Delek Logistics

6 Months Ended

Jun. 30, 2020

Delek Logistics and the Alon Partnership

Delek Logistics is a publicly traded limited partnership that was formed by Delek in 2012 to own, operate, acquire and construct crude oil and refined products logistics and marketing assets. A substantial majority of Delek Logistics' assets are integral to Delek’s refining and marketing operations. As of June 30, 2020, we owned a 69.1% interest in Delek Logistics, consisting of 20,745,868 common limited partner units (representing a 70.5% interest), and a 94.8% interest in Delek Logistics GP, LLC, which owns the entire 2.0% general partner interest (consisting of 600,678 general partner units) in Delek Logistics as well as all of the incentive distribution rights.

The limited partner interests in Delek Logistics not owned by us are reflected in net income attributable to non-controlling interest in the accompanying condensed consolidated statements of income and in non-controlling interest in subsidiaries in the accompanying condensed consolidated balance sheets.

We have agreements with Delek Logistics that, among other things, establish fees for certain administrative and operational services provided by us and our subsidiaries to Delek Logistics, provide certain indemnification obligations and establish terms for fee-based commercial logistics and marketing services provided by Delek Logistics and its subsidiaries to us. The revenues and expenses associated with these agreements are eliminated in consolidation.

Delek Logistics is a variable interest entity, as defined under GAAP, and is consolidated into our condensed consolidated financial statements, representing our logistics segment. The assets of Delek Logistics can only be used to settle its own obligations and its creditors have no recourse to our assets. Exclusive of intercompany balances and the marketing agreement intangible asset between Delek Logistics and Delek which are eliminated in consolidation, the Delek Logistics condensed consolidated balance sheets as presented below are included in the condensed consolidated balance sheets of Delek (unaudited, in millions).



	June 30, 2020			December 31, 2019
	June 30, 2020			December 31, 2019
ASSETS
Cash and cash equivalents	$	16.2		$	5.5
Accounts receivable	15.9			13.2
Accounts receivable from related parties	8.8			—
Inventory	2.1			12.6
Other current assets	0.5			2.3
Property, plant and equipment, net	473.7			295.0
Equity method investments	255.3			247.0
Operating lease right-of-use assets	18.9			3.7
Goodwill	12.2			12.2
Intangible assets, net	163.1			146.6
Other non-current assets	7.0			6.3
Total assets	$	973.7		$	744.4
LIABILITIES AND DEFICIT
Accounts payable	$	1.8		$	12.5
Accounts payable to related parties	—			8.9
Current portion of operating lease liabilities	5.8			1.4
Accrued expenses and other current liabilities	10.3			12.2
Long-term debt	995.2			833.1
Asset retirement obligations	5.8			5.6
Deferred tax liabilities	1.2			0.2
Operating lease liabilities, net of current portion	13.1			2.3
Other non-current liabilities	18.8			19.3
Deficit	(78.3		)	(151.1		)
Total liabilities and deficit	$	973.7		$	744.4

Effective May 1, 2020, Delek through its wholly owned subsidiaries Lion Oil Company (“Lion Oil”) and Delek Refining, Ltd. (“Delek Refining”) contributed certain leased and owned tractors and trailers and related assets used in the provision of trucking and transportation services for crude oil, petroleum and certain other products throughout Arkansas, Oklahoma and Texas to Delek Trucking, LLC (“Delek Trucking”), a direct wholly owned subsidiary of Lion Oil. Following this contribution, Lion Oil sold all of the issued and outstanding membership interests in Delek Trucking (the “Acquisition”) to DKL Transportation, LLC (“DKL Transportation”), a wholly owned subsidiary of Delek Logistics. Promptly following the consummation of the Acquisition, Delek Trucking merged with and into DKL Transportation, with DKL Transportation continuing as the surviving entity. Total consideration for the Acquisition was approximately $48.0 million in cash, subject to certain post-closing adjustments,

financed primarily with borrowings under Delek Logistics’ revolving credit facility. In connection with the Acquisition, Delek Refining, Lion Oil and DKL Transportation entered into a Transportation Services Agreement pursuant to which DKL Transportation will gather, coordinate the pickup of, transport and deliver petroleum products for Delek Refining and Lion Oil, as well as provide ancillary services as requested. Prior periods have not been recast in our Segment Data Note 2, as these assets did not constitute a business in accordance with ASU 2017-01, Clarifying the Definition of a Business, and the transaction was accounted for as an acquisition of assets between entities under common control.

Effective March 31, 2020, Delek Logistics, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired the Big Spring Gathering System, located in Howard, Borden and Martin Counties, Texas, from Delek, which included the execution of related commercial agreements. In connection with the closing of the transaction, Delek, Delek Logistics and various of their respective subsidiaries entered into a Throughput and Deficiency Agreement (the “T&D Agreement”). Under the T&D Agreement, Delek Logistics will operate and maintain the Big Spring Gathering System connecting our interests in and to certain crude oil production with the Delek Logistics' Big Spring, Texas terminal and provide gathering, transportation and other related services. The total consideration was subject to certain post-closing adjustments and was comprised of $100.0 million in cash and 5.0 million common units representing limited partner interest in Delek Logistics. The cash component of this dropdown was financed with borrowings on the DKL Credit Facility (as defined in Note 8). Prior periods have not been recast in our Segment Data Note 2, as these assets did not constitute a business in accordance with ASU 2017-01 and the transaction was accounted for as an acquisition of assets between entities under common control.

Additionally, in March 2020, we purchased 451,822 of Delek Logistics limited partner units from an investor pursuant to a Common Unit Purchase Agreement between Delek Marketing & Supply, LLC and such investor. The purchase price of the units amounted to approximately $5.0 million. As a result of the transaction, our ownership in Delek Logistics' outstanding common limited partner units increased to 64.5% from 62.6%. Our ownership in Delek Logistics' common limited partner units was further increased to 70.5% as a result of the issuance of 5.0 million common units in connection with the Big Spring Gathering Assets Acquisition described above.