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Acquisitions
 9 Months Ended
Sep. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]  
Acquisitions Acquisitions
H2O Midstream
Delek Logistics completed the H2O Midstream Acquisition on September 11, 2024, in which it acquired water disposal and recycling operations, in the Midland Basin in Texas (the "Midland Water Gathering System") for total consideration of $229.5 million, subject to customary adjustments for net working capital and indebtedness ("H2O Transaction"). The purchase price was comprised of approximately $159.5 million in cash and $70.0 million of Delek Logistics’ preferred units. See Note 6 for further information on Preferred Units. The cash portion was financed through a combination of cash on hand and borrowings under the Delek Logistics' Credit Facility (as defined in Note 10).
For the three and nine months ended September 30, 2024, we incurred $6.1 million in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees. Such costs are included in general and administrative expenses in the accompanying condensed consolidated statements of income.
Our consolidated financial and operating results reflect the H2O Midstream Acquisition operations beginning September 11, 2024. Our results of operations included revenue and net income of $3.6 million and $1.3 million, respectively, for the period from September 11, 2024 through September 30, 2024 related to these operations.
The H2O Midstream Acquisition was accounted for using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values.
Determination of Purchase Price (1)
The table below represents the estimated purchase price (in millions):
Base purchase price:$230.0 
Less: closing net working capital (as defined in the H2O Purchase Agreement)
(2.5)
Plus: various closing adjustments
2.0 
Adjusted purchase price229.5 
Cash paid159.5 
Fair value of preferred units issued70.0 
Preliminary purchase price$229.5 
(1) These amounts are based upon estimates at closing, but are subject to a subsequent review and revision period pursuant to the H2O Midstream Acquisition agreement at which time final settlements for these components will be determined. Such subsequent adjustments may result in changes to the preliminary purchase price.
Purchase Price Allocation
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed in the H2O Midstream Acquisition as of September 11, 2024 (in millions):
Assets acquired:
Accounts receivables$6.7 
Inventories2.5 
Other current assets0.9 
Property, plant and equipment174.5 
Operating lease right-of-use assets0.5 
Other intangibles (1)
58.9 
Total assets acquired244.0 
Liabilities assumed:
Accounts payable4.0 
Accrued expenses and other current liabilities5.1 
Current portion of operating lease liabilities0.3 
Asset retirement obligations4.9 
Operating lease liabilities, net of current portion0.2 
Total liabilities assumed14.5 
Fair value of net assets acquired$229.5 
(1)The acquired intangible assets amount includes the following identified intangibles:
•Customer relationship intangible that is subject to amortization with a preliminary fair value of $24.0 million, which will be amortized over an 12.6 years useful life. The estimated amortization expense is $1.9 million for each of the five succeeding fiscal years.    
•Rights-of-way intangibles valued at $30.1 million, of which, the majority has an indefinite life.
•Favorable supply contract intangible that is subject to amortization with a preliminary fair value of $4.8 million which will be amortized over a 4.8 years useful life. The estimated amortization expense is $1.0 million for each of the next four fiscal years, and $0.4 million in the fifth succeeding fiscal year.
The amortization expense related to the above intangible assets for the three and nine months ended September 30, 2024 was immaterial.
These fair value estimates are preliminary and therefore, the final fair value of assets acquired and liabilities assumed and the resulting effect on our financial position may change once all necessary information has become available, the final working capital adjustment is complete, and we finalize our valuations. To the extent possible, estimates have been considered and recorded, as appropriate, for the items above based on the information available as of September 30, 2024. We will continue to evaluate these items until they are satisfactorily resolved and adjust our purchase price allocation accordingly, within the allowable measurement period (not to exceed one year from the date of acquisition), as defined by Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805").
The fair value of property, plant and equipment was based on the combination of the cost and market approaches. Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence. We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.
The fair value of customer relationships was based on the income approach. Key assumptions in the income approach include projected revenue attributable to customer relationships, attrition rate, operating margins and discount rates.
The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.
The fair values of all other current assets and payables were equivalent to their carrying values due to their short-term nature.
Unaudited Pro Forma Financial Information
The following table summarizes the unaudited pro forma financial information of the Company assuming the H2O Midstream Acquisition had occurred on January 1, 2023. The unaudited pro forma financial information has been adjusted to give effect to certain pro forma adjustments that are directly related to the H2O Midstream Acquisition based on available information and certain assumptions that management believes are factually supportable. The most significant pro forma adjustments relate to (i) incremental interest expense associated with revolving credit facility borrowings incurred in connection with the H2O Midstream Acquisition, (ii) incremental depreciation resulting from the estimated fair values of acquired property, plant and equipment, (iii) incremental amortization resulting from the estimated fair values of acquired customer relationship intangibles and (iv) transaction costs. The unaudited pro forma financial information excludes any expected cost savings or other synergies as a result of the H2O Midstream Acquisition. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had the H2O Midstream Acquisition been effective as of the dates presented, nor is it indicative of future operating results of the combined company. Actual results may differ significantly from the unaudited pro forma financial information.
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2024202320242023
Net sales$3,054.6 $4,769.3 $9,523.1 $12,592.7 
(Loss) income from continuing operations, net of tax$(130.7)$129.9 $(187.3)$196.8