Delek Logistics Partners, LP
Index to Pro Forma Financial Statements
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| Unaudited Pro Forma Condensed Consolidated Financial Statements: | |
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| Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2019 | 3 |
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| Unaudited Pro Forma Condensed Consolidated Statement of Income for year ended December 31, 2018 | 4 |
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| Unaudited Pro Forma Condensed Consolidated Statement of Income for three months ended March 31, 2019 | 5 |
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| Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | 6 |
Delek Logistics Partners, LP
Unaudited Pro Forma Condensed Consolidated Financial Statements
On May 24, 2019, Delek Logistics Partners, LP (the "Partnership"), through its wholly owned indirect subsidiary DKL Pipeline, LLC (“DKL Pipeline”), entered into a Contribution and Subscription Agreement (the “Contribution Agreement”) with Plains Pipeline, L.P. ("Plains") and Red River Pipeline Company LLC (“Red River”). Pursuant to the Contribution Agreement, on May 28, 2019, DKL Pipeline contributed approximately $124.7 million to Red River in exchange for a 33% membership interest in Red River and DKL Pipeline’s admission as a member of Red River (the "Red River Pipeline Joint Venture"). Also pursuant to the Contribution Agreement, Plains, previously the sole member of Red River, contributed to Red River its ownership interests in the Red River Pipeline which consist of 60% ownership interest in the segment of the Red River Pipeline that starts in Cushing, Oklahoma and ends in Hewitt, Oklahoma and 100% ownership of the segment of the Red River Pipeline that starts in Hewitt, Oklahoma and ends in Longview, Texas. Pursuant to the Contribution Agreement, Plains retains ownership of a 67% membership interest in Red River. In addition, DKL Pipeline committed to invest (on a pro rata basis with Plains) approximately $20 million in an expansion project that is intended to increase the throughput capacity of the Red River Pipeline. We contributed approximately $3.5 million related to such expansion project.
The Unaudited Pro Forma Consolidated Financial Statements of the Partnership consist of a Condensed Consolidated Balance Sheet at March 31, 2019 and Condensed Consolidated Statements of Income for the year ended December 31, 2018 and the three-month period ended March 31, 2019, which reflect the Partnership's acquisition of its 33% membership interest in Red River as if it occurred on March 31, 2019 with respect to the Unaudited Pro Forma Condensed Consolidated Balance Sheet, and on December 31, 2018 with respect to the Unaudited Pro Forma Condensed Consolidated Statements of Income. The Unaudited Pro Forma Condensed Consolidated Financial Statements included herein have been derived from the following carve-out financial statements of the Red River Pipeline System prepared by Plains:
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| • | the audited financial statements of the Red River Pipeline System as of and for the year ended December 31, 2018 set forth in Exhibit 99.1 to the Partnership's Current Report on Form 8-K/A filed with the U.S. Securities and Exchange Commission ("SEC") on August 2, 2019; and |
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| • | the unaudited interim financial statements of the Red River Pipeline System as of March 31, 2019 and for the three months ended March 31, 2019 and March 31, 2018 set forth in Exhibit 99.2 to the Partnership's Current Report on Form 8-K/A filed with the SEC on August 2, 2019. |
The unaudited pro forma condensed consolidated financial information has been prepared for illustrative purposes only and is not necessarily indicative of our financial position or results of operations, nor is such unaudited pro forma condensed consolidated financial information necessarily indicative of the results to be expected for any future period. The pro forma adjustments are based on estimates and currently available information and assumptions that management believes are reasonable.
The unaudited notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma financial information. The unaudited pro forma condensed consolidated financial information and related notes thereto were derived from and should be read in conjunction with the historical consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 1, 2019 and the historical condensed consolidated financial statements and related notes thereto included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 filed with the SEC on May 9, 2019.
The Partnership acquired its ownership interest in the Red River Pipeline Joint Venture primarily using borrowings under its third amended and restated senior secured revolving credit agreement with Fifth Third Bank, as administrative agent, and a syndicate of lenders (the "DKL Credit Facility").
Delek Logistics Partners, LP
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands, except unit and per unit data)
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| | | | | | | | | | | | |
| | | March 31, 2019 |
| | | Delek Logistics Partners, LP | | Investment in Red River Pipeline Company, LLC | | Delek Logistics Partners, LP Pro Forma |
| | | | | | | |
| ASSETS |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 5,356 |
| | $ | (128,656 | ) | (a) | $ | 4,414 |
|
| | | | | 128,000 |
| (b) | |
| | | | | (286 | ) | (c) | |
| Accounts receivable | | 21,538 |
| | — |
| | 21,538 |
|
| Inventory | | 6,669 |
| | — |
| | 6,669 |
|
| Other current assets | | 629 |
| | — |
| | 629 |
|
| Total current assets | | 34,192 |
| | (942 | ) | | 33,250 |
|
| Property, plant and equipment: | | | | | | |
| Property, plant and equipment | | 453,591 |
| | — |
| | 453,591 |
|
| Less: accumulated depreciation | | (146,712 | ) | | — |
| | (146,712 | ) |
| Property, plant and equipment, net | | 306,879 |
| | — |
| | 306,879 |
|
| Equity method investments | | 107,830 |
| | 128,942 |
| (a) (c) | 236,772 |
|
| Operating lease right-of-use assets | | 19,186 |
| | — |
| | 19,186 |
|
| Goodwill | | 12,203 |
| | — |
| | 12,203 |
|
| Marketing contract intangible, net | | 136,407 |
| | — |
| | 136,407 |
|
| Other non-current assets | | 23,511 |
| | — |
| | 23,511 |
|
| Total assets | | $ | 640,208 |
| | $ | 128,000 |
| | $ | 768,208 |
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| LIABILITIES AND DEFICIT | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 5,511 |
| | $ | — |
| | $ | 5,511 |
|
| Accounts payable to related parties | | 10,522 |
| | — |
| | 10,522 |
|
| Excise and other taxes payable | | 4,496 |
| | — |
| | 4,496 |
|
| Pipeline release liabilities | | 3,293 |
| | — |
| | 3,293 |
|
| Current portion of operating lease liabilities | | 4,258 |
| | — |
| | 4,258 |
|
| Accrued expenses and other current liabilities | | 10,940 |
| | — |
| | 10,940 |
|
| Total current liabilities | | 39,020 |
| | — |
| | 39,020 |
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| Non-current liabilities: | | | | | | |
| Long-term debt | | 705,175 |
| | 128,000 |
| (b) | 833,175 |
|
| Asset retirement obligations | | 5,290 |
| | — |
| | 5,290 |
|
| Operating lease liabilities, net of current portion | | 14,928 |
| | — |
| | 14,928 |
|
| Other non-current liabilities | | 17,700 |
| | — |
| | 17,700 |
|
| Total non-current liabilities | | 743,093 |
| | 128,000 |
| | 871,093 |
|
| Deficit: | | | | | | |
| Common unitholders - public; 9,113,359 units issued and outstanding at March 31, 2019 (9,109,807 at December 31, 2018) | | 168,389 |
| | — |
| | 168,389 |
|
| Common unitholders - Delek Holdings; 15,294,046 units issued and outstanding at March 31, 2019 (15,294,046 at December 31, 2018) | | (303,902 | ) | | — |
| | (303,902 | ) |
| General partner - 498,110 units issued and outstanding at March 31, 2019 (498,038 at December 31, 2018) | | (6,392 | ) | | — |
| | (6,392 | ) |
| Total deficit | | (141,905 | ) | | — |
| | (141,905 | ) |
| Total liabilities and deficit | | $ | 640,208 |
| | $ | 128,000 |
| | $ | 768,208 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements
Delek Logistics Partners, LP
Unaudited Pro Forma Condensed Consolidated Statement of Income
(in thousands)
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| | | | | | | | | | | | |
| | | Year Ended December 31, 2018 |
| | | Delek Logistics Partners, LP | | Investment in Red River Pipeline Company, LLC | | Delek Logistics Partners, LP Pro Forma |
| | | | | | | |
| Net revenues: | | | | | | |
| Affiliate | | $ | 240,809 |
| | $ | — |
| | $ | 240,809 |
|
| Third party | | 416,800 |
| | — |
| | 416,800 |
|
| Net revenues | | 657,609 |
| | — |
| | 657,609 |
|
| | | | | | | |
| Cost of sales: | | | | | | |
| Cost of materials and other | | 429,061 |
| | — |
| | 429,061 |
|
| Operating expenses (excluding depreciation and amortization presented below) | | 55,924 |
| | — |
| | 55,924 |
|
| Depreciation and amortization | | 24,108 |
| | — |
| | 24,108 |
|
| Total cost of sales | | 509,093 |
| | — |
| | 509,093 |
|
| Operating expenses related to wholesale business (excluding depreciation and amortization presented below) | | 2,820 |
| | | | 2,820 |
|
| General and administrative expenses | | 17,166 |
| | — |
| | 17,166 |
|
| Depreciation and amortization | | 1,882 |
| | — |
| | 1,882 |
|
| Loss on asset disposals | | 891 |
| | — |
| | 891 |
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| Total operating costs and expenses | | 531,852 |
| | — |
| | 531,852 |
|
| Operating income | | 125,757 |
| | — |
| | 125,757 |
|
| Interest expense, net | | 41,263 |
| | 4,836 |
| (d) | 46,099 |
|
| (Income) from equity method investments | | (6,230 | ) | | (9,036 | ) | (e) | (15,266 | ) |
| Other expense, net | | 8 |
| | — |
| | 8 |
|
| Total non-operating expenses (income), net | | 35,041 |
| | (4,200 | ) | | 30,841 |
|
| Income before income tax expense | | 90,716 |
| | 4,200 |
| | 94,916 |
|
| Income tax expense | | 534 |
| | — |
| | 534 |
|
| Net income attributable to partners | | $ | 90,182 |
| | $ | 4,200 |
| | $ | 94,382 |
|
| Comprehensive income attributable to partners | | $ | 90,182 |
| | $ | 4,200 |
| | $ | 94,382 |
|
| | | | | | | |
| Less: General partner's interest in net income, including incentive distribution rights | | 25,543 |
| | 84 |
| (f) | 25,627 |
|
| Limited partners' interest in net income | | $ | 64,639 |
| | $ | 4,116 |
| (f) | $ | 68,755 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements
Delek Logistics Partners, LP
Unaudited Pro Forma Condensed Consolidated Statement of Income
(in thousands)
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| | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 |
| | | Delek Logistics Partners, LP | | Investment in Red River Pipeline Company, LLC | | Delek Logistics Partners, LP Pro Forma |
| | | | | | | |
| Net revenues: | | | | | | |
| Affiliates | | $ | 62,965 |
| | $ | — |
| | $ | 62,965 |
|
| Third party | | 89,518 |
| | — |
| | 89,518 |
|
| Net revenues | | 152,483 |
| | — |
| | 152,483 |
|
| Cost of sales: | | | | | | |
| Cost of materials and other | | 96,265 |
| | — |
| | 96,265 |
|
| Operating expenses (excluding depreciation and amortization presented below) | | 15,307 |
| | — |
| | 15,307 |
|
| Depreciation and amortization | | 6,124 |
| | — |
| | 6,124 |
|
| Total cost of sales | | 117,696 |
| | — |
| | 117,696 |
|
| Operating expenses related to wholesale business (excluding depreciation and amortization presented below) | | 751 |
| | — |
| | 751 |
|
| General and administrative expenses | | 4,473 |
| | — |
| | 4,473 |
|
| Depreciation and amortization | | 450 |
| | — |
| | 450 |
|
| Loss on asset disposals | | 2 |
| | — |
| | 2 |
|
| Total operating costs and expenses | | 123,372 |
| | — |
| | 123,372 |
|
| Operating income | | 29,111 |
| | — |
| | 29,111 |
|
| Interest expense, net | | 11,301 |
| | 1,440 |
| (d) | 12,741 |
|
| (Income) from equity method investments | | (1,951 | ) | | (1,554 | ) | (e) | (3,505 | ) |
| Total non-operating expenses (income), net | | 9,350 |
| | (114 | ) | | 9,236 |
|
| Income before income tax expense | | 19,761 |
| | 114 |
| | 19,875 |
|
| Income tax expense | | 65 |
| | — |
| | 65 |
|
| Net income attributable to partners | | $ | 19,696 |
| | $ | 114 |
| | $ | 19,810 |
|
| Comprehensive income attributable to partners | | $ | 19,696 |
| | $ | 114 |
| | $ | 19,810 |
|
| | | | | | | |
| Less: General partner's interest in net income, including incentive distribution rights | | 7,270 |
| | 2 |
| (f) | 7,272 |
|
| Limited partners' interest in net income | | $ | 12,426 |
| | $ | 112 |
| (f) | $ | 12,538 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements
Delek Logistics Partners, LP
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
The unaudited pro forma condensed consolidated financial information presents the application of pro forma adjustments to our historical financial statements to eflect (i) the Red River Pipeline Joint Venture and (ii) the payment of estimated expenses in connection with the Red River Pipeline Joint Venture. The unaudited pro forma condensed consolidated statements of income for three months ended March 31, 2019 and the year ended December 31, 2018 give effect to the Red River Pipeline Joint Venture as if it had occurred on January 1, 2018, and the unaudited pro forma condensed consolidated balance sheet as of March 31, 2019 gives effect to the Red River Pipeline Joint Venture as if it had occurred on March 31, 2019.
Note 2 - Pro Forma Balance Sheet
(a) Reflects the actual cash contribution to Red River for the Partnership's membership interest in the Red River Pipeline Joint Venture which totaled approximately $128.7 million.
(b) Reflects the actual borrowings under DKL Credit Facility for the acquisition amounting to $128.0 million. The difference between the cash consideration transferred and the increase in the DKL Credit Facility is attributed to the use of cash on hand.
(c) Reflects actual transaction costs incurred by the Partnership associated with the investment in the Red River Pipeline Joint Venture.
Note 3 - Pro Forma Net Income
(d) Reflects pro forma incremental interest expense attributable to the increase to the DKL Credit Facility associated with the Red River Pipeline Joint Venture, based on applying actual weighted average interest rates under the DKL Credit Facility for the periods to the new borrowing.
(e) Reflects the pro forma allocation of investment income based on application of the Partnership's ownership interest to the Red River Pipeline Joint Venture's net income for the respective periods. The following table represents the impact of Red River's earnings on the Partnership's investment income for the year ended December 31, 2018 and the three months ended March 31, 2019 ($ in thousands):
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| | | | | | | | |
| | | Twelve Months Ended | | Three Months Ended |
| | | December 31, 2018 | | March 31, 2019 |
| Red River net income | | $ | 27,383 |
| | $ | 4,710 |
|
| Partnership share of Red River net income | | $ | 9,036 |
| | $ | 1,554 |
|
(f) Reflects the allocation of earnings associated with the Red River Pipeline Joint Venture to the general and limited partners according to their respective ownership percentages.
