What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-07 · 348 added, 116 removed, 452 unchanged (51% of the section changed)

3 unchanged sentences

(in thousands, except unit and per unit data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

2 unchanged sentences

Accounts receivable from related parties — 28,443

Lease receivable - affiliate 23,852 —

Inventory 4,632 2,264

8 unchanged sentences

Marketing contract intangible, net — 102,155

Rights-of-way, net 60,416 59,536

Other intangibles, net 95,538 59,536

Goodwill 12,203 12,203

Operating lease right-of-use assets 15,222 19,043

Net lease investment - affiliate 186,361 —

Other non-current assets 11,062 14,216

3 unchanged sentences

Accounts payable $ 35,683 $ 26,290

Accounts payable to related parties 442 —

Current portion of long-term debt — 30,000

10 unchanged sentences

Total non-current liabilities 1,936,249 1,713,525

Preferred units - 70,000 units issued and outstanding at September 30, 2024

Equity (Deficit):

Common unitholders - public;

12,918,673 units issued and outstanding at June 30, 2024 ( 9,299,763 at December 31, 2023)

12,932,311 units issued and outstanding at September 30, 2024 ( 9,299,763 at December 31, 2023)

282,458 160,402

Common unitholders - Delek Holdings;

34,311,278 units issued and outstanding at June 30, 2024 ( 34,311,278 at December 31, 2023)

34,111,278 units issued and outstanding at September 30, 2024 ( 34,311,278 at December 31, 2023)

( 397,566 ) ( 322,271 )

Total deficit ( 115,108 ) ( 161,869 )

Total liabilities and deficit $ 1,623,302 $ 1,642,246

Total liabilities, preferred units and deficit $ 1,960,723 $ 1,642,246

See accompanying notes to the condensed consolidated financial statements

3 unchanged sentences

(In thousands, except unit and per unit data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

16 unchanged sentences

Operating income 31,808 62,554 164,811 186,433

Interest expense, net 35,268 35,099 75,497 67,680

Interest income ( 23,470 ) — ( 23,498 ) —

Interest expense 37,022 36,901 112,547 104,581

Income from equity method investments ( 15,602 ) ( 9,296 ) ( 31,974 ) ( 22,897 )

Other income, net ( 40 ) ( 19 ) ( 211 ) ( 21 )

Total non-operating expenses, net 27,346 27,795 58,914 54,058

Other expense (income), net 34 ( 3 ) ( 177 ) ( 24 )

Total non-operating (income) expenses, net ( 2,016 ) 27,602 56,898 81,660

Income before income tax expense 33,824 34,952 107,913 104,773

8 unchanged sentences

Diluted 47,135,101 43,604,792 46,269,423 43,598,547

Cash distributions per common limited partner unit $ 1.090 $ 1.035 $ 2.160 $ 2.060

(1) See Note 3 for a description of our material affiliate revenue and purchases transactions.

4 unchanged sentences

(in thousands)

Common - Public Common - Delek Holdings Total

Balance as of March 31, 2024 $ 290,051 $ ( 332,518 ) $ ( 42,467 )

Common - Public Common - Delek Holdings Total Preferred

Balance as of June 30, 2024 $ 287,195 $ ( 338,502 ) $ ( 51,307 ) $ —

Cash distributions ( 14,082 ) ( 37,181 ) ( 51,263 ) —

1 unchanged sentence

9,308 24,366 33,674 —

( 63 ) 771 708

Issuance of units — — — 70,000

Redemption of units — ( 97,949 ) ( 97,949 ) —

Contributions — 50,873 50,873 —

Balance as of September 30, 2024 $ 282,458 $ ( 397,566 ) $ ( 115,108 ) $ 70,000

Common - Public Common - Delek Holdings Total Preferred

Balance as of June 30, 2023 $ 167,760 $ ( 297,262 ) $ ( 129,502 ) $ —

Common - Public Common - Delek Holdings Total

Balance as of March 31, 2023 $ 170,522 $ ( 287,944 ) $ ( 117,422 )

Cash distributions ( 9,757 ) ( 35,513 ) ( 45,270 ) —

1 unchanged sentence

7,412 27,413 34,825 —

( 49 ) 737 688

Balance as of June 30, 2023 $ 167,760 $ ( 297,262 ) $ ( 129,502 )

Common - Public Common - Delek Holdings Total

Balance as of September 30, 2023 $ 165,472 $ ( 304,624 ) $ ( 139,152 ) $ —

Common - Public Common - Delek Holdings Total Preferred

Balance as of December 31, 2023 $ 160,402 $ ( 322,271 ) $ ( 161,869 ) $ —

Cash distributions (1)

( 37,987 ) ( 110,092 ) ( 148,079 ) —

Net income attributable to partners 27,812 79,568 107,380 —

Issuance of units 132,202 — 132,202 70,000

Redemption of units — ( 97,949 ) ( 97,949 ) —

Contributions — 50,873 50,873 —

Other 29 2,305 2,334 —

Balance as of June 30, 2024 $ 287,195 $ ( 338,502 ) $ ( 51,307 )

Common - Public Common - Delek Holdings Total

Balance as of September 30, 2024 $ 282,458 $ ( 397,566 ) $ ( 115,108 ) $ 70,000

Common - Public Common - Delek Holdings Total Preferred

Balance as of December 31, 2022 $ 172,119 $ ( 282,819 ) $ ( 110,700 ) $ —

Cash distributions (1)

( 28,695 ) ( 105,679 ) ( 134,374 ) —

Net income attributable to partners 22,135 81,953 104,088 —

Other ( 87 ) 1,921 1,834 —

Balance as of June 30, 2023 $ 167,760 $ ( 297,262 ) $ ( 129,502 )

Balance as of September 30, 2023 $ 165,472 $ ( 304,624 ) $ ( 139,152 ) $ —

(1) Cash distributions include $ 0.3 million and $ 0.2 million related to distribution equivalents on vested phantom units for the nine months ended September 30, 2024 and 2023.

See accompanying notes to the condensed consolidated financial statements

3 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

15 unchanged sentences

Accounts receivable/payable to related parties ( 30,625 ) ( 73,144 )

Net investment in leases - affiliate 6,168

Non-current assets and liabilities, net 639 1,816

1 unchanged sentence

Cash flows from investing activities:

Asset acquisitions from Delek Holdings ( 83,903 ) —

Purchases of property, plant and equipment ( 83,008 ) ( 58,564 )

1 unchanged sentence

Purchases of intangible assets ( 1,690 ) ( 2,583 )

Business combination ( 159,495 ) —

Distributions from equity method investments 3,377 4,477

11 unchanged sentences

Other financing activities ( 256 ) ( 2,191 )

Net cash used in financing activities ( 114,720 ) ( 9,164 )

Net cash provided by (used in) financing activities 161,649 ( 58,784 )

Net increase (decrease) in cash and cash equivalents 3,562 ( 3,788 )

3 unchanged sentences

Cash paid during the period for:

Interest $ 49,553 $ 65,367

Interest expense $ 95,267 $ 89,524

Income taxes $ — $ 20

Non-cash investing activities:

(Decrease) increase in accrued capital expenditures $ ( 1,055 ) $ 53

Equity attributable to W2W Holdings Acquisition $ ( 62,783 ) $ —

Forgiveness of related party receivable in connection with W2W Holdings Acquisition $ 60,000 $ —

Preferred units issued in connection with H2O Acquisition $ 70,000 $ —

Increase in accrued capital expenditures $ 7,542 $ 10,084

Non-cash financing activities:

8 unchanged sentences

("Delek Holdings") and its subsidiary Delek Logistics GP, LLC, our general partner (our "general partner").

The Partnership provides gathering, pipeline and other transportation services primarily for crude oil and natural gas customers, storage, wholesale marketing and terminalling services primarily for intermediate and refined product customers, and water disposal and recycling services through its owned assets and joint ventures located primarily in the Permian Basin (including the Delaware sub-basin) and other select areas in the Gulf Coast region.

A majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, Texas (the "Tyler Refinery"), El Dorado, Arkansas (the "El Dorado Refinery") and Big Spring, Texas (the "Big Spring Refinery").

On August 2, 2024, Delek Logistics Partners, LP (the “Purchaser”), entered into a Purchase and Sale Agreement with H2O Midstream Holdings, LLC (the “Seller”) to purchase 100 % of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC (the “Purchased Interests”), related to the Seller’s water disposal and recycling operations, in the Midland Basin in Texas (the “Purchase Agreement”).

On August 5, 2024, the Partnership acquired Permian Pipeline Holdings, LLC, which holds 50 % equity interests in Wink to Webster Holdings, LLC ("W2W Holdings"), (the "W2W Investment") from a wholly owned subsidiary of Delek Holdings.

W2W Holdings includes a 15.6 % indirect interest in the Wink to Webster Pipeline, LLC joint venture ("Wink to Webster"), and related joint venture indebtedness.

Wink to Webster owns and operates a long-haul crude oil pipeline system with origin points at Wink and Midland in the Permian Basin and delivery points at multiple Houston area locations.

On September 11, 2024, the Partnership completed the acquisition of 100 % of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC (the “H2O Midstream Acquisition”) from H2O Midstream Holdings, LLC (the “Seller").

The acquisition included water disposal and recycling operations in the Midland Basin in Texas.

See Note 2 for further information.

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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.

Accounting Pronouncements Not Yet Adopted

In accordance with ASC 842-20, Leases - Lessee ("ASC 842-20"), we classify leases with contractual terms longer than twelve months as either operating or finance.

Finance leases are generally those leases that are highly specialized or allow us to substantially utilize or pay for the entire asset over its useful life.

All other leases are classified as operating leases.

The Partnership leases land, buildings and various equipment primarily under operating lease arrangements, most of which provide the option, after the initial lease term, to renew the leases.

Some of these lease arrangements include fixed lease rate increases, while others include lease rate increases based upon such factors as changes, if any, in defined inflationary indices.

For all leases that include fixed rental rate increases, these are included in our fixed lease payments.

Our leases may include variable payments, based on changes on price or other indices, that are expensed as incurred.

The Partnership calculates the total lease expense for the entire noncancelable lease period, considering renewals for all periods for which it is reasonably certain to be exercised, and records lease expense on a straight-line basis in the accompanying consolidated statements of income.

Accordingly, a lease liability is recognized for these leases and is calculated to be the present value of the fixed lease payments, as defined by ASC 842-20, using a discount rate based on our incremental borrowing rate.

A corresponding right-of-use asset is recognized based on the lease liability and adjusted for certain costs and prepayments.

The right-of-use asset is amortized over the noncancelable lease period, considering renewals for all periods for which it is reasonably certain to be exercised.

For substantially all classes of underlying assets, 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.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As a lessor under ASC 842, the Partnership may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases.

The net investment in sales-type leases with related parties is recorded within lease receivable - affiliate and net lease investment - affiliate on the condensed consolidated balance sheets.

These amounts are comprised of the present value of the sum of the future minimum lease payments representing the value of the lease receivable and the unguaranteed residual value of the leased assets.

Management assesses the net investment in sales-type leases for recoverability quarterly.

See Note 12 for further information.

Accounting Pronouncements Adopted in 2024

ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements

2 unchanged sentences

ASU 2024-02 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis.

The Partnership does not expect this update to have a material impact on our condensed consolidated financial statements and related disclosures.

This update did not have a material impact on our condensed consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

ASU 2023-07, Segment Reporti ng (Topic 280):

5 unchanged sentences

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all prior periods presented in the financial statements.

The adoption of ASU 2023-07 should not have a material impact on our condensed consolidated financial statements and related disclosures.

See Note 8 for further information.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

The adoption of ASU 2023-07 will result in additional segment reporting disclosure requirements but is not anticipated to have a significant impact on our condensed consolidated financial statements.

ASU 2023-06, Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative

3 unchanged sentences

The Partnership is currently evaluating the provisions of the amendments and the impact on its future condensed consolidated statements, but does not currently expect adopting this new guidance will have a material impact on its condensed consolidated financial statements and related disclosures.

H2O Midstream Acquisition

We completed the H2O Midstream Acquisition on September 11, 2024, in which we acquired water disposal and recycling operations, in the Midland Basin in Texas (the "Midland Water Gathering System"), for total consideration of $ 229.5 million subject to customary adjustments for net working capital and indebtedness ("H2O Transaction").

The purchase price was comprised of approximately of $ 159.5 million in cash and $ 70.0 million of Preferred Units (as defined in Note 8).

See Note 8 for further information on Preferred Units.

The cash portion was financed through a combination of cash on hand and borrowings under the DKL Credit Facility (as defined in Note 6 ).

For the three and nine months ended September 30, 2024, we incurred $ 6.1 million in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees.

Such costs are included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income for these periods.

Our consolidated financial and operating results reflect the H2O Midstream Acquisition operations beginning September 11, 2024.

Our results of operations included revenue and net income of $ 3.6 million and $ 1.3 million, respectively, for the period from September 11, 2024 through September 30, 2024 related to these operations.

This acquisition was accounted for using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values.

Notes to Consolidated Financial Statements

Determination of Purchase Price (1)

The table below presents the estimated purchase price (in thousands):

Base purchase price:

closing net working capital (as defined in the H2O Midstream Purchase Agreement)

various closing adjustments

Adjusted purchase price $ 229,495

Cash paid $ 159,495

Fair value of preferred units issued 70,000

Preliminary purchase price $ 229,495

(1) These amounts are based upon estimates at closing, but are subject to a subsequent review and revision period pursuant to the H2O Midstream Acquisition agreement at which time final settlements for these components will be determined.

Such subsequent adjustments may result in changes to the preliminary purchase price.

Purchase Price Allocation

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed in the H2O Midstream Acquisition as of September 11, 2024 (in thousands):

Assets acquired:

Accounts receivables 6,643

Inventories 2,448

Other current assets 879

Property, plant and equipment 174,548

Operating lease right-of-use assets 470

Customer relationship intangible (1)

Other intangibles (1)

Other non-current assets 21

Total assets acquired $ 243,856

Liabilities assumed:

Accounts payable $ 3,954

Accrued expenses and other current liabilities 5,059

Current portion of operating lease liabilities 278

Asset retirement obligations 4,851

Operating lease liabilities, net of current portion 219

Total liabilities assumed 14,361

Fair value of net assets acquired $ 229,495

(1) The acquired intangible assets include the following identified intangibles:

• Rights-of-way intangibles valued at $ 30.1 million, of which, the majority has an indefinite life.

• Favorable supply contract intangible that is subject to amortization with a preliminary fair value of $ 4.8 million which will be amortized over a 4.8 years useful life.

The estimated amortization is $ 1.0 million for each of the next four fiscal years, and $ 0.4 million in the fifth succeeding fiscal year.

• The Customer relationship intangible that is subject to amortization with a preliminary fair value of $ 24.0 million, which will be amortized over an 12.6 years useful life.

The estimated amortization is $ 1.9 million for each of the five succeeding fiscal years.

The amortization expense related to the above intangible assets for the three and nine months ended September 30, 2024 was immaterial.

These fair value estimates are preliminary and therefore, the final fair value of assets acquired and liabilities assumed and the resulting effect on our financial position may change once all necessary information has become available, the final working capital adjustment is complete, and we finalize our valuations.

To the extent possible, estimates have been considered and recorded, as appropriate, for the items above based on the information available as of September 30, 2024.

We will continue to evaluate these items until they are satisfactorily resolved and adjust our purchase price allocation accordingly, within the allowable measurement period (not to exceed one year from the date of acquisition), as defined by Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805").

Notes to Consolidated Financial Statements

The fair value of property, plant and equipment was based on the combination of the cost and market approaches.

Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence.

We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.

Customer relationships were valued using the income approach, with essential assumptions including projected revenues from these relationships, attrition rates, operating margins, and discount rates.

The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.

For all other current assets and payables, their fair values were considered equivalent to their carrying amounts due to their short-term nature.

Unaudited Pro Forma Financial Information

The following table summarizes the unaudited pro forma financial information of the Partnership assuming the H2O Midstream Acquisition had occurred on January 1, 2023.

The unaudited pro forma financial information has been adjusted to give effect to certain pro forma adjustments that are directly related to this acquisition based on available information and certain assumptions that management believes are factually supportable.

The most significant pro forma adjustments relate to (i) incremental interest expense associated with revolving credit facility borrowings incurred in connection with this acquisition, (ii) incremental depreciation resulting from the estimated fair values of acquired property, plant and equipment, (iii) incremental amortization resulting from the estimated fair value of the acquired customer relationship intangible and, (iv) transaction costs.

The unaudited pro forma financial information excludes any expected cost savings or other synergies as a result of this acquisition.

The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had this acquisition been effective as of the date presented, nor is it indicative of future operating results of the combined company.

Actual results may differ significantly from the unaudited pro forma financial information.

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

(in thousands)

Net sales $ 226,303 $ 296,752 $ 775,369 $ 833,859

Net income attributable to partners $ 40,045 $ 40,290 $ 119,183 $ 120,856

Wink to Webster Pipeline Investment Acquisition

On August 5, 2024, the Partnership acquired Permian Pipeline Holdings, LLC, which holds 50 % equity interests in W2W Holdings, from a wholly owned subsidiary of Delek Holdings.

W2W Holdings includes a 15.6 % indirect interest in Wink to Webster, and related joint venture indebtedness.

Wink to Webster owns and operates a long-haul crude oil pipeline system with origin points at Wink and Midland in the Permian Basin and delivery points at multiple Houston area locations.

Total consideration was comprised of $ 83.9 million in cash (including $ 2.7 million post-closing adjustment), forgiveness of a $ 60.0 million receivable from Delek Holdings and 2,300,000 of common units representing limited partnership interest in us.

This acquisition was considered a transaction between entities under common control.

Accordingly, the equity interests acquired were recorded at amounts based on Delek Holdings' historical carrying value as of the acquisition date.

The carrying value of the equity interests as of the acquisition date was $ 81.1 million.

Pursuant to common control guidance, we recorded a reduction to equity of $ 62.8 million, included in contributions in the accompanying condensed consolidated statements of partners' equity, representing the net carrying amount of the equity interest acquired less the consideration paid.

No value was assigned to the 2,300,000 common units issued.

Prior periods have not been recast as these assets do not constitute a business in accordance with ASC 805, Business Combinations .

Related Party Transactions

4 unchanged sentences

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.

Notes to Consolidated Financial Statements

See our Annual Report on Form 10-K for a more complete description of our material commercial agreements and other agreements with Delek Holdings.

On August 5, 2024, the Partnership amended and extended expired, or soon to be expired, commercial agreements with subsidiaries of 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.

These amendments required the embedded leases within these agreements to be reassessed under ASC 842.

As a result, certain leases were reclassified from operating leases to sales-type leases (see Note 12 for further information on sales-type leases).

These agreements have an initial term of five to seven years , with the ability to extend for an additional five years at Delek Holdings' option and were effective as of July 1, 2024.

Certain of these contracts had rate adjustments to be phased in over 2025 and 2026.

In addition, on August 5, 2024, the Partnership entered into an assignment agreement with Delek Holdings to assign its rights and obligations under the Big Spring Refinery Marketing Agreement to Delek Holdings.

As consideration for this agreement, the Partnership redeemed 2,500,000 common units representing limited partnership interest in us held by Delek Holdings.

Associated with such marketing agreement was a contract intangible with a carrying value of $ 97.9 million at the closing date of the assignment.

This intangible was transferred to Delek Holdings in conjunction with the assignment.

Other Agreements with Delek Holdings

1 unchanged sentence

Omnibus Agreement

The Partnership entered into an omnibus agreement with Delek Holdings, our general partner, Delek Logistics Operating, LLC, Lion Oil Company, LLC and certain of the Partnership’s and Delek Holdings' other subsidiaries on November 7, 2012, which has been amended and restated from time to time in connection with acquisitions from Delek Holdings (collectively, as amended and restated, the "Omnibus Agreement").

See Note 10 for a description of recent amendments to the Omnibus Agreement.

On November 7, 2012, the Partnership entered into an omnibus agreement with Delek Holdings, our general partner, Delek Logistics Operating, LLC, Lion Oil Company, LLC and certain of the Partnership’s and Delek Holdings' other subsidiaries, which has been amended and restated from time to time in connection with acquisitions from Delek Holdings (collectively, as amended and restated, 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 $ 4.4 million to Delek Holdings for its provision of centralized corporate services to the Partnership.

On August 5, 2024 we entered into an amended and restated Omnibus Agreement with Delek Holdings that provides Delek Holdings an option to purchase certain critical assets from us at market value during the period beginning upon any change in control or sale of substantially all assets involving us and extending (i) in the case of a transaction involving a third party, for six months following closing, and (ii) for any other transaction, for four years following closing.

Pursuant to the terms of the Omnibus Agreement, we are reimbursed by Delek Holdings for certain capital expenditures.

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.

There were no reimbursements by Delek Holdings during the three and six months ended June 30, 2024.

There were no reimbursements by Delek Holdings during the three and six months ended June 30, 2023.

There were no reimbursements by Delek Holdings during each of three and nine months periods ended September 30, 2024 or the three and nine month periods ended September 30, 2023.

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, 2024 and December 31, 2023, there was no receivable from related parties for these matters.

As of September 30, 2024 and December 31, 2023, there was no receivable from related parties for these matters.

These reimbursements are recorded as reductions to operating expense.

There were no reimbursements for these matters in each of the three and six month periods ended June 30, 2024 or the three and six month periods ended June 30, 2023.

There were no reimbursements for these matters in each of the three and nine month periods ended September 30, 2024 or the three and nine month periods ended September 30, 2023.

Other Transactions

4 unchanged sentences

The agreement extends through December 2024.

Total fees paid to the Partnership were $ 0.4 million for both the three months ended June 30, 2024 and 2023 and $ 0.8 million for both the six months ended June 30, 2024 and 2023, which are recorded in affiliate revenue in our accompanying condensed consolidated statements of income and comprehensive income.

Total fees paid to the Partnership were $ 0.4 million for both the three months ended September 30, 2024 and 2023 and $ 1.2 million for both the nine months ended September 30, 2024 and 2023, which are recorded in affiliate revenue in our accompanying condensed consolidated statements of income and comprehensive income.

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.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Related Party Revolving Credit Facility

2 unchanged sentences

See Note 6 - Long-Term Obligations for further information.

Notes to Consolidated Financial Statements

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.

Income 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 under commercial agreements based on regulated tariff rates or contractually based fees and product sales, and interest income associated with those commercial agreements classified as sales-type leases.

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.

2 unchanged sentences

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-affiliate.

A summary of revenue, purchases and expense transactions with Delek Holdings and its affiliates are as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

A summary of income, purchases and expense transactions with Delek Holdings and its affiliates are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Revenues $ 114,899 $ 156,411 $ 411,352 $ 414,403

Interest income $ 23,442 $ — $ 23,442 $ —

Purchases $ 84,015 $ 115,149 $ 279,962 $ 298,262

8 unchanged sentences

August 14, 2024

November 14, 2024 (1)

Total $ 147,444

2 unchanged sentences

August 14, 2023

November 13, 2023 35,855

Total $ 141,534

(1) On July 30, 2024, the board of directors of our general partner declared this quarterly cash distribution based on the available cash as of the date of determination.

Distributions paid are estimated based on common units held by Delek Holdings as of June 30, 2024.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(1) On October 29, 2024, the board of directors of our general partner declared this quarterly cash distribution based on the available cash as of the date of determination.

Distributions paid are estimated based on common units held by Delek Holdings as of September 30, 2024.

Notes to Consolidated Financial Statements

The following table represents a disaggregation of revenue for the gathering and processing, wholesale marketing and terminalling, and storage and transportation segments for the periods indicated (in thousands):

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

5 unchanged sentences

Lease Revenue - Affiliate 26,308 17,579 9,638 53,525

47,074 14,096 20,690 81,860

Total Revenue $ 81,527 $ 106,938 $ 25,605 $ 214,070

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

5 unchanged sentences

Lease Revenue - Affiliate 49,900 13,160 20,659 83,719

43,388 12,298 17,400 73,086

Total Revenue $ 94,825 $ 147,110 $ 33,889 $ 275,824

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

6 unchanged sentences

Total Revenue $ 270,053 $ 361,808 $ 98,912 $ 730,773

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

5 unchanged sentences

Lease Revenue - Affiliate

137,078 35,680 55,937 228,695

Total Revenue $ 280,494 $ 378,246 $ 107,520 $ 766,260

(1) Net of $ 1.8 million of amortization expense for both the three months ended June 30, 2024 and 2023 and $ 3.6 million for the six months ended June 30, 2024 and 2023, related to marketing contract intangible recorded in the wholesale marketing and terminalling segment.

As of June 30, 2024, we expect to recognize approximately $ 1.0 billion in 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.

(1) Net of $ 0.6 million and $ 4.2 million of amortization expense for the three and nine months ended September 30, 2024, respectively and $ 1.8 million and $ 5.4 million for the three and nine months ended September 30, 2023, respectively, related to marketing contract intangible recorded in the wholesale marketing and terminalling segment.

As of September 30, 2024, we expect to recognize approximately $ 1.1 billion in service 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.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Our unfulfilled performance obligations as of June 30, 2024 were as follows (in thousands):

Notes to Consolidated Financial Statements

Our unfulfilled performance obligations as of September 30, 2024 were as follows (in thousands):

Remainder of 2024 $ 57,026

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Net Income per Unit

Basic net income per unit attributable to limited partners is computed by dividing limited partners' interest in net income by the weighted-average number of outstanding common units.

Diluted net income per unit attributable to common limited partners includes the effects of potentially dilutive units on our common units.

As of June 30, 2024, the only potentially dilutive units outstanding consist of unvested phantom units.

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 and preferred units.

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 common limited partners is computed by dividing limited partners’ interest in net income allocated to participating securities by the weighted-average number of outstanding common units.

Undistributed earnings are allocated to our preferred unitholders and limited partners based on their respective ownership interests.

During a period of net loss or negative undistributed earnings, the two-class method is not applicable.

Diluted net income per unit applicable to common limited partners includes the effects of potentially dilutive units on our common units.

As of September 30, 2024, the only potentially dilutive units outstanding consist of unvested phantom units.

The calculation of net income per unit is as follows (in thousands, except unit and per unit amounts):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Net income attributable to partners $ 33,674 $ 34,825 $ 107,380 $ 104,088

Limited partners' distribution declared on common units 51,263 45,112 147,794 134,216

Undistributed net loss $ ( 17,589 ) $ ( 10,287 ) $ ( 40,414 ) $ ( 30,128 )

Limited partners' earnings on common units:

Distributions $ 51,263 $ 45,112 $ 147,794 $ 134,216

Allocation of undistributed net loss ( 17,589 ) ( 10,287 ) ( 40,414 ) ( 30,128 )

Total limited partners' earnings on common units $ 33,674 $ 34,825 $ 107,380 $ 104,088

Weighted average limited partner units outstanding, basic 47,109,008 43,588,316 46,248,003 43,578,636

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$ 0.71 $ 0.80 $ 2.32 $ 2.39

(1) There were 46,281 and 30,003 anti-dilutive common unit equivalents excluded from the diluted earnings per unit calculation during the three and six months ended June 30, 2024, respectively.

There were $ 11,180 and 35,383 anti-dilutive common unit equivalents excluded from the diluted earnings per unit calculation during the three and six months ended June 30, 2023, respectively.

(1) There were 24,506 anti-dilutive common unit equivalents excluded from the diluted earnings per unit calculation during both three and nine months ended September 30, 2024.

There were 48,597 and 35,519 anti-dilutive common unit equivalents excluded from the diluted earnings per unit calculation during the three and nine months ended September 30, 2023, respectively.

Notes to Consolidated Financial Statements

Long-Term Obligations

Outstanding borrowings under the Partnership’s debt instruments are as follows (in thousands):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

DKL Revolving Facility $ 454,900 $ 780,500

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Long-term debt, net of current portion $ 1,894,257 $ 1,673,789

Notes to the Condensed Consolidated Financial Statements (Unaudited)

DKL Credit Facility

On October 13, 2022, the Partnership entered into a senior secured term loan with an original principal of $ 300.0 million (the "DKL Term Loan Facility").

On November 6, 2023, the Partnership entered into a First Amendment, a Second Amendment and a Third Amendment to the DKL Credit Facility (together, the “Amendments”) which among other things, extended the maturity of the DKL Term Loan Facility to April 15, 2025.

On November 6, 2023, the Partnership entered into a First Amendment, a Second Amendment and a Third Amendment to the DKL Credit Facility (the "DKL Credit Facility"), (together, the “Amendments”) which among other things, extended the maturity of the DKL Term Loan Facility to April 15, 2025.

The outstanding principal balance of $ 281.3 million was paid on March 13, 2024 from a portion of the proceeds received with the issuance of the 2029 Notes as indicated below.

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dollar prime rate plus an applicable margin of 1.00 % to 2.00 % depending on the Partnership’s Total Leverage Ratio (as defined in the DKL Credit Agreement), or a SOFR rate plus a credit spread adjustment of 0.10 % or 0.25 % and an applicable margin ranging from 2.00 % to 3.00 % depending on the Partnership’s Total Leverage Ratio.

As of June 30, 2024 and December 31, 2023, the weighted average interest rate was 8.00 % and 8.46 %, respectively.

There were no letters of credit outstanding as of June 30, 2024 or December 31, 2023.

As of September 30, 2024 and December 31, 2023, the weighted average interest rate was 7.70 % and 8.46 %, respectively.

There were no letters of credit outstanding as of September 30, 2024 or December 31, 2023.

The obligations under the DKL Revolving Facility are secured by first priority liens on substantially all of the Partnership’s and its subsidiaries’ tangible and intangible assets.

The carrying value of outstanding borrowings under the DKL Revolving Facility as of June 30, 2024 and December 31, 2023 approximate their fair values.

The carrying value of outstanding borrowings under the DKL Revolving Facility as of September 30, 2024 and December 31, 2023 approximate their fair values.

Our debt facilities contain affirmative and negative covenants and events of default the Partnership considers usual and customary.

As of June 30, 2024, we were in compliance with covenants on all of our debt instruments.

As of September 30, 2024, we were in compliance with covenants on all of our debt instruments.

Related Party Revolving Credit Facility

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On May 2, 2024, the Boards of Directors of Delek Holdings and our general partner authorized the termination of the intercompany loan agreement between Delek Holdings and the Partnership, which was effective on May 31, 2024.

Notes to Consolidated Financial Statements

On March 13, 2024, the Partnership and our wholly owned subsidiary Delek Logistics Finance Corp.

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Net proceeds were used to redeem the 2025 Notes including accrued interest, pay off the DKL Term Facility including accrued interest and to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

On April 17, 2024, the Issuers sold $ 200.0 million in aggregate principal amount of additional 8.625 % senior notes due 2029 (the “Additional 2029 Notes”), at 101.25 %.

On April 17, 2024, the Issuers sold $ 200.0 million in aggregate principal amount of additional 8.625 % senior notes due 2029 at 101.25 % and on August 16, 2024, the Issuers sold $ 200.0 million in aggregate principal amount of additional 8.625 % senior notes due 2029, at 103.25 % (collectively, the "Additional 2029 Notes").

The Additional 2029 Notes were issued under the same indenture as the 2029 Notes and formed a part of the same series of notes as the 2029 Notes.

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The 2029 Notes will mature on March 15, 2029, and interest on the 2029 Notes is payable semi-annually in arrears on each March 15 and September 15, commencing September 15, 2024.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

At any time prior to March 15, 2026, the Issuers may redeem up to 35 % of the aggregate principal amount of the 2029 Notes with the net cash proceeds of one or more equity offerings by the Partnership at a redemption price of 108.625 % of the redeemed principal amount, plus accrued and unpaid interest, if any, subject to certain conditions and limitations.

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The premium recognized for the Additional 2029 Notes was $ 9.0 million which will be amortized over the term of the 2029 Notes and included in interest expense in the accompanying condensed consolidated statements of income and comprehensive income.

As of June 30, 2024, the effective interest rate was 8.95 %.

The estimated fair value of the 2029 Notes was $ 874.2 million as of June 30, 2024, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

As of September 30, 2024, the effective interest rate was 8.90 %.

The estimated fair value of the 2029 Notes was $ 1,105.3 million as of September 30, 2024, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

Our 2028 Notes are general unsecured senior obligations comprised of $ 400.0 million in aggregate principal of 7.125 % senior notes maturing June 1, 2028.

The 2028 Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's existing subsidiaries (other than Delek Logistics Finance Corp.) and will be unconditionally guaranteed on the same basis by certain of the Partnership's future subsidiaries.

As of June 30, 2024, the effective interest rate was 7.39 %.

The estimated fair value of the 2028 Notes was $ 394.9 million and $ 380.4 million as of June 30, 2024 and December 31, 2023, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

As of September 30, 2024, the effective interest rate was 7.38 %.

The estimated fair value of the 2028 Notes was $ 401.8 million and $ 380.4 million as of September 30, 2024 and December 31, 2023, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

Our 2025 Notes are general unsecured senior obligations comprised of $ 250.0 million in aggregate principal of 6.75 % senior notes maturing on May 15, 2025.

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The estimated fair value of the 2025 Notes was $ 248.7 million as of December 31, 2023, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

Notes to Consolidated Financial Statements

On March 12, 2024, we completed a public offering of its common units in which it sold 3,584,416 common units (including an overallotment option of 467,532 common units) to the underwriters of the offering at a price to the public of $ 38.50 per unit.

The proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $ 132.2 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

The net proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $ 132.2 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

Underwriting discounts totaled $ 5.5 million.

On October 10, 2024, we completed a public offering of its common units in which it sold 4,423,075 common units (including an overallotment option of 576,922 common units) to the underwriters of the offering at a price to the public of $ 39.00 per unit.

The net proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $ 165.3 million and were used to redeem the Preferred Units (defined below) and repay a portion of the outstanding borrowings under the DKL Revolving Facility.

Underwriting discounts totaled $ 6.6 million.

Equity Activity

The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2023 through June 30, 2024.

The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2023 through September 30, 2024.

Common - Public Common - Delek Holdings (1)

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48,132 — 48,132

Units issued 3,584,416 — 3,584,416

Balance at June 30, 2024 12,918,673 34,311,278 47,229,951

(1) As of June 30, 2024, Delek Holdings owned a 72.6 % limited partner interest in the Partnership.

(2) Unit-based compensation awards are presented net of 12,345 units withheld for taxes for six months ended June 30, 2024.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Equity offering units issued 3,584,416 — 3,584,416

Redemption of units associated with BSR Marketing Agreement — ( 2,500,000 ) ( 2,500,000 )

Issuance of units in connection with W2W Acquisition — 2,300,000 2,300,000

Balance at September 30, 2024 12,932,311 34,111,278 47,043,589

(1) As of September 30, 2024, Delek Holdings owned a 70.4 % interest in the Partnership (on an as-converted basis).

(2) Unit-based compensation awards are presented net of 18,976 units withheld for taxes for nine months ended September 30, 2024.

Cash Distributions

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June 30, 2023 $ 1.035 $ 45,112

September 30, 2023 $ 1.045 $ 45,558

March 31, 2024 $ 1.070 $ 50,521

June 30, 2024 $ 1.090 $ 51,263

September 30, 2024 (1)

$ 1.100 $ 51,513

(1) On July 30, 2024, the board of directors of our general partner declared this quarterly cash distribution, payable on August 14, 2024, to unitholders of record on August 9, 2024.

The total cash distribution is estimated based on the number of common units outstanding as of June 30, 2024.

(1) On October 29, 2024, the board of directors of our general partner declared this quarterly cash distribution, payable on November 14, 2024, to unitholders of record on November 8, 2024.

The total cash distribution is estimated based on the number of common units outstanding as of September 30, 2024.

Preferred Units

On September 11, 2024 (the “Closing Date”), the Partnership issued 70,000 preferred units (“Preferred Units”) in connection with the Partnership’s acquisition of H2O Midstream for an amount equal to $ 70.0 million.

Preferred Unit Distribution Rights

Preferred Units rank senior to all common units with respect to distributions and rights upon liquidation.

The holders of the Preferred Units are entitled to receive, when and if declared by the board, a quarterly distribution equal to the amount of distributions they would have received on an as converted basis at a price of $ 41.04 , including any special distributions made to common unitholders.

Preferred Unit Conversion and Redemption

The holders may convert their Preferred Units into common units at any time, in whole or part, at a conversion price of $ 49.25 per common unit.

If the Partnership completes an underwritten public common unit offering, the Partnership may convert the Preferred Units into common units at any time, in whole or part, at a conversion price of $ 41.04 per common unit.

Notes to Consolidated Financial Statements

At any time, the Partnership may redeem, in whole or part, the Preferred Units at a redemption price of $ 1,000 per Preferred Unit plus the amount of accrued but unpaid distributions and a make whole amount, to be settled in cash.

In addition, at any time prior to October 31, 2027, if the Partnership completes an offering of common units or Preferred Units, the Partnership shall redeem an amount of the Preferred Units not to exceed the amount equal to the net cash proceeds to the Partnership from such offering, after deducting underwriting discounts and commissions and offering expenses payable by the Partnership at a redemption price of $ 1,000 per Preferred Unit plus the amount of accrued but unpaid distributions and a make whole amount.

At any time on or after (i) December 31, 2027;

(ii) the date the Partnership defaults on existing or future indebtedness;

(iii) the date the Partnership fails to pay the quarterly distribution;

or (iv) the occurrence of a Fundamental Event (as defined in the Agreement Of Limited Partnership), the holder of the Preferred Units will have the right to cause the Partnership to redeem, in whole or in part, the Preferred Units at a redemption price equal to the $ 1,000 per Preferred Unit, to be settled in cash.

Preferred Unit Voting Rights

The holders of Preferred Units are entitled to vote on an as-converted basis with the common unitholders.

Financial Statement Presentation

Preferred units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event, which is outside the Partnership’s control.

Therefore, they are presented as temporary equity in the mezzanine section of the condensed consolidated balance sheets.

The Preferred Units have been recorded at their issuance date fair value.

Income allocations increase the carrying value and declared distributions decrease the carrying value of the Preferred Units.

For a summary of changes in the Preferred Units balance for 2024, see the condensed consolidated statements of partners' equity (deficit).

Redemption of Preferred Units

As a result of our public offering of common units completed on October 10, 2024, the Partnership redeemed all 70,000 of the Preferred Units for at a redemption price of $ 1,000 per unit.

Total redemption payment was $ 70.8 million, including payment made for pro-rata distribution.

Equity Method Investments

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("CP LLC") to operate one of these pipeline systems and a 33 % membership interest in the entity formed with Andeavor Logistics RIO Pipeline LLC ("Andeavor Logistics") to operate the other pipeline system.

On August 5, 2024, the Partnership acquired Permian Pipeline Holdings, LLC, which holds 50 % equity interests in W2W Holdings, from a wholly owned subsidiary of Delek Holdings.

W2W Holdings includes a 15.6 % indirect interest in the Wink to Webster joint venture, and related joint venture indebtedness.

W2W Holdings was originally formed by Delek Holdings and MPLX Operations LLC to obtain financing and fund capital calls associated with its collective and contributed interests in Wink to Webster.

Wink to Webster owns and operates a long-haul crude oil pipeline system with origin points at Wink and Midland in the Permian Basin and delivery points at multiple Houston area locations.

We determined that W2W Holdings is a VIE.

While we have the ability to exert significant influence through participation in board and management committees, we are not the primary beneficiary since we do not have a controlling financial interest in W2W Holdings, and no single party has the power to direct the activities that most significantly impact W2W Holdings' economic performance.

As of September 30, 2024, except for the guarantee of member obligations under the joint venture, we do not have other guarantees with or to W2W Holdings, nor any third-party associated with W2W Holdings contracted work.

The Partnership's maximum exposure to any losses incurred by W2W Holdings is limited to its investment.

The Partnership's investment balances in these joint ventures were as follows (in thousands):

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

Red River $ 138,982 $ 141,091

W2W Holdings 87,511 —

CP LLC 59,791 61,273

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Total Equity Method Investments $ 322,745 $ 241,337

Notes to Consolidated Financial Statements

We aggregate our operating segments into four reportable segments:

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The following is a summary of business segment operating performance as measured by EBITDA for the periods indicated (in thousands):

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

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Amortization of customer contract intangible — 601 — — — 601

Interest expense, net — — — — 35,268 35,268

Interest income ( 11,531 ) ( 3,707 ) ( 8,232 ) — — ( 23,470 )

Interest expense — — — — 37,022 37,022

Income tax expense 150

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$ 62,086 $ 1,202 $ 1,910 $ — $ — $ 65,198

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

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Amortization of customer contract intangible — 1,803 — — — 1,803

Interest expense, net — — — — 35,099 35,099

Interest expense — — — — 36,901 36,901

Income tax expense 127

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$ 12,002 $ 2,123 $ 522 $ — $ — $ 14,647

Six Months Ended June 30, 2024

Notes to Consolidated Financial Statements

Nine Months Ended September 30, 2024

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

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Amortization of marketing contract intangible — 4,206 — — — 4,206

Interest expense, net — — — — 75,497 75,497

Interest income ( 11,559 ) ( 3,707 ) ( 8,232 ) — — ( 23,498 )

Interest expense — — — — 112,547 112,547

Income tax expense 533

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$ 84,160 $ 1,223 $ 5,167 $ — $ — $ 90,550

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

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Amortization of marketing contract intangible — 5,408 — — — 5,408

Interest expense, net — — — — 67,680 67,680

Interest expense — — — — 104,581 104,581

Income tax expense 685

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$ 62,168 $ 2,527 $ 3,933 $ — $ — $ 68,628

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(1) Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense pertaining to the marketing contract intangible.

This intangible was assigned to Delek Holdings on August 5, 2024.

(2) Capital spending includes additions on an accrual basis.

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The subject of the litigation was the expansion of the highway where the Partnership's Nettleton Station is situated.

As a result of this expansion, four tanks owned by the Partnership were impacted.

As a result of this expansion, two tanks owned by the Partnership were impacted.

This litigation was settled in the second quarter of 2024 and resulted in the Partnership recovering $ 8.3 million in condemnation proceeds, which are recorded in other operating income, net in the accompanying condensed consolidated statements of income and comprehensive income.

Notes to Consolidated Financial Statements

Environmental, Health and Safety

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Releases of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, or is not a reimbursable event under the Omnibus Agreement, subject us to substantial expenses, including costs to respond to, contain and remediate a release, to comply with applicable laws and regulations and to resolve claims by governmental agencies or other persons for personal injury, property damage, response costs, or natural resources damages.

We are the lessor under certain agreements for gathering, transportation, storage, terminalling, and offloading with Delek Holdings.

These agreements have remaining terms ranging from more than two years to more than 11 years with renewal options ranging from two years to 10 years, and some agreements have multiple renewal options.

Revenue from these leases are recorded in affiliate revenue in the condensed consolidated statements of income and comprehensive income.

We elected the practical expedient to carry forward historical lease classification conclusions until a modification of an existing agreement occurs.

Once a modification occurs, the amended agreement is required to be assessed under ASC 842, to determine whether a reclassification of the lease is required.

During the third quarter of 2024, we executed amendments to certain agreements between the Partnership and Delek Holdings.

The amendments required the embedded leases within these agreements to be reassessed under ASC 842.

As a result of these lease assessments, certain leases were reclassified from operating leases to sales-type leases.

Accordingly, the underlying property, plant and equipment, net, and associated deferred revenue, if any, were derecognized and the present value of the future lease payments and the unguaranteed residual value of the assets were recorded as a net investment in sales-type lease.

The net investment in sales-type leases is recorded utilizing the estimated fair value of the underlying leased assets at contract modification date and are nonrecurring fair value measurements.

The leased assets were valued using a cost method valuation approach which utilizes Level 3 inputs.

We recognized any billings in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.

Lease income included in the condensed consolidated statements of income and comprehensive income were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2024 2024

Operating leases:

Lease revenue $ 49,176 $ 212,202

Sales-type leases:

Interest income (Sales-type rental revenue-fixed minimum) 23,442 23,442

Lease revenue (Revenue from variable lease payments) 4,349 4,349

Sales-type lease income $ 27,791 $ 27,791

Notes to Consolidated Financial Statements

We recorded $ 83.7 million and $ 228.7 million in operating lease revenue for the three and nine months ended September 30, 2023, respectively.

We did not elect to use the practical expedient to combine lease and non-lease components for lessor arrangements.

The tables below represent the portion of the contracts allocated to the lease component based on relative standalone selling price.

The following presents the condensed consolidated financial statement impact of sales-type leases on commencement or modification date.

These transactions are non-cash transactions.

The amount recognized on commencement date was recorded in contributions in the condensed consolidated statements of partners' equity, given the underlying agreements are between entities under common control.

There were no amounts to report for the three and nine months ended September 30, 2023.

Three And Nine Months Ended September 30,

(in thousands) 2024

Lease receivables $ 206,633

Unguaranteed residual assets 9,111

Property, plant and equipment, net ( 102,088 )

Amount recognized on commencement date $ 113,656

The following is a schedule of annual undiscounted minimum future lease cash receipts on the non-cancellable operating leases as of September 30, 2024 (in thousands):

2024 $ 28,034

2029 and thereafter 82,853

Total minimum future lease revenue $ 497,435

Annual future minimum undiscounted lease receipts under our sales-type leases were as follows as of September 30, 2024 (in thousands):

2024 $ 28,971

2029 and thereafter 333,162

Total minimum future lease revenue 694,559

Imputed interest 494,094

Lease receivable (1)

Current lease receivables (2)

Long-term lease receivables (3)

Unguaranteed residual assets (3)

(1) This amount does not include the unguaranteed residual assets.

(2) Presented in Lease receivable - affiliate, in the condensed consolidated balance sheets.

(3) Presented in Net lease investment - affiliate in the condensed consolidated balance sheets.

Notes to Consolidated Financial Statements

The following table summarized our investment in assets held under operating lease by major classes (in thousands):

September 30,

Land $ 10,727 $ 12,306

Building and building improvements 1,755 3,582

Pipelines, tanks and terminals 431,488 623,961

Other equipment 2,145 3,768

Property, plant and equipment 446,115 643,617

accumulated depreciation 144,162 241,486

Property, plant and equipment, net $ 301,953 $ 402,131

Capital expenditures related to assets subject to sales-type lease arrangements were $ 0.4 million for the three and nine months ended September 30, 2024.

There were no capital expenditures related to assets subject to sales-type lease arrangements for the three and nine months ended September 30, 2023.

These amounts are reflected as additions to property, plant and equipment in the condensed consolidated statement of cash flows.

Subsequent Events

Distribution Declaration

On July 30, 2024, our general partner's board of directors declared a quarterly cash distribution of $ 1.090 per unit, payable on August 14, 2024, to unitholders of record on August 9, 2024.

Planned H2O Midstream Acquisition

On August 2, 2024, the Partnership entered into a Purchase and Sale Agreement with H2O Midstream Holdings, LLC (the “Seller”) to purchase 100 % of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC (the “Purchased Interests” or "H2O Midstream"), related to the Seller’s water disposal and recycling operations, in the Midland Basin in Texas (the “Purchase Agreement”) for total consideration of $ 230.0 million, subject to customary adjustments under the Purchase Agreement for net working capital and indebtedness (the "H2O Transaction").

The purchase price is comprised of $ 160.0 million in cash and $ 70.0 million of preferred equity.

We paid a deposit under the Purchase Agreement of $ 23.0 million.

The deposit may be retained by the Seller upon certain termination events described in the Purchase Agreement.

At closing, the deposit will be applied to the purchase price to be paid under the Purchase Agreement.

The closing of the H2O Transaction is currently anticipated to occur by the end of 2024.

Wink to Webster Pipeline Investment Acquisition

On August 5, 2024, the Partnership acquired a 50 % investment in W2W Holdings LLC which includes a 15.6 % indirect interest in the Wink to Webster Pipeline, LLC joint venture ("Wink to Webster"), and related joint venture indebtedness, from a wholly owned subsidiary of Delek Holdings.

W2W Holdings LLC was originally formed by Delek Holdings and MPLX Operations LLC to obtain financing and fund capital calls associated with its collective and contributed interests in Wink to Webster.

Wink to Webster owns and operates a long-haul crude oil pipeline system with origin points at Wink and Midland in the Permian Basin and delivery points at multiple Houston area locations.

Total consideration was comprised of $ 86.6 million in cash, forgiveness of an approximately $ 60 million receivable from Delek Holdings and 2,300,000 of common units representing limited partnership interest in us.

Commercial Agreements

These agreements have an initial term of five to seven years , with the ability to extend for an additional five years at Delek Holdings' option.

Certain of these contracts had rate adjustments to be phased in over 2025 and 2026.

In addition, the Partnership entered into an assignment agreement with Delek Holdings.

As a result of these agreements with Delek Holdings, the Partnership redeemed 2,500,000 common units representing limited partnership interest in us held by Delek Holdings to assign the Big Spring Refinery Marketing Agreement to Delek Holdings.

We also entered into an amended and restated Omnibus Agreement with Delek Holdings that provides Delek Holdings an option to purchase certain critical assets from us at market value during the period beginning upon any change in control or sale of substantially all assets involving us and extending (i) in the case of a transaction involving a third party, for six months following closing, and (ii) for any other transaction, for four years following closing.

On October 29, 2024, our general partner's board of directors declared a quarterly cash distribution of $ 1.100 per unit, payable on November 14, 2024, to unitholders of record on November 8, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements