Segment Data

9 Months Ended

Sep. 30, 2018

We aggregate our operating segments into 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 wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek's refining operations and independent third parties.

Our operating segments adhere to the 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 of its reportable segments based on segment contribution margin. Segment contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization.

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



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017			2018		2017
Pipelines and Transportation
Net revenues:
Affiliates	$	36,132	$	27,805		$	99,624	$	81,972
Third party	3,653		3,177			11,618		7,910
Total pipelines and transportation	39,785		30,982			111,242		89,882
Cost of materials and other	5,055		4,883			14,691		13,691
Operating expenses (excluding depreciation and amortization)	9,499		8,573			29,054		24,661
Segment contribution margin	$	25,231	$	17,526		$	66,839	$	51,530
Capital spending ⁽¹⁾	$	2,086	$	2,918		$	4,320	$	6,715

Wholesale Marketing and Terminalling
Net revenues:
Affiliates ⁽²⁾	$	27,703	$	12,326		$	78,935	$	34,602
Third party	96,622		87,318			308,134		262,384
Total wholesale marketing and terminalling	124,325		99,644			387,069		296,986
Cost of materials and other	100,541		84,237			315,953		253,058
Operating expenses (excluding depreciation and amortization)	5,896		2,089			13,835		6,325
Segment contribution margin	$	17,888	$	13,318		$	57,281	$	37,603
Capital spending ⁽¹⁾	$	905	$	868		$	3,120	$	1,981

Consolidated
Net revenues:
Affiliates	$	63,835	$	40,131		$	178,559	$	116,574
Third party	100,275		90,495			319,752		270,294
Total consolidated	164,110		130,626			498,311		386,868
Cost of materials and other	105,596		89,120			330,644		266,749
Operating expenses (excluding depreciation and amortization presented below)	15,395		10,662			42,889		30,986
Contribution margin	43,119		30,844			124,778		89,133
General and administrative expenses	3,076		2,751			9,798		8,255
Depreciation and amortization	6,702		5,462			19,721		16,397
Loss (gain) on asset disposals	717		(5		)	648		2
Operating income	$	32,624	$	22,636		$	94,611	$	64,479
Capital spending ⁽¹⁾	$	2,991	$	3,786		$	7,440	$	8,696

⁽¹⁾Capital spending excludes transaction costs capitalized in the amount of $0.4 million that relate to the Big Spring Logistic Assets Acquisition for the nine months ended September 30, 2018. No costs were capitalized during the three months ended September 30, 2018.

⁽²⁾ Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense pertaining to the Marketing Contract Intangible Acquisition. See Note 3 for additional information.

The following table summarizes the total assets for each segment as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018		December 31, 2017
Pipelines and transportation	$	431,173	$	349,351
Wholesale marketing and terminalling	262,396		94,179
Total assets	$	693,569	$	443,530

Property, plant and equipment and accumulated depreciation as of September 30, 2018 and depreciation expense by reporting segment for the three and nine months ended September 30, 2018 were as follows (in thousands):



	Pipelines and Transportation			Wholesale Marketing and Terminalling			Consolidated
Property, plant and equipment	$	356,646		$	92,076		$	448,722
Less: accumulated depreciation	(101,801		)	(32,251		)	(134,052		)
Property, plant and equipment, net	$	254,845		$	59,825		$	314,670
Depreciation expense for the three months ended September 30, 2018	$	5,284		$	1,418		$	6,702
Depreciation expense for the nine months ended September 30, 2018	$	15,808		$	3,824		$	19,632

In accordance with ASC 360, Property, Plant & Equipment, we evaluate the realizability of property, plant and equipment as events occur that might indicate potential impairment. There were no indicators of impairment of our property, plant and equipment as of September 30, 2018.