Company Quick10K Filing
Quick10K
Delek Logistics Partners
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-16 Officers, Exhibits
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-24 Regulation FD, Exhibits
8-K 2019-05-28 Enter Agreement, M&A, Regulation FD, Exhibits
8-K 2019-05-14 Regulation FD, Exhibits
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-04-26 Regulation FD, Exhibits
8-K 2019-03-05 Officers, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-01-24 Regulation FD, Exhibits
8-K 2019-01-24 Regulation FD, Exhibits
8-K 2018-12-03 Regulation FD, Exhibits
8-K 2018-11-13 Regulation FD, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-23 Regulation FD, Exhibits
8-K 2018-09-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-24 Regulation FD, Exhibits
8-K 2018-08-13 Regulation FD, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-24 Regulation FD, Exhibits
8-K 2018-05-22 Regulation FD, Exhibits
8-K 2018-05-21 Officers, Regulation FD, Exhibits
8-K 2018-05-07 Earnings, Exhibits
8-K 2018-04-26 Regulation FD, Exhibits
8-K 2018-03-28 Regulation FD, Exhibits
8-K 2018-03-20 Enter Agreement, M&A, Exhibits
8-K 2018-03-02 Enter Agreement, Exhibits
8-K 2018-02-26 Earnings, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2018-01-23 Regulation FD, Exhibits
ET Eternal Speech 34,108
PSXP Phillips 66 Partners 6,882
BPL Buckeye Partners 6,338
NS NuStar Energy 2,990
TGE Tallgrass Energy 2,403
DM Dominion Energy Midstream Partners 1,716
AROC Archrock Partners 1,284
TLP Transmontaigne Partners 625
SMLP Summit Midstream Partners 382
USAC US Alliance 131
DKL 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Basis of Presentation
Note 2 - Acquisitions
Note 3 - Related Party Transactions
Note 4 - Revenues
Note 5 - Net Income per Unit
Note 6 - Inventory
Note 7 - Long-Term Obligations
Note 8 - Equity
Note 9 - Equity Based Compensation
Note 10 - Equity Method Investments
Note 11 - Segment Data
Note 12 - Income Taxes
Note 13 - Commitments and Contingencies
Note 14 - Leases
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 dkl-ex311xceocertifica.htm
EX-31.2 dkl-ex312xcfocertifica.htm
EX-32.1 dkl-ex321xceocertifica.htm
EX-32.2 dkl-ex322xcfocertifica.htm

Delek Logistics Partners Earnings 2019-06-30

DKL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the quarterly period ended
June 30, 2019
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                      to                     
Commission file number 001-35721
DELEK LOGISTICS PARTNERS, LP
(Exact name of registrant as specified in its charter)
Delaware
globe01.jpg
45-5379027
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
7102 Commerce Way
Brentwood
Tennessee
37027
(Address of principal executive offices)

 
 
(Zip Code)
(615) 771-6701
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Units Representing Limited Partnership Interests
DKL
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
At August 2, 2019, there were 24,417,285 common limited partner units and 498,312 general partner units outstanding.


Table of Contents

Delek Logistics Partners, LP
Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Financial Statements

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except unit and per unit data)
 
 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
5,440

 
$
4,522

Accounts receivable
 
26,852

 
21,586

Inventory
 
4,682

 
5,491

Other current assets
 
467

 
969

Total current assets
 
37,441

 
32,568

Property, plant and equipment:
 
 
 
 
Property, plant and equipment
 
454,581

 
452,746

Less: accumulated depreciation
 
(153,036
)
 
(140,184
)
Property, plant and equipment, net
 
301,545

 
312,562

Equity method investments
 
241,597

 
104,770

Operating lease right-of-use assets
 
18,793

 

Goodwill
 
12,203

 
12,203

Marketing Contract Intangible, net
 
134,605

 
138,210

Other non-current assets
 
23,126

 
24,280

Total assets
 
$
769,310

 
$
624,593

LIABILITIES AND DEFICIT
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
8,214

 
$
14,226

Accounts payable to related parties
 
9,636

 
7,833

Excise and other taxes payable
 
4,238

 
4,069

Pipeline release liabilities
 
2,888

 
4,419

Current portion of operating lease liabilities
 
4,572

 

Accrued expenses and other current liabilities
 
5,622

 
5,958

Total current liabilities
 
35,170

 
36,505

Non-current liabilities:
 
 
 
 
Long-term debt
 
840,920

 
700,430

Asset retirement obligations
 
5,389

 
5,191

Operating lease liabilities, net of current portion
 
14,220

 

Other non-current liabilities
 
17,911

 
17,290

Total non-current liabilities
 
878,440

 
722,911

Deficit:
 
 
 
 
Common unitholders - public; 9,123,239 units issued and outstanding at June 30, 2019 (9,109,807 at December 31, 2018)
 
167,254

 
171,023

Common unitholders - Delek Holdings; 15,294,046 units issued and outstanding at June 30, 2019 (15,294,046 at December 31, 2018)
 
(305,827
)
 
(299,360
)
General partner - 498,312 units issued and outstanding at June 30, 2019 (498,038 at December 31, 2018)
 
(5,727
)
 
(6,486
)
Total deficit
 
(144,300
)
 
(134,823
)
Total liabilities and deficit
 
$
769,310

 
$
624,593

 
See accompanying notes to the condensed consolidated financial statements

           
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Financial Statements

Delek Logistics Partners, LP
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(in thousands, except unit and per unit data)
 
 
Three months ended
 
Six months ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Net revenues:
 
 
 
 
 
 
 
 
   Affiliates (1)
 
$
61,918

 
$
53,080

 
$
124,883

 
$
114,724

   Third party
 
93,424

 
113,200

 
182,942

 
219,477

     Net revenues
 
155,342

 
166,280

 
307,825

 
334,201

Cost of sales:
 
 
 
 
 
 
 
 
Cost of materials and other
 
93,854

 
106,016

 
190,119

 
225,048

Operating expenses (excluding depreciation and amortization presented below)
 
16,521

 
14,114

 
31,828

 
26,012

Depreciation and amortization
 
6,188

 
6,571

 
12,312

 
12,035

Total cost of sales
 
116,563

 
126,701

 
234,259

 
263,095

Operating expenses related to wholesale business (excluding depreciation and amortization presented below)
 
806

 
803

 
1,557

 
1,482

General and administrative expenses
 
5,293

 
3,747

 
9,766

 
6,722

Depreciation and amortization
 
451

 
448

 
901

 
984

Gain on asset disposals
 
(27
)
 
(129
)
 
(25
)
 
(69
)
Total operating costs and expenses
 
123,086

 
131,570

 
246,458

 
272,214

Operating income
 
32,256

 
34,710

 
61,367

 
61,987

Interest expense, net
 
11,354

 
10,926

 
22,655

 
18,988

Income from equity method investments
 
(4,515
)
 
(1,899
)
 
(6,466
)
 
(2,757
)
Other expense, net
 
461

 

 
461

 

Total non-operating expenses, net
 
7,300

 
9,027

 
16,650

 
16,231

Income before income tax expense
 
24,956

 
25,683

 
44,717

 
45,756

Income tax expense
 
71

 
101

 
136

 
179

Net income attributable to partners
 
$
24,885

 
$
25,582

 
$
44,581

 
$
45,577

Comprehensive income attributable to partners
 
$
24,885

 
$
25,582

 
$
44,581

 
$
45,577

 
 
 
 
 
 
 
 
 
Less: General partner's interest in net income, including incentive distribution rights
 
8,079

 
6,212

 
15,348

 
11,842

Limited partners' interest in net income
 
$
16,806

 
$
19,370

 
$
29,233

 
$
33,735

 
 
 
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
 
 
 
Common units - (basic)
 
$
0.69

 
$
0.79

 
$
1.20

 
$
1.38

Common units - (diluted)
 
$
0.69

 
$
0.79

 
$
1.20

 
$
1.38

 
 
 
 
 
 
 
 
 
Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
 
  Common units - (basic)
 
24,409,359

 
24,386,031

 
24,408,270

 
24,384,341

  Common units - (diluted)
 
24,414,343

 
24,394,103

 
24,414,077

 
24,391,760

 
 
 
 
 
 
 
 
 
Cash distributions per limited partner unit
 
$
0.850

 
$
0.770

 
$
1.670

 
$
1.520


(1) 
See Note 3 for a description of our material affiliate revenue transactions.
See accompanying notes to the condensed consolidated financial statements

           
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Financial Statements

Delek Logistics Partners, LP
Condensed Consolidated Statements of Partner's Equity (Deficit) (Unaudited)
(in thousands)
 
Common - Public
 
Common -
Delek Holdings
 
General Partner
 
Total
Balance at March 31, 2019
$
168,388

 
$
(303,902
)
 
$
(6,391
)
 
$
(141,905
)
Cash distributions (1)
(7,473
)
 
(12,541
)
 
(7,424
)
 
(27,438
)
General partner units issued to maintain 2% interest

 

 
6

 
6

Net income attributable to partners
6,279

 
10,527

 
8,079

 
24,885

Unit-based compensation
54

 
89

 
3

 
146

Other
6

 

 

 
6

Balance at June 30, 2019
$
167,254

 
$
(305,827
)
 
$
(5,727
)
 
$
(144,300
)
(1) Cash distributions include a nominal amount related to distribution equivalents on vested phantom units.

 
Common - Public
 
Common -
Delek Holdings
 
General Partner
 
Total
Balance at March 31, 2018
$
173,197

 
$
(296,015
)
 
$
(7,828
)
 
$
(130,646
)
Cash distributions
(6,873
)
 
(11,470
)
 
(5,710
)
 
(24,053
)
Net income attributable to partners
7,226

 
12,144

 
6,212

 
25,582

Unit-based compensation
57

 
94

 
4

 
155

Balance at June 30, 2018
$
173,607

 
$
(295,247
)
 
$
(7,322
)
 
$
(128,962
)

 
Common - Public
 
Common -
Delek Holdings
 
General Partner
 
Total
Balance at December 31, 2018
$
171,023

 
$
(299,360
)
 
$
(6,486
)
 
$
(134,823
)
Cash distributions
(14,825
)
 
(24,929
)
 
(14,603
)
 
(54,357
)
General partner units issued to maintain 2% interest

 

 
8

 
8

Net income attributable to partners
10,943

 
18,289

 
15,349

 
44,581

Unit-based compensation
107

 
177

 
6

 
290

Other
6

 
(4
)
 
(1
)
 
1

Balance at June 30, 2019
$
167,254

 
$
(305,827
)
 
$
(5,727
)
 
$
(144,300
)

 
Common - Public
 
Common -
Delek Holdings
 
General Partner
 
Total
Balance at December 31, 2017
$
174,378

 
$
(197,206
)
 
$
(6,397
)
 
$
(29,225
)
Distributions to Delek Holdings for Big Spring Asset Acquisition

 
(96,822
)
 
(1,976
)
 
(98,798
)
Cash distributions
(13,463
)
 
(22,558
)
 
(10,810
)
 
(46,831
)
General partner units issued to maintain 2% interest

 

 
13

 
13

Net income attributable to partners
12,581

 
21,154

 
11,842

 
45,577

Unit-based compensation
111

 
185

 
6

 
302

Balance at June 30, 2018
$
173,607

 
$
(295,247
)
 
$
(7,322
)
 
$
(128,962
)


See accompanying notes to the condensed consolidated financial statements

           
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Financial Statements

Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
44,581

 
$
45,577

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
13,213

 
13,019

Non-cash lease expense
 
1,409

 

Amortization of customer contract intangible assets
 
3,605

 
2,404

Amortization of deferred revenue
 
(803
)
 
(723
)
Amortization of deferred financing costs and debt discount
 
1,480

 
1,334

Accretion of asset retirement obligations
 
198

 
175

Deferred income taxes
 
(3
)
 

Income from equity method investments
 
(6,466
)
 
(2,757
)
Dividends from equity method investments
 
3,833

 
2,302

Gain on asset disposals
 
(25
)
 
(69
)
Unit-based compensation expense
 
290

 
302

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(5,266
)
 
1,132

Inventories and other current assets
 
1,311

 
8,226

Accounts payable and other current liabilities
 
(8,928
)
 
(9,123
)
Accounts receivable/payable to related parties
 
1,803

 
(8,446
)
Non-current assets and liabilities, net
 
95

 
(1,710
)
Net cash provided by operating activities
 
50,327

 
51,643

Cash flows from investing activities:
 
 
 
 
Asset acquisitions, net of assumed asset retirement obligation liabilities
 

 
(72,376
)
Purchases of property, plant and equipment
 
(2,437
)
 
(5,949
)
Proceeds from sales of property, plant and equipment
 
75

 
356

Purchases of intangible assets
 

 
(144,219
)
Distributions from equity method investments
 
804

 
660

Equity method investment contributions
 
(134,998
)
 
(172
)
Net cash (used in) investing activities
 
(136,556
)
 
(221,700
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of additional units to maintain 2% General Partner interest
 
8

 
13

Distributions to general partner
 
(14,603
)
 
(10,810
)
Distributions to common unitholders - public
 
(14,825
)
 
(13,463
)
Distributions to common unitholders - Delek Holdings
 
(24,929
)
 
(22,558
)
Distributions to Delek Holdings unitholders and general partner related to Big Spring Logistic Assets Acquisition
 

 
(98,798
)
Proceeds from revolving credit facility
 
364,300

 
517,000

Payments of revolving credit facility
 
(224,300
)
 
(203,000
)
Deferred financing costs paid
 

 
(525
)
Reimbursement of capital expenditures by Delek Holdings
 
1,496

 
2,700

Net cash provided by financing activities
 
87,147

 
170,559

Net increase in cash and cash equivalents
 
918

 
502

Cash and cash equivalents at the beginning of the period
 
4,522

 
4,675

Cash and cash equivalents at the end of the period
 
$
5,440

 
$
5,177

Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
21,068

 
$
17,890

Income taxes
 
$
141

 
$
2

Non-cash investing activities:
 
 

 
 

Decrease in accrued capital expenditures
 
$
(191
)
 
$
(1,529
)
Non-cash financing activities:
 
 
 
 
 Non-cash lease liability arising from recognition of right of use assets upon adoption of ASU 2016-02
 
$
20,202

 
$



See accompanying notes to the condensed consolidated financial statements

           
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Notes to Condensed Consolidated Financial Statements (Unaudited)


Note 1 - Organization and Basis of Presentation
As used in this report, the terms "Delek Logistics Partners, LP," the "Partnership," "we," "us," or "our" may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole.
The Partnership is a Delaware limited partnership formed in April 2012 by Delek US Holdings, Inc. ("Delek Holdings") and its subsidiary Delek Logistics GP, LLC, our general partner (our "general partner").
Effective March 1, 2018, the Partnership, through its wholly-owned subsidiary DKL Big Spring, LLC, acquired from Delek Holdings certain logistics assets primarily located at or adjacent to Delek Holdings' refinery near Big Spring, Texas (the "Big Spring Refinery") and Delek Holdings' light products distribution terminal located in Stephens County, Oklahoma (collectively, the "Big Spring Logistic Assets" and such transaction the "Big Spring Logistic Assets Acquisition"). See Note 2 for further information regarding the Big Spring Logistic Assets Acquisition.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP applied on a consistent basis with those of the annual audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (our "Annual Report on Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019 and in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in our Annual Report on Form 10-K.
All adjustments necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been included. All intercompany accounts and transactions have been eliminated. Such intercompany transactions do not include those with Delek Holdings' or our general partner, which are presented as related parties in these accompanying condensed consolidated financial statements. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year.
Reclassifications
Certain prior period amounts have been reclassified in order to conform to the current period presentation. Additionally, certain changes to presentation of the prior period statements of income have been made in order to conform to the current period presentation, primarily relating to the addition of a subtotal entitled 'cost of sales' which includes all costs directly attributable to the generation of the related revenue, as defined by GAAP, and the retitling of what was previously referred to as 'cost of goods sold' to 'cost of materials and other'. In connection with this change in presentation, we have revised our related accounting policy, as presented in our 2018 Annual Report on Form 10-K.
New Accounting Pronouncements Adopted During 2019
ASU 2016-02, Leases
In February 2016, the FASB issued guidance that requires the recognition of a lease liability and a right-of-use asset, initially measured at the present value of the lease payments, in the statement of financial condition for all leases with terms longer than one year. The guidance was subsequently amended to consider the impact of practical expedients and provide additional clarifications. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the new lease standard on January 1, 2019. We elected the package of practical expedients which, among other things, allows us to carry forward the historical lease classification. For certain lease classes, we have elected the practical expedient not to separate lease and non-lease components, which allows us to combine the components if certain criteria are met. Further, we elected the optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance sheet of retained earnings at the date of adoption and to not recast our comparative periods. We have not elected the hindsight practical expedients, which would have allowed us to use hindsight in determining the reasonably certain lease term. The adoption of the lease accounting guidance had no impact on January 1, 2019 retained earnings and resulted in the recognition of a $20.2 million lease liability and a corresponding right-of-use asset on our consolidated balance sheet. The adoption did not have a material impact on our consolidated income statement. See Note 16 for further information.
Accounting Pronouncements Not Yet Adopted
ASU 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurements. The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We expect to adopt this guidance on or before the effective date and do not expect adopting this new guidance will have a material impact on our business, financial condition or results of operations.

           
7 |  
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Notes to Condensed Consolidated Financial Statements (Unaudited)

ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance requiring the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. This guidance is effective for interim and annual periods beginning after December 15, 2019. We expect to adopt this guidance on or before the effective date and are currently evaluating the impact that adopting this new guidance will have on our business, financial condition and results of operations.
Note 2 - Acquisitions
Big Spring Logistic Assets Acquisition
Effective March 1, 2018, the Partnership, through its wholly-owned subsidiary DKL Big Spring, LLC, acquired the Big Spring Logistic Assets from Delek Holdings, which are primarily located at or adjacent to the Big Spring Refinery. The total purchase price was $170.8 million, financed through borrowings under the Partnership’s revolving credit facility.
The Big Spring Logistic Assets include:
Approximately 75 storage tanks and certain ancillary assets (such as tank pumps and piping) primarily located adjacent to the Big Spring Refinery;
An asphalt terminal and a light products terminal;
Certain crude oil and refined product pipelines; and
Other logistics assets, such as four underground saltwells used for natural gas liquids storage.
In connection with the closing of the transaction, Delek Holdings, the Partnership and various of their respective subsidiaries entered into new contracts and amended certain existing contracts, including entering into new pipelines, storage and throughput facilities and asphalt services agreements. The transaction and related agreements were approved by the Conflicts Committee of the board of the Partnership's general partner, which is comprised solely of independent directors. See Note 3 for more detailed descriptions of these agreements.
The Big Spring Logistic Assets Acquisition was considered a transaction between entities under common control. Accordingly, the Big Spring Logistic Assets were recorded at amounts based on Delek Holdings' historical carrying value as of the acquisition date. The excess of the cash paid over the historical carrying value of the assets acquired from Delek Holdings amounted to $98.8 million and was recorded as a reduction in equity. The historical carrying value of the Big Spring Logistic Assets as of the acquisition date was $72.0 million, which is net of $0.8 million of assumed asset retirement obligations. Prior periods have not been recast, as these assets did not constitute a business in accordance with ASU 2017-01, Clarifying the Definition of a Business. We capitalized approximately $0.4 million of acquisition costs related to the Big Spring Logistic Assets Acquisition during the six months ended June 30, 2018. We did not capitalize any acquisition costs during the three months ended June 30, 2018.
Marketing Contract Intangible Acquisition
Additionally, concurrent with the Big Spring Logistic Assets Acquisition, Delek Holdings, the Partnership and various of their respective subsidiaries entered into a new marketing agreement, whereby the Partnership markets certain refined products produced at or sold from the Big Spring Refinery to various customers in return for a marketing fee (the "Marketing Contract Intangible Acquisition"). We recorded a related contract intangible asset in the amount of $144.2 million based on the amount paid to enter into the contract, which represents the fair value of the intangible asset. The contract intangible asset is amortized over a twenty year period as a component of net revenues from affiliates. The total consideration paid was financed through borrowings under the Partnership's revolving credit facility. This transaction and related marketing agreement were approved by the Conflicts Committee of the board of the Partnership's general partner, which is comprised solely of independent directors. See Note 3 for a more detailed description of this marketing agreement.
Note 3 - Related Party Transactions
Commercial Agreements
The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms at the option of Delek Holdings. In November 2017, Delek Holdings opted to renew certain of these agreements for subsequent five-year terms expiring in November 2022. In the case of our marketing agreement with Delek Holdings in respect to the Tyler Refinery, the initial term has been extended through 2026. The current term of certain of our agreements with Delek Holdings were required to be further extended pursuant to the amended and restated DKL Credit Facility (as defined in Note 7), which extensions were effective in the fourth quarter of 2018. The fees under each agreement are payable to us monthly by Delek Holdings or

           
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Notes to Condensed Consolidated Financial Statements (Unaudited)

certain third parties to whom Delek Holdings has assigned certain of its rights and are generally subject to increase or decrease on July 1 of each year, by the amount of any change in various inflation-based indices, including the Federal Energy Regulatory Commission ("FERC") oil pipeline index or various iterations of the consumer price index ("CPI") and the producer price index ("PPI"); provided, however, that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement. In most circumstances, if Delek Holdings or the applicable third party assignee fails to meet or exceed the minimum volume or throughput commitment during any calendar quarter, Delek Holdings, and not any third party assignee, will be required to make a quarterly shortfall payment to us equal to the volume of the shortfall multiplied by the applicable fee, subject to certain exceptions as specified in the applicable agreement. Carry-over of any volumes or revenue in excess of such commitment to any subsequent quarter is not permitted.
Under each of these agreements, we are required to maintain the capabilities of our pipelines and terminals, such that Delek Holdings may throughput and/or store, as the case may be, specified volumes of crude oil, intermediate and refined products. To the extent that Delek Holdings is prevented by our failure to maintain such capacities from throughputting or storing such specified volumes for more than 30 days per year, Delek Holdings' minimum throughput commitment will be reduced proportionately and prorated for the portion of the quarter during which the specified throughput capacity was unavailable, and/or the storage fee will be reduced, prorated for the portion of the month during which the specified storage capacity was unavailable. Such reduction would occur even if actual throughput or storage amounts were below the minimum volume commitment levels.
See our Annual Report on Form 10-K for a more complete description of our material commercial agreements and other agreements with Delek Holdings.
Big Spring Pipeline, Storage and Throughput Facilities Agreement
In connection with the Big Spring Logistic Assets Acquisition, Alon USA, LP, a Texas limited partnership and an indirect, wholly-owned subsidiary of Delek Holdings (“Alon USA, LP”), and DKL Big Spring, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Partnership, entered into the Pipelines, Storage and Throughput Facilities Agreement (Big Spring Refinery Logistic Assets and Duncan Terminal) (the “Logistics Agreement”). Under the Logistics Agreement, the Partnership will provide storage and throughput services for crude oil and refined petroleum products owned by Alon USA, LP or its assignee, at certain of the Big Spring Logistic Assets owned and operated by the Partnership. The Partnership will charge fees to Alon USA, LP based on throughput volumes received or delivered ranging from $0.05 to $0.69 per barrel and related storage fees depending on the type of service or product. The fees under the Logistics Agreement may be adjusted annually for inflation. The initial term of the Logistics Agreement is ten years; the Partnership has a one-time option to extend the Logistics Agreement for up to five additional years; and the Logistics Agreement will continue on a year-to-year basis following such renewal term unless terminated by either party.
Big Spring Asphalt Services Agreement
In connection with the Big Spring Logistic Assets Acquisition, Alon USA, LP and the Partnership entered into the Big Spring Asphalt Services Agreement (the “Asphalt Services Agreement”). Under the Asphalt Services Agreement, the Partnership will provide asphalt storage and handling services at certain of the Big Spring Logistic Assets (such assets, the “Asphalt Facilities”). The Partnership will provide services to Alon USA, LP at the Asphalt Facilities and serve as bailee of all raw materials, and other hydrocarbons, used to make asphalt products owned by Alon USA, LP or its assignee held in the Asphalt Facilities. The Partnership will charge fees to Alon USA, LP based on throughput volumes delivered of $8.62 per barrel and related storage fees. The fees under the Asphalt Services Agreement may be adjusted annually for inflation. The initial term of the Asphalt Services Agreement is ten years; the Partnership has a one-time option to extend the Asphalt Services Agreement for up to five additional years; and the Asphalt Services Agreement will continue on a year-to-year basis following such renewal term unless terminated by either party.
Big Spring Marketing Agreement
Concurrent with the Big Spring Logistic Assets Acquisition, Alon USA, LP and the Partnership entered into the Marketing Agreement (the “Marketing Agreement”). Under the Marketing Agreement, the Partnership will provide Alon USA, LP with services for the marketing and selling of certain refined petroleum products that are produced or sold from the Big Spring Refinery. The Partnership will charge Alon USA, LP fees for such marketing and selling services of $0.52 to $0.74 per barrel depending on the type of product. The fees under the Marketing Agreement may be adjusted annually for inflation. The initial term of the Marketing Agreement is ten years; Alon USA, LP has a one-time option to extend the Marketing Agreement for up to five additional years; and the Marketing Agreement will continue on a year-to-year basis following such renewal term unless terminated by either party.
Other Agreements with Delek Holdings
In addition to the commercial agreements described above, the Partnership has entered into the following agreements with Delek Holdings:
Omnibus Agreement
The Partnership entered into an omnibus agreement with Delek Holdings, our general partner, Delek Logistics Operating, LLC, Lion Oil Company and certain of the Partnership's and Delek Holdings' other subsidiaries on November 7, 2012, which has been amended from time

           
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Notes to Condensed Consolidated Financial Statements (Unaudited)

to time in connection with acquisitions from Delek (collectively, as amended, the "Omnibus Agreement"). The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $3.9 million to Delek Holdings for its provision of centralized corporate services to the Partnership.
Pursuant to the terms of the Omnibus Agreement, we were reimbursed by Delek Holdings for certain capital expenditures in the amount of $0.7 million and $1.5 million during the three and six months ended June 30, 2019, respectively, and $0.4 million and $2.7 million during the three and six months ended June 30, 2018, respectively. These amounts are recorded in other long-term liabilities and are amortized to revenue over the life of the underlying revenue agreement corresponding to the asset. Additionally, we are reimbursed or indemnified, as the case may be, for costs incurred in excess of certain amounts related to certain asset failures, pursuant to the terms of the Omnibus Agreement. As of June 30, 2019, we have recorded a nominal receivable from related parties for these matters for which we expect to be reimbursed. These reimbursements are recorded as reductions to operating expense. We were reimbursed $2.2 million and $5.7 million for these matters during the three and six months ended June 30, 2019, respectively. We were reimbursed $6.4 million for such matters during both three and six months ended June 30, 2018.
Other Transactions
Starting in 2018, the Partnership manages a long-term capital project on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of a 250-mile gathering system in the Permian Basin (the "Delek Permian Gathering Project"). The Partnership is also considered the operator for the project and is responsible for oversight of the project design, procurement and construction of project segments and provide other related services. Pursuant to the terms of the DPG Management Agreement, the Partnership receives a monthly operating services fee and a construction services fee, which includes the Partnership's direct costs of managing the project plus an additional percentage fee of the construction costs of each project segment. The agreement extends through December 2022. Total fees paid to the Partnership for the three and six months ended June 30, 2019 were $1.0 million and $2.8 million, respectively. Additionally, the Partnership incurs the costs in connection with the construction of the assets and is subsequently reimbursed by Delek Holdings. Amounts reimbursable by Delek Holdings are recorded in accounts receivable from related parties.
Summary of Transactions
Revenues from affiliates consist primarily of revenues from gathering, transportation, storage, offloading, Renewable Identification Numbers, wholesale marketing and products terminalling services provided primarily to Delek Holdings based on regulated tariff rates or contractually based fees and product sales. Affiliate operating expenses are primarily comprised of amounts we reimburse Delek Holdings, or our general partner, as the case may be, for the services provided to us under the Partnership Agreement. These expenses could also include reimbursement and indemnification amounts from Delek Holdings, as provided under the Omnibus Agreement. Additionally, the Partnership is required to reimburse Delek Holdings for direct or allocated costs and expenses incurred by Delek Holdings on behalf of the Partnership and for charges Delek Holdings incurred for the management and operation of our logistics assets, including an annual fee for various centralized corporate services, which are included in general and administrative expenses. In addition to these transactions, we purchase refined products and bulk biofuels from Delek Holdings, the costs of which are included in cost of materials and other.
A summary of revenue, purchases from affiliates and expense transactions with Delek Holdings and its affiliates are as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
$
61,918

 
$
53,080

 
$
124,883

 
$
114,724

Purchases from Affiliates
 
$
73,213

 
$
99,515

 
$
152,647

 
$
181,715

Operating and maintenance expenses 
 
$
10,590

 
$
11,422

 
$
20,515

 
$
18,911

General and administrative expenses 
 
$
1,748

 
$
2,505

 
$
3,118

 
$
3,462


Quarterly Cash Distributions
Our common and general partner unitholders and the holders of Incentive Distribution Rights ("IDRs") are entitled to receive quarterly distributions of available cash as it is determined by the board of directors of our general partner in accordance with the terms and provisions of our Partnership Agreement. In February and May 2019, we paid quarterly cash distributions of $26.9 million and $27.4 million, respectively, of which $19.6 million and $20.0 million, respectively, were paid to Delek Holdings and our general partner. In February and May 2018, we paid quarterly cash distributions of $22.8 million and $24.0 million, respectively, of which $16.2 million and $17.2 million, respectively, were paid to Delek Holdings and our general partner. On July 24, 2019, our general partner's board of directors declared a quarterly cash distribution totaling $28.9 million, based on the available cash as of the date of determination for the end of the second quarter of 2019, payable on

           
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Notes to Condensed Consolidated Financial Statements (Unaudited)

August 13, 2019, of which $21.2 million is expected to be paid to Delek Holdings and our general partner, including the distribution as holder of the IDRs described in Note 8.
Note 4 - Revenues
We generate revenue by charging fees for gathering, transporting, offloading and storing crude oil; for storing intermediate products and feed stocks; for distributing, transporting and storing refined products; for marketing refined products output of Delek Holdings' Tyler and Big Spring refineries; and for wholesale marketing in the west Texas area. A significant portion of our revenue is derived from long-term commercial agreements with Delek Holdings, which provide for annual fee adjustments for increases or decreases in the CPI, PPI or FERC index (refer to Note 3 for a more detailed description of these agreements). In addition to the services we provide to Delek Holdings, we also generate substantial revenue from crude oil, intermediate and refined products transportation services for, and terminalling and marketing services to, third parties primarily in Texas, New Mexico, Tennessee and Arkansas. Certain of these services are provided pursuant to contractual agreements with third parties. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.
The majority of our commercial agreements with Delek Holdings meet the definition of a lease because: (1) performance of the contracts is dependent on specified property, plant or equipment and (2) it is remote that one or more parties other than Delek Holdings will take more than a minor amount of the output associated with the specified property, plant or equipment. As part of our adoption of ASC 842, Leases ("ASC 842"), we applied the permitted practical expedient to not separate lease and non-lease components under the predominance principle to designated asset classes associated with the provision of logistics services. We have determined that the predominant component of the related agreements currently in effect is the lease component. Therefore, the combined component is accounted for under the applicable lease accounting guidance. Of our $301.5 million net property, plant, and equipment balance as of June 30, 2019, $251.4 million is subject to operating leases under our commercial agreements. These agreements do not include options for the lessee to purchase our leasing equipment, nor do they include any material residual value guarantees or material restrictive covenants.
The following table represents a disaggregation of revenue for each reportable segment for the periods indicated (in thousands):
 
 
Three Months Ended June 30, 2019
 
 
Pipelines and Transportation
 
Wholesale Marketing and Terminalling
 
Consolidated
Service Revenue - Third Party
 
$
7,477

 
$
184

 
$
7,661

Product Revenue - Third Party
 

 
85,763

 
85,763

Product Revenue - Affiliate
 

 
7,187

 
7,187

Lease Revenue - Affiliate (1) (2)
 
36,731

 
18,000

 
54,731

Total Revenue
 
$
44,208

 
$
111,134

 
$
155,342

(1) Disaggregated revenue for the three months ended June 30, 2019 may not be comparable to disaggregated revenue for the three months ended June 30, 2018 as a result of our adoption of ASC 842, under which we applied the predominance principle and opted to not separate lease and non-lease components.
(2) Net of $1.8 million of amortization expense for the three months ended June 30, 2019, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

 
 
Three Months Ended June 30, 2018
 
 
Pipelines and Transportation
 
Wholesale Marketing and Terminalling
 
Consolidated
Service Revenue - Third Party
 
$
3,714

 
$
493

 
$
4,207

Service Revenue - Affiliate
 
23,160

 
14,581

 
37,741

Product Revenue - Third Party
 

 
108,993

 
108,993

Product Revenue - Affiliate
 

 
794

 
794

Lease Revenue - Affiliate (1)
 
10,870

 
3,675

 
14,545

Total Revenue
 
$
37,744

 
$
128,536

 
$
166,280

(1) Net of $1.8 million of amortization expense for the three months ended June 30, 2018, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.


           
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Notes to Condensed Consolidated Financial Statements (Unaudited)

 
 
Six Months Ended June 30, 2019
 
 
Pipelines and Transportation
 
Wholesale Marketing and Terminalling
 
Consolidated
Service Revenue - Third Party
 
$
11,451

 
$
304

 
$
11,755

Product Revenue - Third Party
 

 
171,187

 
171,187

Product Revenue - Affiliate
 

 
16,573

 
16,573

Lease Revenue - Affiliate (1) (2)
 
73,390

 
34,920

 
108,310

Total Revenue
 
$
84,841

 
$
222,984

 
$
307,825

(1) Disaggregated revenue for the six months ended June 30, 2019 may not be comparable to disaggregated revenue for the six months ended June 30, 2018 as a result of our adoption of ASC 842, under which we applied the predominance principle and opted to not separate lease and non-lease components.
(2) Net of $3.6 million of amortization expense for the six months ended June 30, 2019, respectively, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

 
 
Six Months Ended June 30, 2018
 
 
Pipelines and Transportation
 
Wholesale Marketing and Terminalling
 
Consolidated
Service Revenue - Third Party
 
$
7,965

 
$
802

 
$
8,767

Service Revenue - Affiliate
 
43,057

 
24,147

 
67,204

Product Revenue - Third Party
 

 
210,710

 
210,710

Product Revenue - Affiliate
 

 
21,028

 
21,028

Lease Revenue - Affiliate (1)
 
20,435

 
6,057

 
26,492

Total Revenue
 
$
71,457

 
$
262,744

 
$
334,201

(1) Net of $2.4 million of amortization expense for the six months ended June 30, 2018, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

As of June 30, 2019, we expect to recognize $1.1 billion in service and lease revenues related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms. We disclose information about remaining performance obligations that have original expected durations of greater than one year.
Our unfulfilled performance obligations as of June 30, 2019 were as follows (in thousands):
Remainder of 2019
 
$
87,325

2020
 
174,284

2021
 
174,023

2022
 
172,872

2023 and thereafter
 
491,927

Total expected revenue on remaining performance obligations
 
$
1,100,431




Note 5 - Net Income Per Unit
We use the two-class method when calculating the net income per unit applicable to limited partners because we have more than one participating class of securities. Our participating securities consist of common units, general partner units and IDRs. The two-class method is based on the weighted-average number of common units outstanding during the period. Basic net income per unit applicable to limited partners is computed by dividing limited partners’ interest in net income, after deducting our general partner’s 2% interest and IDRs, by the weighted-average number of outstanding common units. Our net income is allocated to our general partner and limited partners in accordance with their respective partnership percentages after giving effect to priority income allocations for IDRs, which are held by our general partner pursuant to our Partnership Agreement. The IDRs are paid following the close of each quarter.
Earnings in excess of distributions are allocated to our general partner and limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.
Diluted net income per unit applicable to common limited partners includes the effects of potentially dilutive units on our common units. As of June 30, 2019, the only potentially dilutive units outstanding consist of unvested phantom units.
Our distributions earned with respect to a given period are declared subsequent to quarter end. Therefore, the table below represents total cash distributions applicable to the period in which the distributions are earned. The expected date of distribution for the distributions earned during the period ended June 30, 2019 is August 13, 2019. The calculation of net income per unit is as follows (dollars in thousands, except units and per unit amounts):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income attributable to partners
 
$
24,885

 
$
25,582

 
$
44,581

 
$
45,577

Less: General partner's distribution (including IDRs) (1)
 
8,160

 
6,200

 
15,583

 
11,910

Less: Limited partners' distribution
 
20,754