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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)

☑ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  | For the quarterly period ended | September 30, 2019 |

or

☐ |  | 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 incorporation or organization) | (I.R.S. Employer 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)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered
Common Units Representing Limited Partnership Interests | DKL | New York Stock Exchange

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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☑ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At November 1, 2019, there were 24,417,285 common limited partner units and 498,312 general partner units outstanding.

Table of Contents
Delek Logistics Partners, LP
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2019

PART I. FINANCIAL INFORMATION | PART II. OTHER INFORMATION
3 | Item 1. Financial Statements (unaudited) | 46 | Item 1. Legal Proceedings
| 3 | Condensed Consolidated Balance Sheets |  |  |  |
| 4 | Condensed Consolidated Statements of Income and Comprehensive Income | 46 | Item 1A. Risk Factors
| 6 | Condensed Consolidated Statements of Partner's Equity (Deficit) |  |  |  |
| 5 | Condensed Consolidated Statements of Cash Flows | 46 | Item 6. Exhibits
| 7 | Notes to Condensed Consolidated Financial Statements |  |  |  |
|  | 7 | Note 1 - Organization and Basis of Presentation | 47 | Signatures
|  | 8 | Note 2 - Acquisitions |  |  |  |
|  | 8 | Note 3 - Related Party Transactions |  |  |  |
|  | 10 | Note 4 - Revenues |  |  |  |
|  | 12 | Note 5 - Net Income Per Unit |  |  |  |
|  | 12 | Note 6 - Inventory |  |  |  |
|  | 12 | Note 7 - Long-Term Obligations |  |  |  |
|  | 13 | Note 8 - Equity |  |  |  |
|  | 14 | Note 9 - Equity Based Compensation |  |  |  |
|  | 15 | Note 10 - Equity Method Investments |  |  |  |
|  | 16 | Note 11 - Segments |  |  |  |
|  | 18 | Note 12 - Income Taxes |  |  |  |
|  | 18 | Note 13 - Commitments and Contingencies |  |  |  |
|  | 19 | Note 14 - Leases |  |  |  |
|  | 21 | Note 15 - Subsequent Events |  |  |  |
22 | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |  |  |  |
| 30 | Summary Financial and Other Information |  |  |  |
| 32 | Results of Operations |  |  |  |
|  | 32 | Consolidated |  |  |  |
|  | 36 | Pipelines and Transportation |  |  |  |
|  | 39 | Wholesale Marketing and Terminalling |  |  |  |
| 43 | Liquidity and Capital Resources |  |  |  |
45 | Item 3. Quantitative and Qualitative Disclosures about Market Risk |  |  |  |
45 | Item 4. Controls and Procedures |  |  |  |

2 | |

Financial Statements
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except unit and per unit data)

|  | September 30, 2019 |  | December 31, 2018
ASSETS |  |  |  |
Current assets: |  |  |  |
Cash and cash equivalents |  | $ | 6,353 |  |  | $ | 4,522 |
Accounts receivable |  | 19,998 |  |  | 21,586 |
Inventory |  | 7,695 |  |  | 5,491 |
Other current assets |  | 2,714 |  |  | 969 |
Total current assets |  | 36,760 |  |  | 32,568 |
Property, plant and equipment: |  |  |  |
Property, plant and equipment |  | 457,716 |  |  | 452,746 |
Less: accumulated depreciation |  | (159,623 | ) |  | (140,184 | )
Property, plant and equipment, net |  | 298,093 |  |  | 312,562 |
Equity method investments |  | 246,998 |  |  | 104,770 |
Operating lease right-of-use assets |  | 18,297 |  |  | — |
Goodwill |  | 12,203 |  |  | 12,203 |
Marketing Contract Intangible, net |  | 132,802 |  |  | 138,210 |
Other non-current assets |  | 22,654 |  |  | 24,280 |
Total assets |  | $ | 767,807 |  |  | $ | 624,593 |
LIABILITIES AND DEFICIT |  |  |  |
Current liabilities: |  |  |  |
Accounts payable |  | $ | 12,477 |  |  | $ | 14,226 |
Accounts payable to related parties |  | 2,817 |  |  | 7,833 |
Excise and other taxes payable |  | 1,722 |  |  | 4,069 |
Current portion of operating lease liabilities |  | 4,836 |  |  | — |
Accrued expenses and other current liabilities |  | 10,489 |  |  | 10,377 |
Total current liabilities |  | 32,341 |  |  | 36,505 |
Non-current liabilities: |  |  |  |
Long-term debt |  | 840,765 |  |  | 700,430 |
Asset retirement obligations |  | 5,489 |  |  | 5,191 |
Operating lease liabilities, net of current portion |  | 13,462 |  |  | — |
Other non-current liabilities |  | 18,240 |  |  | 17,290 |
Total non-current liabilities |  | 877,956 |  |  | 722,911 |
Deficit: |  |  |  |
Common unitholders - public; 9,123,239 units issued and outstanding at September 30, 2019 (9,109,807 at December 31, 2018) |  | 167,650 |  |  | 171,023 |
Common unitholders - Delek Holdings; 15,294,046 units issued and outstanding at September 30, 2019 (15,294,046 at December 31, 2018) |  | (305,152 | ) |  | (299,360 | )
General partner - 498,312 units issued and outstanding at September 30, 2019 (498,038 at December 31, 2018) |  | (4,988 | ) |  | (6,486 | )
Total deficit |  | (142,490 | ) |  | (134,823 | )
Total liabilities and deficit |  | $ | 767,807 |  |  | $ | 624,593 |

See accompanying notes to the condensed consolidated financial statements

3 | |

Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(in thousands, except unit and per unit data)

|  | Three months ended |  | Nine months ended
|  | September 30, |  | September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net revenues: |  |  |  |  |  |  |  |
Affiliates (1) |  | $ | 66,647 |  |  | $ | 63,835 |  |  | $ | 191,530 |  |  | $ | 178,559 |
Third party |  | 70,909 |  |  | 100,275 |  |  | 253,852 |  |  | 319,752 |
Net revenues |  | 137,556 |  |  | 164,110 |  |  | 445,382 |  |  | 498,311 |
Cost of sales: |  |  |  |  |  |  |  |
Cost of materials and other |  | 72,594 |  |  | 105,596 |  |  | 262,713 |  |  | 330,644 |
Operating expenses (excluding depreciation and amortization presented below) |  | 17,490 |  |  | 14,489 |  |  | 49,318 |  |  | 40,501 |
Depreciation and amortization |  | 6,138 |  |  | 6,252 |  |  | 18,450 |  |  | 18,287 |
Total cost of sales |  | 96,222 |  |  | 126,337 |  |  | 330,481 |  |  | 389,432 |
Operating expenses related to wholesale business (excluding depreciation and amortization presented below) |  | 945 |  |  | 906 |  |  | 2,502 |  |  | 2,388 |
General and administrative expenses |  | 5,280 |  |  | 3,076 |  |  | 15,046 |  |  | 9,798 |
Depreciation and amortization |  | 450 |  |  | 450 |  |  | 1,351 |  |  | 1,434 |
(Gain) loss on asset disposals |  | (70 | ) |  | 717 |  |  | (95 | ) |  | 648 |
Total operating costs and expenses |  | 102,827 |  |  | 131,486 |  |  | 349,285 |  |  | 403,700 |
Operating income |  | 34,729 |  |  | 32,624 |  |  | 96,097 |  |  | 94,611 |
Interest expense, net |  | 12,509 |  |  | 11,108 |  |  | 35,164 |  |  | 30,096 |
Income from equity method investments |  | (8,394 | ) |  | (1,924 | ) |  | (14,860 | ) |  | (4,681 | )
Other expense, net |  | — |  |  | 8 |  |  | 461 |  |  | 8 |
Total non-operating expenses, net |  | 4,115 |  |  | 9,192 |  |  | 20,765 |  |  | 25,423 |
Income before income tax expense |  | 30,614 |  |  | 23,432 |  |  | 75,332 |  |  | 69,188 |
Income tax expense |  | 84 |  |  | 106 |  |  | 220 |  |  | 285 |
Net income attributable to partners |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
Comprehensive income attributable to partners |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
Less: General partner's interest in net income, including incentive distribution rights |  | 8,895 |  |  | 6,636 |  |  | 24,244 |  |  | 18,478 |
Limited partners' interest in net income |  | $ | 21,635 |  |  | $ | 16,690 |  |  | $ | 50,868 |  |  | $ | 50,425 |
Net income per limited partner unit: |  |  |  |  |  |  |  |
Common units - basic |  | $ | 0.89 |  |  | $ | 0.68 |  |  | $ | 2.08 |  |  | $ | 2.07 |
Common units - diluted |  | $ | 0.89 |  |  | $ | 0.68 |  |  | $ | 2.08 |  |  | $ | 2.07 |
Weighted average limited partner units outstanding: |  |  |  |  |  |  |  |
Common units - basic |  | 24,417,285 |  |  | 24,395,183 |  |  | 24,411,308 |  |  | 24,387,995 |
Common units - diluted |  | 24,420,582 |  |  | 24,401,908 |  |  | 24,417,466 |  |  | 24,395,880 |
Cash distributions per limited partner unit |  | $ | 0.880 |  |  | $ | 0.790 |  |  | $ | 2.550 |  |  | $ | 2.310 |

(1) | See Note 3 for a description of our material affiliate revenue transactions.

See accompanying notes to the condensed consolidated financial statements

4 | |

Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Statements of Partners' Equity (Deficit) (Unaudited)
(in thousands)

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at June 30, 2019 | $ | 167,254 |  |  | $ | (305,827 | ) |  | $ | (5,727 | ) |  | $ | (144,300 | )
Cash distributions | (7,755 | ) |  | (13,000 | ) |  | (8,159 | ) |  | (28,914 | )
Net income attributable to partners | 8,084 |  |  | 13,551 |  |  | 8,895 |  |  | 30,530 |
Other | 67 |  |  | 124 |  |  | 3 |  |  | 194 |
Balance at September 30, 2019 | $ | 167,650 |  |  | $ | (305,152 | ) |  | $ | (4,988 | ) |  | $ | (142,490 | )

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at June 30, 2018 | $ | 173,607 |  |  | $ | (295,247 | ) |  | $ | (7,322 | ) |  | $ | (128,962 | )
Cash distributions | (7,037 | ) |  | (11,777 | ) |  | (6,200 | ) |  | (25,014 | )
Net income attributable to partners | 6,227 |  |  | 10,463 |  |  | 6,636 |  |  | 23,326 |
Other | 78 |  |  | 134 |  |  | 4 |  |  | 216 |
Balance at September 30, 2018 | $ | 172,875 |  |  | $ | (296,427 | ) |  | $ | (6,875 | ) |  | $ | (130,427 | )

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at December 31, 2018 | $ | 171,023 |  |  | $ | (299,360 | ) |  | $ | (6,486 | ) |  | $ | (134,823 | )
Cash distributions | (22,580 | ) |  | (37,929 | ) |  | (22,762 | ) |  | (83,271 | )
General partner units issued to maintain 2% interest | — |  |  | — |  |  | 8 |  |  | 8 |
Net income attributable to partners | 19,027 |  |  | 31,841 |  |  | 24,244 |  |  | 75,112 |
Other | 180 |  |  | 296 |  |  | 8 |  |  | 484 |
Balance at September 30, 2019 | $ | 167,650 |  |  | $ | (305,152 | ) |  | $ | (4,988 | ) |  | $ | (142,490 | )

(1) Cash distributions include a nominal amount related to distribution equivalents on vested phantom units.

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at December 31, 2017 | $ | 174,378 |  |  | $ | (197,206 | ) |  | $ | (6,397 | ) |  | $ | (29,225 | )
Distributions to Delek Holdings for Big Spring Asset Acquisition | — |  |  | (96,822 | ) |  | (1,976 | ) |  | (98,798 | )
Cash distributions | (20,500 | ) |  | (34,335 | ) |  | (17,010 | ) |  | (71,845 | )
General partner units issued to maintain 2% interest | — |  |  | — |  |  | 20 |  |  | 20 |
Net income attributable to partners | 18,808 |  |  | 31,617 |  |  | 18,478 |  |  | 68,903 |
Other | 189 |  |  | 319 |  |  | 10 |  |  | 518 |
Balance at September 30, 2018 | $ | 172,875 |  |  | $ | (296,427 | ) |  | $ | (6,875 | ) |  | $ | (130,427 | )

See accompanying notes to the condensed consolidated financial statements

5 | |

Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

|  | Nine Months Ended September 30,
|  | 2019 |  | 2018
Cash flows from operating activities: |  |  |  |
Net income |  | $ | 75,112 |  |  | $ | 68,903 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
Depreciation and amortization |  | 19,801 |  |  | 19,721 |
Non-cash lease expense |  | 2,554 |  |  | — |
Amortization of customer contract intangible assets |  | 5,408 |  |  | 4,207 |
Amortization of deferred revenue |  | (1,248 | ) |  | (1,095 | )
Amortization of deferred financing costs and debt discount |  | 2,054 |  |  | 1,984 |
Accretion of asset retirement obligations |  | 298 |  |  | 267 |
Deferred income taxes |  | 115 |  |  | — |
Income from equity method investments |  | (14,860 | ) |  | (4,681 | )
Dividends from equity method investments |  | 9,188 |  |  | 5,128 |
(Gain) loss on asset disposals |  | (95 | ) |  | 648 |
Other non-cash adjustments |  | 484 |  |  | 518 |
Changes in assets and liabilities: |  |  |  |
Accounts receivable |  | 1,588 |  |  | 1,198 |
Inventories and other current assets |  | (3,290 | ) |  | 17,022 |
Accounts payable and other current liabilities |  | (7,613 | ) |  | (4,311 | )
Accounts receivable/payable to related parties |  | (5,016 | ) |  | (50,030 | )
Non-current assets and liabilities, net |  | 109 |  |  | (1,879 | )
Net cash provided by operating activities |  | 84,589 |  |  | 57,600 |
Cash flows from investing activities: |  |  |  |
Asset acquisitions, net of assumed asset retirement obligation liabilities |  | — |  |  | (72,222 | )
Purchases of property, plant and equipment |  | (4,964 | ) |  | (8,674 | )
Proceeds from sales of property, plant and equipment |  | 144 |  |  | 465 |
Purchases of intangible assets |  | — |  |  | (144,219 | )
Distributions from equity method investments |  | 804 |  |  | 957 |
Equity method investment contributions |  | (137,361 | ) |  | (172 | )
Net cash used in investing activities |  | (141,377 | ) |  | (223,865 | )
Cash flows from financing activities: |  |  |  |
Proceeds from issuance of additional units to maintain 2% General Partner interest |  | 8 |  |  | 20 |
Distributions to general partner |  | (22,762 | ) |  | (17,010 | )
Distributions to common unitholders - public |  | (22,580 | ) |  | (20,500 | )
Distributions to common unitholders - Delek Holdings |  | (37,929 | ) |  | (34,335 | )
Distributions to Delek Holdings unitholders and general partner related to Big Spring Logistic Assets Acquisition |  | — |  |  | (98,798 | )
Proceeds from revolving credit facility |  | 476,400 |  |  | 678,000 |
Payments on revolving credit facility |  | (336,800 | ) |  | (324,700 | )
Deferred financing costs paid |  | — |  |  | (5,264 | )
Reimbursement of capital expenditures by Delek Holdings |  | 2,282 |  |  | 3,183 |
Net cash provided by financing activities |  | 58,619 |  |  | 180,596 |
Net increase in cash and cash equivalents |  | 1,831 |  |  | 14,331 |
Cash and cash equivalents at the beginning of the period |  | 4,522 |  |  | 4,675 |
Cash and cash equivalents at the end of the period |  | $ | 6,353 |  |  | $ | 19,006 |
Supplemental disclosures of cash flow information: |  |  |  |
Cash paid during the period for: |  |  |  |
Interest |  | $ | 29,003 |  |  | $ | 24,446 |
Income taxes |  | $ | 143 |  |  | $ | 136 |
Non-cash investing activities: |  |  |  |  |  |
Increase/(Decrease) in accrued capital expenditures |  | $ | 1,274 |  |  | $ | (1,836 | )
Non-cash financing activities: |  |  |  |
Non-cash lease liability arising from obtaining right of use assets during the period |  | $ | 649 |  |  | $ | — |
Non-cash lease liability arising from recognition of right of use assets upon adoption of ASU 2016-02 |  | $ | 20,202 |  |  | $ | — |

See accompanying notes to the condensed consolidated financial statements

6 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 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.
The Partnership is a Delaware limited partnership formed in April 2012 by Delek US Holdings, Inc. ("Delek Holdings") and its subsidiary Delek Logistics GP, LLC, our general partner (our "general partner").
Effective March 1, 2018, the Partnership, through its wholly-owned subsidiary DKL Big Spring, LLC, acquired from Delek Holdings certain logistics assets primarily located at or adjacent to Delek Holdings' refinery near Big Spring, Texas (the "Big Spring Refinery") and Delek Holdings' light products distribution terminal located in Stephens County, Oklahoma (collectively, the "Big Spring Logistic Assets" and such transaction the "Big Spring Logistic Assets Acquisition"). See Note 2 for further information regarding the Big Spring Logistic Assets Acquisition.
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, 2018 (our "Annual Report on Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019 and in accordance with the rules and regulations of the SEC. 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, 2018 included in our Annual Report on Form 10-K.
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 intercompany accounts and transactions have been eliminated. Such intercompany transactions do not include those with Delek Holdings' or our general partner, which are presented as related parties in these accompanying condensed consolidated financial statements. 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.
Reclassifications
Certain prior period amounts have been reclassified in order to conform to the current period presentation.
New Accounting Pronouncements Adopted During 2019
ASU 2016-02, Leases
In February 2016, the Financial Accounting Standards Board (the "FASB") issued guidance that requires the recognition of a lease liability and a right-of-use asset, initially measured at the present value of the lease payments, in the statement of financial condition for all leases with terms longer than one year. The guidance was subsequently amended to consider the impact of practical expedients and provide additional clarifications. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the new lease standard on January 1, 2019. We elected the package of practical expedients which, among other things, allows us to carry forward the historical lease classification. For certain lease classes, we have elected the practical expedient not to separate lease and non-lease components, which allows us to combine the components if certain criteria are met. Further, we elected the optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance sheet of retained earnings at the date of adoption and to not recast our comparative periods. We have not elected the hindsight practical expedients, which would have allowed us to use hindsight in determining the reasonably certain lease term. The adoption of the lease accounting guidance had no impact on January 1, 2019 partners' equity and resulted in the recognition of a $20.2 million lease liability and a corresponding right-of-use asset on our consolidated balance sheet. The adoption did not have a material impact on our consolidated statement of income. See Note 14 for further information.
Accounting Pronouncements Not Yet Adopted
ASU 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurements. The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We expect to adopt this guidance on the effective date and do not expect adopting this new guidance will have a material impact on our business, financial condition or results of operations.
ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance requiring the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. We are currently evaluating the impact that adopting this new guidance will

7 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
have on our business, financial condition and results of operations, which includes scoping, accounting, and disclosure considerations and historical analysis of applicable assets. This guidance is effective for interim and annual periods beginning after December 15, 2019. We expect to adopt this guidance on or before the effective date.
Note 2 - Acquisitions
Big Spring Logistic Assets Acquisition
Effective March 1, 2018, the Partnership, through its wholly-owned subsidiary DKL Big Spring, LLC, acquired the Big Spring Logistic Assets from Delek Holdings, which are primarily located at or adjacent to the Big Spring Refinery. The total purchase price was $170.8 million, financed through borrowings under the Partnership’s revolving credit facility. The Big Spring Logistic Assets included (i) approximately 75 storage tanks and certain ancillary assets, (ii) an asphalt terminal and a light products terminal; (iii) certain crude oil and refined product pipelines; and (iv) other logistics assets, such as four underground saltwells used for natural gas liquids storage.
In connection with the closing of the transaction, Delek Holdings, the Partnership and various of their respective subsidiaries entered into new contracts and amended certain existing contracts, including entering into new pipelines, storage and throughput facilities and asphalt services agreements. The transaction and related agreements were approved by the Conflicts Committee of the board of the Partnership's general partner, which is comprised solely of independent directors. See our Annual Report on Form 10-K for more detailed descriptions of these agreements.
The Big Spring Logistic Assets Acquisition was considered a transaction between entities under common control. Accordingly, the Big Spring Logistic Assets were recorded at amounts based on Delek Holdings' historical carrying value as of the acquisition date. The excess of the cash paid over the historical carrying value of the assets acquired from Delek Holdings amounted to $98.8 million and was recorded as a reduction in equity. The historical carrying value of the Big Spring Logistic Assets as of the acquisition date was $72.0 million, which is net of $0.8 million of assumed asset retirement obligations. Prior periods have not been recast, as these assets did not constitute a business in accordance with ASU 2017-01, Clarifying the Definition of a Business. We capitalized approximately $0.4 million of acquisition costs related to the Big Spring Logistic Assets Acquisition during the nine months ended September 30, 2018. We did not capitalize any acquisition costs during the three months ended September 30, 2018.
Marketing Contract Intangible Acquisition
Additionally, concurrent with the Big Spring Logistic Assets Acquisition, Delek Holdings, the Partnership and various of their respective subsidiaries entered into a new marketing agreement, whereby the Partnership markets certain refined products produced at or sold from the Big Spring Refinery to various customers in return for a marketing fee (the "Marketing Contract Intangible Acquisition"). We recorded a related contract intangible asset in the amount of $144.2 million based on the amount paid to enter into the contract, which represents the fair value of the intangible asset. The contract intangible asset is amortized over a twenty year period as a component of net revenues from affiliates. The total consideration paid was financed through borrowings under the Partnership's revolving credit facility. This transaction and related marketing agreement were approved by the Conflicts Committee of the board of the Partnership's general partner, which is comprised solely of independent directors. See Note 3 for a more detailed description of this marketing agreement.
Note 3 - Related Party Transactions
Commercial Agreements
The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms at the option of Delek Holdings. In November 2017, Delek Holdings opted to renew certain of these agreements for subsequent five-year terms expiring in November 2022. In the case of our marketing agreement with Delek Holdings in respect to the Tyler Refinery, the initial term has been extended through 2026. The current term of certain of our agreements with Delek Holdings were required to be further extended pursuant to the amended and restated DKL Credit Facility (as defined in Note 7), which extensions were effective in the fourth quarter of 2018. The fees under each agreement are payable to us monthly by Delek Holdings or certain third parties to whom Delek Holdings has assigned certain of its rights and are generally subject to increase or decrease on July 1 of each year, by the amount of any change in various inflation-based indices, including the Federal Energy Regulatory Commission ("FERC") oil pipeline index or various iterations of the consumer price index ("CPI") and the producer price index ("PPI"); provided, however, that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement. In most circumstances, if Delek Holdings or the applicable third party assignee fails to meet or exceed the minimum volume or throughput commitment during any calendar quarter, Delek Holdings, and not any third party assignee, will be required to make a quarterly shortfall payment to us equal to the volume of the shortfall multiplied by the applicable fee, subject to certain exceptions as specified in the applicable agreement. Carry-over of any volumes or revenue in excess of such commitment to any subsequent quarter is not permitted.
Under each of these agreements, we are required to maintain the capabilities of our pipelines and terminals, such that Delek Holdings may throughput and/or store, as the case may be, specified volumes of crude oil, intermediate and refined products. To the extent that Delek Holdings is prevented by our failure to maintain such capacities from throughputting or storing such specified volumes for more than 30 days

8 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
per year, Delek Holdings' minimum throughput commitment will be reduced proportionately and prorated for the portion of the quarter during which the specified throughput capacity was unavailable, and/or the storage fee will be reduced, prorated for the portion of the month during which the specified storage capacity was unavailable. Such reduction would occur even if actual throughput or storage amounts were below the minimum volume commitment levels.
See our Annual Report on Form 10-K for a more complete description of our material commercial agreements and other agreements with Delek Holdings.
Other Agreements with Delek Holdings
In addition to the commercial agreements described above, the Partnership has entered into the following agreements with Delek Holdings:
Omnibus Agreement
The Partnership entered into an omnibus agreement with Delek Holdings, our general partner, Delek Logistics Operating, LLC, Lion Oil Company and certain of the Partnership's and Delek Holdings' other subsidiaries on November 7, 2012, which has been amended from time to time in connection with acquisitions from Delek (collectively, as amended, the "Omnibus Agreement"). The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $3.9 million to Delek Holdings for its provision of centralized corporate services to the Partnership.
Pursuant to the terms of the Omnibus Agreement, we were reimbursed by Delek Holdings for certain capital expenditures in the amount of$0.8 million and $2.3 million during the three and nine months ended September 30, 2019, respectively. We were reimbursed $0.5 million and $3.2 million during the three and nine months ended September 30, 2018, respectively. These amounts are recorded in other long-term liabilities and are amortized to revenue over the life of the underlying revenue agreement corresponding to the asset. Ad ditionally, we are reimbursed or indemnified, as the case may be, for costs incurred in excess of certain amounts related to certain asset failures, pursuant to the terms of the Omnibus Agreeme nt. As of September 30, 2019, we have recorded a receivable of $0.3 million from related parties for these matters for which we expect to be reimbursed. These reimbursements are recorded as reductions to operating expense. We were reimbursed $0.3 million and $6.0 million for these matters during the three and nine months ended September 30, 2019, respectively. We were reimbursed $1.4 million and $7.8 million for such matters during the three and nine months ended September 30, 2018, respectively.
Other Transactions
Starting in 2018, the Partnership manages a long-term capital project on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of a 250-mile gathering system in the Permian Basin (the "Delek Permian Gathering Project"). The Partnership is also considered the operator for the project and is responsible for oversight of the project design, procurement and construction of project segments and provides other related services. Pursuant to the terms of the DPG Management Agreement, the Partnership receives a monthly operating services fee and a construction services fee, which includes the Partnership's direct costs of managing the project plus an additional percentage fee of the construction costs of each project segment. The agreement extends through December 2022. Total fees paid to the Partnership for the three and nine months ended September 30, 2019 were $0.8 million and $3.6 million, respectively and are recorded in affiliate revenue in our condensed consolidated statement of income. No fees were paid for the three and nine months ended September 30, 2018. Additionally, the Partnership incurs the costs in connection with the construction of the assets and is subsequently reimbursed by Delek Holdings. Amounts reimbursable by Delek Holdings are recorded in accounts receivable from related parties.
Summary of Transactions
Revenues from affiliates consist primarily of revenues from gathering, transportation, storage, offloading, Renewable Identification Numbers, wholesale marketing and products terminalling services provided primarily to Delek Holdings based on regulated tariff rates or contractually based fees and product sales. Affiliate operating expenses are primarily comprised of amounts we reimburse Delek Holdings, or our general partner, as the case may be, for the services provided to us under the Partnership Agreement. These expenses could also include reimbursement and indemnification amounts from Delek Holdings, as provided under the Omnibus Agreement. Additionally, the Partnership is required to reimburse Delek Holdings for direct or allocated costs and expenses incurred by Delek Holdings on behalf of the Partnership and for charges Delek Holdings incurred for the management and operation of our logistics assets, including an annual fee for various centralized corporate services, which are included in general and administrative expenses. In addition to these transactions, we purchase refined products and bulk biofuels from Delek Holdings, the costs of which are included in cost of materials and other.

9 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
A summary of revenue, purchases from affiliates and expense transactions with Delek Holdings and its affiliates are as follows (in thousands):

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Revenues |  | $ | 66,647 |  |  | $ | 63,835 |  |  | $ | 191,530 |  |  | $ | 178,559 |
Purchases from Affiliates |  | $ | 66,578 |  |  | $ | 86,944 |  |  | $ | 219,225 |  |  | $ | 269,976 |
Operating and maintenance expenses |  | $ | 18,336 |  |  | $ | 10,314 |  |  | $ | 38,851 |  |  | $ | 29,225 |
General and administrative expenses |  | $ | 4,317 |  |  | $ | 774 |  |  | $ | 7,430 |  |  | $ | 4,236 |

Quarterly Cash Distributions
Our common and general partner unitholders and the holders of Incentive Distribution Rights ("IDRs") are entitled to receive quarterly distributions of available cash as it is determined by the board of directors of our general partner in accordance with the terms and provisions of our Partnership Agreement. In February, May and August 2019, we paid quarterly cash distributions of $26.9 million, $27.4 million and $28.9 million, respectively, of which $19.6 million, $20.0 million and $21.2 million, respectively, were paid to Delek Holdings and our general partner. In February, May and August 2018, we paid quarterly cash distributions of $22.8 million, $24.0 million and $25.0 million, respectively, of which $16.2 million, $17.2 million and $18.0 million, respectively, were paid to Delek Holdings and our general partner. On October 25, 2019, our general partner's board of directors declared a quarterly cash distribution totaling $30.4 million, based on the available cash as of the date of determination for the end of the third quarter of 2019, payable on November 12, 2019, of which $22.4 million is expected to be paid to Delek Holdings and our general partner, including the distribution as holder of the IDRs described in Note 8.
Note 4 - Revenues
We generate revenue by charging fees for gathering, transporting, offloading and storing crude oil; for storing intermediate products and feed stocks; for distributing, transporting and storing refined products; for marketing refined products output of Delek Holdings' Tyler and Big Spring refineries; and for wholesale marketing in the west Texas area. A significant portion of our revenue is derived from long-term commercial agreements with Delek Holdings, which provide for annual fee adjustments for increases or decreases in the CPI, PPI or FERC index (refer to Note 3 for a more detailed description of these agreements). In addition to the services we provide to Delek Holdings, we also generate substantial revenue from crude oil, intermediate and refined products transportation services for, and terminalling and marketing services to, third parties primarily in Texas, New Mexico, Tennessee and Arkansas. Certain of these services are provided pursuant to contractual agreements with third parties. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.
The majority of our commercial agreements with Delek Holdings meet the definition of a lease because: (1) performance of the contracts is dependent on specified property, plant or equipment and (2) it is remote that one or more parties other than Delek Holdings will take more than a minor amount of the output associated with the specified property, plant or equipment. As part of our adoption of Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"), we applied the permitted practical expedient to not separate lease and non-lease components under the predominance principle to designated asset classes associated with the provision of logistics services. We have determined that the predominant component of the related agreements currently in effect is the lease component. Therefore, the combined component is accounted for under the applicable lease accounting guidance. Of our $298.1 million net property, plant, and equipment balance as of September 30, 2019, $247.6 million is subject to operating leases under our commercial agreements. These agreements do not include options for the lessee to purchase our leasing equipment, nor do they include any material residual value guarantees or material restrictive covenants.
The following table represents a disaggregation of revenue for each reportable segment for the periods indicated (in thousands):

|  | Three Months Ended September 30, 2019
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 5,281 |  |  | $ | 221 |  |  | $ | 5,502 |
Product Revenue - Third Party |  | — |  |  | 65,407 |  |  | 65,407 |
Product Revenue - Affiliate |  | — |  |  | 6,505 |  |  | 6,505 |
Lease Revenue - Affiliate (1) (2) |  | 39,304 |  |  | 20,838 |  |  | 60,142 |
Total Revenue |  | $ | 44,585 |  |  | $ | 92,971 |  |  | $ | 137,556 |

(1) Disaggregated revenue for the three months ended September 30, 2019 may not be comparable to disaggregated revenue for the three months ended September 30, 2018 as a result of our adoption of ASC 842, under which we applied the predominance principle and opted to not separate lease and non-lease components.

10 | |

(2) Net of $1.8 million of amortization expense for the three months ended September 30, 2019, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

|  | Three Months Ended September 30, 2018
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 3,653 |  |  | $ | 64 |  |  | $ | 3,717 |
Service Revenue - Affiliate |  | 24,536 |  |  | 14,921 |  |  | 39,457 |
Product Revenue - Third Party |  | — |  |  | 96,558 |  |  | 96,558 |
Product Revenue - Affiliate |  | — |  |  | 9,017 |  |  | 9,017 |
Lease Revenue - Affiliate (1) |  | 11,596 |  |  | 3,765 |  |  | 15,361 |
Total Revenue |  | $ | 39,785 |  |  | $ | 124,325 |  |  | $ | 164,110 |

(1) Net of $1.8 million of amortization expense for the three months ended September 30, 2018, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

|  | Nine Months Ended September 30, 2019
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 16,733 |  |  | $ | 525 |  |  | $ | 17,258 |
Product Revenue - Third Party |  | — |  |  | 236,594 |  |  | 236,594 |
Product Revenue - Affiliate |  | — |  |  | 23,078 |  |  | 23,078 |
Lease Revenue - Affiliate (1) (2) |  | 112,694 |  |  | 55,758 |  |  | 168,452 |
Total Revenue |  | $ | 129,427 |  |  | $ | 315,955 |  |  | $ | 445,382 |

(1) Disaggregated revenue for the nine months ended September 30, 2019 may not be comparable to disaggregated revenue for the nine months ended September 30, 2018 as a result of our adoption of ASC 842, under which we applied the predominance principle and opted to not separate lease and non-lease components.
(2) Net of $5.4 million of amortization expense for the nine months ended September 30, 2019, respectively, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

|  | Nine Months Ended September 30, 2018
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 11,618 |  |  | $ | 866 |  |  | $ | 12,484 |
Service Revenue - Affiliate |  | 67,593 |  |  | 39,068 |  |  | 106,661 |
Product Revenue - Third Party |  | — |  |  | 307,268 |  |  | 307,268 |
Product Revenue - Affiliate |  | — |  |  | 30,045 |  |  | 30,045 |
Lease Revenue - Affiliate (1) |  | 32,031 |  |  | 9,822 |  |  | 41,853 |
Total Revenue |  | $ | 111,242 |  |  | $ | 387,069 |  |  | $ | 498,311 |

(1) Net of $4.2 million of amortization expense for the nine months ended September 30, 2018, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

As of September 30, 2019, we expect to recognize $1.1 billion in lease revenues related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms. We disclose information about remaining performance obligations that have original expected durations of greater than one year.

11 | |

Our unfulfilled performance obligations as of September 30, 2019 were as follows (in thousands):

Remainder of 2019 |  | $ | 43,663 |
2020 |  | 174,284 |
2021 |  | 174,023 |
2022 |  | 172,872 |
2023 and thereafter |  | 491,927 |
Total expected revenue on remaining performance obligations |  | $ | 1,056,769 |

Note 5 - 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, general partner units and 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 is computed by dividing limited partners’ interest in net income, after deducting our general partner’s 2% interest and IDRs, by the weighted-average number of outstanding common 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 IDRs, which are held by our general partner pursuant to our Partnership Agreement. The IDRs are paid following the close of each quarter.
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. As of September 30, 2019, the only potentially dilutive units outstanding consist of unvested phantom units.
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 September 30, 2019 is November 12, 2019. The calculation of net income per unit is as follows (dollars in thousands, except units and per unit amounts):

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net income attributable to partners |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
Less: General partner's distribution (including IDRs) (1) |  | 8,892 |  |  | 6,688 |  |  | 24,475 |  |  | 18,598 |
Less: Limited partners' distribution |  | 21,487 |  |  | 19,272 |  |  | 62,256 |  |  | 56,343 |
Earnings in excess of (less than) distributions |  | $ | 151 |  |  | $ | (2,634 | ) |  | $ | (11,619 | ) |  | $ | (6,038 | )
General partner's earnings: |  |  |  |  |  |  |  |
Distributions (including IDRs) (1) |  | $ | 8,892 |  |  | $ | 6,688 |  |  | $ | 24,475 |  |  | $ | 18,598 |
Earnings in excess of (less than) distributions |  | 3 |  |  | (52 | ) |  | (231 | ) |  | (120 | )
Total general partner's earnings |  | $ | 8,895 |  |  | $ | 6,636 |  |  | $ | 24,244 |  |  | $ | 18,478 |
Limited partners' earnings on common units: |  |  |  |  |  |  |  |
Distributions |  | $ | 21,487 |  |  | $ | 19,272 |  |  | $ | 62,256 |  |  | $ | 56,343 |
Earnings in excess of (less than) distributions |  | 148 |  |  | (2,582 | ) |  | (11,388 | ) |  | (5,918 | )
Total limited partners' earnings on common units |  | $ | 21,635 |  |  | $ | 16,690 |  |  | $ | 50,868 |  |  | $ | 50,425 |
Weighted average limited partner units outstanding: |  |  |  |  |  |  |  |
Common units - basic |  | 24,417,285 |  |  | 24,395,183 |  |  | 24,411,308 |  |  | 24,387,995 |
Common units - diluted |  | 24,420,582 |  |  | 24,401,908 |  |  | 24,417,466 |  |  | 24,395,880 |
Net income per limited partner unit: |  |  |  |  |  |  |  |
Common units - basic |  | $ | 0.89 |  |  | $ | 0.68 |  |  | $ | 2.08 |  |  | $ | 2.07 |
Common units - diluted (2) |  | $ | 0.89 |  |  | $ | 0.68 |  |  | $ | 2.08 |  |  | $ | 2.07 |

(1) General partner distributions (including IDRs) consist of the 2.0% 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 8 for further discussion related to IDRs.
(2) There were no outstanding common units excluded from the diluted earnings per unit calculation for the three and nine months ended September 30, 2019 and 2018.
Note 6 - Inventory
Inventories consisted of $7.7 million and $5.5 million of refined petroleum products as of September 30, 2019 and December 31, 2018, respectively. Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We recognize lower of cost or net realizable value charges as a component of cost of materials and other in the consolidated statements of income and comprehensive income, which amounted to nominal amounts during the three and nine months ended September 30, 2018. We did not recognize any lower of cost or net realizable value charges during the three and nine months ended September 30, 2019.
Note 7 - Long-Term Obligations
DKL Credit Facility
Prior to September 28, 2018, the Partnership had a $700.0 million senior secured revolving credit agreement with Fifth Third Bank ("Fifth Third"), as administrative agent, and a syndicate of lenders (the "2014 Facility") bearing interest at (i) either a U.S. dollar prime rate or a LIBOR Rate for borrowings denominated in U.S. Dollars, or (ii) either a Canadian dollar prime rate, or a Canadian Dealer Offered Rate, for borrowings denominated in Canadian dollars (in each case plus applicable margins, at the election of the borrowers and as a function of draw down currency). The 2014 Facility had a maturity date of December 30, 2019. The obligations under the 2014 Facility were secured by a first priority lien on substantially all of the Partnership's tangible and intangible assets. Additionally, a subsidiary of Delek Holdings provided a limited guaranty of the Partnership's obligations under the 2014 Facility.
On September 28, 2018, the Partnership entered into a third amended and restated senior secured revolving credit agreement, which amended and restated the 2014 Facility (hereafter, the "DKL Credit Facility") with Fifth Third Bank, as administrative agent, and a syndicate of lenders. The DKL Credit Facility contains a dual currency borrowing tranche that permits draw downs in U.S. or Canadian dollars. Under the terms of the DKL Credit Facility, among other things, the lender commitments were increased from $700.0 million to $850.0 million. The DKL Credit Facility also contains an accordion feature whereby the Partnership can increase the size of the credit facility to an aggregate of $1.0 billion, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent.
The obligations under the DKL Credit Facility 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 subsidiary of Delek Holdings, continues to provide a limited guaranty of the Partnership's obligations under the DKL Credit Facility. 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 Holdings in favor of Delek Marketing (the "Holdings Note") and (ii) secured by Delek Marketing's pledge of the Holdings Note to the lenders under the DKL Credit Facility. As of September 30, 2019 the principal amount of the Holdings Note was $102.0 million.
The DKL Credit Facility has a maturity date of September 28, 2023. 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 and the fee payable for any unused revolving commitments vary based upon the Partnership's most recent total leverage ratio calculation delivered to the lenders, as called for and defined under the terms of the DKL Credit Facility. At September 30, 2019, the weighted average interest rate for our borrowings under the facility was approximately 4.9%. Additionally, the DKL Credit Facility requires us to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of September 30, 2019, this fee was 0.50% per year.
As of September 30, 2019, we had $596.3 million of outstanding borrowings under the DKL Credit Facility, with no letters of credit in place. Unused credit commitments under the DKL Credit Facility as of September 30, 2019, were $253.7 million.
6.750% Senior Notes Due 2025
On May 23, 2017, the Partnership and Delek Logistics Finance Corp., a Delaware corporation and a wholly-owned subsidiary of the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), issued $250.0 million in aggregate principal amount of 6.75% senior notes due 2025 (the “2025 Notes”) at a discount. The 2025 Notes are general unsecured senior obligations of the Issuers. The 2025 Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's existing subsidiaries (other than Finance Corp., the "Guarantors") and will be unconditionally guaranteed on the same basis by certain of the Partnership’s future subsidiaries. The 2025 Notes rank equal in right of payme nt with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers. Interest on the 2025 Notes is payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 2017.
At any time prior to May 15, 2020, the Issuers may redeem up to 35% of the aggregate principal amount of the 2025 Notes with the net cash proceeds of one or more equity offerings by the Partnership at a redemption price of 106.750% of the redeemed principal amount, plus accrued and unpaid interest, if any, subject to certain conditions and limitations. Prior to May 15, 2020, the Issuers may redeem all or part of the 2025 Notes at a redemption price of the principal amount, plus accrued and unpaid interest, if any, plus a "make whole" premium, subject to certain conditions and limitations. In addition, beginning on May 15, 2020, th e Issuers may, subject to certain conditions and limitations, redeem all or part of the 2025 Notes at a redemption price of 105.063% of the redeemed principal for the twelve-month period beginning on May 15,

12 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
2020, 103.375% for the twelve-month period beginning on May 15, 2021, 101.688% for the twelve-month period beginning on May 15, 2022 and 100.00% beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if any.
In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the 2025 Notes from holders at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
In May 2018, the 2025 Notes were exchanged for new notes with terms substantially identical in all material respects with the 2025 Notes except that the new notes do not contain terms with respect to transfer restrictions.
As of September 30, 2019, we had $250.0 million in outstanding principal amount of the 2025 Notes. As of September 30, 2019, the effective interest rate related to the 2025 Notes was approximately 7.2%.
Outstanding borrowings under the 2025 Notes are net of deferred financing costs and debt discount of $4.2 million and $1.3 million, respectively, as of September 30, 2019, and $4.8 million and $1.5 million, respectively, as of December 31, 2018.
Note 8 - Equity
We had 9,123,239 common limited partner units held by the public outstanding as of September 30, 2019. Additionally, as of September 30, 2019, Delek Holdings owned a 61.4% limited partner interest in us, consisting of 15,294,046 common limited partner units and a 94.6% interest in our general partner, which owns the entire 2.0% general partner interest consisting of 498,312 general partner units. Affiliates, who are also members of our general partner's management and board of directors, own the remaining 5.4% interest in our general partner.
Equity Activity
The table below summarizes the changes in the number of units outstanding from December 31, 2018 through September 30, 2019.

|  | Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at December 31, 2018 |  | 9,109,807 |  |  | 15,294,046 |  |  | 498,038 |  |  | 24,901,891 |
General partner units issued to maintain 2% interest |  | — |  |  | — |  |  | 274 |  |  | 274 |
Unit-based compensation awards (1) |  | 13,432 |  |  | — |  |  | — |  |  | 13,432 |
Balance at September 30, 2019 |  | 9,123,239 |  |  | 15,294,046 |  |  | 498,312 |  |  | 24,915,597 |

(1) No units were withheld for taxes during the three and nine months ended September 30, 2019.
Issuance of Additional Securities
Our Partnership Agreement authorizes us to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions determined by our general partner without the approval of the unitholders. Costs associated with the issuance of securities are allocated to all unitholders' capital accounts based on their ownership interest at the time of issuance.
Allocations of Net Income
Our Partnership Agreement contains provisions for the allocation of net income and loss to the 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 interest. Normal allocations according to percentage interests are made after giving effect to priority income allocations in an amount equal to incentive cash distributions allocated 100% to our general partner.
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 September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net income attributable to partners |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
Less: General partner's IDRs |  | (8,453 | ) |  | (6,295 | ) |  | (23,206 | ) |  | (17,449 | )
Net income available to partners |  | $ | 22,077 |  |  | $ | 17,031 |  |  | $ | 51,906 |  |  | $ | 51,454 |
General partner's ownership interest |  | 2.0 | % |  | 2.0 | % |  | 2.0 | % |  | 2.0 | %
General partner's allocated interest in net income |  | $ | 442 |  |  | $ | 341 |  |  | 1,038 |  |  | $ | 1,029 |
General partner's IDRs |  | 8,453 |  |  | 6,295 |  |  | 23,206 |  |  | 17,449 |
Total general partner's interest in net income |  | $ | 8,895 |  |  | $ | 6,636 |  |  | $ | 24,244 |  |  | $ | 18,478 |

Incentive Distribution Rights
Our general partner is currently entitled to 2.0% of all quarterly distributions that we make prior to our liquidation. Our general partner has the right, but not the obligation, to contribute up to a proportionate amount of capital to us to maintain its current general partner interest. The general partner's 2.0% interest in these distributions may be reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2.0% general partner interest. Our general partner also currently holds IDRs that entitle it to receive increasing percentages, up to a maximum of 48.0%, of the cash we distribute from operating surplus (as defined in our Partnership Agreement) in excess of 0.43125 per unit per quarter. The maximum distribution is 48.0% and does not include any distributions that our general partner or its affiliates may receive on common or general partner units that it owns. The IDRs held by our general partner currently entitle it to receive the maximum distribution.

13 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Cash Distributions
Our Partnership Agreement sets forth the calculation to be used to determine the amount and priority of available cash distributions that our limited partner 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 interest and IDRs (in thousands) |  | Date of Distribution |  | Unitholders Record Date
September 30, 2018 |  | $ | 0.790 |  |  | $ | 3.16 |  |  | $ | 25,960 |  |  | November 9, 2018 |  | November 2, 2018
December 31, 2018 |  | $ | 0.810 |  |  | $ | 3.24 |  |  | $ | 26,949 |  |  | February 12, 2019 |  | February 4, 2019
March 31, 2019 |  | $ | 0.820 |  |  | $ | 3.28 |  |  | $ | 27,438 |  |  | May 14, 2019 |  | May 7, 2019
June 30, 2019 |  | $ | 0.850 |  |  | $ | 3.40 |  |  | $ | 28,914 |  |  | August 13, 2019 |  | August 5, 2019
September 30, 2019 |  | $ | 0.880 |  |  | $ | 3.52 |  |  | $ | 30,379 |  |  | November 12, 2019 (1) |  | November 4, 2019

(1) Expected date of distribution.

The allocations of total quarterly cash distributions made to general and limited partners for the three and nine months ended September 30, 2019 and 2018 are set forth in the table below. 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 September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
General partner's distributions: |  |  |  |  |  |  |  |
General partner's distributions |  | $ | 439 |  |  | $ | 393 |  |  | $ | 1,269 |  |  | $ | 1,149 |
General partner's IDRs |  | 8,453 |  |  | 6,295 |  |  | 23,206 |  |  | 17,449 |
Total general partner's distributions |  | 8,892 |  |  | 6,688 |  |  | 24,475 |  |  | 18,598 |
Limited partners' distributions: |  |  |  |  |  |  |  |
Common limited partners' distributions |  | 21,487 |  |  | 19,272 |  |  | 62,256 |  |  | 56,343 |
Total cash distributions |  | $ | 30,379 |  |  | $ | 25,960 |  |  | $ | 86,731 |  |  | $ | 74,941 |
Cash distributions per limited partner unit |  | $ | 0.880 |  |  | $ | 0.790 |  |  | $ | 2.550 |  |  | $ | 2.310 |

Note 9 - Equity Based Compensation
The Delek Logistics GP, LLC 2012 Long-Term Incentive Plan (the "LTIP") was adopted by the Delek Logistics GP, LLC board of directors in connection with the completion of our initial public offering in November 2012. The LTIP is administered by the Conflicts Committee of the board of directors of our general partner. Equity-based compensation expense is included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income is immaterial.

14 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 10 - Equity Method Investments
In May 2019, the Partnership, through its wholly owned indirect subsidiary DKL Pipeline, LLC (“DKL Pipeline”), entered into a Contribution and Subscription Agreement (the “Contribution Agreement”) with Plains Pipeline, L.P. (“Plains”) and Red River Pipeline Company LLC (“Red River”). Pursuant to the Contribution Agreement, DKL Pipeline contributed $124.7 million, substantially all of which was financed by borrowings under the DKL Credit Facility, to Red River in exchange for a 33% membership interest in Red River and DKL Pipeline’s admission as a member of Red River. Red River owns a 16-inch crude oil pipeline running from Cushing, Oklahoma to Longview, Texas, with an expansion project planned to increase the pipeline capacity, which is expected to be completed during the first half of 2020. We contributed an additional $3.5 million related to such expansion project in May 2019.
Summarized unaudited financial information for Red River on a 100% basis is shown below (in thousands):

| September 30, 2019 |  | December 31, 2018
Current Assets | $ | 11,618 |  |  | $ | 6,594 |
Non-current Assets | $ | 377,059 |  |  | $ | 375,618 |
Current liabilities | $ | 5,168 |  |  | $ | 4,945 |

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Revenues | $ | 19,195 |  |  | $ | 14,446 |  |  | $ | 45,212 |  |  | $ | 33,635 |
Gross profit | $ | 14,469 |  |  | $ | 9,110 |  |  | $ | 28,935 |  |  | $ | 18,457 |
Net income | $ | 14,342 |  |  | $ | 8,709 |  |  | $ | 27,994 |  |  | $ | 17,221 |

We have two joint ventures that have constructed separate crude oil pipeline systems and related ancillary assets, which are serving third parties and subsidiaries of Delek Holdings. We own a 50% membership interest in the entity formed with an affiliate of Plains All American Pipeline, L.P. ("CP LLC") to operate one of these pipeline systems and a 33% membership interest in the entity formed with Rangeland Energy II, LLC ("Rangeland Energy") to operate the other pipeline system. During 2018, Rangeland Energy was acquired by Andeavor and the legal entity in which we have an equity investment became Andeavor Logistics RIO Pipeline LLC ("Andeavor Logistics").
Combined summarized unaudited financial information for these two equity method investees on a 100% basis is shown below (in thousands):

| September 30, 2019 |  | December 31, 2018
Current assets | $ | 31,834 |  |  | $ | 15,450 |
Non-current assets | $ | 260,427 |  |  | $ | 240,852 |
Current liabilities | $ | 8,060 |  |  | $ | 4,362 |

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Revenues | $ | 14,602 |  |  | $ | 8,384 |  |  | $ | 33,793 |  |  | $ | 26,260 |
Gross profit | $ | 9,965 |  |  | $ | 4,694 |  |  | $ | 20,549 |  |  | $ | 13,173 |
Net Income | $ | 9,458 |  |  | $ | 4,055 |  |  | $ | 19,124 |  |  | $ | 11,567 |

The Partnership's investments in these three entities were financed through a combination of cash from operations and borrowings under the DKL Credit Facility. As of September 30, 2019 and December 31, 2018, the Partnership's investment balance in these joint ventures was $247.0 million and $104.8 million, respectively.
We do not consolidate any part of the assets or liabilities or operating results of our equity method investees. Our share of net income or loss of the investees will increase or decrease, as applicable, the carrying value of our investments in unconsolidated affiliates. With respect to our equity method investments, we determined that these entities do not represent variable interest entities and consolidation is not required. We have the ability to exercise significant influence over each of these joint ventures through our participation in the management committees, which make all significant decisions. However, since all significant decisions require the consent of the other investor(s) without regard to economic interest, we have determined that we have joint control and have applied the equity method of accounting. Our investment in these joint ventures is reflected in our pipelines and transportation segment.

15 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 11 - Segment Data
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 refined products transportation and storage services to Delek Holdings' refining operations and independent third parties.

• | The wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek Holdings' 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):

16 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Pipelines and Transportation |  |  |  |  |  |  |  |
Net revenues: |  |  |  |  |  |  |  |
Affiliate |  | $ | 39,304 |  |  | $ | 36,132 |  |  | $ | 112,694 |  |  | $ | 99,624 |
Third party |  | 5,281 |  |  | 3,653 |  |  | 16,733 |  |  | 11,618 |
Total pipelines and transportation |  | 44,585 |  |  | 39,785 |  |  | 129,427 |  |  | 111,242 |
Cost of materials and other |  | 4,947 |  |  | 5,055 |  |  | 17,871 |  |  | 14,691 |
Operating expenses (excluding depreciation and amortization) |  | 12,547 |  |  | 9,499 |  |  | 36,109 |  |  | 29,054 |
Segment contribution margin |  | $ | 27,091 |  |  | $ | 25,231 |  |  | $ | 75,447 |  |  | $ | 67,497 |
Capital spending (1) |  | $ | 3,103 |  |  | $ | 2,086 |  |  | $ | 4,345 |  |  | $ | 4,320 |
Wholesale Marketing and Terminalling |  |  |  |  |  |  |  |
Net revenues: |  |  |  |  |  |  |  |
Affiliate (2) |  | $ | 27,343 |  |  | $ | 27,703 |  |  | $ | 78,836 |  |  | $ | 78,935 |
Third party |  | 65,628 |  |  | 96,622 |  |  | 237,119 |  |  | 308,134 |
Total wholesale marketing and terminalling |  | 92,971 |  |  | 124,325 |  |  | 315,955 |  |  | 387,069 |
Cost of materials and other |  | 67,647 |  |  | 100,541 |  |  | 244,842 |  |  | 315,953 |
Operating expenses (excluding depreciation and amortization) |  | 5,888 |  |  | 5,896 |  |  | 15,711 |  |  | 13,835 |
Segment contribution margin |  | $ | 19,436 |  |  | $ | 17,888 |  |  | $ | 55,402 |  |  | $ | 57,281 |
Capital spending (1) |  | $ | 889 |  |  | $ | 905 |  |  | $ | 1,893 |  |  | $ | 3,120 |
Consolidated |  |  |  |  |  |  |  |
Net revenues: |  |  |  |  |  |  |  |
Affiliate |  | $ | 66,647 |  |  | $ | 63,835 |  |  | $ | 191,530 |  |  | $ | 178,559 |
Third party |  | 70,909 |  |  | 100,275 |  |  | 253,852 |  |  | 319,752 |
Total Consolidated |  | 137,556 |  |  | 164,110 |  |  | 445,382 |  |  | 498,311 |
Cost of materials and other |  | 72,594 |  |  | 105,596 |  |  | 262,713 |  |  | 330,644 |
Operating expenses (excluding depreciation and amortization presented below) |  | 18,435 |  |  | 15,395 |  |  | 51,820 |  |  | 42,889 |
Contribution margin |  | $ | 46,527 |  |  | $ | 43,119 |  |  | $ | 130,849 |  |  | $ | 124,778 |
General and administrative expenses |  | 5,280 |  |  | 3,076 |  |  | 15,046 |  |  | 9,798 |
Depreciation and amortization |  | 6,588 |  |  | 6,702 |  |  | 19,801 |  |  | 19,721 |
(Gain) loss on asset disposals |  | (70 | ) |  | 717 |  |  | (95 | ) |  | 648 |
Operating income |  | $ | 34,729 |  |  | $ | 32,624 |  |  | $ | 96,097 |  |  | $ | 94,611 |
Capital spending (1) |  | $ | 3,992 |  |  | $ | 2,991 |  |  | $ | 6,238 |  |  | $ | 7,440 |

(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.
(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, 2019 and December 31, 2018 (in thousands):

|  | September 30, 2019 |  | December 31, 2018
Pipelines and transportation |  | $ | 529,219 |  |  | $ | 387,333 |
Wholesale marketing and terminalling |  | 238,588 |  |  | 237,260 |
Total assets |  | $ | 767,807 |  |  | $ | 624,593 |

17 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Property, plant and equipment and accumulated depreciation as of September 30, 2019 and depreciation expense by reporting segment for the three and nine months ended September 30, 2019 were as follows (in thousands):

|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Property, plant and equipment |  | $ | 361,478 |  |  | $ | 96,238 |  |  | $ | 457,716 |
Less: accumulated depreciation |  | (122,397 | ) |  | (37,226 | ) |  | (159,623 | )
Property, plant and equipment, net |  | $ | 239,081 |  |  | $ | 59,012 |  |  | $ | 298,093 |
Depreciation expense for the three months ended September 30, 2019 |  | $ | 5,240 |  |  | $ | 1,348 |  |  | $ | 6,588 |
Depreciation expense for the nine months ended September 30, 2019 |  | $ | 15,784 |  |  | $ | 4,017 |  |  | $ | 19,801 |

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, 2019.
Note 12 - 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.
The Partnership is not a taxable entity for federal income tax purposes. While most states do not impose an entity level tax on partnership income, the Partnership is subject to entity level tax in both Tennessee and Texas.
Note 13 - Commitments and Contingencies
Litigation
In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our financial statements. See "Crude Oil and Other Releases" below for discussion of an enforcement action.
Environmental, Health and Safety
We are subject to extensive federal, state and local environmental and safety laws and regulations enforced by various agencies, including the Environmental Protection Agency (the "EPA"), the United States Department of Transportation, the Occupational Safety and Health Administration, as well as numerous state, regional and local environmental, safety and pipeline agencies. These laws and regulations govern the discharge of materials into the environment, waste management practices and pollution prevention measures, as well as the safe operation of our pipelines and the safety of our workers and the public. Numerous permits or other authorizations are required under these laws and regulations for the operation of our terminals, pipelines, saltwells, trucks and related operations, and may be subject to revocation, modification and renewal. See "Crude Oil and Other Releases" below for discussion of an enforcement action.
These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters, which could include soil and water contamination, air pollution, personal injury and property damage allegedly caused by substances which we handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which we have assumed responsibility. We believe that our current operations are in substantial compliance with existing environmental and safety requirements. However, there have been and we expect that there will continue to be ongoing discussions about environmental and safety matters between us and federal and state authorities, including notices of violations, citations and other enforcement actions, some of which have resulted or may result in changes to operating procedures and in capital expenditures. While it is often difficult to quantify future environmental or safety related expenditures, we anticipate that continuing capital investments and changes in operating procedures will be required to comply with existing and new requirements, as well as evolving interpretations and more strict enforcement of existing laws and regulations.
Releases of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, or is not a reimbursable event under the Omnibus Agreement, subject us to substantial expenses, including costs to respond to, contain and remediate a release, to comply with applicable laws and regulations and to resolve claims by third parties for personal injury, property damage or natural resources damages.

18 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Crude Oil and Other Releases
We have experienced several crude oil and other releases involving our assets, including five releases that occurred in 2019 and six releases that occurred in 2018. Cleanup operations and site maintenance and remediation efforts on these and other releases are at various stages of completion. The majority of the remediation efforts for these releases have been substantially completed or have received regulatory closure. Boom maintenance and confirmatory sampling is currently underway at some sites. We expect regulatory closure by the end of 2019 for some release sites that have not yet received it, with closure on a few remaining sites occurring in 2020.
Many of the releases have occurred on our SALA Gathering System. During the nine months ended September 30, 2019, we decommissioned certain sections of the SALA Gathering System in an effort to improve the safety and integrity of the system. The decommissioning of these sections was completed in August 2019. The project did not have a material effect on the operational capabilities of the system.
Regulatory authorities could require additional remediation based on the results of our remediation efforts. We may incur additional expenses as a result of further scrutiny by regulatory authorities and continued compliance with laws and regulations to which our assets are subject. As of September 30, 2019, we have accrued $0.4 million for remediation and other such matters related to these releases, which excludes amounts payable discussed below for the release of crude oil from a pumping facility at our Magnolia Station near the El Dorado Refinery (the "Magnolia Release").
On October 3, 2019, a release of diesel fuel involving one of our pipelines occurred near Sulphur Springs, Texas (the "Sulphur Springs Release"). Cleanup operations and site maintenance and remediation on this release are expected to be completed by the end of the year. We currently estimate the maintenance and remediation efforts to cost between $4.0 million and $6.0 million, excluding any fines or penalties assessed by regulatory agencies. We anticipate that we will incur fines or penalties but we cannot currently estimate those costs. No accrual is recorded for the Sulphur Springs Release as of September 30, 2019, as the release occurred subsequent to that date. We are evaluating whether there may be potential recoveries or indemnification of the costs incurred for the Sulphur Springs Release.
Expenses incurred for the remediation of these crude oil and other releases are included in operating expenses in our condensed consolidated statements of income and comprehensive income and the majority are subsequently reimbursed by Delek Holdings pursuant to the terms of the Omnibus Agreement. Reimbursements are recorded as a reduction to operating expense. We do not believe the total costs associated with these events, whether alone or in the aggregate, including any fines or penalties and net of available insurance, indemnification or reimbursement, will have a material adverse effect upon our business, financial condition or results of operations as we are generally reimbursed by Delek Holdings for such costs.
During the three and nine months ended September 30, 2019, we recorded a no minal amount and $0.3 million of expenses, respectively, and $0.2 million and $0.3 million of expenses during the three and nine months ended September 30, 2018, which is net of total reimbursable costs from Delek Holdings pursuant to the terms of the Omnibus Agreement. Reimbursable costs amounted to $0.5 million and $4.6 million for the three and nine months ended September 30, 2019, respectively, and $1.0 million and $8.0 million for the three and nine months ended September 30, 2018, respectively, to cover the costs of asset failures.
The United States Department of Justice (the "DOJ"), on behalf of the EPA, and the state of Arkansas, on behalf of the Arkansas Department of Environmental Quality, have been pursuing an enforcement action against the Partnership with regard to potential violations of the Clean Water Act and certain state laws arising from the Magnolia Release since June 2015. On July 13, 2018, the DOJ and the State of Arkansas filed a civil action against two of the Partnership's wholly-owned subsidiaries, Delek Logistics Operating, LLC and SALA Gathering Systems LLC, in the United States District Court for the Western District of Arkansas.
In December 2018, the Partnership, the United States and the state of Arkansas reached an agreement to settle the claims related to the Magnolia Release for $2.2 million and the claims against the Partnership were resolved and an additional demand for a compliance audit at the Magnolia terminal was abandoned in exchange for payment of monetary penalties and other relief. In July 2019, we signed and submitted to the DOJ, a consent decree (the "Magnolia Consent Decree") to settle the release, and on August 30, 2019, the Magnolia Consent Decree was lodged with the Court. We expect the Magnolia Consent Decree to be finalized and to settle the payable in the fourth quarter of 2019. As of September 30, 2019, $2.2 million is recorded in accounts payable in our condensed consolidated balance sheet for the Magnolia Release.
Letters of Credit
As of September 30, 2019, we had no letters of credit in place.
Note 14 - Leases
We lease certain pipeline and transportation equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Our leases do not have any outstanding renewal options. Certain leases also include options to purchase the leased equipment.

19 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Certain of our lease agreements include rates based on equipment usage and others include rate inflationary indices based increases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table presents additional information related to our operating leases in accordance ASC 842:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2019 |  | 2019
Lease Cost |  |  |
Operating lease cost | $ | 1,744 |  |  | $ | 4,643 |
Short-term lease cost (1) | 47 |  |  | 850 |
Total lease cost | $ | 1,791 |  |  | $ | 5,493 |
Other Information |  |  |
Cash paid for amounts included in the measurement of lease liabilities |  |  |
Operating cash flows from operating leases | $ | (1,744 | ) |  | $ | (4,643 | )
Leased assets obtained in exchange for new operating lease liabilities | $ | 649 |  |  | $ | 649 |
|  |  | September 30, 2019
Weighted-average remaining lease term (years) for operating leases |  |  | 3.58 |
Weighted-average discount rate (2) operating leases |  |  | 7.8 | %

(1) Includes an immaterial amount of variable lease cost.
(2) Our discount rate is primarily based on our incremental borrowing rate in accordance with ASC 842.

The following is an estimate of the maturity of our lease liabilities for operating leases having remaining noncancelable terms in excess of one year as of September 30, 2019 (in thousands) under ASC 842:

October 1 to December 31, 2019 |  | $ | 1,533 |
2020 |  | 6,055 |
2021 |  | 5,755 |
2022 |  | 5,047 |
2023 |  | 2,459 |
Thereafter |  | — |
Total lease payments |  | 20,849 |
Less: Interest |  | 2,551 |
Present value of lease liabilities |  | $ | 18,298 |

The following is an estimate of our future minimum lease payments for operating leases having remaining noncancelable terms in excess of one year as of December 31, 2018 (in thousands) under ASC 840, Leases:

2019 |  | $ | 5,755 |
2020 |  | 5,659 |
2021 |  | 5,337 |
2022 |  | 5,031 |
2023 |  | 2,429 |
Thereafter |  | 8 |
Total future minimum lease payments |  | $ | 24,219 |

20 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 15 - Subsequent Events
Distribution Declaration
On October 25, 2019, our general partner's board of directors declared a quarterly cash distribution of $0.880 per unit, payable on November 12, 2019, to unitholders of record on November 4, 2019.
Sulphur Springs Release
On October 3, 2019, a release of diesel fuel occurred on one of our pipelines near Sulphur Springs, Texas. Cleanup operations and site maintenance and remediation efforts are expected to be completed by the end of the year. See Note 13 for additional information.

21 | |

Management's Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 1, 2019 (the "Annual Report on Form 10-K"). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See "Forward-Looking Statements" below for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.
Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," "we," "us," "our," or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Holdings" refer collectively to Delek US Holdings, Inc. and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner.
Effective March 1, 2018, the Partnership acquired from Delek Holdings certain logistics assets primarily located at or adjacent to Delek Holdings' Big Spring, Texas refinery (the "Big Spring Refinery"). See Note 2 to our accompanying condensed consolidated financial statements for additional information on the acquisition.
You should read the following discussion of our financial condition and results of operations in conjunction with our historical condensed consolidated financial statements and notes thereto.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to:

• | our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements;

• | our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all;

• | Delek Holdings' future growth, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution;

• | positive industry dynamics, including Permian Basin growth, efficiencies and takeaway capacity;

• | the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures;

• | changes in insurance markets impacting costs and the level and types of coverage available;

• | the timing and extent of changes in commodity prices and demand for refined products;

• | the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our west Texas wholesale business;

• | the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements, including the duration, fees or terms thereof;

• | the results of our investments in joint ventures;

• | the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements;

• | disruptions due to equipment interruption or failure, or other events, including cyber attacks, at our facilities, Delek

22 | |

Management's Discussion and Analysis
Holdings’ facilities or third-party facilities on which our business is dependent;

• | changes in the availability and cost of capital of debt and equity financing;

• | our reliance on information technology systems in our day-to-day operations;

• | changes in general economic conditions;

• | the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and those relating to environmental protection, pipeline integrity and safety;

• | competitive conditions in our industry;

• | actions taken by our customers and competitors;

• | the demand for crude oil, refined products and transportation and storage services;

• | our ability to successfully implement our business plan;

• | an inability to have growth projects completed on time and on budget;

• | our ability to successfully integrate acquired businesses;

• | disruptions due to acts of God, including natural disasters, weather-related delays, casualty losses and other matters beyond our control;

• | changes or volatility in interest and inflation rates;

• | labor relations;

• | large customer defaults;

• | changes in tax status and regulations;

• | the effects of future litigation; and

• | other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.
All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.
Business Overview

• | The Partnership primarily owns and operates crude oil, intermediate and refined products logistics and marketing assets.

• | We gather, transport, offload and store crude oil and intermediate products and market, distribute, transport and store refined products primarily in select regions of the southeastern United States and Texas for Delek Holdings and third parties.

• | A substantial majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries.

• | The Partnership is not a taxable entity for federal income tax purposes or the income taxes of those states that follow the federal income tax treatment of partnerships. Instead, for purposes of such income taxes, each partner of the Partnership is required to take into account its share of items 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 the fair market value of our assets and financial reporting bases of assets and liabilities, the acquisition price of the partner's units and the taxable income allocation requirements under the Partnership's First Amended and Restated Agreement of Limited Partnership, as amended (the "Partnership Agreement").

Our Reporting Segments and Assets
Our business consists of two reportable segments:
(i) Pipelines and Transportation
The assets and investments in our pipelines and transportation segment consist of and have been made in pipelines, tanks, offloading facilities, trucks and ancillary assets, which provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store and, therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment.
(ii) Wholesale Marketing and Terminalling
The assets in our wholesale marketing and terminalling segment consist of refined products terminals and pipelines in Texas, Tennessee, Arkansas and Oklahoma. We generate revenue in our wholesale marketing and terminalling segment by providing marketing services for the refined products output of the Tyler and Big Spring refineries, engaging in wholesale activity at our terminals in west Texas and at terminals

23 | |

Management's Discussion and Analysis
owned by third parties, whereby we purchase light products for sale and exchange to third parties, and by providing terminalling services at our refined products terminals to independent third parties and Delek Holdings.
2019 Developments
Inflation Adjustments
On July 1, 2019, the tariffs on our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek and third parties that are subject to adjustment using FERC indexing decreased by approximately 0.1%, the amount of the change in the FERC oil pipeline index. Under certain of our other agreements with Delek and third parties, the fees decreased and increased, respectively, based on the consumer price index or the producer price index, which decrease and increased approximately 1.7% and 4.7%, respectively.
Paline Pipeline Capacity
During the year ended December 31, 2018, we had separate agreements with an unrelated third party and a related party, Delek Refining, Ltd., for such parties to utilize certain capacity on the Paline Pipeline System. Pursuant to the terms of these agreements, each party executed a Transportation and Service Agreement, committing to a minimum volume commitment of 30,000 bpd (subject to proration), collectively using approximately 90% of the line capacity each month. The parties received the right to ship at a volume incentive rate of $0.75 per barrel. The initial term of each agreement ran through February 2019. The Partnership elected not to offer to extend these agreements and these agreements terminated on February 28, 2019. As a result, since March 1, 2019, the capacity previously used by these parties has been available for any party to ship on the capacity of the pipeline subject to a tariff on file with the FERC for service provided on the Paline Pipeline System, which is currently $1.57 per barrel.
Red River Pipeline Joint Venture
In May 2019, Delek Logistics Partners, LP (the “Partnership”), through its wholly owned indirect subsidiary DKL Pipeline, LLC (“DKL Pipeline”), entered into a Contribution and Subscription Agreement (the “Contribution Agreement”) with Plains Pipeline, L.P. (“Plains”) and Red River Pipeline Company LLC (“Red River”). Pursuant to the Contribution Agreement, DKL Pipeline contributed $124.7 million to Red River, which was financed by borrowings under the DKL Credit Facility, in exchange for a 33% membership interest in Red River and DKL Pipeline’s admission as a member of Red River ("Red River Pipeline Joint Venture"). Red River intends to proceed with an expansion project to increase the capacity of the pipeline from 150,000 barrels per day to 235,000 barrels per day and, pursuant to the Contribution Agreement, in May 2019 we contributed an additional $3.5 million for such expansion project. This joint venture supports our initiative to grow the midstream business, while increasing our crude oil sourcing flexibility. We expect this investment to generate significant EBITDA in its first twelve months, which will increase following the expansion project in the first half of 2020. See Note 10 to our accompanying condensed consolidated financial statements for additional information on the Red River Pipeline Joint Venture.
How We Generate Revenue
The Partnership generates revenue by charging fees to Delek Holdings and third parties for gathering, transporting, offloading and storing crude oil and for marketing, distributing, transporting, throughputting and storing intermediate and refined products. We also wholesale market refined products primarily in the west Texas market. A substantial majority of our contribution margin, which we define as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization, is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years, which gives us a contractual revenue base that we believe enhances the stability of our cash flows. As more fully described below, our commercial agreements with Delek Holdings typically include minimum volume or throughput commitments by Delek Holdings, which we believe will provide a stable revenue stream in the future. The fees charged under our agreements with Delek Holdings and third parties are indexed to inflation-based indices. In addition, the rates charged with respect to our assets that are subject to inflation indexing may increase or decrease, typically on July 1 of each year, by the amount of any change in various inflation-based indices, including FERC, provided that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement.
Commercial Agreements with Delek Holdings
The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings, and Delek Holdings commits to provide us with minimum monthly throughput volumes of crude oil, intermediate and refined products. Generally, these agreements include minimum quarterly volume, revenue or throughput commitments and have tariffs or fees indexed to inflation-based indices, provided that the tariffs or fees will not be decreased below the initial amount. See our Annual Report on Form 10-K filed with the SEC on March 1, 2019 for a discussion of our material commercial agreements with Delek Holdings.
Other Transactions
Starting in 2018, the Partnership manages a long-term capital project on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of a 250-mile gathering system in the Permian Basin (the

24 | |

Management's Discussion and Analysis
"Delek Permian Gathering Project"). The Partnership is also considered the operator for the project and is responsible for oversight of the project design, procurement and construction of project segments and provide other related services. See Note 4 for additional information on this agreement.
How We Evaluate Our Operations
We use a variety of financial and operating metrics to analyze our segment performance. These metrics are significant factors in assessing our operating results and profitability and include:

(i) | volumes (including pipeline throughput and terminal volumes);

(ii) | contribution margin per barrel;

(iii) | operating and maintenance expenses;

(iv) | cost of materials and other; and

(v) | EBITDA and distributable cash flow (as such terms are defined below).

Volumes
The amount of revenue we generate primarily depends on the volumes of crude oil and refined products that we handle in our pipeline, transportation, terminalling, storage and marketing operations. These volumes are primarily affected by the supply of and demand for crude oil, intermediate and refined products in the markets served directly or indirectly by our assets. Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by:

• | Delek Holdings' utilization of our assets in excess of its minimum volume commitments;

• | our ability to identify and execute acquisitions and organic expansion projects, and capture incremental volume increases from Delek Holdings or third parties;

• | our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals;

• | our ability to identify and serve new customers in our marketing and trucking operations; and

• | our ability to make connections to third-party facilities and pipelines.

Contribution Margin per Barrel
Because we do not allocate general and administrative expenses by segment, we measure the performance of our segments by the amount of contribution margin (defined above) generated in operations.
For our wholesale marketing and terminalling segment, we also measure gross margin per barrel. Gross margin per barrel reflects the gross margin (net revenues less cost of materials and other) of the wholesale marketing operations divided by the number of barrels of refined products sold during the measurement period. Both contribution margin and gross margin per barrel can be affected by fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and Renewable Identification Numbers ("RINs"). Historically, the profitability of our wholesale marketing operations has been affected by commodity price volatility, specifically as it relates to changes in the price of refined products between the time we purchase such products from our suppliers and the time we sell the products to our wholesale customers, and the fluctuation in the value of RINs. Commodity price volatility may also impact our wholesale marketing operations when the selling price of refined products does not adjust as quickly as the purchase price. Our wholesale marketing gross margin can also be impacted by fixed price ethanol agreements that we enter into to fix the price we pay for ethanol.
Operating and Maintenance Expenses
We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses. Additionally, compliance with federal, state and local laws and regulations relating to the protection of the environment, health and safety may require us to incur additional expenditures. We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow.

25 | |

Management's Discussion and Analysis
Cost of Materials and Other

(i) | all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products;

(ii) | costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other

costs related to fuel, truck leases and repairs and maintenance;

(iii) | the cost of pipeline capacity leased from any third parties; and

(iv) | gains and losses related to our commodity hedging activities.

Financing
The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.88 per unit for the quarter ended September 30, 2019 ($3.52 per unit on an annualized basis). Our Partnership Agreement requires that the Partnership distribute to its unitholders quarterly all of its available cash as defined in the Partnership Agreement. As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our senior secured revolving credit agreement and any potential future issuances of equity and debt securities. See Note 8 to the condensed consolidated financial statements for a discussion of historic cash distributions.
Market Trends
Master Limited Partnerships
Fluctuations in crude oil prices and the prices of related refined products impact our operations and the operations of other master limited partnerships in the midstream energy sector. In particular, crude oil prices and the prices of related refined products have the ability to influence drilling activity in many basins and the amounts of capital spending that crude oil exploration and production companies incur to support future growth. Throughout the majority of 2018, the prices of crude oil and related refined products remained relatively consistent. However, during the fourth quarter of 2018, the prices of crude oil and related refined products decreased significantly due to seasonal impacts. During the first half of 2019, the prices of crude oil and related refined products began to rebound and increase but fell slightly in the third quarter. Drilling activity, particularly in the Permian Basin, which has attractive drilling economics supported by improved efficiencies and drilling cost, continues to be a source of favorable market conditions in the area. As a result, our assets remain in demand and our operations will benefit from this environment, particularly in the west Texas area where our results are most driven by market factors. Additionally, we believe these market conditions will continue to facilitate the development of profitable growth projects that are needed to support future distribution growth in the midstream energy sector and for the Partnership.
We are aware that certain industry participants structured as master limited partnerships have addressed certain key variables (including investor sentiments, declining distributions, and recent changes in tax law, among others) by restructuring as entities subject to tax as corporations. These variables are unique for each such restructuring or restructured master limited partnership. We have no current plan or intention to undertake a similar restructuring.
West Texas Marketing Operations
Overall demand for gathering and terminalling services in a particular area is generally driven by crude oil production in the area, which can be impacted by crude oil prices, refining economics and access to alternate delivery and transportation infrastructure. Additionally, volatility in crude oil, intermediate and refined products prices in the west Texas area and the value attributable to RINs can affect the results of our west Texas operations. For example, as discussed above, drilling activity and the prices of crude oil and related refined products were stable for the majority of 2018 and in spite of a decrease in prices during the fourth quarter of 2018, demand for refined products from our west Texas operations to industries that support crude oil exploration and production began to rebound in the first half of 2019 with a slight reduction in the third quarter, although finished products prices saw a larger decrease. See illustrative charts below.

26 | |

Management's Discussion and Analysis
See chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2018 and for the three quarterly periods in 2019.
Also, the volatility of refined products prices may impact our margin in the west Texas operations when the selling price of refined products does not adjust as quickly as the purchase price. See the charts below for the range of prices per gallon of gasoline and diesel for each of the quarterly periods in 2018 and for the three quarterly periods in 2019.

27 | |

Management's Discussion and Analysis

Our west Texas operations can benefit from RINs that are generated by ethanol blending activities. As a result, changes in the price of RINs can affect our results of operations. The RINs we generate are sold primarily to Delek Holdings at market prices. We sold approximately $0.3 million of RINs to Delek Holdings during the third quarter of 2019 and $0.9 million of RINs to Delek Holdings for the nine months ended September 30, 2019. We sold approximately $0.3 million of RINs to Delek Holdings during the third quarter of 2018 and $2.3 million of RINs to Delek Holdings for the nine months ended September 30, 2018. See the chart below for the high, low and average prices of RINs for each of the quarterly periods in 2018 and in the three quarterly periods in 2019.

All of these factors are subject to change over time. As part of our overall business strategy, management considers aspects such as location, acquisition and expansion opportunities and factors impacting the utilization of the refineries (and therefore throughput volumes), which may impact our performance in the market.
Contractual Obligations
There have been no material changes to our contractual obligations and commercial commitments during the nine months ended September 30, 2019, from those disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult, complex or subjective judgments or estimates. Based on this definition and as further described in our Annual Report on Form 10-K, we believe our critical accounting policies include the following: (i) evaluating impairment for property, plant and equipment and definite life intangibles, (ii) evaluating potential impairment of goodwill, and (iii) estimating environmental expenditures. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies or estimates since our most recently filed Annual Report on Form 10-K. See Note 1 of the condensed consolidated financial statements in Item 1, Financial Statements for discussion of updates to our accounting policies.

28 | |

Management's Discussion and Analysis
Non-GAAP Measures
Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• | Earnings before interest, taxes , depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income.

• | Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash. Delek Logistics believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.

EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

• | our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;

• | the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;

• | our ability to incur and service debt and fund capital expenditures; and

• | the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA and distributable cash flow have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. For a reconciliation of EBITDA and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP, please refer to "Results of Operations" below.

29 | |

Management's Discussion and Analysis
Results of Operations
A discussion and analysis of the factors contributing to our results of operations is presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
The following table and discussion present a summary of our consolidated results of operations for the three and nine months ended September 30, 2019 and 2018, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.
Statement of Operations Data (in thousands, except unit and per unit amounts)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net revenues: |  |  |  |  |  |  |  |
Pipelines and transportation |  | $ | 44,585 |  |  | $ | 39,785 |  |  | $ | 129,427 |  |  | $ | 111,242 |
Wholesale marketing and terminalling |  | 92,971 |  |  | 124,325 |  |  | 315,955 |  |  | 387,069 |
Total |  | 137,556 |  |  | 164,110 |  |  | 445,382 |  |  | 498,311 |
Operating costs and expenses: |  |  |  |  |  |  |  |
Cost of materials and other |  | 72,594 |  |  | 105,596 |  |  | 262,713 |  |  | 330,644 |
Operating expenses (excluding depreciation and amortization) |  | 18,435 |  |  | 15,395 |  |  | 51,820 |  |  | 42,889 |
General and administrative expenses |  | 5,280 |  |  | 3,076 |  |  | 15,046 |  |  | 9,798 |
Depreciation and amortization |  | 6,588 |  |  | 6,702 |  |  | 19,801 |  |  | 19,721 |
(Gain) loss on asset disposals |  | (70 | ) |  | 717 |  |  | (95 | ) |  | 648 |
Total operating costs and expenses |  | 102,827 |  |  | 131,486 |  |  | 349,285 |  |  | 403,700 |
Operating income |  | 34,729 |  |  | 32,624 |  |  | 96,097 |  |  | 94,611 |
Interest expense, net |  | 12,509 |  |  | 11,108 |  |  | 35,164 |  |  | 30,096 |
Income from equity method investments |  | (8,394 | ) |  | (1,924 | ) |  | (14,860 | ) |  | (4,681 | )
Other expense, net |  | — |  |  | 8 |  |  | 461 |  |  | 8 |
Total non-operating costs and expenses |  | 4,115 |  |  | 9,192 |  |  | 20,765 |  |  | 25,423 |
Income before income tax expense |  | 30,614 |  |  | 23,432 |  |  | 75,332 |  |  | 69,188 |
Income tax expense |  | 84 |  |  | 106 |  |  | 220 |  |  | 285 |
Net income attributable to partners |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
Comprehensive income attributable to partners |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
EBITDA(1) |  | $ | 51,514 |  |  | $ | 43,045 |  |  | $ | 135,705 |  |  | $ | 123,212 |
Less: General partner's interest in net income, including incentive distribution rights |  | 8,895 |  |  | 6,636 |  |  | 24,244 |  |  | 18,478 |
Limited partners' interest in net income |  | $ | 21,635 |  |  | $ | 16,690 |  |  | $ | 50,868 |  |  | $ | 50,425 |
Net income per limited partner unit: |  |  |  |  |  |  |  |
Common units - basic |  | $ | 0.89 |  |  | $ | 0.68 |  |  | $ | 2.08 |  |  | $ | 2.07 |
Common units - diluted |  | $ | 0.89 |  |  | $ | 0.68 |  |  | $ | 2.08 |  |  | $ | 2.07 |
Weighted average limited partner units outstanding: |  |  |  |  |  |  |  |
Common units - basic |  | 24,417,285 |  |  | 24,395,183 |  |  | 24,411,308 |  |  | 24,387,995 |
Common units - diluted |  | 24,420,582 |  |  | 24,401,908 |  |  | 24,417,466 |  |  | 24,395,880 |

(1) For a definition of EBITDA, please see "Non-GAAP Measures" above.

30 | |

Management's Discussion and Analysis
Non-GAAP Reconciliations
The following table provides a reconciliation of EBITDA and distributable cash flow to the most directly comparable U.S. GAAP measure, or net income and net cash from operating activities, respectively.
Reconciliation of net income to EBITDA (in thousands)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net income |  | $ | 30,530 |  |  | $ | 23,326 |  |  | $ | 75,112 |  |  | $ | 68,903 |
Add: |  |  |  |  |  |  |  |
Income tax expense |  | 84 |  |  | 106 |  |  | 220 |  |  | 285 |
Depreciation and amortization |  | 6,588 |  |  | 6,702 |  |  | 19,801 |  |  | 19,721 |
Amortization of customer contract intangible assets |  | 1,803 |  |  | 1,803 |  |  | 5,408 |  |  | 4,207 |
Interest expense, net |  | 12,509 |  |  | 11,108 |  |  | 35,164 |  |  | 30,096 |
EBITDA (1) |  | $ | 51,514 |  |  | $ | 43,045 |  |  | $ | 135,705 |  |  | $ | 123,212 |

Reconciliation of net cash from operating activities to distributable cash flow (in thousands)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net cash provided by operating activities |  | $ | 34,261 |  |  | $ | 5,957 |  |  | 84,589 |  |  | $ | 57,600 |
Changes in assets and liabilities |  | 3,237 |  |  | 28,079 |  |  | 14,222 |  |  | 38,000 |
Distributions from equity method investments in investing activities |  | — |  |  | 297 |  |  | 804 |  |  | 957 |
Non-cash lease expense |  | (1,145 | ) |  | — |  |  | (2,554 | ) |  | — |
Maintenance and regulatory capital expenditures (2) |  | (3,728 | ) |  | (2,380 | ) |  | (5,515 | ) |  | (3,721 | )
Reimbursement from Delek Holdings for capital expenditures (3) |  | 1,223 |  |  | 1,292 |  |  | 2,607 |  |  | 2,179 |
Accretion of asset retirement obligations |  | (100 | ) |  | (92 | ) |  | (298 | ) |  | (267 | )
Deferred income taxes |  | (118 | ) |  | — |  |  | (115 | ) |  | — |
Loss on asset disposals |  | 70 |  |  | (717 | ) |  | 95 |  |  | (648 | )
Distributable cash flow (1) |  | $ | 33,700 |  |  | $ | 32,436 |  |  | $ | 93,835 |  |  | $ | 94,100 |

(1) | For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures" above.
(2) | Maintenance and regulatory capital expenditures represent cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity. Examples of maintenance and regulatory capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations.
(3) | For the three and nine month periods ended September 30, 2019 and 2018, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

31 | |

Management's Discussion and Analysis
Consolidated Results of Operations — Comparison of the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
The table below presents a summary of our consolidated results of operations. The discussion immediately following presents the consolidated results of operations (in thousands):

Consolidated
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Net Revenues: |  |  |  |  |  |  |
Affiliates | $ | 66,647 |  |  | $ | 63,835 |  |  | $ | 191,530 |  |  | 178,559 |
Third-Party | 70,909 |  |  | 100,275 |  |  | 253,852 |  |  | 319,752 |
Total Consolidated | 137,556 |  |  | 164,110 |  |  | 445,382 |  |  | 498,311 |
Cost of materials and other | 72,594 |  |  | 105,596 |  |  | 262,713 |  |  | 330,644 |
Operating expenses (excluding depreciation and amortization presented below) | 18,435 |  |  | 15,395 |  |  | 51,820 |  |  | 42,889 |
Contribution margin | 46,527 |  |  | 43,119 |  |  | 130,849 |  |  | 124,778 |
General and administrative expenses | 5,280 |  |  | 3,076 |  |  | 15,046 |  |  | 9,798 |
Depreciation and amortization | 6,588 |  |  | 6,702 |  |  | 19,801 |  |  | 19,721 |
(Gain) loss on asset disposals | (70 | ) |  | 717 |  |  | (95 | ) |  | 648 |
Operating income | $ | 34,729 |  |  | $ | 32,624 |  |  | $ | 96,097 |  |  | $ | 94,611 |

Net Revenues
Q3 2019 vs. Q3 2018
Net revenues decreased by $26.6 million, or 16.2%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | decreases in the average volumes sold and in the average sales prices per gallon of gasoline and diesel in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 2.2 million gallons and 8.0 million gallons, respectively.

◦ | the average sales prices per gallon of gasoline and diesel sold decreased $0.24 per gallon and $0.33 per gallon, respectively.

Such decreases were partially offset by the following:

• | increased revenues for marketing and terminalling services under the agreements associated with certain of our assets in Big Spring, Texas as a result of increased throughput;

• | increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the third quarter of 2018, during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee, compared to the third quarter of 2019, during which the pipeline was subject to a FERC tariff;

• | increased revenues from fees received by the Partnership related to the management of the Delek Permian Gathering Project during the third quarter of 2019 for which there were no fees earned during the third quarter of 2018; and

• | increased revenues associated with our trucking assets.

YTD 2019 vs. YTD 2018
Net revenues decreased by $52.9 million, or 10.6%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | decreases in the average volumes sold and in the average sales prices per gallon of gasoline and diesel in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 8.5 million gallons and 15.2 million gallons, respectively.

◦ | the average sales prices per gallon of gasoline and diesel sold decreased $0.22 per gallon and $0.21 per gallon, respectively.

32 | |

Management's Discussion and Analysis
Such decreases were partially offset by the following:

• | increased revenues associated with the assets we acquired in the Big Spring Logistic Assets Acquisition, which we owned for the entirety of the nine months ended September 30, 2019 compared to seven months during the nine months ended September 30, 2018;

• | increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the nine months ended September 30, 2018, during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee, compared to the nine months ended September 30, 2019, during which the pipeline was subject to a FERC tariff;

• | increased revenues from fees received by the Partnership related to the management of the Delek Permian Gathering Project during the nine months ended September 30, 2019 for which there were no fees earned during the nine months ended September 30, 2018; and

• | increased revenues associated with our trucking assets.

Cost of Materials and Other
Q3 2019 vs. Q3 2018
Cost of materials and other decreased by $33.0 million, or 31.3%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | decreases in the average volumes sold and in the average cost per gallon of gasoline and diesel sold in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 2.2 million gallons and 8.0 million gallons, respectively.

◦ | the average cost per gallon of gasoline and diesel sold decreased $0.26 per gallon and $0.31 per gallon, respectively.

YTD 2019 vs. YTD 2018
Cost of materials and other decreased by $67.9 million, or 20.5%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | decreases in the average volumes sold and in the average cost per gallon of gasoline and diesel sold in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 8.5 million gallons and 15.2 million gallons, respectively.

◦ | the average cost per gallon of gasoline and diesel sold decreased $0.22 per gallon and $0.18 per gallon, respectively.

Operating Expenses
Q3 2019 vs. Q3 2018
Operating expenses increased by $3.0 million, or 19.7%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | higher operating costs associated with various logistics assets, including variable expenses such as utilities, contractor and materials costs; and

• | a reduction in expense associated with expenditures on certain of our assets during the third quarter of 2018, with no comparable reduction during the third quarter of 2019.

YTD 2019 vs. YTD 2018
Operating expenses increased by $8.9 million, or 20.8%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | higher operating costs associated with allocated contract services pertaining to certain of our assets; and

• | higher employee costs allocated to us as a result of an increase in allocated employee headcount in various operational groups as the Partnership continues to experience growth.

These increases were partially offset by:

• | decreases in variable expenses such as utilities, maintenance and materials costs.

33 | |

Management's Discussion and Analysis
General and Administrative Expenses
Q3 2019 vs. Q3 2018
General and administrative expenses increased by $2.2 million, or 71.7%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | a reduction in employee related expenses allocated to us in connection with the management of various projects for Delek Holdings pursuant to the DPG Management Agreement during the third quarter of 2018, with no comparable expense reduction during the third quarter of 2019.

YTD 2019 vs. YTD 2018
General and administrative expenses increased by $5.2 million, or 53.6%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | a reduction in employee related expenses allocated to us in connection with the management of various projects for Delek Holdings pursuant to the DPG Management Agreement during the nine months ended September 30, 2018, with no comparable expense reduction during the nine months ended September 30, 2019, as these fees were reclassified to revenue for 2019;

• | increases in allocated employee headcount in various operational groups as the Partnership continues to experience growth; and

• | increases in professional consulting fees associated with the Red River Pipeline Joint Venture.

Depreciation and Amortization
The changes in depreciation and amortization for both the third quarter of 2019 compared to the third quarter of 2018 and the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 were immaterial.

Interest Expense
Q3 2019 vs. Q3 2018
Interest expense increased by $1.4 million, or 12.6% in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | increased borrowings under the DKL Credit Facility as a result of our contribution to the Red River Pipeline Joint Venture in May 2019, prior to which we had lower average debt balances; and

• | higher floating interest rates applicable to the DKL Credit Facility.

YTD 2019 vs. YTD 2018
Interest expense increased by $5.1 million, or 16.8%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | increased borrowings under the DKL Credit Facility as a result of the Big Spring Logistic Assets Acquisition that occurred late in the first quarter of 2018 and our contribution to the Red River Pipeline Joint Venture in May 2019, prior to which we had lower average debt balances; and

• | higher floating interest rates applicable to the DKL Credit Facility.

Results from Equity Method Investments
Q3 2019 vs. Q3 2018
We recognized income of $8.4 million from equity method investments during the third quarter of 2019 compared to $1.9 million for the third quarter of 2018, an increase of $6.5 million, or 336.3%. This increase was primarily driven by the following:

• | the addition of the Red River Pipeline Joint Venture as a result of the Partnership's efforts to grow the midstream business; and

• | an increase in income from our investments in Andeavor Logistics and CP LLC (as defined in Note 10), which operate the RIO Pipeline and the Caddo Pipeline System, respectively, as a result of increased revenues for both pipeline systems.

34 | |

Management's Discussion and Analysis
YTD 2019 vs. YTD 2018
During the nine months ended September 30, 2019, we recognized income of $14.9 million from equity method investments, compared to $4.7 million for the nine months ended September 30, 2018, an increase of $10.2 million, or 217.5%. This increase was primarily driven by the following:

• | the addition of the Red River Pipeline Joint Venture as a result of the Partnership's efforts to grow the midstream business; and

• | an increase in income from our investments in Andeavor Logistics and CP LLC.

35 | |

Management's Discussion and Analysis
Operating Segments
We review operating results in two reportable segments: (i) pipelines and transportation and (ii) wholesale marketing and terminalling. 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 the segment contribution margin. Segment reporting is discussed in more detail in Note 11 to our accompanying condensed consolidated financial statements.

Segment contribution margin = | Net revenues - | Cost of materials and other - | Operating expenses, excluding depreciation and amortization

Pipelines and Transportation Segment
Our pipelines and transportation segment assets provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services to Delek Holdings and third parties. These assets include:

• | the Lion Pipeline System

• | the SALA Gathering System

• | the Paline Pipeline System

• | the East Texas Crude Logistics System

• | the Tyler-Big Sandy Pipeline

• | the El Dorado Tank Assets and El Dorado Rail Offloading Racks

• | the Tyler Tank Assets and Tyler Crude Tank

• | the Greenville-Mount Pleasant Pipeline and Greenville Storage Facility

• | refined product pipeline capacity leased from Enterprise TE Products Pipeline Company ("Enterprise") that runs from El Dorado, Arkansas to our Memphis terminal and the Big Spring Pipeline

• | Effective March 1, 2018, this segment also includes the pipelines and storage assets acquired in the Big Spring Logistic Assets Acquisition

In addition to these operating systems, we own or lease 125 tractors and 166 trailers used to haul primarily crude oil and other products for related and third parties.
The following tables and discussion present the results of operations and operating statistics of material assets of the pipelines and transportation segment for the three and nine months ended September 30, 2019 and 2018:

Pipelines and Transportation
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Net Revenues: |  |  |  |
Affiliates | $ | 39,304 |  |  | $ | 36,132 |  |  | 112,694 |  |  | $ | 99,624 |
Third-Party | 5,281 |  |  | 3,653 |  |  | 16,733 |  |  | 11,618 |
Total Pipelines and Transportation | 44,585 |  |  | 39,785 |  |  | 129,427 |  |  | 111,242 |
Cost of materials and other | 4,947 |  |  | 5,055 |  |  | 17,871 |  |  | 14,691 |
Operating expenses (excluding depreciation and amortization presented below) | 12,547 |  |  | 9,499 |  |  | 36,109 |  |  | 29,054 |
Segment contribution margin | $ | 27,091 |  |  | $ | 25,231 |  |  | $ | 75,447 |  |  | $ | 67,497 |

Throughputs (average bpd)
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Lion Pipeline System: |  |  |  |  |  |  |
Crude pipelines (non-gathered) | 49,477 |  |  | 59,150 |  |  | 43,446 |  |  | 56,672 |
Refined products pipelines to Enterprise Systems | 43,518 |  |  | 43,762 |  |  | 32,242 |  |  | 47,154 |
SALA Gathering System | 21,632 |  |  | 16,704 |  |  | 21,143 |  |  | 16,705 |
East Texas Crude Logistics System | 25,391 |  |  | 14,284 |  |  | 21,045 |  |  | 16,402 |

36 | |

Management's Discussion and Analysis
Comparison of the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Net Revenues
Q3 2019 vs. Q3 2018
Net revenues for the pipelines and transportation segment increased by $4.8 million, or 12.1%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the third quarter of 2018, during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee, compared to the third quarter of 2019, during which the pipeline was subject to a FERC tariff;

• | increased revenues from fees received by the Partnership related to the management of the Delek Permian Gathering Project during the third quarter of 2019 for which there were no fees earned during the third quarter of 2018; and

• | increased revenues associated with our trucking assets.

YTD 2019 vs. YTD 2018
Net revenues for the pipelines and transportation segment increased by $18.2 million, or 16.3%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | increased revenues generated by the pipelines and storage assets acquired in the Big Spring Logistic Assets Acquisition, which we owned for the entirety of the nine months ended September 30, 2019 compared to seven months during the nine months ended September 30, 2018;

• | increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the nine months ended September 30, 2018 during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee compared to the nine months ended September 30, 2019, during which the pipeline was subject to a FERC tariff; and

• | increased revenues from fees received by the Partnership related to the management of the Delek Permian Gathering Project during the nine months ended September 30, 2019 for which there were no fees earned during the nine months ended September 30, 2018; and

• | increased revenues associated with our trucking assets.

Cost of Materials and Other
Q3 2019 vs. Q3 2018
The change in cost of materials and other for the pipelines and transportation segment in the third quarter of 2019 compared to the third quarter of 2018 was immaterial.
YTD 2019 vs. YTD 2018
Cost of materials and other for the pipelines and transportation segment increased by $3.2 million, or 21.6%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | increased costs associated with product purchases from a third party for resale, which were resold at a loss, in the nine months ended September 30, 2019, with no comparable activity in the nine months ended September 30, 2018;

• | increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expense proportionate to increase in fees, insurance, supplies and maintenance expenses; and

• | increased costs associated with our leased refined product pipeline capacity pursuant to the provisions of a new agreement for the capacity that was effective June 1, 2018.

Operating Expenses
Q3 2019 vs. Q3 2018
Operating expenses for the pipelines and transportation segment increased by $3.0 million, or 32.1%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

37 | |

Management's Discussion and Analysis

• | higher operating costs associated with various logistics assets, including variable expenses such as utilities, contractor and materials costs; and

• | a reduction in expense associated with expenditures on certain of our assets during the third quarter of 2018, with no comparable reduction during the third quarter of 2019.

YTD 2019 vs. YTD 2018
Operating expenses for the pipelines and transportation segment increased $7.1 million, or 24.3%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | higher operating costs associated with allocated contract services pertaining to certain of our assets; and

• | higher employee costs allocated to us as a result of an increase in allocated employee headcount in various operational groups as the Partnership continues to experience growth.

These increases were partially offset by:

• | decreases in variable expenses such as utilities, maintenance and materials costs.

Contribution Margin
Q3 2019 vs. Q3 2018
Contribution margin for the pipelines and transportation segment increased by $1.9 million, or 7.4%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | increases in net revenues associated with our Paline Pipeline System, the Delek Permian Gathering Project, and our trucking assets, as described above.

YTD 2019 vs. YTD 2018
Contribution margin for the pipelines and transportation segment increased by $8.0 million, or 11.8%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | increases in net revenues generated under the agreements executed in connection with our Paline Pipeline System, the Big Spring Logistic Assets Acquisition, and the Delek Permian Gathering Project, as described above.

38 | |

Management's Discussion and Analysis
Wholesale Marketing and Terminalling Segment
We use our wholesale marketing and terminalling assets to generate revenue by providing wholesale marketing and terminalling services to Delek Holdings' refining operations and to independent third parties.
The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three and nine months ended September 30, 2019 and 2018:

Wholesale Marketing and Terminalling
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Net Revenues: |  |  |  |  |  |  |
Affiliates | $ | 27,343 |  |  | $ | 27,703 |  |  | 78,836 |  |  | $ | 78,935 |
Third-Party | 65,628 |  |  | 96,622 |  |  | 237,119 |  |  | 308,134 |
Total Wholesale Marketing and Terminalling | 92,971 |  |  | 124,325 |  |  | 315,955 |  |  | 387,069 |
Cost of materials and other | 67,647 |  |  | 100,541 |  |  | 244,842 |  |  | 315,953 |
Operating expenses (excluding depreciation and amortization presented below) | 5,888 |  |  | 5,896 |  |  | 15,711 |  |  | 13,835 |
Segment contribution margin | $ | 19,436 |  |  | $ | 17,888 |  |  | $ | 55,402 |  |  | $ | 57,281 |

Operating Information
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
East Texas - Tyler Refinery sales volumes (average bpd) (1) | 83,953 |  |  | 79,404 |  |  | 74,607 |  |  | 77,349 |
Big Spring marketing throughputs (average bpd) (2) | 80,203 |  |  | 80,687 |  |  | 83,608 |  |  | 79,819 |
West Texas marketing throughputs (average bpd) | 9,535 |  |  | 12,197 |  |  | 11,446 |  |  | 13,453 |
West Texas gross margin per barrel | $ | 4.82 |  |  | $ | 4.65 |  |  | $ | 4.83 |  |  | $ | 5.88 |
Terminalling throughputs (average bpd) (3) | 170,727 |  |  | 167,491 |  |  | 160,621 |  |  | 159,457 |

(1) | Excludes jet fuel and petroleum coke.
(2) | Throughputs for the nine months ended September 30, 2018 are for the 214 days we marketed certain finished products produced at or sold from the Big Spring Refinery following the execution of the Big Spring Marketing Agreement, effective March 1, 2018, as defined in Note 2 to our accompanying condensed consolidated financial statements.
(3) | Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, our El Dorado and North Little Rock, Arkansas and our Memphis and Nashville, Tennessee terminals. Throughputs for the Big Spring terminal for nine months ended September 30, 2018 are for the 214 days we operated the terminal following its acquisition effective March 1, 2018. Barrels per day are calculated for only the days we operated each terminal. Total throughput for the nine months ended September 30, 2018 was 41.4 million barrels, which averaged 151,646 bpd for the period.

Comparison of the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Net Revenues
Q3 2019 vs. Q3 2018
Net revenues for the wholesale marketing and terminalling segment decreased by $31.4 million, or 25.2%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | decreases in the average volumes sold and in the average sales prices per gallon of gasoline and diesel sold in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 2.2 million gallons and 8.0 million gallons, respectively.

◦ | the average sales prices per gallon of gasoline and diesel sold decreased $0.24 per gallon and $0.33 per gallon, respectively.

39 | |

Management's Discussion and Analysis
Such decreases were partially offset by the following:

◦ | increased revenues generated by the marketing and terminalling assets acquired in the Big Spring Logistic Assets Acquisition as a result of increased throughput.

YTD 2019 vs. YTD 2018
Net revenues for the wholesale marketing and terminalling segment decreased by $71.1 million, or 18.4%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | decreases in the average volumes sold and in the average sales prices per gallon of gasoline and diesel sold in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 8.5 million gallons and 15.2 million gallons, respectively.

◦ | the average sales prices per gallon of gasoline and diesel sold decreased $0.22 per gallon and $0.21 per gallon, respectively.

Such decreases were partially offset by the following:

◦ | increased revenues generated by the marketing and terminalling assets acquired in the Big Spring Logistic Assets Acquisition, which we owned for the entirety of the nine months ended September 30, 2019 compared to seven months during the nine months ended September 30, 2018.

The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our west Texas operations.

40 | |

Management's Discussion and Analysis
Cost of Materials and Other
Q3 2019 vs. Q3 2018
Cost of materials and other for our wholesale marketing and terminalling segment decreased by $32.9 million, or 32.7%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | decreases in the average volumes and in the average cost per gallon of gasoline and diesel sold in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 2.2 million gallons and 8.0 million gallons, respectively.

◦ | the average cost per gallon of gasoline and diesel sold decreased $0.26 per gallon and $0.31 per gallon, respectively.

YTD 2019 vs. YTD 2018
Cost of materials and other for our wholesale marketing and terminalling segment decreased by $71.1 million, or 22.5%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | decreases in the average volumes and in the average cost per gallon of gasoline and diesel sold in our west Texas marketing operations.

◦ | the average volumes of gasoline and diesel sold decreased 8.5 million gallons and 15.2 million gallons, respectively.

◦ | the average cost per gallon of gasoline and diesel sold decreased $0.22 per gallon and $0.18 per gallon, respectively.

The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our west Texas operations for the three and nine months ended September 30, 2019 and 2018. Refer to the Refined Products Volume chart above for a summary of volumes impacting our west Texas operations.

Operating Expenses
Q3 2019 vs. Q3 2018
The change in operating expenses in the third quarter of 2019 compared to the third quarter of 2018 was immaterial.
YTD 2019 vs. YTD 2018
Operating expenses increased by $1.9 million, or 13.6%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | higher employee costs allocated to us as a result of an increase in allocated employee headcount in various operational groups as the Partnership continues to experience growth.

41 | |

Management's Discussion and Analysis
Contribution Margin
Q3 2019 vs. Q3 2018
Contribution margin for the wholesale marketing and terminalling segment increased by $1.5 million, or 8.7%, in the third quarter of 2019 compared to the third quarter of 2018, primarily driven by the following:

• | revenue associated with our marketing and terminalling services associated with our assets in Big Spring, Texas,

Such increases were partially offset by:

• | decreases in revenue in our west Texas operations as described above.

YTD 2019 vs. YTD 2018
Contribution margin for the wholesale marketing and terminalling segment decreased by $1.9 million, or 3.3%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by the following:

• | decreases in the average sales prices per gallon of gasoline and diesel sold in our west Texas marketing operations as described above.

Such decreases were partially offset by:

• | net revenues under the agreements executed in connection with the Big Spring Logistic Assets Acquisition as described above.

42 | |

Management's Discussion and Analysis
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:

(i) cash generated from operations; | (iii) potential issuance of additional equity; and
(ii) borrowings under our revolving credit facility; | (iv) potential issuance of additional debt securities.

We believe we have sufficient financial resources to meet our business requirements in the next 12 months, including minimum quarterly cash distributions and capital expenditures.
Cash Distributions
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 interest and IDRs (in thousands) |  | Date of Distribution |  | Unitholders Record Date
September 30, 2018 |  | $ | 0.790 |  |  | $ | 3.16 |  |  | $ | 25,960 |  |  | November 9, 2018 |  | November 2, 2018
December 31, 2018 |  | $ | 0.810 |  |  | $ | 3.24 |  |  | $ | 26,949 |  |  | February 12, 2019 |  | February 4, 2019
March 31, 2019 |  | $ | 0.820 |  |  | $ | 3.28 |  |  | $ | 27,438 |  |  | May 14, 2019 |  | May 7, 2019
June 30, 2019 |  | $ | 0.850 |  |  | $ | 3.40 |  |  | $ | 28,914 |  |  | August 13, 2019 |  | August 5, 2019
September 30, 2019 |  | $ | 0.880 |  |  | $ | 3.52 |  |  | $ | 30,379 |  |  | November 12, 2019 (1) |  | November 4, 2019

(1) | Expected date of distribution.

Cash Flows
The following table sets forth a summary of our consolidated cash flows for the nine months ended September 30, 2019 and 2018 (in thousands):

|  | Nine Months Ended September 30,
|  | 2019 |  | 2018
Net cash provided by operating activities |  | $ | 84,589 |  |  | $ | 57,600 |
Net cash used in investing activities |  | (141,377 | ) |  | (223,865 | )
Net cash provided by financing activities |  | 58,619 |  |  | 180,596 |
Net increase in cash and cash equivalents |  | $ | 1,831 |  |  | $ | 14,331 |

Operating Activities
Net cash provided by operating activities increased $27.0 million during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The increase in cash provided by operations was primarily due to decreases in accounts receivable/payable to related parties, partially offset by an increase in net income for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 as a result of non-cash increases in income from equity method investments. Also offsetting the increase in operating activities were increases in inventories and other current assets. Accounts receivable/payable to related parties was in a net payable position as of September 30, 2019, compared to a net receivable position as of September 30, 2018. The change from a net receivable to a net payable was due to increases in payables to Delek Holdings related to product purchases from the Big Spring Refinery. The increase in income from equity method investments was primarily due to income from the Red River Pipeline Joint Venture, for which we made our initial investment in May 2019. The increases in inventory and other current assets were primarily due to the fact that cash used to purchase inventories during the nine months ended September 30, 2018 was significantly lower in our west Texas operations as a result of a decrease in available line space coupled with increased sales from inventory to third parties in the area, compared to the nine months ended September 30, 2019 during which market conditions were more favorable and inventory purchases increased.
Investing Activities
Net cash used in investing activities decreased $82.5 million during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The decrease in cash used in investing activities was primarily due to acquisition activity that occurred during the nine months ended September 30, 2018, with no comparable activity occurring during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Partnership paid $72.0 million for the assets acquired in the Big Spring Logistic Assets

43 | |

Management's Discussion and Analysis
Acquisition and $144.2 million in connection with the Marketing Contract Intangible Acquisition. Also contributing to the decrease was a decrease in cash purchases of property, plant and equipment, which amounted to $5.0 million during the nine months ended September 30, 2019 compared to $8.7 million during the nine months ended months ended September 30, 2018. Offsetting these decreases was an increase in contributions made to our joint ventures, which amounted to $137.4 million during the nine months ended September 30, 2019, compared to contributions of $0.2 million made during the nine months ended September 30, 2018.
Financing Activities
Net cash provided by financing activities decreased $122.0 million during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The decrease in cash provided by financing activities was primarily due to a decrease in net proceeds under our revolving credit facility. We received net proceeds of $139.6 million under the revolving credit facility during the nine months ended September 30, 2019, compared to net proceeds of $353.3 million under the revolving credit facility during the nine months ended September 30, 2018. Further contributing to the decrease were increases in the quarterly cash distributions. We paid quarterly cash distributions totaling $83.3 million during the nine months ended September 30, 2019, compared to quarterly cash distributions totaling $71.8 million during the nine months ended September 30, 2018. Partially offsetting the decreases were distributions of $98.8 million related to the Big Spring Logistic Assets Acquisition made during the nine months ended September 30, 2018, for which there was no comparable distribution during the nine months ended September 30, 2019.
Cash Position and Indebtedness
As of September 30, 2019, we had $6.4 million cash and cash equivalents and we had total indebtedness of $840.8 million. Unused credit commitments under the revolving credit facility were $253.7 million, and we had no letters of credit in place at September 30, 2019. We believe we were in compliance with our covenants in all debt facilities as of September 30, 2019. See Note 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness.
Agreements Governing Certain Indebtedness of Delek Holdings
Although we are not contractually bound by and are not liable for Delek Holdings' debt under its credit arrangements, we are indirectly affected by certain prohibitions and limitations contained therein. Specifically, certain of Delek Holdings' credit arrangements require that Delek Holdings meet certain minimum covenant levels for (i) consolidated shareholders’ equity and (ii) a ratio of consolidated shareholders' equity to adjusted total assets. Delek Holdings, due to its majority ownership and control of our general partner, has the ability to prevent us from taking actions that would cause Delek Holdings to violate these and any other covenants in its credit arrangements or otherwise be in default under any of its credit arrangements. As a result we cannot assure you that such covenants will not impact our ability to use the full capacity under our revolving credit facility in the future. Delek Holdings' level of indebtedness, the terms of its borrowings and any future credit ratings could adversely affect our ability to grow our business, our ability to make cash distributions to our unitholders and our credit profile. Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness, financial performance and credit ratings.
Capital Spending
A key component of our long-term strategy is our capital expenditure program. The following table summarizes our actual capital expenditures for the nine months ended September 30, 2019 and planned capital expenditures for the full year 2019 by segment and by major category (in thousands):

|  | Full Year 2019 Forecast |  | Nine Months Ended September 30, 2019
Pipelines and Transportation
Regulatory (2) |  | $ | 2,105 |  |  | $ | 1,755 |
Maintenance (1) (2) |  | 3,893 |  |  | 2,204 |
Discretionary projects |  | 455 |  |  | 386 |
Pipelines and transportation segment total |  | $ | 6,453 |  |  | $ | 4,345 |
Wholesale Marketing and Terminalling
Regulatory (3) |  | $ | 377 |  |  | $ | 377 |
Maintenance (1) (3) |  | 1,938 |  |  | 1,012 |
Discretionary |  | 1,049 |  |  | 504 |
Wholesale marketing and terminalling segment total |  | $ | 3,364 |  |  | $ | 1,893 |
Total capital spending (4) |  | $ | 9,817 |  |  | $ | 6,238 |

44 | |

Management's Discussion and Analysis

(1) | Maintenance capital expenditures represent cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity. Examples of maintenance capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines, tanks and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

(2) | The majority of the $3.9 million and $2.1 million budgeted for maintenance and regulatory projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and pipelines and asset integrity improvements at certain of our pipeline facilities, respectively.

(3) | The majority of the $0.4 million and $1.9 million budgeted for regulatory and maintenance projects in the wholesale marketing and terminalling segment relates to improvements to our terminalling facilities at the Tyler Refinery and scheduled maintenance on our terminalling tanks and racks at certain of our terminals, respectively.

(4) | We decreased our capital spending forecast for 2019 to $9.8 million, down from the prior forecast of $12.2 million. We decreased our forecast as a result of changes to the anticipated completion dates of certain maintenance and discretionary projects.

The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Impact of Changing Prices
Our revenues and cash flows, as well as estimates of future cash flows, are sensitive to changes in energy prices. Shifts in the cost of crude oil, the prices of refined products and the cost of ethanol can generate changes in the operating margin in our wholesale marketing and terminalling segment.
Interest Rate Risk
Debt that we incur under our revolving credit facility bears interest at floating rates and will expose us to interest rate risk. The annualized impact of a hypothetical one percent change in interest rates on our floating rate debt outstanding as of September 30, 2019 would be to change interest expense by approximately $6.0 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we are required to disclose in reports we file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is accumulated and appropriately communicated to management. We carried out an evaluation required by Rule 13a-15(b) of the Exchange Act, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures at the end of the reporting period. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the reporting period.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

45 | |

Legal Proceedings and Risk Factors
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including, environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our business, financial condition or results of operations. See Note 13 to our accompanying condensed consolidated financial statements, which is incorporated by reference in this Item 1, for additional information. There has been a material development to the proceeding related to the release at our Magnolia Station previously reported in our Annual Report on Form 10-K, filed with the SEC on March 1, 2019. In July 2019, we signed and submitted to the DOJ, a consent decree (the "Magnolia Consent Decree") to settle the release, and on August 30, 2019, the Magnolia Consent Decree was lodged with the Court. It was published for public comment in the Federal Register on September 6, 2019 and remained open for comments for 30 days. On October 30, 2019, the DOJ filed its motion for entry. We currently expect that it will be entered one to three weeks from the motion date. The Partnership will then have 30 days to make payment on the penalties.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2018.
ITEM 6. EXHIBITS

Exhibit No. |  | Description
31.1 | # |  | Certification of Delek Logistics GP, LLC's Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 | # |  | Certification of Delek Logistics GP, LLC's Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended.
32.1 | ## |  | Certification of Delek Logistics GP, LLC's Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | ## |  | Certification of Delek Logistics GP, LLC's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 |  |  | The following materials from Delek Logistics Partners, LP's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited), (ii) Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited), (iii) Condensed Consolidated Statement of Partners' Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited), and (v) Notes to Condensed Consolidated Financial Statements (Unaudited).
104 |  |  | The cover page from Delek Logistics Partners, LP's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, has been formatted in Inline XBRL.

# |  | Filed herewith
## |  | Furnished herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Delek Logistics Partners, LP
By: | Delek Logistics GP, LLC
| Its General Partner
By: | /s/ Ezra Uzi Yemin
| Ezra Uzi Yemin
| Chairman and Chief Executive Officer (Principal Executive Officer)
By: | /s/ Assaf Ginzburg
| Assaf Ginzburg
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Dated: November 7, 2019

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