Enhanced Investments - Financial Portal

Published: 2023-03-01 16:49:09 ET

EX-99.1 2 d458851dex991.htm EX-99.1 EX-99.1

EXHIBIT 99.1

Delek Logistics Partners, LP

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION

On June 1, 2022, DKL Delaware Gathering, LLC (“DKL Gathering”), a subsidiary of Delek Logistics Partners, LP (the “Partnership”), completed the acquisition of 100% of the limited liability company interests in 3 Bear Delaware Holding – NM, LLC (“3 Bear”) from 3 Bear Energy – New Mexico LLC (the “3 Bear Seller”) pursuant to and subject to the terms and conditions of that certain Membership Interest Purchase Agreement (the “3 Bear Purchase Agreement”) dated April 8, 2022, by and between DKL Gathering and the 3 Bear Seller (the “3 Bear Acquisition”).

The Partnership financed the 3 Bear Acquisition with cash on hand and borrowings on the Partnership’s senior secured revolving credit agreement under which the Partnership and certain of its subsidiaries are co-borrowers, with Fifth Third Bank, National Association, as administrative agent, and a syndicate of lenders (“the revolving credit facility”). To facilitate the funding for the 3 Bear Acquisition, the revolving credit facility was modified in a series of amendments to, among other things, replace the London Interbank Offered Rate (“LIBOR”)-based interest rate benchmark for borrowings with a Secured Overnight Financing Rate (“SOFR”)-based interest rate benchmark and to increase the U.S. Revolving Credit Commitments (as such term is defined in the revolving credit facility) by an amount equal to $150.0 million, for an aggregate amount of commitments under the revolving credit facility of $1.0 billion.

The following unaudited pro forma condensed consolidated combined financial information and accompanying notes reflect the pro forma effects of the 3 Bear Acquisition as well as the associated amendments to and borrowings on the revolving credit facility (“the financing transaction”). The unaudited pro forma condensed consolidated combined financial information does not include effects of the amendment and restatement of the revolving credit facility occurring in October 2022.

The 3 Bear Acquisition and effects of the financing transaction were included in the Partnership’s historical consolidated balance sheet as of December 31, 2022; therefore, a pro forma balance sheet is not included herein. The Partnership’s unaudited historical condensed consolidated statements of income for the year ended December 31, 2022 include the effects of the 3 Bear Acquisition and the financing transaction from June 1, 2022 through December 31, 2022. The unaudited pro forma condensed consolidated combined statements of income for the year ended December 31, 2022 presents the combined historical consolidated income statements of the Partnership and 3 Bear as if the 3 Bear Acquisition and the financing transaction had occurred on January 1, 2022. The unaudited pro forma condensed consolidated combined financial information has been derived from and should be read together with the Partnership’s audited historical consolidated financial statements and related notes included in its Annual Report on Form 10-K, for the year ended December 31, 2022 and with 3 Bear’s unaudited historical consolidated financial statements as of and for the three months ended March 31, 2022.

The unaudited pro forma condensed consolidated combined financial information and underlying pro forma adjustments are based upon currently available information and include certain estimates and assumptions made by the Partnership; accordingly, actual results could differ materially from the pro forma information. Significant estimates and assumptions include, but are not limited to, the preliminary purchase price allocation, the interest rate for the financing transaction and estimates regarding transaction costs. The Partnership believes that the assumptions used to prepare the unaudited pro forma condensed consolidated combined financial information and accompanying notes provide a reasonable and supportable basis for presenting the significant estimated effects of the events described above. The unaudited pro forma condensed consolidated combined financial information is for illustrative purposes only and does not purport to represent what the Partnership’s financial position or results of operations actually would have been had the events noted above in fact occurred on the assumed dates or to project the Partnership’s financial position or results of operations for any future date or future period.

The unaudited pro forma condensed consolidated combined financial information has been prepared in accordance with Article 11 of Regulation S-X (“Article 11”) as amended by the Final Rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” using assumptions set forth in the notes herein. Article 11 permits presentation of reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). The Partnership has elected not to present Management’s Adjustments and will only be presenting transaction accounting adjustments in the unaudited pro forma condensed consolidated combined financial information.

Delek Logistics Partners, LP

Pro Forma Condensed Consolidated Combined Statement of Income (Unaudited)

Year Ended December 31, 2022

(In thousands, except unit and per unit data)


	Delek Logistics Partners, LP			3 Bear As Adjusted – Note 2		Transaction Accounting Adjustments – Note 3					Pro Forma Combined
Net revenues:
Affiliate	$	479,411		$	—	$	—				$	479,411
Third party		556,996			95,843		2,675		(a	)		655,514

Net revenues		1,036,407			95,843		2,675					1,134,925
Cost of sales:
Cost of materials and other—affiliate		496,184			—		—					496,184
Cost of materials and other—third party		145,179			63,479		2,675		(a	)		211,333
Operating expenses (excluding depreciation and amortization presented below)		85,438			11,643		152		(b	)		97,233
Depreciation and amortization		60,210			6,005		756		(c	)		66,971

Total cost of sales		787,011			81,127		3,583					871,721

Operating expenses related to wholesale business (excluding depreciation and amortization presented below)		2,869			—		—					2,869
General and administrative expenses		34,181			3,049		—					37,230
Depreciation and amortization		2,778			784		6,827		(c	)		10,389
Other operating income, net		(114	)		—		—					(114	)

Total operating costs and expenses		826,725			84,960		10,410					922,095

Operating income		209,682			10,883		(7,735	)				212,830

Interest expense, net		82,304			1,093		15,073		(d	)		98,470
Income from equity method investments		(31,683	)		—		—					(31,683	)
Other income, net		(373	)		—		—					(373	)

Total non-operating expenses, net		50,248			1,093		15,073					66,414

Income (loss) before income tax expense		159,434			9,790		(22,808	)				146,416
Income tax expense (benefit)		382			—		—					382

Net income (loss) attributable to partners	$	159,052		$	9,790	$	(22,808	)			$	146,034

Net income per limited partner unit:
Basic	$	3.66									$	3.36

Diluted	$	3.66									$	3.36

Weighted average limited partner units outstanding:
Common units – basic		43,478,910										43,478,910
Common units – diluted		43,511,650										43,511,650

The accompanying notes are an integral part of the unaudited pro forma condensed consolidated combined financial information.

Delek Logistics Partners, LP

Notes to Unaudited Pro Forma Condensed Consolidated Combined Financial Information

1. Basis of Presentation

The 3 Bear Acquisition will be accounted for by the Partnership using the acquisition method of accounting in accordance with the accounting guidance in Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measure. Accordingly, the pro forma adjustments presented are preliminary, have been made solely for the purpose of providing pro forma financial information and are subject to revision based on a final determination of fair value, policy alignment and other purchase accounting adjustments. Differences between these preliminary estimates and the final amounts may have a material impact on the accompanying unaudited pro forma condensed consolidated combined financial information.

The accounting policies used in the preparation of the unaudited pro forma condensed consolidated combined financial information are those described in the Partnership’s audited historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2022. The Partnership performed a preliminary review of 3 Bear’s accounting policies to determine whether any adjustments were necessary to ensure comparability in the unaudited pro forma combined financial information.

The Partnership identified differences in the timing of the adoption of Accounting Standards Codification Topic 842, Leases (“ASC 842”) since the Partnership adopted ASC 842 on January 1, 2019, whereas 3 Bear, as a private company, was not required to and did not apply ASC 842 to the amounts reported in its audited historical consolidated financial statements. The Partnership also identified a difference between the Partnership and 3 Bear’s presentation of certain amounts under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Delek Logistics Partners, LP

Notes to Unaudited Pro Forma Condensed Consolidated Combined Financial Information

2. Preliminary 3 Bear Acquisition Reclassification Adjustments

Certain reclassifications have been made to the historical presentation of 3 Bear’s financial statements to conform to the Partnership’s historical presentation.

Statement of Income for the five months ended May 31, 2022 (in thousands):


3 Bear Caption	Delek Logistics Partners, LP Caption		3 Bear Historical March 31, 2022 ⁽¹⁾			3 Bear Historical – April 1, 2022 through May 31, 2022 ⁽²⁾			Reclassification Adjustments			Ref.		3 Bear As Adjusted ⁽³⁾
Operating revenues
Product sales		Third party	$	38,287		$	38,598		$	—				$	76,885
Gathering services		Third party		9,890			8,091			—					17,981
Fuel revenue		Third party		526			451			—					977

Total operating revenues		Net revenues		48,703			47,140			—					95,843
		Cost of sales:
		Cost of materials and other— third party		—			—			63,479			(i)		63,479
		Operating expense (excluding depreciation and amortization presented below)		—			—			11,643			(ii)		11,643
		Depreciation and amortization		—			—			6,005			(iii)		6,005

		Total cost of sales		—			—			81,127					81,127

Operating expenses
Gas purchases and other cost of product sales				31,730			31,749			(63,479	)		(i)		—
Operations and maintenance				6,589			5,054			(11,643	)		(ii)		—
General and administrative		General and administrative expenses		1,874			1,175			—					3,049
Depreciation, amortization, and accretion		Depreciation and amortization		4,430			2,359			(6,005	)		(iii)		784

Total operating expenses		Total operating costs and expenses		44,623			40,337			—					84,960

Income from operations		Operating income		4,080			6,803			—					10,883

Other income
Interest expense		Interest expense, net		(592	)		(501	)		—					(1,093)

Net income			$	3,488		$	6,302		$	—				$	9,790

(1)	Represents the historical unaudited consolidated statement of operations of 3 Bear for the three months ended March 31, 2022, as presented on Exhibit 99.2 to the Partnership’s Form 8-K/A filed on July 13, 2022.

(2)	Represents the historical unaudited consolidated statement of operations of 3 Bear for the period from April 1, 2022 through May 31, 2022.

(3)

For purposes of presenting the 3 Bear statement of income, as adjusted, the historical unaudited consolidated statement of operations for the three months ended March 31, 2022 has been combined with the two month period of April 1, 2022 through May 31, 2022 and reclassification adjustments are applied on a combined basis.

i.	Represents the reclassification of “Gas purchases and other cost of product sales” on 3 Bear’s historical unaudited consolidated statement of operations into “Cost of materials and other—third party” to conform to the Partnership’s presentation.

ii.	Represents the reclassification of operating expenses contained in “Operations and maintenance” on 3 Bear’s historical unaudited consolidated statement of operations into “Operating expense (excluding depreciation and amortization)” to conform to the Partnership’s presentation.

iii.	Represents the reclassification of certain operating expenses contained in “Depreciation, amortization, and accretion” on 3 Bear’s historical unaudited consolidated statement of operations into cost of sales “Depreciation and amortization” to conform to the Partnership’s presentation.

Delek Logistics Partners, LP

Notes to Unaudited Pro Forma Condensed Consolidated Combined Financial Information

3. Preliminary 3 Bear Acquisition Accounting and Pro forma Adjustments and Assumptions

Statement of Income for the year ended December 31, 2022

The unaudited pro forma condensed consolidated combined statement of income for the year ended December 31, 2022 reflects the following adjustments:

(a)

Represents an adjustment of $2.7 million to present certain service fees generated from contracts with customers in net revenues rather than presenting such amounts net within cost of sales to conform to the Partnership’s presentation under ASC 606. This ASC 606 presentation adjustment is a preliminary estimate that remains subject to change.

(b)

Represents adjustments to the amount and characterization of expense associated with 3 Bear’s lease and rights-of-way arrangements to conform to the Partnership’s policy for the accounting of such arrangements under ASC 842. These ASC 842 adjustments are preliminary estimates that remain subject to change.

(c)

Represents (i) the elimination of historical depreciation expense and recognition of new depreciation expense based on the preliminary fair value estimates of acquired property, plant and equipment and (ii) the elimination of historical amortization expense and recognition of new amortization expense based on the preliminary fair value estimates of acquired customer relationship intangibles, as outlined in the summary table below. The depreciation of property, plant and equipment is based on the preliminary estimated remaining useful lives of the acquired assets, is calculated on a straight-line basis, and is inclusive of depreciation of capitalized asset retirement costs. The amortization of intangible assets is based on the preliminary estimated periods over which the economic benefits of the intangible assets are expected to be realized and is calculated on a straight-line basis. The total adjustment of $7.6 million is recorded to depreciation and amortization included in cost of sales in the amount of $0.8 million and depreciation and amortization included in operating expenses in the amount of $6.8 million.


	Year Ended December 31, 2022 ⁽¹⁾ (in thousands)
Reversal of 3 Bear’s historical property, plant and equipment depreciation and amortization	$	(6,717	)
Depreciation of acquired property, plant and equipment assets		6,757
Amortization of acquired identifiable intangible assets		7,543

Total net transaction accounting adjustments to depreciation and amortization	$	7,583

(1)

Information associated with December 31, 2022 ‘historical’ financial information for 3 Bear is presented as of or for the period ending May 31, 2022. A 10% change in the valuation of property, plant and equipment would cause a corresponding increase or decrease in the balance of goodwill and would also result in a corresponding increase or decrease in depreciation expense of approximately $1.9 million, assuming an overall weighted average remaining useful life of 22 years. A 10% change in the valuation of the customer relationship intangible asset would cause a corresponding increase or decrease in the balance of goodwill and would also result in a corresponding increase or decrease in amortization expense of approximately $0.9 million, assuming an overall weighted average useful life of 11.6 years.

(d)

Represents the net increase to interest expense of $15.1 million resulting from the increase in interest incurred from the incremental borrowings under the revolving credit facility as well as the amortization of incremental deferred financing costs incurred in connection with the amendments made to the revolving credit facility, offset in part by the elimination of the interest expense, commitment fees and debt issuance cost amortization associated with the 3 Bear credit agreement extinguished in connection with closing of the 3 Bear Acquisition. For purposes of the pro forma, the interest rate for the revolving credit facility is as of January 24, 2023 and based on the one-month SOFR plus the applicable margin of 2.0%. A 0.125% change in the variable interest rate of the revolving credit facility would increase or decrease interest expense presented in the unaudited pro forma condensed consolidated combined statement of income by $0.2 million.

Delek Logistics Partners, LP

Notes to Unaudited Pro Forma Condensed Consolidated Combined Financial Information


	Year Ended December 31, 2022 ⁽¹⁾ (in thousands)
Elimination of interest expense, commitment fees and amortization of debt issuance costs related to the 3 Bear credit agreement	$	(1,092	)
Amortization of incremental deferred financing costs related to the amendments on the Partnership’s revolving credit facility		96
Incremental interest expense on the revolving credit facility		16,069

Total net transaction accounting adjustments to interest expense	$	15,073

(1)	Information associated with December 31, 2022 ‘historical’ financial information for 3 Bear is presented as of or for the period ending May 31, 2022.