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Acquisitions
 9 Months Ended
Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
3 Bear Delaware Holding - NM, LLC Acquisition
Delek Logistics completed the 3 Bear Acquisition on June 1, 2022 (the "Acquisition Date"), in which it acquired crude oil and natural gas gathering, processing and transportation and storage operations, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico.
The purchase price for 3 Bear was $628.1 million. The 3 Bear Acquisition was financed through a combination of cash on hand and borrowings under the Delek Logistics' Credit Facility (as defined in Note 9 of these condensed consolidated financial statements).
For the three and nine months ended September 30, 2022, we incurred $4.2 million and $10.6 million, respectively, in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees. Such costs are included in general and administrative expenses in the accompanying condensed consolidated statements of income for these periods.
Our consolidated financial and operating results reflect the 3 Bear Acquisition operations beginning June 1, 2022. Our results of operations included revenue and net income of $60.9 million and $8.3 million, respectively, for the three months ended September 30, 2022 and $81.5 million and $9.8 million, respectively, for the nine months ended September 30, 2022.
The 3 Bear Acquisition was accounted for using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values. The excess of the consideration paid over the fair value of the net assets acquired was recorded as goodwill.
Determination of Purchase Price
The table below represents the purchase price (in millions):
Base purchase price:$624.7 
Add: closing net working capital (as defined in the 3 Bear Purchase Agreement)
3.4 
Less: closing indebtedness (as defined in the 3 Bear Purchase Agreement)
(80.6)
Cash paid for the adjusted purchase price547.5 
Cash paid to payoff 3 Bear credit agreement (as defined in the 3 Bear Purchase Agreement)80.6 
Purchase price$628.1 
Purchase Price Allocation
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed in the 3 Bear Acquisition as of June 1, 2022 (in millions):
Assets acquired:
Cash and cash equivalents$2.7 
Accounts receivables, net28.9 
Inventories1.8 
Other current assets1.0 
Property, plant and equipment382.8 
Operating lease right-of-use assets7.4 
Goodwill14.4 
Other intangibles, net (1)
223.5 
Other non-current assets0.5 
Total assets acquired663.0 
Liabilities assumed:
Accounts payable8.0 
Accrued expenses and other current liabilities22.1 
Current portion of operating lease liabilities1.1 
Asset retirement obligations2.3 
Operating lease liabilities, net of current portion1.4 
Total liabilities assumed34.9 
Fair value of net assets acquired$628.1 
(1)The acquired intangible assets amount includes the following identified intangibles:
•Customer relationship intangible that is subject to amortization with a preliminary fair value of $210.0 million, which will be amortized over an 11.6-year useful life. We recognized amortization expense for the three and nine months ended September 30, 2022 of $4.5 million and $6.0 million, respectively. The estimated amortization is $18.0 million for each of the five succeeding fiscal years.    
•Rights-of-way intangible that is subject to amortization with a preliminary fair value of $13.5 million, which will be amortized over the weighted-average useful life of 25.4 years. We recognized amortization expense for the three and nine months ended September 30, 2022 of $0.2 million and $0.2 million, respectively.. The estimated amortization is $0.6 million for each of the five succeeding fiscal years.
These fair value estimates are preliminary and therefore, the final fair value of assets acquired and liabilities assumed and the resulting effect on our financial position may change once all necessary information has become available, the final working capital adjustment is complete, and we finalize our valuations. To the extent possible, estimates have been considered and recorded, as appropriate, for the items above based on the information available as of September 30, 2022. We will continue to evaluate these items until they are satisfactorily resolved and adjust our purchase price allocation accordingly, within the allowable measurement period (not to exceed one year from the date of acquisition), as defined by Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805").
The fair value of property, plant and equipment was based on the combination of the cost and market approaches. Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence. We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.
The fair value of customer relationships was based on the income approach. Key assumptions in the income approach include projected revenue attributable to customer relationships, attrition rate, operating margins and discount rates.
The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.
The fair values of all other current assets and payables were equivalent to their carrying values due to their short-term nature.
The goodwill recognized in the 3 Bear Acquisition is primarily attributable to enhancing our third party revenues, further diversification of our customer and product mix, expanding our footprint into the Delaware basin and bolstering our Environmental, Social and Governance ("ESG") optionality through furthering carbon capture opportunities and greenhouse gas reduction projects currently underway. This goodwill is deductible for income tax purposes. Goodwill related to the 3 Bear Acquisition is included in the logistics segment.
Unaudited Pro Forma Financial Information
The following table summarizes the unaudited pro forma financial information of the Company assuming the 3 Bear Acquisition had occurred on January 1, 2021. The unaudited pro forma financial information has been adjusted to give effect to certain pro forma adjustments that are directly related to the 3 Bear Acquisition based on available information and certain assumptions that management believes are factually supportable. The most significant pro forma adjustments relate to (i) incremental interest expense and amortization of deferred financing costs associated with revolving credit facility borrowings incurred in connection with the 3 Bear Acquisition, (ii) incremental depreciation resulting from the estimated fair values of acquired property, plant and equipment, (iii) incremental amortization resulting from the estimated fair values of acquired customer relationship intangibles (iv) accounting policy alignment, and (v) transaction costs. The unaudited pro forma financial information excludes any expected cost savings or other synergies as a result of the 3 Bear Acquisition. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had the 3 Bear Acquisition been effective as of the dates presented, nor is it indicative of future operating results of the combined company. Actual results may differ significantly from the unaudited pro forma financial information.
Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except per share data)2022202120222021
Net sales$5,324.9 $3,002.4 $15,865.2 $7,647.7 
Net income (loss) attributable to Delek$10.1 $15.7 $376.3 $(184.2)
Net income (loss) per share:
Basic income (loss) per share$0.14 $0.21 $5.26 $(2.49)
Diluted income (loss) per share$0.14 $0.21 $5.22 $(2.49)