What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-08 · 427 added, 210 removed, 541 unchanged (54% of the section changed)

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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.

The Company announces material information to the public about the Company, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Company’s website ( www.delekus.com ), the investor relations section of its website ( ir.delekus.com ), the news section of its website ( www.delekus.com/news ), and/or social media, including its Twitter account ( @DelekUSHoldings ).

The Company encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information.

Please note that this list may be updated from time to time.

Forward-Looking Statements

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actions of our competitors and customers;

changes in, or the failure to comply with, the extensive government regulations applicable to our industry segments;

our ability to execute our strategy of growth through acquisitions and capital projects and changes in the expected value of and benefits derived therefrom, including any ability to successfully integrate acquisitions, realize expected synergies or achieve operational efficiency and effectiveness;

changes in, or the failure to comply with, the extensive government regulations applicable to our industry segments,including current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic;

the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of the COVID-19 Pandemic;

our ability to execute our strategy of growth through acquisitions and capital projects and changes in the expected

value of and benefits derived therefrom, including any ability to successfully integrate acquisitions, realize expected synergies or achieve operational efficiency and effectiveness;

diminishment in value of long-lived assets may result in an impairment in the carrying value of the assets on our balance sheet and a resultant loss recognized in the statement of operations;

general economic and business conditions affecting the southern, southwestern and western United States, particularly levels of spending related to travel and tourism;

the unprecedented market environment and economic effects of the COVID-19 pandemic, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic;

general economic and business conditions affecting the southern, southwestern and western United States, particularly levels of spending related to travel and tourism and the ongoing and future impacts of the COVID-19 Pandemic;

volatility under our derivative instruments;

Management's Discussion and Analysis

deterioration of creditworthiness or overall financial condition of a material counterparty (or counterparties);

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increases in our debt levels or costs;

possibility of accelerated repayment on a portion of the J.

Aron S&O liability if the purchase price adjustment feature triggers a change on the re-pricing dates;

changes in our ability to continue to access the credit markets;

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acts of terrorism (including cyber-terrorism) aimed at either our facilities or other facilities that could impair our ability to produce or transport refined products or receive feedstocks;

future decisions by OPEC members and Russia regarding production and pricing and disputes between OPEC members and Russia regarding such;

Management's Discussion and Analysis

future decisions by OPEC+ members regarding production and pricing and disputes between OPEC+ members regarding such;

disruption, failure, or cybersecurity breaches affecting or targeting our IT systems and controls, our infrastructure, or the infrastructure of our cloud-based IT service providers;

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Our operating segments consist of refining, logistics, and retail, and are discussed in the sections that follow.

The recent outbreak of COVID-19 and its development into a pandemic in March 2020 (the "COVID-19 Pandemic") has resulted in significant economic disruption globally, including in the U.S.

The recent outbreak of COVID-19 and its development into a pandemic in March 2020 (the "COVID-19 Pandemic" or the "Pandemic") has resulted in significant economic disruption globally, including in the U.S.

and specific geographic areas where we operate.

Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe.

This has in turn significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline.

Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through both voluntary and mandated social distancing, curfews, shutdowns and expanded safety measures have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe.

This has in turn significantly reduced global economic activity which has had a significant impact on the nature and extent of travel.

The COVID-19 Pandemic has had a devastating impact on the airline industry, dramatically reducing the number of domestic flights and, due to foreign travel bans and immigration restrictions abroad as well as traveler concerns over exposure, virtually eliminating international travel originating from the U.S to many parts of the world.

Additionally, the COVID-19 Pandemic has had a significant negative impact on motor vehicle use at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline.

As a result, there has also been a decline in the demand for, and thus also the market prices of, crude oil and certain of our products, particularly our refined petroleum products and most notably gasoline and jet fuel.

In addition, recent events concerning the dispute over production levels between Russia and the members of OPEC, particularly Saudi Arabia, and the subsequent actions taken by such countries as a result thereof, including Saudi Arabia discounting the price of its crude oil exports (the "OPEC Production Disputes"), have exacerbated the decline in crude oil prices and have contributed to an increase in crude oil price volatility.

In April and June 2020, agreements were reached to cut oil production between the members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, “OPEC+”), as part of the efforts to resolve the oil production disputes that significantly affected crude oil prices beginning in the first quarter of 2020 (the "OPEC Production Disputes"), and to provide stability in the oil markets.

While OPEC+ have reached an agreement to cut oil production, the uncertainty about the duration of the COVID-19 Pandemic has caused storage constraints in the United States resulting from over-supply of produced oil.

Based on these conditions and events, downward pressure on commodity prices, crack spreads and demand remains a significant risk and could continue for the foreseeable future.

Management's Discussion and Analysis

During the latter part of the second quarter of 2020, governmental authorities in various states across the U.S., particularly those in our Permian Basin and U.S.

Gulf Coast regions, began to lift many of the restrictions created by actions taken to slow down the spread of COVID-19.

These actions have resulted in an increase in the level of individual movement and travel and, in turn, an increase in the demand and market prices for some of our products relative to late March 2020.

However, many of the states where such restrictions were lifted have recently experienced a marked increase in the spread of COVID-19 and many governmental authorities in such areas have responded by reimposing certain restrictions they had previously lifted.

This response, as well as the increased infection rates, impacts regions that we serve and could significantly impact demand in ways that we cannot predict.

Additionally, increased infection rates could impact our refining, logistics and retail operations, particularly in high-infection states, if our employees are personally affected by the illness, both through direct infection and quarantine procedures.

During the three and six months ended June 30, 2020, Delek has experienced the impact on demand and pricing of these unprecedented conditions, most notably in our refining segment.

Our business and our second quarter 2020 results reflect the impact of decreased demand combined with crack spreads that are 62% to 76% lower, on average, compared to the same quarter in the prior year.

We have also experienced operational constraints as well, including COVID-19 infections at certain of our company locations that have resulted in re-imposed or expanded remote policies and quarantine protocols.

And we continue to be faced with risk from our suppliers and customers who are facing similar challenges.

We have identified the following known uncertainties resulting from the COVID-19 Pandemic and the OPEC Production Disputes:

Significant declines and/or volatility in prices of refined products we sell and the feedstocks we purchase as well as in crack spreads resulting from the COVID-19 Pandemic and the OPEC Production Disputes could have a significant impact on our revenues, cost of sales, operating income and liquidity, as well to the carrying value of or long-lived or indefinite-lived assets;

A decline in the market prices of refined products and feedstocks below the carrying value in our inventory may result in the adjustment of the value of our inventories to the lower market price and a corresponding loss on the value of our inventories (see also Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of specific financial statement risks);

The decline in demand for refined product could significantly impact the demand for throughput at our refineries, unfavorably impacting operating results at our refineries, and could impact the demand for storage, which could impact our logistics segment;

The decline in demand and margins impacting current results and forecasts could result in impairments in certain of our long-lived or indefinite-lived assets, including goodwill, or have other financial statement impacts that cannot currently be anticipated (see also Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of specific financial statement risks);

A significant reduction or suspension in U.S.

crude oil production could adversely affect our suppliers and sources of crude oil;

An outbreak in one of our refineries, exacerbated by a limited pool of qualified replacements as well as quarantine protocols, could cause significant disruption in our production or, worst case, temporary idling of the facility;

The restrictions on travel and requirements for social distancing could significantly impact the traffic at our convenience stores, particularly the demand for fuel;

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Equity method investees may be significantly impacted by the COVID-19 Pandemic and/or the OPEC Production Disputes, which may increase the risk of impairment of those investments;

Access to capital markets may be significantly impacted by the volatility and uncertainty in the oil and gas market specifically which could restrict our ability to raise funds;

While our current liquidity needs are managed by existing facilities, sources of future liquidity needs may be impacted by the volatility in the debt market and the availability and pricing of such funds as a result of the COVID-19 Pandemic and the OPEC Production Disputes;

Federal Government has enacted certain stimulus and relief measures, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") passed on March 27, 2020, which, among its provisions, provides companies certain income and

Federal Government has enacted certain stimulus and relief measures, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") passed on March 27, 2020, and is continuing to consider additional relief legislation.

Beyond the direct impact of existing legislation on Delek in the current period, the extent to which the provisions of the existing or any future legislation will achieve its intention to stimulate or provide relief to the greater U.S.

economy and/or consumer, as well as the impact and success of such efforts, remains unknown.

Other uncertainties related to the impact of the COVID-19 Pandemic as well as global geopolitical factors may exist that have not been identified or that are not specifically listed above, and could impact our future results of operations and financial position, the nature of which

Management's Discussion and Analysis

payroll tax-related relief.

To the extent that the provisions do not directly impact Delek in the current period or are intended to stimulate or provide relief to the greater U.S.

economy and/or consumer, the impact and success of such efforts remains unknown.

Other uncertainties related to the impact of the COVID-19 Pandemic and the OPEC Production Disputes may exist that have not been identified or that are not specifically listed above, and could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown.

Additionally, subsequent to March 31, 2020 , developments have occurred which may impact the extent to which the risk underlying these uncertainties are realized, including the April 2020 oil supply talks between global oil producers including OPEC and Russia which resulted in preliminary agreement for management of crude oil supply in the hopes of contributing to market stabilization (the "Oil Supply Talks"), as well as the U.S.

Federal Government's recent passage and/or enactment of additional stimulus and relief measures.

and the extent to which are currently unknown.

Actions taken by OPEC+ in April and June 2020, including the agreement for management of crude oil supply in the hopes of contributing to market stabilization (the "Oil Production Cuts"), as well as the U.S.

Federal Government's passage and/or enactment of additional stimulus and relief measures, as well as their future actions may impact the extent to which the risk underlying these uncertainties are realized.

To the extent these uncertainties have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S.

generally accepted accounting principles ("GAAP"), we have considered them in the preparation of our unaudited financial statements as of and for the three months ended March 31, 2020 , which are included in Item 1.

of this Quarterly Report on Form 10-Q.

In addition,management has and continues to actively respond to the impact of the COVID-19 Pandemic and the OPEC Production Disputes on our business.

Generally Accepted Accounting Principles ("GAAP"), we have considered them in the preparation of our unaudited financial statements as of and for the six months ended June 30, 2020 , which are included in Item 1, of this Quarterly Report on Form 10-Q.

In addition, management continues to actively respond to the impact of the COVID-19 Pandemic and the OPEC Production Disputes on our business.

Such efforts include (but are not limited to) the following:

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Taking advantage of the income and payroll tax relief afforded to us by the CARES Act;

Implementing remote work measures and safety protocols at our refineries and other locations;

Reviewing dividend strategy to align with market changes and current economic conditions;

Identifying alternative financing solutions to enhance our access to sources of liquidity;

Enacting other cost reduction measures across the organization, including reducing contract services, reducing overtime and reducing or eliminating non-critical travel which serves the dual purpose of also complying with recommendations made by the state and federal governments because of the COVID-19 Pandemic.

Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and other employee related costs and reducing or eliminating non-critical travel which serves the dual purpose of also complying with recommendations made by the state and federal governments because of the COVID-19 Pandemic.

The extent to which our future results are affected by the COVID-19 Pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the Pandemic;

additional actions by businesses and governments in response to the Pandemic, and the speed and effectiveness of responses to combat the virus.

The COVID-19 Pandemic, and the volatile regional and global economic conditions stemming from the Pandemic, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in this Form 10-Q.

The COVID-19 Pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.

See also 'Risk Factors' in Part II, Item 1A.

of this Quarterly Report on Form 10-Q for further discussion of risks associated with the COVID-19 Pandemic and the OPEC Production Disputes.

Pursuant to the provisions of the CARES Act, we recognized $16.8 million of current federal income tax benefit for the three and six months ended June 30, 2020 , attributable to anticipated tax refunds from net operating loss carryback to prior 35% tax rate years.

Additionally, we recorded an income tax receivable totaling $193 million as of June 30, 2020 related to the net operating loss carryback, which we expect to collect in the first half of 2021.

Finally, we deferred $4.4 million of payroll tax payments under the provisions of the CARES Act during the six months ended June 30, 2020 , which will be payable in equal installments in December 2021 and December 2022.

Management's Discussion and Analysis

Refining Overview

The refining segment processes crude oil and other feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel and aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals.

The refining segment has a combined nameplate capacity of 302,000 barrels per day as of March 31, 2020 .

The refining segment has a combined nameplate capacity of 302,000 barrels per day as of June 30, 2020 .

A high-level summary of the refinery activities is presented below:

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In addition, we sell motor fuels through our wholesale distribution network on an unbranded basis.

Management's Discussion and Analysis

The term "crack spread" is a measure of the difference between market prices for crude oil and refined products.

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Our logistics segment gathers, transports and stores crude oil and markets, distributes, transports and stores refined products in select regions of the southeastern United States and West Texas for our refining segment and third parties.

It is comprised of the consolidated balance sheet and results of operations of Delek Logistics Partners, LP ("Delek Logistics", NYSE:DKL), where we owned a 69.1% limited partner interest (at March 31, 2020 ) in Delek Logistics and a 94.6% interest in the entity that owns the entire 2.0% general partner interest in Delek Logistics and all of the incentive distribution rights.

It is comprised of the consolidated balance sheet and results of operations of Delek Logistics Partners, LP ("Delek Logistics", NYSE:DKL), where we owned a 69.1% interest (at June 30, 2020 ) in Delek Logistics and a 94.8% interest in the entity that owns the entire 2.0% general partner interest in Delek Logistics and all of the incentive distribution rights.

Delek Logistics was formed by Delek in 2012 to own, operate, acquire and construct crude oil and refined products logistics and marketing assets.

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Additionally, on March 31, 2020, the logistics segment acquired from another of our segments approximately 200 miles of gathering and ancillary assets located in Howard, Borden and Martin Counties, Texas.

In May 2020, the logistics segment acquired from another of our segments certain leased and owned tractors and trailers and related assets.

The logistics segment owns or leases 273 tractors and 324 trailers used to haul primarily crude oil and other products for related and third parties.

Management's Discussion and Analysis

Retail Overview

Our retail segment at March 31, 2020 includes the operations of 253 owned and leased convenience store sites located primarily in Central and West Texas and New Mexico.

Our retail segment at June 30, 2020 includes the operations of 253 owned and leased convenience store sites located primarily in Central and West Texas and New Mexico.

Our convenience stores typically offer various grades of gasoline and diesel under the DK or Alon brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven and DK or Alon brand names pursuant to a license agreement with 7-Eleven, Inc.

In November 2018, we terminated the license agreement with 7-Eleven, Inc.

and the terms of such termination require the removal of all 7-Eleven branding on a store-by-store basis by December 31, 2021.

As of March 31, 2020 , we have removed the 7-Eleven brand name at 57 of our store locations.

This agreement was amended in April 2020 to extend date for the required removal of all 7-Eleven branding on a store-by-store basis from December 31, 2021 to December 31, 2022.

As of June 30, 2020 , we have removed the 7-Eleven brand name at 57 of our store locations.

Merchandise sales at our convenience store sites will continue to be sold under the 7-Eleven brand name until 7-Eleven branding is removed pursuant to the termination.

Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery, which is transferred to the retail segment at prices substantially determined by reference to published commodity pricing information.

In connection with our retail strategic initiatives, as of March 31, 2020 , we have closed or sold 46 under-performing or non-strategic store locations of which one was closed during the three months ended March 31, 2020 .

In connection with our retail strategic initiatives, as of June 30, 2020 , we have closed or sold 46 under-performing or non-strategic store locations of which one was closed during the six months ended June 30, 2020 .

The cost to acquire the refined fuel products we sell to our wholesale customers in our logistics segment and at our convenience stores in our retail segment depends on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation.

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Corporate and Other Overview

Our corporate activities, results of certain immaterial operating segments, including our asphalt terminal operations, and intercompany eliminations are reported in corporate, other and eliminations in our segment disclosures.

Our corporate activities, results of certain immaterial operating segments, including our asphalt terminal operations, our recently commenced wholesale crude operations, and intercompany eliminations are reported in corporate, other and eliminations in our segment disclosures.

Additionally, our corporate activities include certain of our commodity and other hedging activities.

Management's Discussion and Analysis

Strategic Overview

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For that purpose, from a pricing perspective, we enter into commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future sales of refined products or to fix margins on future production.

We also enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs obligations.

We also enter into future commitments to purchase or sell renewable identification numbers ("RINs") at fixed prices and quantities, which are used to manage the costs of our credits for commitments required by the U.S.

Environmental Protection Agency ("EPA") to blend biofuels into fuel products ("RINs Obligation").

Additionally, from a sourcing perspective, we often enter into purchase and sale contracts with vendors and customers or take financial commodity positions for crude oil that may not be used immediately in production, but that may be used to manage the overall supply and availability of crude expected to ultimately be needed for production and/or to meet minimum requirements under strategic pipeline arrangements, and also to optimize and hedge availability risks associated with crude that we ultimately expect to use in production.

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Therefore, when we take physical or financial positions for optimization purposes, our intent is generally to take offsetting positions in quantities and at prices that will advance these objectives while minimizing our positional and financial statement risk.

However, because of the volatility of the market in terms of pricing and availability, it is possible that we may have material positions with timing differences or, more rarely, that we are unable to cover a position with an offsetting position as intended.

Management's Discussion and Analysis

position as intended.

Such differences could have a material impact on the classification of resulting gains/losses, assets or liabilities, and could also significantly impact net earnings.

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Dividend Declaration

On May 4, 2020 , Delek's Board of Directors voted to declare a quarterly cash dividend of $0.31 per share, payable on June 3, 2020 , to stockholders of record on May 20, 2020 .

Our previous quarterly cash dividend amounts ranged between $0.27 to $0.30 per share for dividends paid throughout 2019 and was $0.31 per share for the dividend paid during the first quarter of 2020 .

On August 3, 2020 , Delek's Board of Directors voted to declare a quarterly cash dividend of $0.31 per share, payable on September 3, 2020 , to stockholders of record on August 19, 2020 .

Our previous quarterly cash dividend amounts ranged between $0.27 to $0.30 per share for dividends paid throughout 2019 and was $0.31 per share for the dividends paid during both the first and second quarters of 2020 .

Share Repurchases

During the three months ended March 31, 2020 , Delek repurchased 58,713 shares for an aggregate purchase price of $1.9 million under the most recent share repurchase plan which provided for repurchases of up to $500.0 million and was approved by the board on November 6, 2018 .

As of March 31, 2020 , there remained $229.7 million available for repurchases under the most recent repurchase plan.

During the six months ended June 30, 2020 , Delek repurchased 58,713 shares for an aggregate purchase price of $1.9 million under the most recent share repurchase plan which provided for repurchases of up to $500.0 million and was approved by the board on November 6, 2018 .

As of June 30, 2020 , there remained $229.7 million available for repurchases under the most recent repurchase plan.

In our efforts to conserve capital, for the time being we have suspended the repurchase of shares.

Transactions designed to maximize return on assets

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Under the agreements governing the joint venture, we must contribute our percentage interest of the applicable construction costs (including certain costs previously incurred by WWP), and it is anticipated that our capital contributions will total approximately $340 million to $380 million over the course of construction (expected to be two to three years).

Management's Discussion and Analysis

On February 21, 2020, we, through our wholly-owned direct subsidiary Delek Energy, entered into the W2W Holdings LLC ("HoldCo") Agreement with MPLX Operations LLC ("MPLX") (collectively, with its wholly-owned subsidiaries, the "WWP Project Financing Joint Venture" or the "WWP Project Financing JV").

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Accordingly, distributions received from WWP through the WWP Project Financing JV will first be applied in service of the related project financing debt, with excess distributions being made to the members of the WWP Project Financing JV as provided for in the W2W Holdings LLC Agreement and as allowed under the project financing debt.

The obligations of the members under the W2W Holdings LLC Agreement are guaranteed by the parents of the members of the WWP Project Financing JV (i.e., for Delek Energy, the guarantee is from Delek US Holdings, Inc.).

The obligations of the members under the W2W Holdings LLC Agreement are guaranteed by the parents of the members of the WWP Project Financing JV (i.e., for the Delek member, the guarantee is from Delek US Holdings, Inc.).

Our investment is accounted for as an equity method investment.

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Increased Investment in Delek Logistics

Effective May 1, 2020, Delek through its wholly owned subsidiaries Lion Oil Company (“Lion Oil”) and Delek Refining, Ltd.

(“Delek Refining”) contributed certain leased and owned tractors and trailers and related assets used in the provision of trucking and transportation services for crude oil, petroleum and certain other products throughout Arkansas, Oklahoma and Texas to Delek Trucking, LLC (“Delek Trucking”), a direct wholly owned subsidiary of Lion Oil.

Following this contribution, Lion Oil sold all of the issued and outstanding membership interests in Delek Trucking (the “Acquisition”) to DKL Transportation, LLC (“DKL Transportation”), a wholly owned subsidiary of Delek Logistics.

Promptly following the consummation of the Acquisition, Delek Trucking merged with and into DKL Transportation, with DKL Transportation continuing as the surviving entity.

Total consideration for the Acquisition was approximately $48.0 million in cash, subject to certain post-closing adjustments, primarily financed with borrowings under Delek Logistics’ revolving credit facility.

Effective March 31, 2020, Delek Logistics, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired the Big Spring Gathering System, located in Howard, Borden and Martin Counties, Texas, from Delek.

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The total consideration was subject to certain post-closing adjustments and was comprised of $100.0 million in cash and 5.0 million common units representing limited partner interest in Delek Logistics.

The cash component of this dropdown was financed with borrowings on the DKL Credit Facility.

The cash component of this dropdown

Management's Discussion and Analysis

was financed with borrowings on the Delek Logistics Credit Facility (as defined in Note 8 of our condensed consolidated financial statements included in Item 1, Financial Statements).

Additionally, in March 2020, we purchased 451,822 of Delek Logistics limited partner units from a public investor for approximately $5.0 million .

As a result of these transaction, our ownership in Delek Logistics' common limited partner units was increased to 70.5% .

As a result of these transactions, our ownership in Delek Logistics' common limited partner units was increased to 70.5% .

These continued investments enhance our ability to maximize the value of our logistics assets.

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On May 7, 2020, we sold our equity interests in Alon Bakersfield Property, Inc., an indirect wholly-owned subsidiary that owns our non-operating refinery located in Bakersfield, California, to a subsidiary of Global Clean Energy Holdings, Inc.

(“GCE”), a southern California-based renewable energy company, for total cash consideration of $40 million.

GCE intends to repurpose the refinery to produce renewable diesel and possibly renewable jet fuel.

(“GCE”) for total cash consideration of $40 million.

As part of the transaction, GCE granted a call option to Delek to acquire up to a 33 1/3% interest in the acquiring subsidiary, GCE Acquisitions, exercisable by Delek through the 90th day after GCE demonstrates commercial operations, as contractually defined.

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2020 Amendments to Supply and Offtake Agreements

In January 2020, we amended and restated our three Supply and Offtake Agreements with J.

In January 2020, we amended our three Supply and Offtake Agreements with J.

Aron which applies to the El Dorado refinery, the Big Spring refinery and the Krotz Springs refinery so that the repurchase of Baseline Volumes at the end of the Supply and Offtake Agreement term (representing the "Baseline Step-Out Liability" or, collectively, the "Baseline Step-Out Liabilities") will be based on market-indexed price subject to commodity price risk with corresponding changes to underlying market-based indices and certain differentials.

The amendments resulted in Baseline Step-Out Liabilities for which the fair value is no longer subject to interest rate risk but is now subject to commodity price volatility.

Subsequent to March 31, 2020, in April 2020, we further amended and restated our three Supply and Offtake Agreements with J.

Aron to extend the term of each to December 30, 2022, with J.

Aron having the sole discretion to further extend to May 30, 2025.

As part of these amendments, there were changes to the underlying market index, annual fee and the crude purchase fee.

The changes are expected to result in a more favorable effective interest rate on the inventory financing arrangement compared to what they were previously.

In April 2020, we amended and restated our three Supply and Offtake Agreements to amend and extend the terms to December 30, 2022, with J.

Aron having the sole discretion to further extend to May 30, 2025 by providing at least six months notice prior to the maturity date.

As part of this amendment, there were changes to the underlying market index, annual fee, the crude purchase fee, crude roll fees and timing of cash settlements related to periodic price adjustments on the fixed differential component of the Baseline Volume Step-Out Liabilities.

The amendments provide us dedicated financing for the barrels covered through at least December 2022, and certain specific market-indexed provisions improve our ability to manage our exposure to commodity price volatility during the term of the Agreements.

See further discussion in Note 7 of our condensed consolidated financial statements included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

2020 Amendment to the Term Loan Credit Facility

On May 19, 2020, we amended the Term Loan Credit Facility agreement (as defined in Note 8 of our condensed consolidated financial statements included in Item 1, Financial Statements) and borrowed $200.0 million in aggregate principal amount of incremental term loans (the “Third Incremental Term Loan”) at an original issue discount of 7.00% , requiring quarterly principal amortization payments of $0.5 million commencing with June 30, 2020.

The Third Incremental Term Loan constitutes a separate class of term loans under the Term Loan Credit Facility from those initially borrowed in March 2018 and the incremental term loans borrowed in May 2019 and November 2019.

There are no restrictions on the Company's use of the proceeds of the Third Incremental Term Loan, and the proceeds may be used (i) for general corporate purposes and (ii) to pay transaction fees and expenses associated with the Third Incremental Term Loan.

See further discussion in Note 8 of our condensed consolidated financial statements included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Management's Discussion and Analysis

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We have significant sources of WTI Midland crude because of our gathering system, and so accordingly favorable pricing of WTI Midland crude compared to other WTI crude can favorably impact our cost of materials and other and therefore our margins compared to other refiners.

The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2019 and for the first quarterly period in 2020 .

The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2019 and for the two quarterly periods in 2020 .

As shown in the historical graph, WTI Midland crude prices have generally been favorable as compared to WTI Cushing, though that trend has reversed slightly in the fourth quarter 2019.

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Generally, crack spreads represent the approximate refining margin resulting from processing one barrel of crude oil into its outputs, generally gasoline and diesel fuel.

The table below reflects the quarterly average Gulf Coast 5-3-2, 3-2-1 and 2-1-1 crack spreads for each of the quarterly periods in 2019 and for the first quarterly period in 2020 .

The table below reflects the quarterly average Gulf Coast 5-3-2 Ultra Low Sulfur Diesel ("ULSD"), 3-2-1 and 2-1-1 crack spreads for each of the quarterly periods in 2019 and for the two quarterly periods in 2020 .

As the chart illustrates, the 3-2-1 crack spread has consistently outperformed the 5-3-2 and the 2-1-1 crack spreads.

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High Sulfur Diesel and U.S.

Ultra Low Sulfur Diesel for each of the quarterly periods in 2019 and for the first quarterly period in 2020 .

Ultra Low Sulfur Diesel for each of the quarterly periods in 2019 and for the two quarterly periods in 2020 .

Crude Pricing Differentials

crude oil production has increased, we have seen the discount for WTI Cushing compared to Brent, a global benchmark crude, widen.

crude oil production has increased over recent years, domestic producers have benefited from the discount for WTI Cushing compared to Brent, a global benchmark crude.

This generally leads to higher margins in our refineries, as refined product prices are influenced by Brent crude prices and the majority of our crude supply is WTI-linked.

As these discounts shrink or, as in the case of the WTI Midland/WTI Cushing differential, become a premium, without taking into account changes in inventory, as they did at the end of 2019, our reliance on WTI-linked crude pricing, and specifically WTI Midland crude can negatively impact our results.

Because of our positioning in the Permian basin, we are even further benefited by discounts in the WTI Midland/WTI Cushing differential.

When these discounts shrink or become premiums, our reliance on WTI-linked crude pricing, and specifically WTI Midland crude can negatively impact our results.

Conversely, as these price discounts increase, so does our competitive advantage, created by our access to WTI-linked crude oil pricing, and specifically WTI Midland crude sources through our gathering systems.

The chart below illustrates the differentials of both Brent crude oil and WTI Midland crude oil as compared to WTI Cushing crude oil as well as WTI Cushing as compared to Louisiana Light Sweet crude oil ("LLS") for each of the quarterly periods in 2019 and for the first quarterly period in 2020 .

Management's Discussion and Analysis

RIN Volatility

Environmental regulations continue to affect our margins in the form of volatility in the cost of r enewable identification numbers ("RINs").

On a consolidated basis, we work to balance the cost of our credits for commitments required by the EPA to blend biofuels into fuel products ("RINs Obligation") in order to minimize the effect of RINs on our results.

Environmental regulations continue to affect our margins in the form of volatility in the cost of RINs.

On a consolidated basis, we work to balance the cost of our RINs Obligation in order to minimize the effect of RINs on our results.

While we generate RINs in both our refining and logistics segments through our ethanol blending and biodiesel production, our refining segment needs to purchase additional RINs to satisfy its obligations.

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It is not possible at this time to predict with certainty what future volumes or costs may be, but given the volatile price of RINs, the cost of purchasing sufficient RINs could have an adverse impact on our results of operations if we are unable to recover those costs in the price of our refined products.

The chart below illustrates the volatility in RINs prices over several quarterly periods, beginning with the first quarter of 2019 through the first quarter of 2020 .

The chart below illustrates the volatility in RINs prices over several quarterly periods, beginning with the first quarter of 2019 through the second quarter of 2020 .

Management's Discussion and Analysis

Contractual Obligations

There have been no material changes to our contractual obligations and commercial commitments during the three months ended March 31, 2020 , from those disclosed in our Annual Report on Form 10-K.

Information regarding our known contractual obligations and commercial commitments of the types described below as of June 30, 2020 , is set forth in the following table (in millions):

Payments Due by Period

Long term debt and notes payable obligations

Operating lease commitments (2)

Purchase commitments (3)

Transportation agreements (4)

Aron supply and offtake obligations (5)

(1) Expected interest payments on debt outstanding at June 30, 2020 .

Floating interest rate debt is calculated using June 30, 2020 rates.

For additional information, see Note 8 to of our condensed consolidated financial statements included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

(2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of June 30, 2020 .

(3) We have supply agreements to secure certain quantities of crude oil, finished product and other resources used in production at both fixed and market prices.

We have estimated future payments under the market-based agreements using current market rates.

Excludes purchase commitments in buy-sell transactions which have matching notional amounts with the same counterparty and are generally net settled.

(4) Balances consist of contractual obligations under agreements with third parties (not including Delek Logistics) for the transportation of crude oil to our refineries.

(5) Balances consists of contractual obligations under the J.

Aron Supply and Offtake Agreements, including annual fees and principal obligation for the Baseline Volume Step-Out Liability.

For additional information, see Note 7 to of our condensed consolidated financial statements included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Critical Accounting Policies

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(i) estimating our quarterly inventory adjustments using the last-in, first-out valuation method for the Tyler refinery, (ii) evaluating impairment for property, plant and equipment and definite life intangibles, (iii) evaluating potential impairment of goodwill, (iv) estimating environmental expenditures, and (v) estimating asset retirement obligations.

During the three months ended March 31, 2020 , we updated our critical accounting policies to include accounting policies that have become critical as a result of new transactions.

During the six months ended June 30, 2020 , we updated our critical accounting policies to include accounting policies that have become critical as a result of new transactions.

Accordingly, we are adding a critical accounting policy related to evaluating variable interest entities to reflect the significant judgment that is involved when determining whether an entity is a variable interest entity ("VIE") and evaluating whether we are the primary beneficiary in connection with our new investment in W2W Holdings LLC.

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We continually monitor our interests in legal entities for changes in the design or activities of an entity and changes in our interests, including our status as the primary beneficiary to determine if the changes require us to revise our previous conclusions.

Additionally, due to the economic and industry impact of the COVID-19 Pandemic and the OPEC Production Disputes, we also modified the application of certain of our critical accounting policies during and as of the three months ended March 31, 2020 as follows:

Management's Discussion and Analysis

Goodwill and Potential Impairment

Our annual goodwill impairment analysis is performed during the fourth quarter of each year.

Under ASC 350, Intangibles - Goodwill and Other , goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We have identified two significant events that arose during the three months ended March 31, 2020 that adversely affected the global economy and the oil and gas industry.

Under Accounting Standards Codification ("ASC") ASC 350, Intangibles - Goodwill and Other , goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

During the six months ended June 30, 2020 , we have identified two significant events that adversely affected the global economy and the oil and gas industry.

These two events are the COVID-19 Pandemic and the OPEC Production Disputes (previously defined), both of which had the secondary effect of impacting prices of crude oil and refined products as well as supply and demand for crude oil and refined products, and triggered several identified uncertainties, as discussed in the 'Business Overview' section of Management's Discussion and Analysis.

Our assessment was performed based on the events that had occurred through March 31, 2020 and excluded developments that occurred in the subsequent period, including but not limited to government-imposed temporary business closures and voluntary shelter-at-home directives as well as developments in production discussions between global oil producers, and the effect thereof.

In order to determine whether these events, including the developments around such events that had occurred through March 31, 2020 and our assumptions about future periods based on those events and related developments, would more likely than not reduce the fair value of a reporting unit below its carrying amount, we performed certain analyses on the most significant inputs in our valuation model to evaluate the impact of these events on the fair value of our reporting units.

Our assessment was performed based on the events that had occurred through June 30, 2020 and excluded developments that occurred in the subsequent period, including but not limited to government-imposed temporary business closures and voluntary shelter-at-home directives as well as developments in production discussions between global oil producers, and the effect thereof.

In order to determine whether these events, including the developments around such events that had occurred through June 30, 2020 and our assumptions about future periods based on those events and related developments, would more likely than not reduce the fair value of a reporting unit below its carrying amount, we performed certain analyses on the most significant inputs in our valuation model to evaluate the impact of these events on the fair value of our reporting units.

This included sensitivity analysis and stress testing on certain of our inputs to our valuation model, including the weighted-average cost of capital, the throughput volume, and the crack spread, which is based on the crude and refined product markets.

Based on our analyses (which, as noted above, were based on the conditions and events that had occurred as of March 31, 2020), we determined that there is not an indicator that fair value is more likely than not to have declined below carrying value as of March 31, 2020.

Management's Discussion and Analysis

Based on our analyses, we determined that there is not an indicator that fair value is more likely than not to have declined below carrying value as of June 30, 2020.

Additionally, because conditions and events are rapidly changing, we continue to monitor developments with these events and their impact on our valuation.

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GAAP financial measures.

Management's Discussion and Analysis

Non-GAAP Reconciliations

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Refining Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

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Refining margin

Management's Discussion and Analysis

Summary Financial and Other Information

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Statement of Operations Data (in millions)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Total operating costs and expenses

Operating income

Total non-operating expenses, net

(Loss) income before income tax (benefit) expense

Operating income (loss)

Total non-operating (income) expense, net

Income (loss) before income tax (benefit) expense

Income tax (benefit) expense

Net (loss) income

Income (loss) from continuing operations, net of tax

Loss from discontinued operations, net of tax

Net income (loss)

Net income attributed to non-controlling interests

Net (loss) income attributable to Delek

Net income (loss) attributable to Delek

We report operating results in three reportable segments:

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Results of Operations

Consolidated Results of Operations — Comparison of the Three Months Ended March 31, 2020 versus the Three Months Ended March 31, 2019

Consolidated net loss for the first quarter of 2020 was $307.0 million compared to a net income of $154.4 million for the first quarter of 2019 .

Consolidated net loss attributable to Delek for the first quarter of March 31, 2020 was $314.4 million , or $(4.28) per basic share, compared to a net income of $149.3 million , or $1.92 per basic share, for the first quarter 2019 .

Consolidated Results of Operations — Comparison of the Three and Six Months Ended June 30, 2020 versus the Three and Six Months Ended June 30, 2019

Consolidated net income for the second quarter of 2020 was $98.5 million compared to $83.8 million for the second quarter of 2019 .

Consolidated net income attributable to Delek for the second quarter of June 30, 2020 was $87.7 million , or $1.19 per basic share, compared to $77.3 million , or $1.01 per basic share, for the second quarter 2019 .

Explanations for significant drivers impacting net income as compared to the comparable period of the prior year are discussed in the sections below.

Consolidated net loss for the six months ended June 30, 2020 was $208.5 million compared to net income of $238.2 million for the six months ended June 30, 2019 .

Consolidated net loss attributable to Delek for the six months ended June 30, 2020 was $226.7 million , or $(3.08) per basic share, compared to net income of $226.6 million , or $2.94 per basic share, for the six months ended June 30, 2019 .

Explanations for significant drivers impacting net loss as compared to the comparable period of the prior year are discussed in the sections below.

In the first quarter s of 2020 and 2019 , we generated net revenues of $1,821.2 million and $2,199.9 million , respectively, a decrease of $378.7 million , or 17.2% .

In the second quarter s of 2020 and 2019 , we generated net revenues of $1,535.5 million and $2,480.3 million , respectively, a decrease of $944.8 million , or 38.1% .

The decrease in net revenues was primarily driven by the following factors:

in our refining segment, decreased sales volumes partially due to turnaround activities at our Big Spring refinery and decreases in the average price of U.S.

in our refining segment, decreases in the average price of U.S.

Gulf Coast gasoline of 54.7% , ultra-low sulfur diesel of 53.1% , and high-sulfur diesel of 59.4% combined with a decrease in barrels sold (both refined and purchased) of 1.8 million barrels;

in our retail segment, decreases in fuel sales volumes due to demand slowdown as a result of COVID-19 Pandemic and reduction in average number of stores, as well as a 31.7% decrease in average price charged per gallon;

partially offset by increase in merchandise sales;

in our logistics segment, decreases in average price per gallon sold combined with decreases in sales volumes in our West Texas marketing operations;

partially offset by increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions.

For the six months ended June 30, 2020 and 2019 , we generated net revenues of $3,356.7 million and $4,680.2 million , respectively, a decrease of $1,323.5 million , or 28.3% .

The decrease in net revenues was primarily driven by the following factors:

in our refining segment, decreases in the average price of U.S.

Gulf Coast gasoline of 38.5% , ultra-low sulfur diesel of 37.7% , and high-sulfur diesel of 41.5% ;

in our retail segment, decreases in fuel sales volumes and merchandise sales partially attributable to reduction in the average number of stores, as well as a $0.03 decrease in average price charged per gallon quarter over quarter.

Such decreases were partially offset by:

in our logistics segment, increased volumes sold in West Texas marketing operations, increased rates and change in fee structure for Paline pipeline, and increased throughputs at our SALA gathering system and Magnolia pipeline.

in our retail segment, decreases in fuel sales volumes due to demand slowdown as a result of COVID-19 Pandemic and reduction in average number of stores, as well as a 17.1% decrease in average price charged per gallon;

partially offset by an increase in merchandise sales;

in our logistics segment, decreases in average price per gallon sold in our West Texas marketing operations;

partially offset increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, and increased throughputs at our SALA gathering system and Magnolia pipeline.

Cost of Materials and Other

Cost of materials and other was $1,910.6 million for the first quarter of 2020 compared to $1,699.4 million for the first quarter of 2019 , an increase of $211.2 million , or 12.4% .

The net increase in cost of materials and other was primarily driven by the following:

a narrowing of crude oil differentials during the first quarter where the Midland WTI crude oil differential to Brent crude oil was an average discount of $5.31 per barrel compared to $10.13 per barrel in the prior-year period, and the WTI Midland to WTI Cushing discount averaged $0.06 per barrel in the first quarter 2020 compared to a discount of $1.17 per barrel in the prior-year period;

the net reversal (expense) benefit of $(280.8) million related to inventory valuation reserves recognized during the first quarter of 2020 compared to $52.1 million recognized during the first quarter of 2019 ;

increases in ethanol RIN prices which averaged $0.47 per RIN in first quarter 2020 compared to $0.20 per RIN in the prior-year period;

increases in the volume of refined products in the logistics segment were partially offset by decreases in the average cost per gallon of gasoline and diesel purchased.

Cost of materials and other was $1,277.8 million for the second quarter of 2020 compared to $2,067.7 million for the second quarter of 2019 , a decrease of $789.9 million , or 38.2% .

The net decrease in cost of materials and other was primarily driven by the following:

a narrowing of crude oil differentials during the second quarter where the Midland WTI crude oil differential to Brent crude oil was an average discount of $3.58 per barrel compared to $10.88 per barrel in the prior-year period, and the WTI Midland to WTI Cushing discount averaged nearly zero in the second quarter 2020 compared to a discount of $2.24 per barrel in the prior-year period;

Management's Discussion and Analysis

the net reversal (expense) benefit of $203.1 million related to inventory valuation reserves recognized during the second quarter of 2020 compared to $(0.6) million recognized during the second quarter of 2019 , partially offset by a decrease in hedging gains to a loss of $154.4 million recognized during the second quarter of 2020 from a gain of $30.7 million recognized during the second quarter of 2019 ;

decreases in cost of crude oil feedstocks at the refineries, including a decrease in the cost of WTI Cushing crude oil from an average of $59.80 per barrel to an average of $29.77 ;

decreases in the diesel sales volumes and decreases in the average cost per gallon of gasoline and diesel purchased in the logistics segment;

a decrease in retail fuel cost of materials and other attributable to demand slowdown, a reduction in average number of stores and a decrease in average cost per gallon of $0.98 .

Cost of materials and other was $3,188.4 million for the six months ended June 30, 2020 compared to $3,767.1 million for the six months ended June 30, 2019 , a decrease of $578.7 million , or 15.4% .

The net decrease in cost of materials and other was primarily driven by the following:

a narrowing of crude oil differentials during the six months ended June 30, 2020 where the Midland WTI crude oil differential to Brent crude oil was an average discount of $4.26 per barrel compared to $10.49 per barrel in the prior-year period, and the WTI Midland to WTI Cushing discount averaged $0.03 per barrel in the six months ended June 30, 2020 compared to a discount of $1.71 per barrel in the prior-year period;

increases in ethanol RIN prices which averaged $0.34 per RIN in six months ended June 30, 2020 compared to $0.18 per RIN in the prior-year period;

in the logistics segment, decreases in the diesel sales volumes and decreases in the average cost per gallon of gasoline and diesel purchased;

a decrease in retail fuel cost of materials and other attributable to demand slowdown, a reduction in number of stores and a decrease in average cost per gallon of $0.54 .

Such increases were partially offset by the following:

decreases in volume partially due to turnaround activities at Big Spring refinery and cost of crude oil feedstocks at the refineries, including a decrease in the cost of WTI Cushing crude oil from an average of $54.87 per barrel to an average of $45.57 ;

an increase in hedging gains to $77.9 million recognized during the first quarter of 2020 from $19.8 million recognized during the first quarter of 2019 ;

a decrease in retail fuel cost of materials and other attributable to a reduction in number of stores and a decrease in average cost per gallon of $0.14 .

a decrease in hedging gains to a loss of $88.1 million recognized during the six months ended June 30, 2020 from a gain of $50.5 million recognized during the six months ended June 30, 2019 .

Operating Expenses

Operating expenses were $154.5 million for the first quarter of 2020 compared to $166.7 million for the first quarter of 2019 , a decrease of $12.2 million , or 7.3% .

Operating expenses were $127.8 million for the second quarter of 2020 compared to $162.3 million for the second quarter of 2019 , a decrease of $34.5 million , or 21.3% .

The decrease in operating expenses was primarily driven by the following:

decreases in the refining segment related to lower employee, utilities and maintenance costs;

decrease in outside service costs across all segments;

decrease in outside service costs across all segments due to cost reduction measures;

decreases in the refining segment related to catalyst and chemical costs, maintenance costs and cost reduction associated with the sale of our Bakersfield refinery during the quarter;

decrease in retail operating expenses due to reduction in number of stores.

Management's Discussion and Analysis

Operating expenses were $282.3 million for the six months ended June 30, 2020 compared to $329.0 million for the six months ended June 30, 2019 , an decrease of $46.7 million , or 14.2% .

The decrease in operating expenses was primarily driven by the following:

decrease in outside service costs across all segments due to cost reduction measures;

decreases in the refining segment related to lower employee, utilities, catalysts and maintenance costs;

decrease in retail operating expenses due to reduction in number of stores.

General and Administrative Expenses

General and administrative expenses were $65.7 million for the first quarter of 2020 compared to $62.2 million for the first quarter of 2019 , an increase of $3.5 million , or 5.6% .

The increase in general and administrative expense was primarily driven by the following:

an increase in employee, insurance and subscriptions costs driven by increased headcount in corporate and other.

Such increases were partially offset by a decrease in contract services.

General and administrative expenses were $61.7 million for the second quarter of 2020 compared to $69.5 million for the second quarter of 2019 , a decrease of $7.8 million , or 11.2% .

The decrease in general and administrative expense was primarily driven by the following:

Management's Discussion and Analysis

decrease in contract services due to cost reduction measures;

decrease in loss allowance on a note receivable.

General and administrative expenses were $127.4 million and $131.7 million for the six months ended June 30, 2020 and 2019 , respectively, a decrease of $4.3 million , or 3.3% .

The decrease in general and administrative expense was primarily driven by the following:

decrease in contract services due to cost reduction measures;

decrease in loss allowance on a note receivable.

These decreases were partially offset by increases in salaried labor, including severance, partially offset by decrease in incentive accrual.

Depreciation and Amortization

Depreciation and amortization (included in both cost of sales and other operating expenses) was $52.6 million for the first quarter of 2020 compared to $46.8 million for the first quarter of 2019 , an increase of $5.8 million , or 12.4% .

Depreciation and amortization (included in both cost of sales and other operating expenses) was $59.6 million for the second quarter of 2020 compared to $50.1 million for the second quarter of 2019 , an increase of $9.5 million , or 19.0% , primarily due to depreciation associated with assets added during the Big Spring refinery turnaround in the first quarter of 2020 , the El Dorado turnaround assets added in the second quarter of 2019 and the addition of the alkylation unit at our Krotz Springs refinery late in the second quarter of 2019 .

Depreciation and amortization (included in both cost of sales and other operating expenses) was $112.2 million compared to $96.9 million for the six months ended June 30, 2020 and 2019 , respectively, a increase of $15.3 million , or 15.8% , primarily due to depreciation associated with assets added during the Big Spring refinery turnaround in the first quarter of 2020 , the El Dorado turnaround assets added in the second quarter of 2019 and the addition of the alkylation unit at our Krotz Springs refinery late in the second quarter of 2019 .

Other Operating Income, Net

Other operating income, net increase d by $3.1 million in the first quarter of 2020 to income of $0.7 million compared to expense of $2.4 million in the first quarter of 2019 .

Other operating income, net increase d by $10.6 million in the second quarter of 2020 to income of $14.2 million compared to $3.6 million in the second quarter of 2019 .

Other operating income, net increase d by $13.7 million during the six months ended June 30, 2020 to $14.9 million compared to income of $1.2 million during the six months ended June 30, 2019 .

Non-operating Expenses, Net

Interest Expense

Interest expense increase d by $7.6 million , or 26.5% , to $36.3 million in the first quarter of 2020 compared to $28.7 million in the first quarter of 2019 , primarily driven by the following:

an increase in net average borrowings outstanding (including the obligations under the Supply and Offtake Agreements which have an associated interest charge) of approximately $373.7 million in the first quarter of 2020 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the first quarter of 2019 , and an increase in the average effective interest rate of 0.41% in the first quarter of 2020 compared to the first quarter of 2019 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding).

Interest expense decrease d by $3.0 million , or 9.1% , to $29.8 million in the second quarter of 2020 compared to $32.8 million in the second quarter of 2019 , primarily driven by the following:

a decrease in the average effective interest rate of 1.38% in the second quarter of 2020 compared to the second quarter of 2019 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding), partially offset by an increase in net average borrowings outstanding (including the obligations under the Supply and Offtake Agreements which have an associated interest charge) of approximately $410.1 million in the second quarter of 2020 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the second quarter of 2019 .

Interest expense increase d by $4.6 million , or 7.5% , to $66.1 million during the six months ended June 30, 2020 compared to $61.5 million during the six months ended June 30, 2019 , primarily driven by the following:

an increase in net average borrowings outstanding (including the obligations under the supply and offtake agreements which have an associated interest charge) of approximately $435.3 million during the six months ended June 30, 2020 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the six months ended June 30, 2019 , partially offset by a decrease in the average effective interest rate of 0.56% during the six months ended June 30, 2020 compared to the

Management's Discussion and Analysis

six months ended June 30, 2019 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding).

Results from Equity Method Investments

We recognized income of $5.1 million from equity method investments during the first quarter of 2020 , compared to $2.6 million for the first quarter of 2019 , an increase of $2.5 million .

We recognized income of $10.7 million from equity method investments during the second quarter of 2020 , compared to $9.3 million for the second quarter of 2019 , an increase of $1.4 million .

During the six months ended June 30, 2020 , we recognized income of $15.8 million from equity method investments, compared to $11.9 million for the six months ended June 30, 2019 , an increase of $3.9 million .

This increase was primarily driven by the following:

the addition of the Red River Joint Venture in May 2019 which contributed income of $1.8 million in the first quarter of 2020 ;

an increase in income from our other logistics joint ventures from $2.0 million in the first quarter of 2019 to $3.8 million in the first quarter of 2020 .

the addition of the Red River Joint Venture in May 2019 which contributed income of $4.7 million in the six months ended June 30, 2020 compared to $2.3 million in the six months ended June 30, 2019 ;

an increase in income from our other logistics joint ventures from $4.1 million in the six months ended June 30, 2019 to $7.3 million in the six months ended June 30, 2020 .

Such increases were partially offset by losses attributable to our investment in WWP and the WWP Project Financing JV, which is still in the construction period.

Other income decrease d $0.5 million , to $0.9 million in first quarter of 2019 compared to $1.4 million in the first quarter of 2020 .

Income tax expense decrease d by $128.9 million in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

pre-tax loss of $390.1 million in the first quarter of 2020 , as compared to pre-tax income of $200.2 million for the first quarter of 2019 ;

a decrease in our effective tax rate which was 21.3% for the first quarter of 2020 , compared to 22.9% for the first quarter of 2019 primarily due to the following:

reversal of a valuation allowance attributable to book-tax basis differences in partnership investments reported as a discrete benefit for the quarter;

offsetting impact of tax expense for permanent differences due to application of the estimated annual tax rate to year-to-date loss for the quarter.

During the three and six months ended June 30, 2020 , we recognized a gain of $56.9 million on the sale of our non-operating refinery located in Bakersfield, California.

See Note 2 of the condensed consolidated financial statements in Item 1, Financial Statements, for additional information.

Other income increased $6.4 million , to $1.5 million in second quarter of 2020 compared to a loss of $4.9 million in the second quarter of 2019 .

Other income increased $5.9 million , to $2.4 million in the six months ended June 30, 2020 , compared to a loss of $3.5 million in the six months ended June 30, 2019 .

Income tax expense decrease d by $60.5 million in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

pre-tax income of $62.6 million in the second quarter of 2020 , as compared to $109.2 million for the second quarter of 2019 ;

a decrease in our effective tax rate which was (57.3)% for the second quarter of 2020 , compared to 22.5% for the second quarter of 2019 primarily due to the following:

projected 2020 federal net operating loss carryback to a prior 35% tax rate year creating a 14% rate benefit;

an increase in the estimated annual effective tax rate applied to year-to-date loss for the quarter.

Income tax expense decrease d by $189.4 million during the six months ended June 30, 2020 compared to the same period for 2019 , primarily driven by the following:

pre-tax loss of $327.5 million in the six months ended June 30, 2020 , as compared to pre-tax income of $309.4 million for the six months ended June 30, 2019 ;

an increase in our effective tax rate which was 36.3% for the six months ended June 30, 2020 , compared to 22.8% for the six months ended June 30, 2019 primarily due to the following:

projected 2020 federal net operating loss carryback to a prior 35% tax rate year creating a 14% tax rate arbitrage;

reversal of a valuation allowance attributable to book-tax basis differences in partnership investments reported as a discrete benefit in the first quarter.

Management's Discussion and Analysis

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Refining Segment Margins

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of materials and other

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Refinery Statistics

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Tyler, TX Refinery

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Refinery Statistics (continued)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Big Spring, TX Refinery

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See tables below.

Tyler's refining margin per barrel and the adjusted refining margin per barrel for the second quarter 2020 both reflect the $111.0 million margin benefit of favorable fixed price crude cost transactions during the quarter, but exclude the offsetting realized hedging losses of approximately $(111.0) million .

Giving effect to the related hedging losses, the refining margin per barrel would have decreased by $(17.49) .

Such margin impact was unusually large because of the historic volatility in the crude commodities market during the period.

Management's Discussion and Analysis

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Inter-refinery Sales

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in barrels per day)

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Refinery Sales to Other Segments

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in barrels per day)

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Pricing Statistics (average for the period presented)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

WTI — Cushing crude oil (per barrel)

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Brent crude oil (per barrel)

Gulf Coast 5-3-2 crack spread (per barrel) - utilizing HSD

Gulf Coast 5-3-2 crack spread (per barrel) (1)

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Gulf Coast Pipeline No.

2 heating oil (high sulfur diesel).

2 heating oil (ultra low sulfur diesel).

For our Big Spring refinery, we compare our per barrel refined product margin to the Gulf Coast 3-2-1 crack spread consisting of WTI Cushing crude, Gulf Coast 87 Conventional gasoline and Gulf Coast ultra low sulfur diesel, and for our Krotz Springs refinery, we compare our per barrel refined product margin to the Gulf Coast 2-1-1 crack spread consisting of LLS crude oil, Gulf Coast 87 Conventional gasoline and U.S, Gulf Coast Pipeline No.

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Management's Discussion and Analysis

Refining Segment Operational Comparison of the Three Months Ended March 31, 2020 versus the Three Months Ended March 31, 2019

Net revenues for the refining segment decreased by $364.1 million , or 17.4% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

Refining Segment Operational Comparison of the Three and Six Months Ended June 30, 2020 versus the Three and Six Months Ended June 30, 2019

Net revenues for the refining segment decreased by $1,290.8 million , or 54.5% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

decreases in the average price of U.S.

Gulf Coast gasoline of 54.7% , ULSD of 53.1% , and HSD of 59.4% ;

decreases in sales volume of refined product totaling 0.7 million barrels partially due to scheduled turnaround activities at our Big Spring refinery,and a 0.8 million barrel decrease in purchased product sales.

Net revenues included sales to our retail segment of $68.6 million and $90.2 million , and sales to our logistics segment of $80.7 million and $79.5 million .

Also included was a reduction in sales to our other segment of $9.3 million and sales of $14.9 million for the three months ended March 31, 2020 and March 31, 2019 , respectively.

decreases in sales volume of refined product totaling 0.1 million barrels and a 1.7 million barrel decrease in purchased product sales due to decreased demand, partially offset by increased sales volumes at our El Dorado refinery which was impacted by scheduled turnaround activities in the comparable prior year period.

Net revenues included sales to our retail segment of $40.4 million and $101.7 million , sales to our logistics segment of $29.7 million and $73.2 million , and sales to our other segment of $5.0 million and $40.4 million for the three months ended June 30, 2020 and June 30, 2019 , respectively.

We eliminate this intercompany revenue in consolidation.

Net revenues for the refining segment decreased by $1,654.9 million , or 37.1% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

decreases in the average price of U.S.

Gulf Coast gasoline of 38.5% , ULSD of 37.7% , and HSD of 41.5% ;

decreases in sales volume of refined product totaling 0.9 million barrels partially due to scheduled turnaround activities at our Big Spring refinery, partially offset by increased sales volumes at our El Dorado refinery due to prior year scheduled turnaround activities, and a 2.5 million barrel decrease in purchased product sales due to decreased demand.

Net revenues included sales to our retail segment of $109.0 million and $191.9 million , sales to our logistics segment of $110.5 million and $152.6 million and sales to our other segment of $14.3 million and $55.4 million for the six months ended June 30, 2020 and 2019 , respectively.

We eliminate this intercompany revenue in consolidation.

Cost of Materials and Other

Cost of materials and other increased by $237.5 million , or 14.2% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

the net reversal (expense) benefit of $(277.8) million related to inventory valuation reserves recognized during the first quarter of 2020 compared to $52.2 million recognized during the first quarter of 2019 ;

increases in RIN expense, where ethanol RIN prices from an average of $0.47 per RIN in first quarter 2020 compared to $0.20 per RIN in the prior year period.

These increases were partially offset by the following:

an increase in hedging gains to $80.4 million recognized during the first quarter of 2020 from $18.6 million recognized during the first quarter of 2019 ;

Cost of materials and other decreased by $1,126.1 million , or 54.8% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

the net reversal benefit (expense) of $193.7 million related to inventory valuation reserves recognized during the second quarter of 2020 compared to $(0.6) million recognized during the second quarter of 2019 ;

decreases in the cost of WTI Cushing crude oil, from an average of $59.80 per barrel to an average of $29.77 , or (50.22)% ;

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Management's Discussion and Analysis

These decreases were partially offset by the following:

a decrease in hedging gains to a loss of $146.8 million recognized during the second quarter of 2020 from a gain of $25.6 million recognized during the second quarter of 2019 .

Cost of materials and other decreased by $888.6 million , or 23.9% , during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

the net reversal (expense) benefit of $(75.3) million related to inventory valuation reserves recognized during the six months ended June 30, 2020 compared to $51.4 million recognized during the six months ended June 30, 2019 ;

decreases in the cost of WTI Cushing crude oil, from an average of $57.36 per barrel to an average of $37.93 , or (33.9)% ;

decreases in the cost of WTI Midland crude oil, from an average of $55.65 per barrel to an average of $37.90 , or (31.9)% .

These decreases were partially offset by the following:

a decrease in hedging gains to a loss of $66.4 million recognized during the six months ended June 30, 2020 from a gain of $44.2 million recognized during the six months ended June 30, 2019 ;

Our refining segment purchases finished product from our logistics segment and has multiple service agreements with our logistics segment which, among other things, require the refining segment to pay terminalling and storage fees based on the throughput volume of crude and finished product in the logistics segment pipelines and the volume of crude and finished product stored in the logistics segment storage tanks, subject to minimum volume commitments.

These costs and fees were $96.7 million and $52.2 million during the first quarters of 2020 and 2019 , respectively.

These costs and fees were $81.4 million and $52.2 million during the second quarters of 2020 and 2019 , respectively, and $178.1 million and $104.4 million during the six months ended June 30, 2020 and 2019 , respectively.

We eliminate these intercompany fees in consolidation.

Refining Margin

Refining margin decreased by $601.6 million , or 142.3% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

a narrowing of the average WTI Cushing crude oil differential to WTS crude oil to $0.58 per barrel during the first quarter of 2020 compared to $0.94 during the first quarter of 2019 and narrowing of the average WTI Midland crude oil differential to WTI Cushing crude oil to $0.06 per barrel during the first quarter of 2020 compared to $1.17 during the first quarter of 2019 ;

a narrowing of the discount between WTI Midland crude oil and Brent crude oil where, during the first quarter of 2020 , the WTI Midland crude oil differential to Brent crude oil was an average discount of $5.31 per barrel compared to $10.13 per barrel during the first quarter of 2019 ;

Refining margin decreased by $164.7 million , or 52.6% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

a narrowing of the average WTI Cushing crude oil differential to WTS crude oil to $0.16 per barrel during the second quarter of 2020 compared to $1.87 during the second quarter of 2019 and narrowing of the average WTI Midland crude oil differential to WTI Cushing crude oil to nearly zero during the second quarter of 2020 compared to $2.24 per barrel during the second quarter of 2019 ;

a narrowing of the discount between WTI Midland crude oil and Brent crude oil where, during the second quarter of 2020 , the WTI Midland crude oil differential to Brent crude oil was an average discount of $3.58 per barrel compared to $10.88 per barrel during the second quarter of 2019 ;

a 75.9% decline in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery);

a 76.4% decline in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery);

Management's Discussion and Analysis

a 63.2% decline in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery);

an increase in inventory valuation reserve of during the first quarter of 2020 compared to prior year period.

a decrease in hedging gains to a loss of $146.8 million recognized during the second quarter of 2020 from a gain of $25.6 million recognized during the second quarter of 2019 .

These decreases were partially offset by the following:

an increase in hedging gains to $80.4 million recognized during the first quarter of 2020 from $18.6 million recognized during the first quarter of 2019 ;

a 10.78% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery).

an increase attributable to the reversal benefit of inventory valuation reserve totaling $193.7 million during the second quarter of 2020 compared to prior year period.

Management's Discussion and Analysis

Refining margin decreased by $766.3 million , or 104.1% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

a narrowing of the average discount between WTI Midland crude oil compared to WTI Cushing where, during the six months of 2020 , the average WTI Midland crude oil differential to WTI Cushing crude oil was $0.03 per barrel compared to $1.71 during the six months of 2019 ;

a narrowing of the average discount between WTI Midland crude oil and Brent crude oil where, during the six months of 2020 , the WTI Midland crude oil differential to Brent crude oil was an average discount of $4.26 per barrel compared to $10.49 per barrel during the same period of 2019 ;

a narrowing of the average WTI Cushing crude oil differential to WTS crude oil to $0.24 per barrel during the six months of 2020 compared to $1.41 during the six months of 2019 ;

a narrowing of the discount between WTI Cushing crude oil compared to Brent where, during the six months of 2020 , the average WTI Cushing crude oil differential to Brent crude oil was $4.62 per barrel compared to $8.78 during the six months of 2019 ;

a 56.0% decline in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery);

a 45.9% decline in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery);

a 37.4% decline in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery);

a decrease in hedging gains to $(66.4) million recognized during the six months of 2020 from $44.2 million recognized during the six months of 2019 .

These decreases were partially offset by the following:

an increase in reversal benefit of inventory valuation reserve of during the during the six months of 2020 compared to the prior year period.

Management's Discussion and Analysis

Operating Expenses

Operating expenses decreased by $9.3 million , or 7.7% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

Operating expenses decreased by $26.3 million , or 22.9% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

decreases in contractor and maintenance costs partially due to cost reduction measures taken in the second quarter of 2020 ;

decreases in catalyst and chemicals costs in the second quarter of 2020 , primarily at our Krotz Springs refinery related to scheduled unit downtime;

reduced costs resulting from the sale of the Bakersfield refinery in May 2020.

Operating expenses decreased by $35.6 million , or 15.1% , during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

decreases in employee related costs primarily related to decrease in incentive plan and workforce optimization to reduce overtime rates;

decreases in utilities and catalyst costs, primarily at our Big Spring refinery related to reduced throughput due to turnaround;

decreases in contractor and materials costs partially due to cost reduction measures taken in the first quarter of 2020 .

decreases in utilities and catalyst costs, primarily at our Big Spring and Krotz Springs refineries related to reduced throughput due to turnaround and unit downtime, respectively;

decreases in contractor and maintenance costs partially due to cost reduction measures taken in the six months of 2020 .

Contribution Margin

Contribution margin decreased by $592.3 million , or a 31.2% reduction in contribution margin percentage, in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

Contribution margin decreased by $138.4 million , or a 2.8% reduction in contribution margin percentage, in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

the decline of the Midland WTI crude oil differential to Brent crude oil compared to the prior-year period;

reduced performance at our Big Spring refinery due to turnaround;

an overall decline in the average crack spreads;

an increase in reversal benefit related to inventory valuation reserve of during the second quarter of 2020 compared to prior year period;

a narrowing of the discount between WTI Cushing and WTS crude oil compared to the second quarter of 2019 .

These decreases were partially offset by decreases in operating expenses across all refineries.

Management's Discussion and Analysis

a 32.72% decline in the 5-3-2 crack spread (the primary measure for the Tyler and El Dorado refineries) and a 24.84% decline in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery);

an increase in inventory valuation reserve of during the first quarter of 2020 compared to prior year period;

a narrowing of the discount between WTI Cushing and WTS crude oil compared to the first quarter of 2019 .

These decreases were partially offset by the following:

an increase in hedging gains during the first quarter of 2020 compared to prior year period;

a 10.78% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery);

decreases in operating expenses across all refineries.

Contribution margin decreased by $730.7 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

the decline of the Midland WTI crude oil differential to Brent crude oil compared to the prior-year period;

reduced performance at our Big Spring refinery due to turnaround;

an overall decline in the average crack spreads;

an increase in reversal benefit related to inventory valuation reserves recognized during the six months of 2020 compared to the prior year period;

a narrowing of the discount between WTI Cushing and WTI crude oil compared to the prior-year period.

These decreases were partially offset by decreases in operating expenses across all refineries.

Management's Discussion and Analysis

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Logistics Contribution Margin and Operating Information

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of materials and other

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East Texas Crude Logistics System

Big Spring Gathering Assets (3)

Excludes jet fuel and petroleum coke.

Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, El Dorado and North Little Rock, Arkansas and Memphis and Nashville, Tennessee terminals.

Logistics Segment Operational Comparison of the Three Months Ended March 31, 2020 versus the Three Months Ended March 31, 2019

Net revenues increased by $10.9 million , or 7.1% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

increases in the average volumes sold partially offset by decreases in the average sales prices per gallon of gasoline and diesel in our West Texas marketing operations.

Throughputs for the Big Spring Gathering Assets are for the 91 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

Logistics Segment Operational Comparison of the Three and Six Months Ended June 30, 2020 versus the Three and Six Months Ended June 30, 2019

Net revenues decreased by $37.6 million , or 24.2% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

decreases in the average volumes sold partially offset by decreases in the average sales prices per gallon of gasoline and diesel in our West Texas marketing operations:

the average volumes of diesel sold decreased 10.2 million gallons, partially offset by a 1.1 million decrease of gasoline gallons sold.

the average sales prices per gallon of diesel and gasoline sold decreased $1.11 per gallon and $1.09 per gallon, respectively.

Such decrease was partially offset by the following:

Increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, which were effective April 1, 2020 and May 1, 2020, respectively.

Refer to Note 4 of the condensed consolidated financial statements in Item 1, Financial Statements, for additional information.

Net revenues included sales to our refining segment of $90.0 million and $61.1 million for the three months ended June 30, 2020 and June 30, 2019 , respectively, and sales to our other segment of $0.4 million and $1.1 million for the three months ended June 30, 2020 and 2019 , respectively.

We eliminate this intercompany revenue in consolidation.

Management's Discussion and Analysis

Net revenues decreased by $26.7 million , or 8.7% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

decreases in the average sales prices per gallon and volumes of diesel gallon sold, partially offset by increases in the average sales volume of gasoline in our West Texas marketing operations:

the average volumes of gasoline sold increased 14.4 million gallons, partially offset by a 11.5 million decrease of diesel gallons sold.

the average sales prices per gallon of gasoline and diesel sold decreased $0.47 per gallon and $0.68 per gallon, respectively.

increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the three months ended March 31, 2019 , during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee, compared to the three months ended March 31, 2020 , during which the pipeline was subject to a FERC tariff;

increased revenues at our SALA Gathering and Magnolia Pipeline as result of increased throughput during the three months ended March 31, 2020 when compared to the three months ended March 31, 2019 .

Net revenues included sales to our refining segment of $105.7 million and $61.1 million for the three months ended March 31, 2020 and March 31, 2019 , respectively, and sales to our other segment of $0.9 million and $1.8 million for the three months ended March 31, 2020 and 2019 , respectively.

Such decrease was partially offset by the following:

Increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively.

Refer to Note 4 of the condensed consolidated financial statements in Item 1, Financial Statements, for additional information.

increased revenues at our SALA Gathering System and Magnolia Pipeline as result of increased throughput during the six months ended June 30, 2020 when compared to the six months ended June 30, 2019 .

Net revenues included sales to our refining segment of $195.7 million and $122.1 million for the six months ended June 30, 2020 and 2019 , respectively, and sales to our other segment of $1.2 million for the six months ended June 30, 2020 .

We eliminate this intercompany revenue in consolidation.

Management's Discussion and Analysis

Cost of Materials and Other

Cost of materials and other for the logistics segment increased $5.0 million , or 5.2% , in the first quarter of 2020 compared to the first quarter of 2019 .

This increase was primarily driven by the following:

increases in the average volumes sold, partially offset by decreases 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 increased 13.3 million gallons, partially offset by 1.3 million decrease of diesel gallons sold.

Cost of materials and other for the logistics segment decreased $49.9 million , or 53.2% , in the second quarter of 2020 compared to the second quarter of 2019 primarily driven by the following:

decreases in the average diesel volumes sold and average cost per gallon of gasoline and diesel sold in our West Texas marketing operations:

the average volumes of diesel sold decreased 10.2 million gallons, partially offset by 1.1 million increase of gasoline gallons sold.

the average cost per gallon of gasoline and diesel sold decreased $0.96 per gallon and $1.03 per gallon, respectively.

inventory net realizable value charge amounting to $2.9 million due to $0.92 per barrel markdown on inventory;

an increase in hedging gains to $3.1 million recognized during the first quarter of 2020 from a loss of $1.0 million recognized during the first quarter of 2019 .

Our logistics segment purchased product from our refining segment of $80.7 million and $79.5 million for the three months ended March 31, 2020 and March 31, 2019 , respectively.

Our logistics segment purchased product from our refining segment of $29.7 million and $73.2 million for the three months ended June 30, 2020 and June 30, 2019 , respectively.

We eliminate these intercompany costs in consolidation.

Cost of materials and other for the logistics segment decreased $44.9 million , or 23.6% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily driven by the following:

decrease in the average diesel volumes sold, partially offset by decreases in the average cost per gallon of gasoline and diesel sold in our West Texas marketing operations:

Management's Discussion and Analysis

◦ the average volumes of diesel sold decreased 11.5 million gallons, partially offset by a 14.4 million increase in gasoline gallons sold.

the average cost per gallon of gasoline and diesel sold decreased $0.41 per gallon and $0.61 per gallon, respectively.

Our logistics segment purchased product from our refining segment of $110.5 million and $152.6 million for the six months ended June 30, 2020 and June 30, 2019 , respectively.

We eliminate these intercompany costs in consolidation.

Operating Expenses

Operating expenses decreased by $1.3 million , or 8.1% , in the first quarter of 2020 compared to the first quarter of 2019 , driven by the following:

Operating expenses decreased by $4.9 million , or 28.3% , in the second quarter of 2020 compared to the second quarter of 2019 , driven by the following:

decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

decrease in utilities and other variable expenses due to lower production.

Operating expenses decreased by $6.2 million , or 18.6% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , driven by the following:

decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

lower operating costs associated with allocated contract services pertaining to certain of our assets;

Management's Discussion and Analysis

decrease in utilities expense.

These decreases were partially offset by:

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.

decreases in variable expenses such as utilities, maintenance and materials costs due to lower production.

Contribution Margin

Contribution margin increased by $ 7.2 million , or 18.0% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

increases in revenues associated with Paline Pipeline, SALA Gathering system and West Texas Marketing operations;

Contribution margin increased by $ 17.2 million , or 38.9% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

increases in revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions;

decreases in operating expenses.

increase in hedging gains.

Such increases were partially offset by the following:

decrease in gross margin of $0.86 per barrel of our gasoline and diesel sold in our West Texas marketing operations.

decreases in the volumes combined with a decrease in gross margin of $5.61 per barrel in our West Texas marketing operations.

Management's Discussion and Analysis

Contribution margin increased by $24.4 million , or 28.9% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

increases in revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, Magnolia Pipeline, and SALA Gathering system;

decreases in operating expenses.

Such increases were partially offset by the following:

decreases in gross margin per barrel sold of $2.88 in our West Texas marketing operations.

Management's Discussion and Analysis

Retail Segment

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Retail Contribution Margins

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of materials and other

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Same-Store Comparison (2)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Change in same-store fuel gallons sold

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Same-store comparisons include period-over-period increases or decreases in specified metrics for stores that were in service at both the beginning of the earliest period and the end of the most recent period used in the comparison.

Retail Segment Operational Comparison of the Three Months Ended March 31, 2020 versus the Three Months Ended March 31, 2019

Net revenues for the retail segment decreased by $18.6 million , or 9.4% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

total fuel sales were $106.9 million in the first quarter of 2020 compared to $121.9 million in the first quarter of 2019 , attributable to the following:

Retail Segment Operational Comparison of the Three and Six Months Ended June 30, 2020 versus the Three and Six Months Ended June 30, 2019

Net revenues for the retail segment decreased by $59.1 million , or 26.3% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

total fuel sales were $75.9 million in the second quarter of 2020 compared to $140.8 million in the second quarter of 2019 , attributable to the following:

a decrease in total retail fuel gallons sold for the retail segment to 42,436 thousand gallons in the second quarter of 2020 compared to 53,743 thousand gallons in the second quarter of 2019 associated with the reduction in average number of stores period over period, and a same-store sales decrease in fuel volumes of 19.7% primarily due to demand slowdown as a result of the COVID-19 Pandemic;

Management's Discussion and Analysis

a $0.83 decrease in average price charged per gallon;

$5.9 million decrease related to reduction in number of stores period over period.

a decrease in total retail fuel gallons sold for the retail segment to 47,959 thousand gallons in the first quarter of 2020 compared to 53,890 thousand gallons in the first quarter of 2019 associated with the reduction in average number of stores period over period, and a same-store sales decrease in fuel volumes of 8.2% ;

merchandise sales were $89.4 million in the second quarter of 2020 compared to $83.3 million in the second quarter of 2019 attributable to the following:

same-store sales increase of 13.1% primarily due to strong sales growth for key categories such as beer, cigarettes and packaged beverages;

partially offset by a $4.6 million decrease related to reduction in number of stores.

Net revenues for the retail segment decreased by $77.7 million , or 18.4% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

total fuel sales were $182.9 million in the six months of 2020 compared to $262.7 million in the six months of 2019 , attributable to the following:

a decrease in total retail fuel gallons sold of 90,376 thousand gallons in the six months of 2020 compared to 107,633 thousand gallons in the six months of 2019 , attributable to a decrease in volumes associated with the reduction in average number of stores period over in addition to same-store sales decline in fuel volumes of 13.9% primarily due to demand slowdown in the second quarter of 2020 as a result of the COVID-19 Pandemic;

a $0.42 decrease in average price charged per gallon;

$10.0 million decrease related to reduction in number of stores period over period.

merchandise sales were $161.1 million in the six months of 2020 compared to $158.6 million in the six months of 2019 primarily driven by the following:

a same-store sales increase of 7.6% ;

partially offset by $10.4 million decrease related to reduction in number of stores period over period.

Management's Discussion and Analysis

merchandise sales were $71.7 million in the first quarter of 2020 compared to $75.3 million in the first quarter of 2019 attributable to the following:

$5.8 million decrease related to reduction in number of stores;

partially offset by a same-store sales increase of 1.7% .

Cost of Materials and Other

Cost of materials and other for the retail segment decreased by $19.3 million , or 11.8% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by the following:

Cost of materials and other for the retail segment decreased by $62.5 million , or 34.3% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by the following:

$7.7 million decrease due to reduction in number of stores period over period;

a decrease in average cost per gallon of $0.98 or 42.0% applied to fuel sales volumes that decreased period over period.

Our retail segment purchased finished product from our refining segment of $68.6 million and $90.2 million for the three months ended March 31, 2020 and March 31, 2019 .

Our retail segment purchased finished product from our refining segment of $40.4 million and $101.7 million for the three months ended June 30, 2020 and June 30, 2019 .

We eliminate this intercompany cost in consolidation.

Management's Discussion and Analysis

Cost of materials and other for the retail segment decreased by $81.8 million , or 23.7% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily driven by the following:

$16.0 million decrease due to reduction in number of stores period over period;

a decrease in average cost per gallon of $0.54 or 24.6% applied to fuel sales volumes that decreased slightly period over period.

Our retail segment purchased finished product from our refining segment of $109.0 million and $191.9 million for the six months ended June 30, 2020 and June 30, 2019 .

We eliminate this intercompany cost in consolidation.

Operating Expenses

Operating expenses for the retail segment decreased by $1.4 million , or 5.9% in the first quarter of 2020 compared to the first quarter of 2019 .

Operating expenses for the retail segment decreased by $3.3 million , or 13.3% in the second quarter of 2020 compared to the second quarter of 2019 .

This decrease is primarily attributable to a decrease in operating costs associated with the reduction in the number of stores.

Operating expenses for the retail segment decreased by $4.7 million , or 9.7% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

This decrease is primarily attributable to a decrease in operating costs associated with the reduction in the number of stores.

Management's Discussion and Analysis

Contribution Margin

Contribution margin for the retail segment increased by $2.1 million , or 20.6% , in the first quarter of 2020 compared to the first quarter of 2019 , primarily driven by a $0.113 per gallon improvement in the retail fuel margin and a slight increase in merchandise margin.

Contribution margin for the retail segment increased by $6.7 million , or 38.1% , in the second quarter of 2020 compared to the second quarter of 2019 , primarily driven by a $0.153 per gallon improvement in the retail fuel margin and an increase in merchandise sales, offset by 0.4% decrease in merchandise margin.

Contribution margin for the retail segment increased by $8.8 million , or 31.7% , in the six months ended June 30, 2020 , compared to the six months ended June 30, 2019 , primarily driven by a $0.126 per gallon improvement in the retail fuel margin and increase in merchandise sales.

Management's Discussion and Analysis

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Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash dividends and operational capital expenditures and expect the same in the foreseeable future.

Other funding sources including issuance of equity and debt securities have been utilized to meet our funding requirements and support our growth capital projects and acquisitions.

Other funding sources including borrowings under existing credit agreements and issuance of equity and debt securities have been utilized to meet our funding requirements and support our growth capital projects and acquisitions.

In addition we have historically been able to source funding at terms that reflect market conditions, our financial position and our credit ratings.

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However, there can be no assurances regarding the availability of any future debt or equity financings or whether such financings can be made available on terms that are acceptable to us;

Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and oil prices, some of which are beyond our control.

If market conditions were to change, for instance due to the significant decline in oil prices or uncertainty created by the COVID-19 Pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced.

As of March 31, 2020, we believe we were in compliance with all of our debt covenants.

After considering the current and potential effect of the significant decline in oil prices and uncertainty created by the COVID-19 Pandemic on our operations, we currently expect to remain in compliance with our debt covenants.

any execution of such financing activities will be dependent on the contemporaneous availability of functioning debt or equity markets.

Additionally, new debt financing activities will be subject to the satisfaction of any debt incurrence limitation covenants in our existing financing agreements.

Our debt limitation covenants in our existing financing documents are usual and customary for credit agreements of our type and reflective of market conditions at the time of their execution.

Additionally, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and oil prices, some of which are beyond our control.

As of June 30, 2020 , we were in compliance with all of our debt maintenance covenants, where the most significant long-term obligation subject to such covenants was the Delek Logistics Credit Facility (see Note 8 of the condensed consolidated financial statements in Item 1, Financial Statements).

After considering the current effect of the significant decline in oil prices and uncertainty created by the COVID-19 Pandemic on our operations, we currently expect to remain in compliance with our existing debt maintenance covenants, though we can provide no assurances, particularly if conditions significantly worsen beyond our ability to predict.

Additionally, we were in compliance with incurrence covenants during the quarter ended June 30, 2020 to the extent that any of our activities triggered these covenants.

However, given the uncertainty around economic conditions arising from the COVID-19 Pandemic, it is at least reasonably possible that conditions could change significantly, and that such changes could adversely impact our ability to meet some of these incurrence covenants.

Failure to meet the incurrence covenants could impose certain incremental restrictions on our ability to incur new debt and also may limit the extent to which we may pay dividends, as well as impose additional restrictions on our ability to repurchase our stock, make new investments and incur new liens (among others).

Such restrictions would generally remain in place until such quarter that we return to compliance under the applicable incurrence based covenants.

In the event that we are subject to these incremental restrictions, we believe that we have sufficient current and alternative sources of liquidity, including (but not limited to):

available borrowings under our existing Wells Fargo Revolving Credit Facility (see Note 8 of the condensed consolidated financial statements in Item 1, Financial Statements);

the option to incur an additional $200 million of secured debt under the Wells Fargo Term Loan Credit Facility (see Note 8 of the condensed consolidated financial statements in Item 1, Financial Statements);

as well as the possibility of obtaining other secured and unsecured debt, raising capital through equity issuance, or taking advantage of transactional financing opportunities such as sale-leasebacks, as otherwise contemplated and allowed under incurrence covenants.

The following table sets forth a summary of our consolidated cash flows (in millions):

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flow Data:

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Cash Flows from Operating Activities

Net cash used in operating activities was $154.1 million for the three months ended March 31, 2020 , compared to cash provided by operating activities of $133.4 million for the comparable period of 2019 .

Cash receipts from customers and cash payments to suppliers and for salaries decreased resulting in a net $283.3 million decrease in cash from operating activities mainly due to a decline in the volume of refined product sold.

Net cash used in operating activities was $323.1 million for the six months ended June 30, 2020 , compared to cash provided by operating activities of $235.4 million for the comparable period of 2019 .

Cash receipts from customers and cash payments to suppliers and for salaries decreased resulting in a net $628.8 million decrease in cash from operating activities mainly due to a decline in the prices and volume of refined product sold.

Additionally, cash paid for debt interest increased by $5.7 million .

This decrease was partially offset by a $3.0 million increase in cash received for dividends.

This decrease was partially offset by a $10.1 million increase in cash received for dividends and $65.9 million decrease in cash paid for taxes.

Cash Flows from Investing Activities

Net cash used in investing activities was $146.6 million for the first three months of 2020 , compared to $127.0 million in the comparable period of 2019 .

The increase in cash flows used in investing activities was primarily due to an increase in cash purchases of property, plant and equipment which increased from $124.0 million in 2019 , to $189.2 million in 2020 predominantly attributable to capital expenditures related to turnaround and other sustaining maintenance activities in our refining segment, partially offset by reduced discretionary spending in other segment.

Additionally, contributing to the increase in cash used was a $22.3 million increase in equity method investment contributions in the current year, $8.2 million of which related to our interest in Red River Red River Pipeline Joint Venture and $18.9 million of which related to our interest in the WWP and WWP Project Financing JV, both of which did not exist in the comparable prior year period.

Such increases in cash used were partially offset by distributions received from our WWP Project Financing JV in the amount of $69.3 million for which there was no comparable activity in the prior year period.

Net cash used in investing activities was $155.9 million for the first six months of 2020 , compared to $329.4 million in the comparable period of 2019 .

The decrease in cash flows used in investing activities was primarily due to a $106.9 million decrease in equity method investment contributions primarily due to our obtaining a 33% membership interest in the Red River Pipeline Joint Venture in May 2019 for $124.7 million .

During the six months ended June 30, 2020 , we contributed $10.5 million related to our Red River Pipeline Joint Venture and $18.9 million related to our interest in WWP and WWP Project Financing JV which did not exist in the comparable prior year period.

Additionally, we received distributions from our WWP Project Financing JV in the amount of $69.3 million for which there was no comparable activity in the prior year period.

We also received proceeds of $39.9 million from the sale of our Bakersfield refinery in the six months ended June 30, 2020 .

These decreases in cash used investing activities were partially offset by an increase in cash purchases of property, plant and equipment which increased from $199.9 million in 2019 , to $235.4 million in 2020 predominantly attributable to capital expenditures related to turnaround and other sustaining maintenance activities in our refining segment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $130.3 million for the three months ended March 31, 2020 , compared to net cash used of $96.0 million in the comparable 2019 period.

This increase in cash provided was predominantly due to net proceeds received from long-term revolvers of $176.7 million during the three months ended March 31, 2020 compared to $4.5 million in the comparable 2019 period.

Additionally contributing to this increase were a decrease in repurchases of common stock to $1.9 million for the three months ended March 31, 2020 compared to $46.2 million in the comparable 2019 period due to management suspending our share repurchase program, and an increase in net proceeds from inventory financing arrangements to $21.0 million for the three months ended March 31, 2020 compared to $6.6 million in the comparable 2019 period.

Net cash provided by financing activities was $372.7 million for the six months ended June 30, 2020 , compared to net cash used of $33.9 million in the comparable 2019 period.

This increase in cash provided was predominantly due to net proceeds received from long-term revolvers of $231.6 million during the six months ended June 30, 2020 , compared to net payments of $85 million in the comparable 2019 period.

Additionally contributing to this increase were a decrease in repurchases of common stock to $1.9 million for the six months ended June 30, 2020 compared to $104.8 million in the comparable 2019 period due to management suspending our share repurchase program, and an increase in net proceeds from inventory financing arrangements to $59.9 million for the six months ended June 30, 2020 compared to $4.2 million in the comparable 2019 period.

Partially offsetting this increase was a decrease in net proceeds received from term debt to $153.8 million during the six months ended June 30, 2020 , compared to $217.6 million in the comparable 2019 period.

Cash Position and Indebtedness

As of March 31, 2020 , our total cash and cash equivalents were $784.9 million and we had total indebtedness of approximately $2,216.9 million .

The total indebtedness is net of deferred financing costs and debt discount of $7.5 million and $13.3 million , respectively.

As of June 30, 2020 , our total cash and cash equivalents were $849.0 million and we had total long-term indebtedness of approximately $2,454.9 million .

The total long-term indebtedness is net of deferred financing costs and debt discount of $7.0 million and $27.4 million , respectively.

Additionally, we had letters of credit issued of approximately $204.6 million .

Total unused credit commitments or borrowing base availability, as applicable, under our revolving credit facilities was approximately $795.4 million .

We believe we were in compliance with our covenants in all debt facilities as of March 31, 2020 .

Our total indebtedness consisted of the following:

Our total long-term indebtedness consisted of the following:

an aggregate principal amount of $100.0 million under the Revolving Credit Facility, due on March 30, 2023, with average borrowing rate of 3.50% ;

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See Note 8 of the condensed consolidated financial statements in Item 1, Financial Statements, for additional information about our separate credit facilities.

Management's Discussion and Analysis

Additionally, our obligation under the supply and offtake inventory financing agreements with J.

Aron amounted to $314.0 million at June 30, 2020 , $215.0 million of which is due on December 30, 2022, except that a portion (not to exceed $58.8 million ) of this otherwise long-term component is subject to potential earlier payment under the Periodic Price Adjustment provision.

See Note 7 of the condensed consolidated financial statements in Item 1, Financial Statements, for additional information about our supply and offtake facilities.

Capital Spending

A key component of our long-term strategy is our capital expenditure program.

Our capital expenditures for the three months ended March 31, 2020 were $190.2 million , of which approximately $168.1 million was spent in our refining segment, $3.0 million in our logistics segment, $6.2 million in our retail segment and $12.9 million at the holding company level.

The following table summarizes our actual capital expenditures for the three months ended March 31, 2020 and planned capital expenditures for the full year 2020 by operating segment and major category (in millions):

Our capital expenditures for the six months ended June 30, 2020 were $203.3 million , of which approximately $180.3 million was spent in our refining segment, $3.7 million in our logistics segment, $7.5 million in our retail segment and $11.8 million at the holding company level.

The following table summarizes our actual capital expenditures for the six months ended June 30, 2020 and planned capital expenditures for the full year 2020 by operating segment and major category (in millions):

2020 Forecast

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

Sustaining maintenance, including turnaround activities

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Total capital spending

(1) The forecast excludes a $65 million discretionary project to complete a connector to the WWP pipeline, for which we have secured pre-approved committed financing from the WWP members.

(2) Excludes purchases of rights-of-way in the amount of $2.1 million in 2020.

Management's Discussion and Analysis

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.

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Our capital expenditure budget may also be revised as management continues to evaluate projects for reliability or profitability.

As a result of the uncertainties associated with the COVID-19 Pandemic, we have decreased our capital spending forecast for 2020 to $250.0 million , down from the prior forecast as reported in our Annual Report on Form 10-K for the year ended December 31, 2019, of $325.7 million.

Projects that are not essential to maintaining the current operations have been suspended and are expected to resume in 2021.

We continue to evaluate the adverse effects of the COVID -19 Pandemic, and may further revise our forecast as a result of changing circumstances.

We have no material off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis