from a demand perspective and the disk looks a little bit more challenged. You look last year and gasoline cracks were $3, $4, $5 a barrel above disk [ph] which certainly put you in maxing gasoline mode.

But you look this year certainly earlier in the quarter, and gasoline cracks were $10 a barrel better than cracks. And I was just curious if there are ways to operate your system to generate more gasoline or perhaps less of other products.

Given this environment, some people have talked about putting distillate through the cat cracker, to try to maximize gasoline yield.

Could you talk about that topic and how it works in your system?.

Sure. I'll hit Tyler first because it probably has a little bit more flexibility on a constant crude slate basis to shift the maximization. When we did the expansion project, we were really focused more on distillate, and so that extra crude oil capacity was geared to our diesel and we've got the hydro-treating capability to handle that.

But what we've seen is that we still have the capability to do exactly what you said which is to put some of those feed strings that would normally go to our diesel hydro-treater end of the cat cracker and convert to gasoline.

Now the flipside of that is as we coked in and responded to some of the earlier questions is, the gasoline market in Tyler is a little more challenging for the incremental barrel because you do have a relatively limited local market.

So in the past maybe we've looked at a 50-mile radius, as we expand the gasoline production, that radius has to keep incrementally expanding and we're looking now more closely at the Dallas market because it's one we can get to direct by truck as opposed to try and ship through other terminals or other pipeline systems.

So we do have a lot of flexibility to maximize gasoline versus diesel at Tyler. At El Dorado we have a lot of that same flexibility but it's little bit more dependent on crude slate. And so most of this year we've been running the lighter sweeter crudes and minimizing our asphalt production.

So we have been looking at how to minimize the production of other products if you will, more with crude slate than with operational changes..

Okay, thank you. And with regard to asphalt, could you talk about how you're looking going into the summer season, the heavy crude discounts have been relatively wide but you just mentioned that the light crudes are -- have been more favorable earlier in the year.

What's your expectation for asphalt production and the asphalt markets and profitability for the summer?.

Jeff, that's three different questions in one question. So I'll try to break them down. First of all how we see the asphalt market. I -- and I've been doing it long time as you know, it's probably the best asphalt market I remember since 2006-2007.

Very, very, very good market; strong demand, great margins; sometimes margins have surprised us compared to the gasoline and distillate. That brings another of our component which you -- I think you alluded to that and I'll try to answer it directly.

What the crude rate is in light of this asphalt? Now as you know, in the last two to three years, we went at Midland or four years, Midland was the best thing under the sun; we went and shifted our crude towards that live Midland barrels.

However, as you probably remember, El Dorado is -- the configuration of El Dorado allows it to run heavy or light because this is good flexibility we created when we invested all that money in El Dorado.

So I want to be clear, if the market conditions will continue, we will change the crude slate and we'll bring heavier barrels vessels for crude slate.

Now it doesn't take an hour, it takes few months but -- and we are looking into it very carefully because if asphalt market is so good, which is good now and obviously I don't know if it will stay like that but -- and the pressure that you mentioned, it will continue to be good then there is a reasonable expectation or you should expect from us to start running heavier slate versus what you are used to in the past, especially in El Dorado.

So I hope I answered your question in all aspects..

Very nicely done.

And so is that -- that crude slate change would be 30, 45, 60 days away?.

I don't want to commit to that, it's not -- we are working on that. And you probably remember that we have another asset payline that we can -- we control, and now it goes south and we may just say let's change course as we have done it in the past, and let's go north..

Thanks very much. Appreciate your direct comments..

Your next question comes from the line of Roger Read from Wells Fargo. Your line is now open..

Good morning. I guess coming back to the future of the day the Alon transaction -- Uzi, you've talked about it as a ratio here. You're obviously looking for ways to raise cash through the retail drop.

The one thing I've really never heard or discussed is we look at Alon is, what is the value proposition? In other words, I guess if you believed your ratio was favorable implying much better valuation on Delek and Alon, sure use of more valuable or highly valued currency.

What is -- the deal has progressed and Alon shares have fallen from $17 to sub-$10. I mean why not think about it as more just an acceleration process instead of talking about it as several quarters. I mean the stand-still expires next week if I understand correctly.

So timing, we're seeing something sooner rather than later and more cash rather than shares?.

Roger, maybe I'm -- I wasn't clear, so I need to clarify myself. I didn't say that we're going to do a process of sub [ph]. What I said is that, we are going to make a decision and act in the next couple of quarters. You are absolutely right, the cash situation or the price invested cash has changed in the last three/four months.

And we need to look at carefully. Please remember, Alon has its own needs and I think the poll did a great job yesterday explaining the Alon situation.

So we need not only to look at Delek by itself and the acquisition but five minutes after the acquisition and one year after the acquisitions and two years after the acquisition, of the cash needs and the synergies, and that's what we do as we speak.

Now -- I'm sorry?.

No, go ahead. I'm sorry, I thought you were through..

No, no, no, what I was saying is that we probably need to look at it and say to ourselves, okay, there they are -- this is the situation and we have another vehicle, the market of MLP has opened up, dropdowns are more, you can probably do that easier. So that helps the situation as well while it didn't exist six months ago or four months ago..

Sure.

And in Alon those lines of synergies that you mentioned, is there any -- if you -- this we thought originally put to retail operations together and a lot of things you could do then, if Delek's retail ops are now in a sense separated in the MLP, how should we think about synergies between the two companies? Is that affected by this or not?.

I'm not sure I understand the question because I don't know what prevent it would do there loan deal what prevents us from dropping down their retail..

Okay.

Well, I mean that's kind of what I'm trying to understand, is the synergies are still very available?.

Of course..

Okay. I appreciate it. Thank you..

Thank you, Roger..

And your next question comes from the line of Paul Sankey from Wolfe Research. Your line is now open..

Hi guys.

Is there any [indiscernible] credits if you do the retail drop?.

Can you explain the question a little bit?.

I was just wondering because of the -- if you were to drop your retail into the MLP, would it have any implications for ethanol blending credit?.

I don't think so, no, none..

Could you just give us any other observations on that market, we've been talking about it through our earnings seasons. I want to….

I think that we, you and me spoke about even privately. I think that the situation and there is no quick solution to this. It should play itself out. We're hitting the -- not Delek, I'm talking about now market. The market is hitting the blending well as we all know.

And there was a theme of -- I think we are the last one to report our financials, all the refineries reported and I think one besides that, everybody besides one company missed. The entire miss in my mind and I didn't read everybody's report but this portion of the miss of this entire miss is in the ethanol.

Not only the price offerings but the amount that are needed. I just don't believe that we as an industry can meet this obligation without going to for example, E15 across the board which I don't see it happening so quickly. So from a macro standpoint, that's a headwind to our industry.

Now things are little better because ethanol used to be much higher than gasoline, that gap has narrowed in the last few months, obviously it could come up and I believe that some of you believe that could/can go to $55 to $60 by the end of the year, then it's a different because then ethanol will probably be below gasoline, that will change and will make our earnings work.

We're obviously being back on off ethanol versus negative impact which we saw in the first quarter. But to answer your question in two senses; if we say with this amount that we've needed then it's a headwind to our industry unless prices of crude will go up and price of gasoline will be above ethanol..

The macro that you've highlighted is very different, it felt like in lot of ways you are very well suited to the big discounts in Midland and everything else. Can you talk a little bit about the four refineries as they look today in terms of the leverages, leaving aside the rents thing but just -- the narrow brand, CI and everything else.

How challenging is it for you or other, actually some advantages for you? And I will also say that I heard what you said about that..

I would be a liar not to say that we are looking at every angle now. While we are with great tailwind in the past with the ethanol the way there would be Midland, the way it was. Today we are out of favor, all our -- or everybody did mid-continent and actually the refining industry has its own challenges.

One of the several things that Delek is doing while looking at our cost structure, obviously we -- our CapEx and we plan for that is very low. Our cash position improved and we expect this to continue to improve in the second quarter. So we are doing the things that -- to go through this.

Now on the operation side, we are looking at the internal situation. We are looking at, as I said earlier, bringing sour barrels or heavy barrels and because of the good market. So we are taking the steps that are in control. I say firm with my belief that long-term we need to be as close as we can to the barrel.

And I believe that these four refineries, at least three of them are very close to the barrel and they have huge advantage. It doesn't mean that we won't have challenges or we don't have challenges short-term but we work through them and we'll get there..

And then finally, there are alternative potential outcomes for the Alon deal.

I assume you could potentially sell yourselves to Alon, I don't have -- it's a crazy idea or not and then merger I guess could -- I don't know is there other alternatives than the obvious sort of take out the permit or the chance?.

Well, first of all to sell ourselves to Alon -- Along shareholders need to agree to that, I'm not sure that with a premium they will agree to that. But that's -- I heard that idea in the past, it's basically -- selling ourselves to Alon is basically negative premium buying Alon, it's the same thing economically.

So because of the two shareholder -- two companies have similar shareholders, I don't see any reason to believe that if we -- if they are required to pay premium on one side there shouldn't be a negative premium on the other side, that's economically the same thing. I'm going to repeat myself, 67%, 68% of the ratio doesn't make sense to Delek.

And as I said it in the past, there will be a different CEO here notifying this deal. Debt ratio can be improved either by the market being more rational which I believe that Alon is undervalued but Delek is more undervalued, and/or by components of cash. These are things that we are looking out right now.

I want to be clear, the ratio doesn't make sense to us as we speak..

I think I got that one. Thanks a lot. Have a good weekend guys..

Thank you, Mr. Sankey..

Your next question comes from Ever Westlake [ph] from Credit Suisse. Your line is now open..

Good morning.

Just quickly on DKL, how much room is there on that revolver today?.

$370 million. I'm sorry, $330 million.

We borrowed $330 million, right Assaf?.

Yes..

So if the MOP market was limited, so you couldn't perhaps fund this much, would you be willing to go up on the revolver and I guess with this new tax treatment would you need to go to the equity market, over and above the revolver on the retail front?.

I don't know over the bottom of the revolver, there is a reason why we put the revolver together. We're willing to tap into the revolver, absolutely..

Okay. And then there is no limit in terms of most of standstill in terms of -- you can just make an offer and it's just upto the ALJ shareholders to vote on it. Just being clear..

We have tremendous amount of respect for the independent director of our loan, and they were great to work with. And I don't see any reason why not to work together with them and to go directly to the shareholder. Obviously, the market is expecting something to happen, I understand that. But we probably try to go and to reach an agreement with them.

They understand the situation, they understand that the ratio doesn't make sense. But at the same time they have their own fiduciary duties. So I don't see us going above their head directly to the market at this point..

And then Alon's got $200 million of cash, $193 million, you've got $350 million, obviously you're going to be cash positive probably in the second and third quarter you've got this tax frame coming in plus the retail and that shares have fallen a lot in absolute terms.

So it does seem as if it's just a constraint about how much cash you would need to run the business? It doesn't feel like you necessary have to wait to build cash to go ahead with the start of the transaction if that's what you decided to do?.

That is correct. And we all know cash flows are good in the first quarter, they are improving. Our CapEx needs as I said earlier are very low and we expect them to stay low even next year and probably the following year. So it's a matter of loan of cash needs, and the attention that our loan assets need..

Right. And then just a small operational question, obviously, we're seeing new crude growth potential out of Oklahoma from the stack. Obviously that could go down to Cushing -- sorry, down to the Gulf on the pipelines. But it could also come as a Longview.

So I'm just wondering what this sort of tariff advantage might be for Longview versus getting it down to Gulf?.

That's another opportunity, we didn't discuss it and maybe my bad. We can bring barrels from Cushing, in a few months we can bring many barrels from Cushing. One of the idea is that if financials stay like they are, WCS or either barrels like that, we'll find themselves into Longview and to our refineries.

So that -- I mentioned earlier, one of the options to bring heavy barrels from the Gulf, that's another option of bringing heavier barrels to Longview and from there to the refinery..

So do you have sort of a tariff or an allocation on the pipeline?.

We do have an allocation on the pipeline, it starts towards the end of this year. Tariff, we do heads up, it's off the top of my head, I don't remember. It would be $1.50, something like that..

Okay, thanks very much..

Thank you..

Your next question comes from the line of Matthew Blair [ph] from Tudor, Pickering, Holt. Your line is now open..

Good morning. On ALJ there has been a lot of talk about this ratio and how it -- at the current levels it's not that favorable but I'm sure you guys look at intrinsic value of ALJ as well.

And I'm just curious if you think that taking out the remaining 52% of ALJ would be EPS accretive and NAV accretive to DK right now?.

I'll let Assaf answer that. I'll just say that the big assumption here, what the synergies are, and obviously the synergies are more than zero. So it depends what we are willing to accept. I would say, safe bet on synergies and then take it from there if you want to say..

Subject to synergies in a year when both companies are not making too much money. Of course the delay right now look very synergetic, and with that being said, when we look at long-term and we believe Delek US has an extremely powerful earnings behind it.

We need to be cautious with the amount of units that we need to issue in order to buy alone and that's why we are being patient and that's why the relative value is something that we are looking into it.

But as you mentioned, looking in the intrinsic value of our loan, we did said before that we do think Delek loan are undervalued and that use of cash will allow us to basically take that value by not even borrowing, use cash-on-hand in order to buy some loan units. And at that point, this deal can be very accretive even in the good years I would say.

So again, like always in any transaction we want to try to minimize the amount of equity that we issue. So far Delek US issued very minimal equity through its acquisition. Just a reminder, when we brought the first part of our loan, we only issued 6 million shares which part of them we already bought back.

We want to keep that or so for the future, so we can no more acquisition at a later point and that's why we brought the ratio, the value of our loan, the synergies and the share of our loan prices important in this calculation, and that's why we are trying to increase our cash balances so we'd able to choose what's the best time to do, and be able to choose which route to go after..

All right, very clear, thanks. And then on the retail drop, I'm sure you've seen there has been some outright retail sales at very high valuations recently. I think there is one this week about $5 million per store.

In fact, could you just kind of weigh that the pros and cons of doing a retail drop versus an outright retail sale? And I guess what gives you confidence that doing a drop would be best for shareholders over the long run? Thanks..

This is a great question, I ask myself that question five times every day. And let me start with the latter part of your comment. The best value for shareholders depends on several factors; obviously, the retail market is very good as we speak, we obviously understand that we are in that market.

However, when we -- if we went ahead and solve the chain, first of all why we're going to lose the results and I'll talk about that in just one minute.

But the other way, the other thing is, we have -- we think -- I don't know if we have it for sure but we think that we have a structure that allows us to differ tax payments and get very favorable tax treatment. So while I'll try tell because of the base of MAPCO being pretty low, there will be big tax payment.

There is one more component that we all need to remember here. MAPCO went and bought -- built many stores in the last few years. As we all said it over the years, the -- it takes time for stores to mature and to generate good EBITDA, probably two-three years. So the stores that we build over the last three years generated very minimum EBITDA.

Now obviously we invested in these stores $3 million apiece. So -- and if you look at the retail EBITDA, it jumped from -- I am going by memory, in 2013 it was $20 million, little more than $20 million to little more than $40 million last year. Why is that? Because of all these stores that we build in 2011-2012 were maturing as we entered last year.

So we have more stores that can mature and basically, if the EBITDA of the retail was last year a little north of $40 million, this year we're expecting closer to $50 million because of all these new stores. So that's another factor that we need to take into account as we look at the market. Also this was helpful and not too comprehensive..

That's great, thank you..

I'll just make one more comment. For family-adult first store which is $2 billion value for us, probably we're missing something in the evaluation of Delek US. That's a big number. Maybe even convince to set at that point. It is a big number..

And your final question comes from the line of Neil Mehta from Goldman Sachs. Your line is now open..

Hey guys, how are you?.

Hey Neil, good morning.

How are you doing?.

Good morning, thank you very much, doing well.

So one last question for you is on ALDW, so ultimately when you do consolidate a loan, what do you think of the variable restructure, what do you think the right thing to do is with ALDW?.

Neil, I think we've spend enough time together but I can assure in public my opinion as I've told you privately.

I do not believe in this -- and that's my personal belief, I do not believe in this viable MLP idea because when times are good you pay big distribution and when times are bad your units are not doing so well and we see what happened to the couple that are in the stature [ph] as we speak. I don't believe it's not a sustainable business in my mind.

As you know, and I've told you that if we decide to move on alone, that's another consideration that we need to pay attention to. And I just don't foresee four refineries with four public companies. So the combination of not believing in this four public companies and not believing in viable MLP idea, you probably no mapping and all..

All right, that's great. Thank you, Uzi..

Thanks, Neil..

I'll now turn the call back over to the presenters..

Well, I appreciate the call, that was a long call, thank you for everybody interest in our company. I'd like to thank everybody, just more than anything, it's important for us, we are entering the second quarter in much more positive way.

I'd like to take my colleagues around the table, the Board of Directors and mainly our employees who make this company what it is. Have a great day..

This concludes today's conference call. You may now disconnect..