DKL-10Q-06.30.15
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the quarterly period ended June 30, 2015
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                      to                     
Commission file number 001-35721

DELEK LOGISTICS PARTNERS, LP
(Exact name of registrant as specified in its charter)
Delaware
 
45-5379027
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
7102 Commerce Way
 
 
Brentwood, Tennessee
 
37027
(Address of principal executive offices)
 
(Zip Code)
(615) 771-6701
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer þ
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
At July 31, 2015, there were 12,250,847 common units, 11,999,258 subordinated units, and 494,900 general partner units outstanding.



TABLE OF CONTENTS
 
 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (Unaudited)
 
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (Unaudited)
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT

2


Part I.
FINANCIAL INFORMATION

Item 1. Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets (Unaudited)
 
 
June 30, 2015
 
December 31, 2014 (1)
ASSETS
 
(In thousands)
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
124

 
$
1,861

Accounts receivable
 
39,117

 
27,986

Inventory
 
4,308

 
10,316

Deferred tax assets
 
28

 
28

Other current assets
 
485

 
768

Total current assets
 
44,062

 
40,959

Property, plant and equipment:
 
 
 
 
Property, plant and equipment
 
317,208

 
308,088

Less: accumulated depreciation
 
(61,965
)
 
(53,309
)
Property, plant and equipment, net
 
255,243

 
254,779

Equity method investments
 
18,472

 

Goodwill
 
11,654

 
11,654

Intangible assets, net
 
15,944

 
16,520

Other non-current assets
 
6,621

 
7,374

Total assets
 
$
351,996

 
$
331,286

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
14,754

 
$
17,929

Accounts payable to related parties
 
8,732

 
628

Excise and other taxes payable
 
7,186

 
5,443

Accrued expenses and other current liabilities
 
2,330

 
1,588

Tank inspection liabilities
 
2,541

 
2,829

Pipeline release liabilities
 
3,069

 
1,899

Total current liabilities
 
38,612

 
30,316

Non-current liabilities:
 
 
 
 
Revolving credit facility
 
316,900

 
251,750

Asset retirement obligations
 
3,379

 
3,319

Deferred tax liabilities
 
297

 
231

Other non-current liabilities
 
8,610

 
5,889

Total non-current liabilities
 
329,186

 
261,189

Equity (Deficit):
 
 
 
 
Predecessor division equity
 

 
19,726

Common unitholders - public; 9,451,589 units issued and outstanding at June 30, 2015 (9,417,189 at December 31, 2014)
 
197,052

 
194,737

Common unitholders - Delek; 2,799,258 units issued and outstanding at June 30, 2015 (2,799,258 at December 31, 2014)
 
(281,852
)
 
(241,112
)
Subordinated unitholders - Delek; 11,999,258 units issued and outstanding at June 30, 2015 (11,999,258 at December 31, 2014)
 
76,439

 
73,515

General partner - Delek; 494,900 units issued and outstanding at June 30, 2015 (494,197 at December 31, 2014)
 
(7,441
)
 
(7,085
)
Total (deficit) equity
 
(15,802
)
 
39,781

Total liabilities and (deficit) equity
 
$
351,996

 
$
331,286

 

(1) Adjusted to include the historical balances of the Logistics Assets Predecessor. See Notes 1 and 2 for further discussion.

See accompanying notes to condensed consolidated financial statements

3


Delek Logistics Partners, LP
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014 (1)
 
2015 (2)
 
2014 (1)
 
 
(In thousands, except unit and per unit data)
Net sales:
 
 
 
 
 
 
 
 
   Affiliate
 
$
39,871

 
$
28,893

 
$
72,151

 
$
54,175

   Third-Party
 
132,263

 
207,450

 
243,495

 
385,695

     Net sales
 
172,134

 
236,343

 
315,646

 
439,870

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
132,494

 
196,574

 
240,901

 
368,783

Operating expenses
 
10,798

 
9,719

 
21,575

 
19,215

General and administrative expenses
 
2,982

 
2,242

 
6,391

 
4,905

Depreciation and amortization
 
4,744

 
3,623

 
9,244

 
7,100

(Gain) loss on asset disposals
 
(23
)
 
74

 
(18
)
 
74

Total operating costs and expenses
 
150,995

 
212,232

 
278,093

 
400,077

Operating income
 
21,139

 
24,111

 
37,553

 
39,793

Interest expense, net
 
2,616

 
2,342

 
4,773

 
4,325

Loss on equity method investments
 
149

 

 
149

 

Total non-operating expenses
 
2,765

 
2,342

 
4,922

 
4,325

Income before income tax expense
 
18,374

 
21,769

 
32,631

 
35,468

Income tax expense
 
63

 
281

 
317

 
428

Net income
 
18,311

 
21,488

 
32,314

 
35,040

Less: loss attributable to Predecessors
 

 
(266
)
 
(637
)
 
(1,386
)
Net income attributable to partners
 
$
18,311

 
$
21,754

 
$
32,951

 
$
36,426

Comprehensive income attributable to partners
 
$
18,311

 
$
21,754

 
$
32,951

 
$
36,426

 
 
 
 
 
 
 
 
 
Less: General partner's interest in net income, including incentive distribution rights
 
(1,109
)
 
(620
)
 
(1,996
)
 
(914
)
Limited partners' interest in net income
 
$
17,202

 
$
21,134

 
$
30,955

 
$
35,512

 
 
 
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
 
 
 
Common units - (basic)
 
$
0.71

 
$
0.88

 
$
1.28

 
$
1.47

Common units - (diluted)
 
$
0.70

 
$
0.87

 
$
1.27

 
$
1.46

Subordinated units - Delek (basic and diluted)
 
$
0.71

 
$
0.87

 
$
1.28

 
$
1.47

 
 
 
 
 
 
 
 
 
Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
 
  Common units - (basic)
 
12,224,007

 
12,159,732

 
12,220,248

 
12,156,135

  Common units - (diluted)
 
12,360,519

 
12,291,273

 
12,350,621

 
12,281,598

  Subordinated units - Delek (basic and diluted)
 
11,999,258

 
11,999,258

 
11,999,258

 
11,999,258

 
 
 
 
 
 
 
 
 
Cash distributions per limited partner unit
 
$
0.550

 
$
0.475

 
$
1.080

 
$
0.900

(1) Adjusted to include the historical results of the Logistics Assets Predecessor. See Notes 1 and 2 for further discussion.
(2) The information presented includes the results of operations of the Logistics Assets Predecessor. See Notes 1 and 2 for further discussion.
See accompanying notes to condensed consolidated financial statements

4


Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Six Months Ended June 30,
 
 
2015 (1)
 
2014 (2)
Cash flows from operating activities:
 
(In thousands)
Net income
 
$
32,314

 
$
35,040

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
9,244

 
7,100

Amortization of unfavorable contract liability to revenue
 

 
(1,334
)
Amortization of deferred financing costs
 
730

 
634

Accretion of asset retirement obligations
 
124

 
209

Deferred income taxes
 
66

 
52

Loss on equity method investments
 
149

 

(Gain) loss on asset disposals
 
(18
)
 
74

Unit-based compensation expense
 
194

 
121

Changes in assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable
 
(11,131
)
 
(8,975
)
Inventories and other current assets
 
6,291

 
(7,779
)
Accounts payable and other current liabilities
 
192

 
18,872

Accounts payable to related parties
 
8,219

 
1,083

Non-current assets and liabilities, net
 
186

 
(649
)
Net cash provided by operating activities
 
46,560

 
44,448

Cash flows from investing activities:
 
 
 
 
Business combinations
 
(400
)
 

Purchases of property, plant and equipment
 
(13,535
)
 
(4,200
)
Proceeds from sales of property, plant and equipment
 
1,183

 

Equity method investments
 
(14,789
)
 

Net cash used in investing activities
 
(27,541
)
 
(4,200
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of additional units to maintain 2% General Partner interest
 
31

 
22

Distributions to general partner
 
(1,574
)
 
(414
)
Distributions to common unitholders - public
 
(9,801
)
 
(7,856
)
Distributions to common unitholders - Delek
 
(2,911
)
 
(2,352
)
Distributions to subordinated unitholders
 
(12,479
)
 
(10,080
)
Distributions to Delek for acquisitions
 
(61,890
)
 
(95,900
)
Proceeds from revolving credit facility
 
203,514

 
283,100

Payments of revolving credit facility
 
(138,364
)
 
(208,900
)
Predecessor division equity contribution
 
115

 
3,625

Reimbursement of capital expenditures by Sponsor
 
2,603

 

Net cash used in financing activities
 
(20,756
)
 
(38,755
)
Net (decrease) increase in cash and cash equivalents
 
(1,737
)
 
1,493

Cash and cash equivalents at the beginning of the period
 
1,861

 
924

Cash and cash equivalents at the end of the period
 
$
124

 
$
2,417

Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
3,863

 
$
3,508

  Income taxes
 
$
5

 
$
18

Non-cash investing activities:
 
 

 
 

Equity method investments
 
$
3,832

 
$

Non-cash financing activities:
 
 
 
 
 Sponsor contribution of fixed assets
 
$
418

 
$
706


(1) Includes the historical cash flows of the Logistics Assets Predecessor. See Notes 1 and 2 for further discussion.

(2) Adjusted to include the historical cash flows of the Logistics Assets Predecessor. See Notes 1 and 2 for further discussion.

See accompanying notes to condensed consolidated financial statements

5


Delek Logistics Partners, LP

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization and Basis of Presentation

As used in this report, the terms "Delek Logistics Partners, LP," the "Partnership," "we," "us," or "our" may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. References in this report to "Delek" refer collectively to Delek US Holdings, Inc. and any of its subsidiaries, other than (a) Delek Logistics Partners, LP and its subsidiaries and (b) its general partner (as hereinafter defined).

The Partnership is a Delaware limited partnership formed in April 2012 by Delek Logistics GP, LLC, a subsidiary of Delek and our general partner (our "general partner").

On February 10, 2014, the Partnership, through its wholly owned subsidiary Delek Logistics Operating, LLC ("OpCo"), acquired from Delek (i) the refined products terminal (the “El Dorado Terminal”) located at Delek's El Dorado, Arkansas refinery (the "El Dorado Refinery") and (ii) 158 storage tanks and certain ancillary assets (the "El Dorado Tank Assets" and together with the El Dorado Terminal, the “El Dorado Terminal and Tank Assets”) at and adjacent to the El Dorado Refinery (such transaction, the “El Dorado Acquisition”).

On March 31, 2015, the Partnership, through OpCo, acquired from Delek two crude oil rail offloading racks, which are designed to receive up to 25,000 barrels per day (“bpd”) of light crude oil or 12,000 bpd of heavy crude oil, or any combination of the two, delivered by rail to the El Dorado Refinery and related ancillary assets (the “El Dorado Assets”) (such transaction, the "El Dorado Offloading Racks Acquisition").

On March 31, 2015, the Partnership, through its wholly owned subsidiary Delek Marketing & Supply, LP, acquired from Delek a crude oil storage tank located adjacent to the Tyler Refinery (the "Tyler Crude Tank") and certain ancillary assets (collectively with the Tyler Crude Tank, the "Tyler Assets") (such transaction, the "Tyler Crude Tank Acquisition"). The Tyler Crude Tank has approximately 350,000 barrels of shell capacity and is expected to primarily support Delek's Tyler, Texas refinery (the "Tyler Refinery"). The Tyler Assets, together with the El Dorado Assets, are hereinafter collectively referred to as the "Logistics Assets."

The El Dorado Acquisition, the El Dorado Offloading Racks Acquisition and the Tyler Crude Tank Acquisition were accounted for as transfers between entities under common control. As entities under common control with Delek, we record the assets that Delek has contributed to us on our balance sheet at Delek's historical basis instead of fair value. Transfers between entities under common control are accounted for as if the transfer occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes of the Partnership have been retrospectively adjusted to include (i) the historical results of the El Dorado Terminal and Tank Assets, as owned and operated by Delek, for all periods presented through February 10, 2014 (the "El Dorado Predecessor"), (ii) the historical results of the El Dorado Assets, as owned and operated by Delek, for all periods presented through March 31, 2015 (the "El Dorado Assets Predecessor") and (iii) the historical results of the Tyler Assets, as owned and operated by Delek, for all periods through March 31, 2015 (the "Tyler Assets Predecessor"). The El Dorado Assets Predecessor, together with the Tyler Assets Predecessor, are hereinafter collectively referred to as the "Logistics Assets Predecessor." We refer to the historical results of the El Dorado Predecessor, the El Dorado Assets Predecessor and the Tyler Assets Predecessor collectively as our "Predecessors." See Note 2 for further information regarding the El Dorado Acquisition, the El Dorado Offloading Racks Acquisition and the Tyler Crude Tank Acquisition.

The accompanying unaudited condensed consolidated financial statements and related notes for the six months ended June 30, 2015 and for the three and six months ended June 30, 2014 include the consolidated financial position, results of operations, cash flows and division equity of our Predecessors as appropriate. The financial statements of our Predecessors have been prepared from the separate records maintained by Delek and may not necessarily be indicative of the conditions that would have existed or the results of operations if our Predecessors had been operated as unaffiliated entities. For example, our Predecessors did not record revenues for intercompany terminalling, throughput or storage services.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP applied on a consistent basis with those of the annual audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 (our

6


"Annual Report on Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on February 26, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014 included in our Annual Report on Form 10-K.

In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been included. All significant intercompany transactions and account balances have been eliminated in the consolidation. Such intercompany transactions do not include those with Delek or our general partner. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year.

Certain prior period amounts have been reclassified in order to conform to the current year presentation. These reclassifications had no effect on net income or shareholders' equity as previously reported.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. Acquisitions

Acquisitions from Delek

El Dorado Offloading Racks Acquisition

On March 31, 2015, the Partnership completed the El Dorado Offloading Racks Acquisition and acquired the El Dorado Assets. The purchase price paid for the El Dorado Assets acquired was $42.5 million in cash financed with borrowings under the Partnership's amended and restated senior secured revolving credit facility.

In connection with the El Dorado Offloading Racks Acquisition, the Partnership and Delek entered into (i) an asset purchase agreement, (ii) a third amended and restated omnibus agreement, (iii) a throughput agreement with respect to the El Dorado Assets, (iv) a lease and access agreement, and (v) an amended and restated site services agreement. See Note 14 for additional information regarding certain of these agreements.

Tyler Crude Tank Acquisition

On March 31, 2015, the Partnership completed the Tyler Crude Tank Acquisition and acquired the Tyler Assets, including the Tyler Crude Tank. The purchase price paid for the Tyler Assets was $19.4 million in cash financed with borrowings under the Partnership's amended and restated senior secured revolving credit facility.

El Dorado Acquisition

On February 10, 2014, the Partnership completed the El Dorado Acquisition and acquired the El Dorado Terminal and Tank Assets. The purchase price paid for the assets acquired was approximately $95.9 million in cash.

In connection with the El Dorado Acquisition, the Partnership and Delek entered into (i) an asset purchase agreement, (ii) a second amended and restated omnibus agreement, (iii) a throughput and tankage agreement with respect to the El Dorado Terminal and Tank Assets, (iv) a lease and access agreement, and (v) a site services agreement.

Financial Results of the El Dorado Assets, the Tyler Assets and the El Dorado Terminal and Tank Assets

The acquisitions of the El Dorado Assets, the Tyler Assets and the El Dorado Terminal and Tank Assets, were considered transfers of businesses between entities under common control. Accordingly, the El Dorado Offloading Racks Acquisition, the Tyler Crude Tank Acquisition and the El Dorado Acquisition, were recorded at amounts based on Delek's historical carrying values as of each respective acquisition date, which were $7.6 million as of March 31, 2015, $11.6 million as of March 31, 2015 and $25.2 million as of February 10, 2014, respectively. Our historical financial statements have been retrospectively adjusted to reflect the results of operations, financial position, cash flows and equity attributable to the El Dorado Assets, the Tyler Assets and the El Dorado Terminal and Tank Assets, as if we owned the assets for all periods presented. The results of the El Dorado Terminal are included in the wholesale marketing and terminalling segment, and the results of the El Dorado Assets, the Tyler Assets and the El Dorado Tank Assets, are included in the pipelines and transportation segment.

7



The results of the El Dorado Assets' and the Tyler Assets' operations prior to the completion of the El Dorado Offloading Racks Acquisition and the Tyler Crude Tank Acquisition on March 31, 2015 have been included in the El Dorado Assets Predecessor results and the Tyler Assets Predecessor results in the tables below. The results of the El Dorado Terminal and Tank Assets' operations prior to the completion of the El Dorado Acquisition on February 10, 2014 have been included in the El Dorado Predecessor results in the tables below. The results of the El Dorado Terminal and Tank Assets' operations subsequent to February 10, 2014, have been included in the Partnership's results.

The tables on the following pages present our results of operations, the effect of including the results of the Logistics Assets and the El Dorado Terminal and Tank Assets and the adjusted total amounts included in our condensed consolidated financial statements.


8


Condensed Combined Balance Sheet
 
 
Delek Logistics Partners, LP
 
El Dorado Assets (El Dorado Assets Predecessor)
 
Tyler Assets (Tyler Assets Predecessor)
 
December 31, 2014
 
 
(In thousands)
ASSETS
Current Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,861

 
$

 
$

 
$
1,861

Accounts receivable
 
27,986

 

 

 
27,986

Inventory
 
10,316

 

 

 
10,316

Deferred tax assets
 
28

 

 

 
28

Other current assets
 
768

 

 

 
768

Total current assets
 
40,959

 

 

 
40,959

Property, plant and equipment:
 
 
 
 
 
 
 
 
Property, plant and equipment
 
288,045

 
8,267

 
11,776

 
308,088

Less: accumulated depreciation
 
(52,992
)
 
(317
)
 

 
(53,309
)
Property, plant and equipment, net
 
235,053

 
7,950

 
11,776

 
254,779

Goodwill
 
11,654

 

 

 
11,654

Intangible assets, net
 
16,520

 

 

 
16,520

Other non-current assets
 
7,374

 

 

 
7,374

Total assets
 
$
311,560

 
$
7,950

 
$
11,776

 
$
331,286

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
   Accounts payable
 
$
17,929

 
$

 
$

 
$
17,929

   Accounts payable to related parties
 
628

 

 

 
628

   Excise and other taxes payable
 
5,443

 

 

 
5,443

   Accrued expenses and other current liabilities
 
1,588

 

 

 
1,588

   Tank inspection liabilities
 
2,829

 

 

 
2,829

   Pipeline release liabilities
 
1,899

 

 

 
1,899

     Total current liabilities
 
30,316

 

 

 
30,316

Non-current liabilities:
 
 
 
 
 
 
 
 
   Revolving credit facility
 
251,750

 

 

 
251,750

   Asset retirement obligations
 
3,319

 

 

 
3,319

   Deferred tax liabilities
 
231

 

 

 
231

   Other non-current liabilities
 
5,889

 

 

 
5,889

     Total non-current liabilities
 
261,189

 

 

 
261,189

Equity:
 
 
 
 
 
 
 
 
Predecessors division equity
 

 
7,950

 
11,776

 
19,726

Common unitholders - public (9,417,189 units issued and outstanding)
 
194,737

 

 

 
194,737

Common unitholders - Delek (2,799,258 units issued and outstanding)
 
(241,112
)
 

 

 
(241,112
)
Subordinated unitholders - Delek (11,999,258 units issued and outstanding)
 
73,515

 

 

 
73,515

General Partner unitholders - Delek (494,197 units issued and outstanding)
 
(7,085
)
 

 

 
(7,085
)
Total equity
 
20,055

 
7,950

 
11,776

 
39,781

Total liabilities and equity
 
$
311,560

 
$
7,950

 
$
11,776

 
$
331,286




9


Condensed Combined Statements of Operations
 
 
 
Delek Logistics Partners, LP
 
El Dorado Assets
(El Dorado Assets Predecessor)
 
Tyler Assets
(Tyler Assets Predecessor)
 
Six Months Ended June 30, 2015
 
 
(In thousands)
Net Sales
 
$
315,646

 
$

 
$

 
$
315,646

Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of goods sold
 
240,901

 

 

 
240,901

Operating expenses
 
21,408

 
167

 

 
21,575

General and administrative expenses
 
6,391

 

 

 
6,391

Depreciation and amortization
 
8,774

 
372

 
98

 
9,244

Gain on asset disposals
 
(18
)
 

 

 
(18
)
Total operating costs and expenses
 
277,456

 
539

 
98

 
278,093

Operating income (loss)
 
38,190

 
(539
)
 
(98
)
 
37,553

Interest expense, net
 
4,773

 

 

 
4,773

Loss on equity method investments
 
149

 

 

 
149

Total non-operating costs and expenses
 
4,922

 

 

 
4,922

Net income (loss) before income tax expense
 
33,268

 
(539
)
 
(98
)
 
32,631

Income tax expense
 
317

 

 

 
317

Net income (loss)
 
32,951

 
(539
)
 
(98
)
 
32,314

Less: loss attributable to Predecessors
 

 
(539
)
 
(98
)
 
(637
)
Net income attributable to partners
 
$
32,951

 
$

 
$

 
$
32,951

 
 
Delek Logistics Partners, LP
 
El Dorado Assets
(El Dorado Assets Predecessor)
 
Three Months Ended June 30, 2014 (1)
 
 
(In thousands)
Net Sales
 
$
236,343

 
$

 
$
236,343

Operating costs and expenses:
 
 
 
 
 
 
Cost of goods sold
 
196,574

 

 
196,574

Operating expenses
 
9,544

 
175

 
9,719

General and administrative expenses
 
2,242

 

 
2,242

Depreciation and amortization
 
3,532

 
91

 
3,623

Loss on asset disposals
 
74

 

 
74

Total operating costs and expenses
 
211,966

 
266

 
212,232

Operating income (loss)
 
24,377

 
(266
)
 
24,111

Interest expense, net
 
2,342

 

 
2,342

Net income (loss) before income tax expense
 
22,035

 
(266
)
 
21,769

Income tax expense
 
281

 

 
281

Net income (loss)
 
21,754

 
(266
)
 
21,488

Less: loss attributable to Predecessors
 

 
(266
)
 
(266
)
Net income attributable to partners
 
$
21,754

 
$

 
$
21,754

 
 
 
 
 
 
 

10


 
 
Delek Logistics Partners, LP
 
El Dorado Assets
(El Dorado Assets Predecessor)
 
El Dorado Terminal and Tank Assets
(El Dorado Predecessor)
 
Six Months Ended June 30, 2014 (1)
 
 
(In thousands)
Net Sales
 
$
439,870

 
$

 
$

 
$
439,870

Operating costs and expenses:
 
 
 
 
 
 
 
 
   Cost of goods sold
 
368,783

 

 

 
368,783

   Operating expenses
 
18,080

 
352

 
783

 
19,215

   General and administrative expenses
 
4,859

 

 
46

 
4,905

   Depreciation and amortization
 
6,895

 
91

 
114

 
7,100

   Loss on asset disposals
 
74

 

 

 
74

     Total operating costs and expenses
 
398,691

 
443

 
943

 
400,077

   Operating income (loss)
 
41,179

 
(443
)
 
(943
)
 
39,793

Interest expense, net
 
4,325

 

 

 
4,325

Net income (loss) before income tax expense
 
36,854

 
(443
)
 
(943
)
 
35,468

Income tax expense
 
428

 

 

 
428

Net income (loss)
 
36,426

 
(443
)
 
(943
)
 
35,040

  Less: Loss attributable to Predecessors
 

 
(443
)
 
(943
)
 
(1,386
)
Net income attributable to partners
 
$
36,426

 
$

 
$

 
$
36,426


(1) There were no revenues or expenses associated with the Tyler Assets Predecessor included in our condensed consolidated financial statements for the three and six months ended June 30, 2014 as the Tyler Assets were not fully constructed and were not placed into service until January 2015.

Acquisitions from Third Parties

Trucking Assets Acquisition

On December 17, 2014, through a new subsidiary, DKL Transportation, LLC, we completed the purchase of substantially all of the assets of Frank Thompson Transport, Inc. ("FTT"), a company that primarily hauled crude oil and asphalt products by transport truck, to complement our existing assets and increase our overall third party business. The assets purchased from FTT include approximately 135 trucks and 205 trailers (the "FTT Assets").

Terminal and Pipeline Acquisition

On October 1, 2014, we completed the purchase from an affiliate of Magellan Midstream Partners, LP of (i) a light products terminal in Mount Pleasant, Texas (the "Mount Pleasant Terminal"), (ii) a light products storage facility in Greenville, Texas (the "Greenville Storage Facility"), (iii) a 76-mile pipeline connecting the locations (the "Greenville-Mount Pleasant Pipeline") and (iv) finished product and other related inventory. The Mount Pleasant Terminal, the Greenville Storage Facility and the Greenville-Mount Pleasant Pipeline are hereinafter collectively referred to as the "Greenville-Mount Pleasant Assets." The Mount Pleasant Terminal consists of approximately 200,000 barrels of light product storage capacity, three truck loading lanes and ethanol blending capability. The Greenville Storage Facility has approximately 325,000 barrels of storage capacity and is connected to the Explorer Pipeline System, which is a common carrier pipeline owned by a third party. We acquired the Greenville-Mount Pleasant Assets to complement our existing assets and provide enhanced logistical capabilities.

11



Purchase Price Allocations - Acquisitions from Third Parties

The following table summarizes the allocation of the aggregate purchase price for each of the third party acquisitions described above (in thousands):
 
 
FTT Assets (1) 
 
Greenville-Mount Pleasant Assets (2) 
Property, plant and equipment
 
$
11,145

 
$
4,829

Intangible assets
 

 
5,171

Inventory
 

 
1,125

Accounts receivable
 
1,901

 

Accounts payable
 
(1,121
)
 

   Total
 
$
11,925

 
$
11,125

            

(1) 
During the six months ended June 30, 2015, we adjusted our previously disclosed purchase price allocation and certain of the acquisition date fair values in connection with working capital adjustments and an additional $0.4 million of consideration paid for additional assets. The property, plant and equipment, accounts receivable and accounts payable valuation are subject to change during the purchase price allocation period.

(2) 
During the six months ended June 30, 2015, we adjusted our purchase price allocation and certain of the acquisition date fair values previously disclosed. The property, plant and equipment, intangible assets and inventory valuation are subject to change during the purchase price allocation period.

Pro Forma Financial Information - Acquisitions from Third Parties

Below are the unaudited pro forma consolidated results of operations of the Partnership for the three and six months ended June 30, 2014, as if these acquisitions had occurred on January 1, 2014 (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
 
June 30, 2014
FTT Assets:
 
 
 
 
Net sales
 
$
239,871

 
$
446,632

Net income
 
$
21,699

 
$
35,418

Greenville-Mount Pleasant Assets:
 
 
 
 
Net sales
 
$
236,516

 
$
440,215

Net income
 
$
21,379

 
$
34,822


3. Inventory

Inventories consisted of $4.3 million and $10.3 million of refined petroleum products as of June 30, 2015 and December 31, 2014, respectively. Cost of inventory is stated at the lower of cost or market, determined on a first-in, first-out basis.


12



4. Second Amended and Restated Credit Agreement

We entered into a senior secured revolving credit agreement on November 7, 2012, with Fifth Third Bank, as administrative agent, and a syndicate of lenders. The agreement was amended and restated on July 9, 2013 (the "Amended and Restated Credit Agreement") and was most recently amended and restated on December 30, 2014 (the “Second Amended and Restated Credit Agreement”). Under the terms of the Second Amended and Restated Credit Agreement, the lender commitments were increased from $400.0 million to $700.0 million. The Second Amended and Restated Credit Agreement also contains an accordion feature whereby the Partnership can increase the size of the credit facility to an aggregate of $800.0 million, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent. The Second Amended and Restated Credit Agreement matures on December 30, 2019. While the majority of the terms of the Second Amended and Restated Credit Agreement are substantially unchanged from the predecessor facility, among other things, changes were made to certain negative covenants, the financial covenants and the interest rate pricing grid. The Second Amended and Restated Credit Agreement contains an option for Canadian dollar denominated borrowings.

Borrowings denominated in U.S. dollars bear interest at either a U.S. dollar prime rate, plus an applicable margin, or the London Interbank Offered Rate ("LIBOR"), plus an applicable margin, at the election of the borrowers. Borrowings denominated in Canadian dollars bear interest at either a Canadian dollar prime rate, plus an applicable margin, or the Canadian Dealer Offered Rate, plus an applicable margin, at the election of the borrowers. The applicable margin in each case varies based upon the Partnership's most recent leverage ratio calculation delivered to the lenders, as called for and defined under the terms of the credit facility. At June 30, 2015, the weighted average interest rate for our borrowings under the facility was approximately 2.6%. Additionally, the Second Amended and Restated Credit Agreement requires us to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of June 30, 2015, this fee was 0.4% per year.

The obligations under the Second Amended and Restated Credit Agreement remain secured by first priority liens on substantially all of the Partnership's and its subsidiaries' tangible and intangible assets. Additionally, Delek Marketing & Supply, LLC ("Delek Marketing"), a direct, wholly owned subsidiary of Delek, continues to provide a limited guaranty of the Partnership's obligations under the Second Amended and Restated Credit Agreement. Delek Marketing's guaranty is (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek US in favor of Delek Marketing (the "Holdings Note"), and (ii) secured by Delek Marketing's pledge of the Holdings Note to our lenders under the Second Amended and Restated Credit Agreement. As of June 30, 2015, the principal amount of the Holdings Note was $102.0 million, plus unpaid interest accrued since the issuance date.
As of June 30, 2015, we had approximately $316.9 million of outstanding borrowings under the Second Amended and Restated Credit Agreement. Additionally, we had in place letters of credit totaling approximately $5.5 million, primarily securing obligations with respect to gasoline and diesel purchases. No amounts were drawn under these letters of credit at June 30, 2015. Amounts available under the Second Amended and Restated Credit Agreement as of June 30, 2015 were approximately $377.6 million.

5. Income Taxes

For tax purposes, each partner of the Partnership is required to take into account its share of income, gain, loss and deduction in computing its federal and state income tax liabilities, regardless of whether cash distributions are made to such partner by the Partnership. The taxable income reportable to each partner takes into account differences between the tax basis and fair market value of our assets, the acquisition price of such partner's units and the taxable income allocation requirements under our partnership agreement.

6. Net Income Per Unit

We use the two-class method when calculating the net income per unit applicable to limited partners because we have more than one participating class of securities. Our participating securities consist of common units, subordinated units, general partner units and incentive distribution rights ("IDRs"). The two-class method is based on the weighted-average number of common units outstanding during the period. Basic net income per unit applicable to limited partners (including subordinated unitholders) is computed by dividing limited partners’ interest in net income, after deducting our general partner’s 2% interest and incentive distribution rights, by the weighted-average number of outstanding common and subordinated units. Our net income is allocated to our general partner and limited partners in accordance with their respective partnership percentages after giving effect to priority income allocations for incentive distribution rights to our general partner, which is the holder of the incentive distribution rights pursuant to our partnership agreement, which are declared and paid following the close of each quarter.
 

13


Earnings in excess of distributions are allocated to our general partner and limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.

Diluted net income per unit applicable to common limited partners includes the effects of potentially dilutive units on our common units. At present, the only potentially dilutive units outstanding consist of unvested phantom unit awards under the Delek Logistics GP, LLC 2012 Long-Term Incentive Plan (the "LTIP"). Basic and diluted net income per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.

Our distributions earned with respect to a given period are declared subsequent to quarter end. Therefore, the table below represents total cash distributions applicable to the period in which the distributions are earned. The expected date of distribution for the distributions earned during the period ended June 30, 2015 is August 14, 2015. The calculation of net income per unit is as follows (dollars in thousands, except per unit amounts):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income attributable to partners
 
$
18,311

 
$
21,754

 
$
32,951

 
$
36,426

Less: General partner's distribution (including IDRs) (1)
 
1,030

 
424

 
1,898

 
633

Less: Limited partners' distribution
 
6,738

 
5,787

 
13,213

 
10,952

Less: Subordinated partner's distribution
 
6,600

 
5,699

 
12,959

 
10,799

Earnings in excess of distributions
 
$
3,943

 
$
9,844

 
$
4,881

 
$
14,042

 
 
 
 
 
 
 
 
 
General partner's earnings:
 
 
 
 
 
 
 
 
Distributions (including IDRs) (1)
 
$
1,030

 
$
424

 
$
1,898

 
$
633

Allocation of earnings in excess of distributions
 
79

 
196

 
98

 
281

Total general partner's earnings
 
$
1,109

 
$
620

 
$
1,996

 
$
914

 
 
 
 
 
 
 
 
 
Limited partners' earnings on common units:
 
 
 
 
 
 
 
 
Distributions
 
$
6,738

 
$
5,787

 
$
13,213

 
$
10,952

Allocation of earnings in excess of distributions
 
1,952

 
4,861

 
2,416

 
6,930

Total limited partners' earnings on common units
 
$
8,690

 
$
10,648

 
$
15,629

 
$
17,882

 
 
 
 
 
 
 
 
 
Limited partners' earnings on subordinated units:
 
 
 
 
 
 
 
 
Distributions
 
$
6,600

 
$
5,699

 
$
12,959

 
$
10,799

Allocation of earnings in excess of distributions
 
1,912

 
4,787

 
2,367

 
6,831

Total limited partner's earnings on subordinated units
 
$
8,512

 
$
10,486

 
$
15,326

 
$
17,630

 
 
 
 
 
 
 
 
 
Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
 
Common units - (basic)
 
12,224,007

 
12,159,732

 
12,220,248

 
12,156,135

Common units - (diluted)
 
12,360,519

 
12,291,273

 
12,350,621

 
12,281,598

Subordinated units - Delek (basic and diluted)
 
11,999,258

 
11,999,258

 
11,999,258

 
11,999,258

 
 
 
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
 
 
 
Common units - (basic)
 
$
0.71

 
$
0.88

 
$
1.28

 
$
1.47

Common units - (diluted)
 
$
0.70

 
$
0.87

 
$
1.27

 
$
1.46

Subordinated units - Delek (basic and diluted)
 
$
0.71

 
$
0.87

 
$
1.28

 
$
1.47

            


14


(1) General partner distributions (including IDRs) consist of the 2% general partner interest and IDRs, which represent the right of the general partner to receive increasing percentages of quarterly distributions of available cash from operating surplus in excess of $0.43125 per unit per quarter. See Note 7 for further discussion related to IDRs.

7. Equity

We had 9,451,589 common limited partner units held by the public outstanding as of June 30, 2015. Additionally, as of June 30, 2015, Delek owned a 59.8% limited partner interest in us, consisting of 2,799,258 common limited partner units and 11,999,258 subordinated limited partner units as well as a 95.6% interest in our general partner, which owns the entire 2.0% general partner interest consisting of 494,900 general partner units. Affiliates own the remaining 4.4% interest in our general partner. In accordance with our partnership agreement, Delek's subordinated units may convert to common units once specified distribution targets and other requirements have been met.

Equity Activity

The summarized changes in the carrying amount of our equity are as follows (in thousands):
 
 
 
Equity of Predecessors
 
Common - Public
 
Common - Delek (1)
 
Subordinated
 
General Partner (1)
 
Total
Balance at December 31, 2014
 
$
19,726

 
$
194,737

 
$
(241,112
)
 
$
73,515

 
$
(7,085
)
 
$
39,781

Sponsor contributions of equity to the Logistics Assets Predecessor
115

 

 

 

 

 
115

Loss attributable to the Logistics Assets Predecessor
(637
)
 

 

 

 

 
(637
)
Allocation of net assets acquired by the unitholders
(19,204
)
 

 
18,820

 

 
384

 

Cash distributions

 
(9,801
)
 
(63,563
)
 
(12,479
)
 
(2,812
)
 
(88,655
)
Sponsorship contribution of fixed assets

 

 
410

 

 
8

 
418

Net income attributable to partners

 
12,053

 
3,576

 
15,326

 
1,996

 
32,951

Unit-based compensation

 
422

 
125

 
537

 
(890
)
 
194

Other

 
(359
)
 
(108
)
 
(460
)
 
958

 
31

Balance at June 30, 2015
 
$

 
$
197,052

 
$
(281,852
)
 
$
76,439

 
$
(7,441
)
 
$
(15,802
)
            

(1) Cash distributions include $61.9 million in cash payments for the El Dorado Offloading Racks Acquisition and the Tyler Crude Tank Acquisition. As an entity under common control with Delek, we record the assets that we acquire from Delek on our balance sheet at Delek's historical book basis instead of fair value. Additionally, any excess of cash paid over the historical book basis of the assets acquired from Delek is recorded within equity. As a result of the El Dorado Offloading Racks Acquisition and the Tyler Crude Tank Acquisition, our equity balance decreased $42.7 million during the six months ended June 30, 2015.

Allocations of Net Income

Our partnership agreement contains provisions for the allocation of net income and loss to our unitholders and our general partner. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interests. Normal allocations according to percentage interests are made after giving effect to priority income allocations, if any, in an amount equal to incentive cash distributions allocated 100% to our general partner.

15


The following table presents the allocation of the general partner's interest in net income (in thousands, except percentage of ownership interest):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income attributable to partners
 
$
18,311

 
$
21,754

 
$
32,951

 
$
36,426

Less: General partner's IDRs
 
(758
)
 
(189
)
 
(1,364
)
 
(189
)
Net income available to partners
 
$
17,553

 
$
21,565

 
$
31,587

 
$
36,237

General partner's ownership interest
 
2.0
%
 
2.0
%
 
2.0
%
 
2.0
%
General partner's allocated interest in net income
 
$
351

 
$
431

 
$
632

 
$
725

General partner's IDRs
 
758

 
189

 
1,364

 
189

Total general partner's interest in net income
 
$
1,109

 
$
620

 
$
1,996

 
$
914


Incentive Distribution Rights

The following table illustrates the percentage allocations of available cash from operating surplus between our unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our general partner and our unitholders in any available cash from operating surplus that we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution per Unit Target Amount.” The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our general partner include its 2.0% general partner interest and assume that (i) our general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest, (ii) our general partner has not transferred its incentive distribution rights, and (iii) there are no arrearages on common units.

 
 
 
Target Quarterly Distribution per Unit
 
Marginal Percentage Interest in Distributions
 
 
 
Target Amount
 
Unitholders
 
General Partner
Minimum Quarterly Distribution
 
 
$
0.37500

 
98.0
%
 
2.0
%
First Target Distribution
 
above
$
0.37500

 
98.0
%
 
2.0
%
 
 
up to
$
0.43125

 
 
 
 
Second Target Distribution
 
above
$
0.43125

 
85.0
%
 
15.0
%
 
 
up to
$
0.46875

 
 
 
 
Third Target Distribution
 
above
$
0.46875

 
75.0
%
 
25.0
%
 
 
up to
$
0.56250

 
 
 
 
Thereafter
 
thereafter
$
0.56250

 
50.0
%
 
50.0
%


16


Cash Distributions

Our partnership agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that our common and subordinated unitholders and general partner will receive. Our distributions earned with respect to a given period are declared subsequent to quarter end. The table below summarizes the quarterly distributions related to our quarterly financial results:
Quarter Ended
 
Total Quarterly Distribution Per Limited Partner Unit
 
Total Quarterly Distribution Per Limited Partner Unit, Annualized
 
Total Cash Distribution, including general partner IDRs (in thousands)
 
Date of Distribution
 
Unitholders Record Date
December 31, 2013
 
$
0.415

 
$
1.66

 
$
10,228

 
February 13, 2014
 
February 4, 2014
March 31, 2014
 
$
0.425

 
$
1.70

 
$
10,474

 
May 14, 2014
 
May 6, 2014
June 30, 2014
 
$
0.475

 
$
1.90

 
$
11,910

 
August 14, 2014
 
August 7, 2014
September 30, 2014
 
$
0.490

 
$
1.96

 
$
12,394

 
November 14, 2014
 
November 6, 2014
December 31, 2014
 
$
0.510

 
$
2.04

 
$
13,056

 
February 13, 2015
 
February 6, 2015
March 31, 2015
 
$
0.530

 
$
2.12

 
$
13,702

 
May 14, 2015
 
May 4, 2015
June 30, 2015
 
$
0.550

 
$
2.20

 
$
14,368

 
August 14, 2015 (1)
 
August 6, 2015
            
(1) Expected date of distribution.

The allocation of total quarterly cash distributions expected to be made on August 14, 2015 to general and limited partners for the three and six months ended June 30, 2015 is set forth in the table below. Our distributions earned with respect to a given period are declared subsequent to quarter end. Therefore, the table below presents total cash distributions applicable to the period in which the distributions are earned (in thousands, except per unit amounts):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
General partner's distributions:
 
 
 
 
 
 
 
 
     General partner's distributions
 
$
272

 
$
235

 
$
534

 
$
444

     General partner's IDRs
 
758

 
189

 
1,364

 
189

          Total general partner's distributions
 
1,030

 
424

 
1,898

 
633

 
 
 
 
 
 
 
 
 
Limited partners' distributions:
 
 
 
 
 
 
 
 
     Common
 
6,738

 
5,787

 
13,213

 
10,952

     Subordinated
 
6,600

 
5,699

 
12,959

 
10,799

          Total limited partners' distributions
 
13,338

 
11,486

 
26,172

 
21,751

               Total cash distributions
 
$
14,368

 
$
11,910

 
$
28,070

 
$
22,384

 
 
 
 
 
 
 
 
 
Cash distributions per limited partner unit
 
$
0.550

 
$
0.475

 
$
1.080

 
$
0.900


8. Equity Based Compensation

We incurred $0.1 million and $0.2 million of unit-based compensation expense related to the Partnership during the three and six months ended June 30, 2015, respectively, and a nominal amount and $0.1 million during the three and six months ended June 30, 2014, respectively. These amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of income. The fair value of phantom unit awards under the LTIP is determined based on the closing price of our common limited partner units on the grant date. The estimated fair value of our phantom units is amortized over the vesting period using the straight line method. All awards made through June 9, 2015 vest over a five-year service period unless

17



such awards are amended in accordance with the LTIP. Beginning June 10, 2015, all awards made to only non-employee directors vest over a three-year service period unless such awards are amended in accordance with the LTIP. As of June 30, 2015, there was $1.1 million of total unrecognized compensation cost related to non-vested equity-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.4 years.

9. Equity Method Investments

In March 2015, the Partnership, through its indirect wholly owned subsidiary DKL Caddo, LLC ("DKL Caddo") became a member of Caddo Pipeline, LLC ("CP LLC") by entering into an amended and restated limited liability company agreement (the “Caddo LLC Agreement”) with Plains Pipeline, L.P., an affiliate of Plains All American Pipeline, L.P. ("Plains"). CP LLC was formed to plan, develop, construct, own, operate and maintain a pipeline system and ancillary assets originating near Longview, Texas and extending to Shreveport, Louisiana (the "Caddo Pipeline System"). Pursuant to the terms of the Caddo LLC Agreement, DKL Caddo and Plains each own a 50% membership interest in CP LLC. Pursuant to separate agreements, Plains will have primary responsibility for the construction of the Caddo Pipeline System, and, upon its completion, Plains will also have primary day-to-day responsibility for its operations.

In March 2015, the Partnership, through its indirect wholly owned subsidiary, DKL RIO, LLC ("DKL RIO"), became a member of Rangeland RIO Pipeline, LLC ("Rangeland RIO") by entering into an amended and restated limited liability company agreement (the "Rangeland LLC Agreement") with Rangeland Energy II, LLC ("Rangeland"). Rangeland RIO was formed to develop, construct, operate and maintain a crude oil pipeline extending from Loving County, Texas, to Midland, Texas (the "RIO Pipeline"). Pursuant to the terms of the Rangeland LLC Agreement, DKL RIO owns 33% of Rangeland RIO, and Rangeland owns 67%. Rangeland will have primary day-to-day responsibility for the operations of the RIO Pipeline following completion of its construction.
 
The total projected investment in these two entities is approximately $91.0 million and will be financed through a combination of cash from operations and borrowings under the Second Amended and Restated Credit Agreement.  As of June 30, 2015, the investment in these joint ventures totaled $18.5 million and was accounted for using the equity method.

10. Segment Data

We report our assets and operating results in two reportable segments: (i) pipelines and transportation and (ii) wholesale marketing and terminalling:
  
The assets and investments reported in the pipelines and transportation segment provide crude oil gathering, and crude oil, intermediate and finished products transportation and storage services to Delek's refining operations and independent third parties.

The assets in the wholesale marketing and terminalling segment provide marketing and terminalling services to Delek's refining operations and independent third parties.

Our operating segments adhere to the same accounting policies used for our consolidated financial statements. Our operating segments are managed separately because each segment requires different industry knowledge, technology and marketing strategies. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on segment contribution margin. Segment contribution margin is defined as net sales less cost of sales and operating expenses, excluding depreciation and amortization.

On February 10, 2014 and March 31, 2015, we acquired the El Dorado Terminal and Tank Assets and the Logistics Assets, respectively, from Delek. Our historical financial statements have been retrospectively adjusted to reflect the results of operations attributable to the El Dorado Terminal and Tank Assets and the Logistics Assets as if we owned the assets for all periods presented. The results of the El Dorado Terminal are included in the wholesale marketing and terminalling segment. The results of the El Dorado Tank Assets and the Logistics Assets are included in the pipelines and transportation segment.

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

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Pipelines and Transportation
 
 
 
 
 
 
 
 
Net Sales:
 
 
 
 
 
 
 
 
     Affiliate
 
$
26,093

 
$
20,245

 
$
50,078

 
$
37,746

     Third-Party
 
7,641

 
2,821

 
14,658

 
5,588

          Total Pipelines and Transportation
 
33,734

 
23,066

 
64,736

 
43,334

     Operating costs and expenses:
 
 
 
 
 
 
 
 
     Cost of goods sold
 
5,102

 
1,130

 
9,915

 
2,256

     Operating expenses (1) (2)
 
7,745

 
8,308

 
14,663

 
15,484

     Segment contribution margin
 
$
20,887

 
$
13,628

 
$
40,158

 
$
25,594

 Capital spending (excluding business combinations) (1) (2)
 
$
3,057

 
$
1,128

 
$
7,610

 
$
3,416

 
 
 
 
 
 
 
 
 
Wholesale Marketing and Terminalling
 
 
 
 
 
 
 
 
Net Sales:
 
 
 
 
 
 
 
 
     Affiliate
 
$
13,778

 
$
8,648

 
$
22,073

 
$
16,429

     Third-Party
 
124,622

 
204,629

 
228,837

 
380,107

          Total Wholesale Marketing and Terminalling
 
138,400

 
213,277

 
250,910

 
396,536

     Operating costs and expenses:
 
 
 
 
 
 
 
 
     Cost of goods sold
 
127,392

 
195,444

 
230,986

 
366,527

     Operating expenses
 
3,053

 
1,411

 
6,912

 
3,731

     Segment contribution margin
 
$
7,955

 
$
16,422

 
$
13,012

 
$
26,278

 Capital spending (excluding business combinations)
 
$
2,905

 
$
756

 
$
5,925

 
$
784

 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
Net Sales:
 
 
 
 
 
 
 
 
     Affiliate
 
$
39,871

 
$
28,893

 
$
72,151

 
$
54,175

     Third-Party
 
132,263

 
207,450

 
243,495

 
385,695

     Net sales
 
172,134

 
236,343

 
315,646

 
439,870

     Operating costs and expenses:
 
 
 
 
 
 
 
 
     Cost of goods sold
 
132,494

 
196,574

 
240,901

 
368,783

     Operating expenses (1) (2)
 
10,798

 
9,719

 
21,575

 
19,215

     Contribution margin
 
28,842

 
30,050

 
53,170

 
51,872

     General and administrative expenses
 
2,982

 
2,242

 
6,391

 
4,905

     Depreciation and amortization
 
4,744

 
3,623

 
9,244

 
7,100

     (Gain) loss on asset disposals
 
(23
)
 
74


(18
)
 
74

     Operating income<