Delek US Holdings, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Delek US Holdings, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In millions, except share and per share data) September 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 807.9 $ 955.3 Accounts receivable, net 518.7 792.6 Inventories, net of inventory valuation reserves 672.0 946.7 Other current assets 515.9 268.7 Total current assets 2,514.5 2,963.3 Property, plant and equipment: Property, plant and equipment 3,515.7 3,362.8 Less: accumulated depreciation ( 1,091.8 ) ( 934.5 ) Property, plant and equipment, net 2,423.9 2,428.3 Operating lease right-of-use assets 180.3 183.6 Goodwill 855.7 855.7 Other intangibles, net 109.0 110.3 Equity method investments 373.1 407.3 Other non-current assets 68.5 67.8 Total assets $ 6,525.0 $ 7,016.3 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 973.1 $ 1,599.7 Current portion of long-term debt 33.4 36.4 Obligation under Supply and Offtake Agreements 102.8 332.5 Current portion of operating lease liabilities 47.8 40.5 Accrued expenses and other current liabilities 657.1 346.8 Total current liabilities 1,814.2 2,355.9 Non-current liabilities: Long-term debt, net of current portion 2,440.6 2,030.7 Obligation under Supply and Offtake Agreements 220.4 144.8 Environmental liabilities, net of current portion 106.1 137.9 Asset retirement obligations 37.2 68.6 Deferred tax liabilities 316.2 267.9 Operating lease liabilities, net of current portion 132.6 144.3 Other non-current liabilities 37.4 30.9 Total non-current liabilities 3,290.5 2,825.1 Stockholders’ equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding — — Common stock, $ 0.01 par value, 110,000,000 shares authorized, 91,301,229 shares and 90,987,025 shares issued at September 30, 2020 and December 31, 2019, respectively 0.9 0.9 Additional paid-in capital 1,180.1 1,151.9 Accumulated other comprehensive income — 0.1 Treasury stock, 17,575,527 shares and 17,516,814 shares, at cost, as of September 30, 2020 and December 31, 2019, respectively ( 694.1 ) ( 692.2 ) Retained earnings 815.3 1,205.6 Non-controlling interests in subsidiaries 118.1 169.0 Total stockholders’ equity 1,420.3 1,835.3 Total liabilities and stockholders’ equity $ 6,525.0 $ 7,016.3 See accompanying notes to condensed consolidated financial statements 3 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Operations (Unaudited) (In millions, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net revenues $ 2,062.9 $ 2,334.3 $ 5,419.6 $ 7,014.5 Cost of sales: Cost of materials and other 1,875.9 1,964.1 5,064.3 5,731.2 Operating expenses (excluding depreciation and amortization presented below) 115.7 141.7 348.3 418.4 Depreciation and amortization 59.4 43.8 160.0 125.7 Total cost of sales 2,051.0 2,149.6 5,572.6 6,275.3 Operating expenses related to retail and wholesale business (excluding depreciation and amortization presented below) 24.0 25.2 73.7 77.5 General and administrative expenses 57.0 65.6 184.4 197.3 Depreciation and amortization 5.8 6.0 17.4 21.0 Other operating loss (income), net 0.3 0.5 ( 14.6 ) ( 0.7 ) Total operating costs and expenses 2,138.1 2,246.9 5,833.5 6,570.4 Operating (loss) income ( 75.2 ) 87.4 ( 413.9 ) 444.1 Interest expense 31.9 33.9 98.0 95.4 Interest income ( 0.9 ) ( 3.2 ) ( 3.1 ) ( 9.0 ) Income from equity method investments ( 12.8 ) ( 16.5 ) ( 28.6 ) ( 28.4 ) Loss (gain) on sale of non-operating refinery 0.1 — ( 56.8 ) — Other (income) expense, net ( 1.0 ) ( 0.2 ) ( 3.4 ) 3.3 Total non-operating expense, net 17.3 14.0 6.1 61.3 (Loss) income before income tax (benefit) expense ( 92.5 ) 73.4 ( 420.0 ) 382.8 Income tax (benefit) expense ( 15.6 ) 13.4 ( 134.6 ) 83.8 (Loss) income from continuing operations, net of tax ( 76.9 ) 60.0 ( 285.4 ) 299.0 Discontinued operations: Loss from discontinued operations, including loss on sale of discontinued operations — — — ( 1.0 ) Income tax benefit — — — ( 0.2 ) Loss from discontinued operations, net of tax — — — ( 0.8 ) Net (loss) income ( 76.9 ) 60.0 ( 285.4 ) 298.2 Net income attributed to non-controlling interests 11.2 8.7 29.4 20.3 Net (loss) income attributable to Delek $ ( 88.1 ) $ 51.3 $ ( 314.8 ) $ 277.9 Basic (loss) income per share: (Loss) income from continuing operations $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.64 Loss from discontinued operations — $ — — ( 0.01 ) Basic (loss) income per share $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.63 Diluted (loss) income per share: (Loss) income from continuing operations $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.61 Loss from discontinued operations — — — ( 0.01 ) Diluted (loss) income per share $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.60 Dividends declared per common share outstanding $ 0.31 $ 0.29 $ 0.93 $ 0.84 See accompanying notes to condensed consolidated financial statements 4 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Comprehensive Operations (Unaudited) (In millions) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net (loss) income $ ( 76.9 ) $ 60.0 $ ( 285.4 ) $ 298.2 Other comprehensive income (loss): Commodity contracts designated as cash flow hedges: Net loss related to commodity cash flow hedges ( 0.6 ) ( 19.8 ) ( 0.3 ) ( 23.2 ) Income tax benefit ( 0.1 ) ( 4.1 ) ( 0.1 ) ( 4.8 ) Net comprehensive loss on commodity contracts designated as cash flow hedges ( 0.5 ) ( 15.7 ) ( 0.2 ) ( 18.4 ) Other income, net of taxes — 0.1 0.1 0.5 Total other comprehensive loss ( 0.5 ) ( 15.6 ) ( 0.1 ) ( 17.9 ) Comprehensive (loss) income ( 77.4 ) 44.4 ( 285.5 ) 280.3 Comprehensive income attributable to non-controlling interest 11.2 8.7 29.4 20.3 Comprehensive (loss) income attributable to Delek $ ( 88.6 ) $ 35.7 $ ( 314.9 ) $ 260.0 See accompanying notes to condensed consolidated financial statements 5 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (In millions, except share and per share data) Three Months Ended September 30, 2020 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Treasury Stock Non-Controlling Interest in Subsidiaries Total Stockholders' Equity Shares Amount Shares Amount Balance at June 30, 2020 91,232,964 $ 0.9 $ 1,160.1 $ 0.5 $ 926.4 ( 17,575,527 ) $ ( 694.1 ) $ 165.5 $ 1,559.3 Net (loss) income — — — — ( 88.1 ) — — 11.2 ( 76.9 ) Other comprehensive loss related to commodity contracts, net — — — ( 0.5 ) — — — — ( 0.5 ) Common stock dividends ($ 0.31 per share) — — — — ( 23.0 ) — — — ( 23.0 ) Distributions to non-controlling interests — — — — — — — ( 8.2 ) ( 8.2 ) Equity-based compensation expense — — 6.7 — — — — — 6.7 Repurchase of non-controlling interests — — ( 23.5 ) — — — — 0.4 ( 23.1 ) Impact from IDR Simplification transaction of Delek Logistics LP — — 37.2 — — — — ( 50.8 ) ( 13.6 ) Taxes paid due to the net settlement of equity-based compensation — — ( 0.4 ) — — — — — ( 0.4 ) Exercise of equity-based awards 68,265 — — — — — — — — Balance at September 30, 2020 91,301,229 $ 0.9 $ 1,180.1 $ — $ 815.3 ( 17,575,527 ) $ ( 694.1 ) $ 118.1 $ 1,420.3 6 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (In millions, except share and per share data) Three Months Ended September 30, 2019 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Treasury Stock Non-Controlling Interest in Subsidiaries Total Stockholders' Equity Shares Amount Shares Amount Balance at June 30, 2019 90,861,698 $ 0.9 $ 1,140.3 $ 26.3 $ 1,165.9 ( 15,416,502 ) $ ( 618.9 ) $ 171.7 $ 1,886.2 Net income — — — — 51.3 — — 8.7 60.0 Other comprehensive loss related to commodity contracts, net — — — ( 15.7 ) — — — — ( 15.7 ) Common stock dividends ($ 0.29 per share) — — — — ( 21.8 ) — — — ( 21.8 ) Distribution to non-controlling interest — — — — — — — ( 8.2 ) ( 8.2 ) Equity-based compensation expense — — 7.3 — — — — 0.1 7.4 Repurchase of common stock — — — — — ( 1,236,854 ) ( 43.0 ) — ( 43.0 ) Taxes paid due to the net settlement of equity-based compensation — — ( 1.5 ) — — — — — ( 1.5 ) Exercise of equity-based awards 78,695 — — — — — — — — Other — — — 0.1 ( 0.1 ) — — — — Balance at September 30, 2019 90,940,393 $ 0.9 $ 1,146.1 $ 10.7 $ 1,195.3 ( 16,653,356 ) $ ( 661.9 ) $ 172.3 $ 1,863.4 7 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (In millions, except share and per share data) Nine Months Ended September 30, 2020 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Treasury Stock Non-Controlling Interest in Subsidiaries Total Stockholders' Equity Shares Amount Shares Amount Balance at December 31, 2019 90,987,025 $ 0.9 $ 1,151.9 $ 0.1 $ 1,205.6 ( 17,516,814 ) $ ( 692.2 ) $ 169.0 $ 1,835.3 Cumulative effect of adopting accounting principle regarding measurement of credit losses on financial instruments, net — — — — ( 6.5 ) — — — ( 6.5 ) Net (loss) income — — — — ( 314.8 ) — — 29.4 ( 285.4 ) Other comprehensive loss related to commodity contracts, net — — — ( 0.2 ) — — — — ( 0.2 ) Common stock dividends ($ 0.93 per share) — — — — ( 69.0 ) — — — ( 69.0 ) Distributions to non-controlling interests — — — — — — — ( 25.0 ) ( 25.0 ) Equity-based compensation expense — — 17.6 — — — — 0.1 17.7 Repurchase of common stock — — — — — ( 58,713 ) ( 1.9 ) — ( 1.9 ) Repurchases of non-controlling interests — — ( 24.3 ) — — — — ( 4.6 ) ( 28.9 ) Impact from IDR Simplification transaction of Delek Logistics LP — — 37.2 — — — — ( 50.8 ) ( 13.6 ) Taxes paid due to the net settlement of equity-based compensation — — ( 2.3 ) — — — — — ( 2.3 ) Exercise of equity-based awards 314,204 — — — — — — — — Other — — — 0.1 — — — — 0.1 Balance at September 30, 2020 91,301,229 $ 0.9 $ 1,180.1 $ — $ 815.3 ( 17,575,527 ) $ ( 694.1 ) $ 118.1 $ 1,420.3 8 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Continued) (In millions, except share and per share data) Nine Months Ended September 30, 2019 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Treasury Stock Non-Controlling Interest in Subsidiaries Total Stockholders' Equity Shares Amount Shares Amount Balance at December 31, 2018 90,478,075 $ 0.9 $ 1,135.4 $ 28.6 $ 981.8 ( 12,477,780 ) $ ( 514.1 ) $ 175.5 $ 1,808.1 Net income — — — — 277.9 — — 20.3 298.2 Other comprehensive loss related to commodity contracts, net — — — ( 18.4 ) — — — — ( 18.4 ) Common stock dividends ($ 0.84 per share) — — — — ( 64.3 ) — — — ( 64.3 ) Distribution to non-controlling interest — — — — — — — ( 23.8 ) ( 23.8 ) Equity-based compensation expense — — 18.9 — — — — 0.3 19.2 Repurchase of common stock — — — — — ( 4,175,576 ) ( 147.8 ) — ( 147.8 ) Taxes paid due to the net settlement of equity-based compensation — — ( 8.4 ) — — — — — ( 8.4 ) Exercise of equity-based awards 462,318 — — — — — — — — Other — — 0.2 0.5 ( 0.1 ) — — — 0.6 Balance at September 30, 2019 90,940,393 $ 0.9 $ 1,146.1 $ 10.7 $ 1,195.3 ( 16,653,356 ) $ ( 661.9 ) $ 172.3 $ 1,863.4 See accompanying notes to condensed consolidated financial statements 9 | Financial Statements Delek US Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In millions) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net (loss) income $ ( 285.4 ) $ 298.2 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 177.4 146.7 Other amortization/accretion 7.8 7.1 Non-cash lease expense 34.0 29.6 Deferred income taxes 32.9 26.3 Income from equity method investments ( 28.6 ) ( 28.4 ) Dividends from equity method investments 21.6 11.7 Non-cash lower of cost or market/net realizable value adjustment 65.6 ( 31.5 ) Gain on sale of non-operating refinery ( 56.8 ) — Equity-based compensation expense 17.7 19.2 Other 2.7 2.6 Changes in assets and liabilities: Accounts receivable 268.9 ( 319.4 ) Inventories and other current assets ( 42.1 ) ( 180.0 ) Fair value of derivatives ( 0.5 ) ( 12.8 ) Accounts payable and other current liabilities ( 464.9 ) 474.3 Obligation under Supply and Offtake Agreements ( 154.1 ) 46.4 Non-current assets and liabilities, net 4.0 ( 41.6 ) Net cash (used in) provided by operating activities ( 399.8 ) 448.4 Cash flows from investing activities: Equity method investment contributions ( 30.8 ) ( 214.0 ) Distributions from equity method investments 72.0 0.8 Purchases of property, plant and equipment ( 241.7 ) ( 305.7 ) Purchase of intangible assets ( 2.6 ) ( 0.8 ) Proceeds from sale of property, plant and equipment 0.2 0.3 Proceeds from sale of retail stores — 9.9 Proceeds from sale of non-operating refinery 39.9 — Net cash used in investing activities ( 163.0 ) ( 509.5 ) Delek US Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (continued) (In millions) Nine Months Ended September 30, 2020 2019 Cash flows from financing activities: Proceeds from long-term revolvers $ 1,798.1 $ 1,278.4 Payments on long-term revolvers ( 1,545.8 ) ( 1,278.9 ) Proceeds from term debt 185.0 246.8 Payments on term debt ( 34.6 ) ( 31.5 ) Proceeds from product financing agreements 222.0 40.8 Repayments of product financing agreements ( 79.4 ) ( 22.2 ) Taxes paid due to the net settlement of equity-based compensation ( 2.3 ) ( 8.4 ) Repurchase of common stock ( 1.9 ) ( 147.8 ) Repurchase of non-controlling interest ( 28.9 ) — Distribution to non-controlling interest ( 25.0 ) ( 23.8 ) Impact of IDR Simplification transaction of Delek Logistics LP ( 2.1 ) — Dividends paid ( 69.0 ) ( 64.3 ) Deferred financing costs paid ( 0.7 ) ( 0.9 ) Net cash provided by (used in) financing activities 415.4 ( 11.8 ) Net decrease in cash and cash equivalents ( 147.4 ) ( 72.9 ) Cash and cash equivalents at the beginning of the period 955.3 1,079.3 Cash and cash equivalents at the end of the period $ 807.9 $ 1,006.4 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of capitalized interest of $ 0.2 million and $ 1.2 million in the 2020 and 2019 periods, respectively $ 91.1 $ 88.3 Income taxes $ 3.3 $ 73.3 Non-cash investing activities: (Decrease) increase in accrued capital expenditures $ ( 33.9 ) $ 19.1 Non-cash financing activities: Non-cash lease liability arising from recognition of right of use assets upon adoption of Accounting Standards Update ("ASU") 2016-02 $ — $ 211.0 Non-cash lease liability arising from obtaining right of use assets during the period $ 30.7 $ 9.6 See accompanying notes to condensed consolidated financial statements 10 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Organization and Basis of Presentation Delek US Holdings, Inc. operates through its consolidated subsidiaries, which include Delek US Energy, Inc. ("Delek Energy") (and its subsidiaries) and Alon USA Energy, Inc. ("Alon") (and its subsidiaries). The terms "we," "our," "us," "Delek" and the "Company" are used in this report to refer to Delek and its consolidated subsidiaries. Delek's Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "DK." Our condensed consolidated financial statements include the accounts of Delek and its subsidiaries. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP applied on a consistent basis with those of the annual audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 28, 2020 (the "Annual Report on Form 10-K") and in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K. Our condensed consolidated financial statements include Delek Logistics Partners, LP ("Delek Logistics"), which is a variable interest entity. As the indirect owner of the general partner of Delek Logistics, we have the ability to direct the activities of this entity that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes for this entity and are Delek Logistics' primary customer. As Delek Logistics does not derive an amount of gross margin material to us from third parties, there is limited risk to Delek associated with Delek Logistics' operations. However, in the event that Delek Logistics incurs a loss, our operating results will reflect such loss, net of intercompany eliminations, to the extent of our ownership interest in this entity. In the opinion of management, all adjustments necessary for a fair presentation of the financial condition and the results of operations for the interim periods have been included. All significant intercompany transactions and account balances have been eliminated in consolidation. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year. Accounting Policies With the exception of the policy updates below, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Risks and Uncertainties Arising from the COVID-19 Pandemic and the OPEC Production Disputes The 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. 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. 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. In April and June 2020, an agreement was 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 ("OPEC Production Disputes") that significantly affected crude oil prices beginning in first quarter of 2020 and to provide stability in the oil markets. While OPEC+ have reached an agreement to cut oil production, uncertainty about the duration of the COVID-19 Pandemic has caused storage constraints in the United States resulting from over-supply of produced oil. Therefore, downward pressure on commodity prices has remained and could continue for the foreseeable future. Uncertainties related to the impact of the COVID-19 Pandemic and other events exist that could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown. 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 GAAP, we have considered them in the preparation of our unaudited financial statements as of and for the three and nine months ended September 30, 2020. The application of accounting policies impacted by such considerations include (but are not necessarily limited to) the following: • The interim evaluation of the risk of credit losses and the determination of our allowance for credit losses, pursuant to GAAP; • The interim evaluation of long-lived assets for potential impairment, where indicators exist, as defined by GAAP; • The interim evaluation of indefinite-lived intangibles and goodwill for potential impairment, where indicators exist, as defined by GAAP; 11 | Notes to Condensed Consolidated Financial Statements (Unaudited) • The interim evaluation of joint ventures for potential impairment, where indicators exist, as defined by GAAP; • The evaluation of derivatives and hedge accounting for counterparty risk and changes in forecasted transactions, as provided for under GAAP; • The evaluation of inventory valuation allowances that may be warranted under the lower of cost or net realizable value analysis, for first-in, first-out (“FIFO”), and the lower of cost or market analysis, for last-in, first-out ("LIFO"), pursuant to GAAP; • The consideration of debt modifications and/or covenant requirements, as applicable; • The evaluation of commitments and contingencies, including changes in concentrations, as applicable; • The interim evaluation of the impact of changing forecasts on our assessment of deferred tax asset valuation allowances and annual effective tax rates; and • The interim evaluation of our ability to continue as a going concern. Credit Losses Under ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments (as codified in Accounting Standards Codification ("ASC") 326), we have applied the expected credit loss model for recognition and measurement of impairments in financial assets measured at amortized cost or at fair value through other comprehensive income including accounts receivables. The expected credit loss model is also applied for notes receivables and contractual holdbacks to which ASU 2016-13 applies and which are not accounted for at fair value through profit or loss. The loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses. If the credit risk on the financial asset has decreased significantly since initial recognition, the loss allowance for the financial asset is re-measured. Changes in loss allowances are recognized in profit and loss. For trade receivables, a simplified impairment approach is applied recognizing expected lifetime losses from initial recognition. Reclassifications Certain prior period amounts have been reclassified in order to conform to the current period presentation. New Accounting Pronouncements Adopted During 2020 ASU 2018-15, Intangible - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract In August 2018, the Financial Accounting Standards Board (the "FASB") issued guidance related to customers’ accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. This pronouncement aligns the requirements for capitalizing implementation costs in such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We adopted this guidance on January 1, 2020 and the adoption did not have a material impact on our business, financial condition or results of operations. ASU 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurements. The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We adopted this guidance on January 1, 2020 and the adoption did not have a material impact on our business, financial condition or results of operations. See Note 10. ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued guidance requiring the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. This guidance is effective for interim and annual periods beginning after December 15, 2019. We adopted this guidance on January 1, 2020 using the modified retrospective approach as of the adoption date. The adoption did not have a material impact on the Company’s operating results, financial position or disclosures. 12 | Notes to Condensed Consolidated Financial Statements (Unaudited) Accounting Pronouncements Not Yet Adopted ASU 2020-06, Debt— Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, the FASB issued ASU 2020-06, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company is evaluating the impact of this guidance but does not currently expect adopting this new guidance will have a material impact on its consolidated financial statements and related disclosures. ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848) In March 2020, the FASB issued an amendment which is intended to provide temporary optional expedients and exceptions to GAAP guidance on contracts, hedge accounting and other transactions affected by the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank rates. This guidance is effective for all entities at any time beginning on March 12, 2020 through December 31, 2022 and may be applied from the beginning of an interim period that includes the issuance date of the ASU. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures. ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 In January 2020, the FASB issued ASU 2020-01 which is intended to clarify interactions between the guidance to account for certain equity securities under Topics 321, 323 and 815, and improve current GAAP by reducing diversity in practice and increasing comparability of accounting. The pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures. ASU 2019-12, Simplifying the Accounting for Income Taxes In December 2019, the FASB issued guidance intended to simplify various aspects related to accounting for income taxes, eliminate certain exceptions within ASC 740 and clarify certain aspects of the current guidance to promote consistency among reporting entities. The pronouncement is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2020, with early adoption permitted. We expect to adopt this guidance on the effective date and are currently evaluating the impact that adopting this new guidance will have on our business, financial condition and results of operations. ASU 2018-14, Compensation - Changes to the Disclosure Requirements for Defined Benefit Plans In August 2018, the FASB issued guidance related to disclosure requirements for defined benefit plans. The pronouncement eliminates, modifies and adds disclosure requirements for defined benefit plans. The pronouncement is effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. We expect to adopt this guidance on the effective date and do not expect adopting this new guidance will have a material impact on our business, financial condition or results of operations. Note 2 - Segment Data We aggregate our operating units into three reportable segments: Refining, Logistics, and Retail. Operations that are not specifically included in the reportable segments are included in Corporate, Other and Eliminations, which consist of the following: • our corporate activities; • results of certain immaterial operating segments, including our Canadian crude trading operations (as discussed in Note 9); • wholesale crude operations; • Alon's asphalt terminal operations; and • intercompany eliminations. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of the reportable segments based on the segment contribution margin. Segment contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization. During the first quarter of 2020, we revised the structure of the internal financial information reviewed by management and began allocating the results of hedging activity associated with managing risks of our refineries, previously reported in corporate, other and 13 | Notes to Condensed Consolidated Financial Statements (Unaudited) eliminations, to our refining segment. The historical results of this hedging activity have been reclassified to conform to the current presentation. The assets and/or liabilities associated with this hedging activity have not been allocated to the refining segment. Refining Segment 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 ("bpd") as of September 30, 2020, including the following: • 75,000 bpd Tyler, Texas refinery (the "Tyler refinery"); • 80,000 bpd El Dorado, Arkansas refinery (the "El Dorado refinery"); • 73,000 bpd Big Spring, Texas refinery (the "Big Spring refinery"); • 74,000 bpd Krotz Springs, Louisiana refinery (the "Krotz Springs refinery"); and • a non-operating refinery located in Bakersfield, California, which was sold May 7, 2020. The refining segment also owns and operates three biodiesel facilities involved in the production of biodiesel fuels and related activities, located in Crossett, Arkansas, Cleburne, Texas and New Albany, Mississippi (acquired in October 2019). The biodiesel industry has historically been substantially aided by federal and state tax incentives. One tax incentive program that has been significant to our renewable fuels facilities is the federal blender's tax credit (also known as the biodiesel tax credit or "BTC"). The BTC provides a $1.00 refundable tax credit per gallon of pure biodiesel to the first blender of biodiesel with petroleum-based diesel fuel. The blender's tax credit was re-enacted in December 2019 for the years 2020 through 2022 and was retroactively reinstated for 2018 and 2019. 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”) for total cash consideration of $ 40.0 million. As a result of this sale, we recognized a gain of $ 56.8 million, largely due to the buyer assuming substantially all of the asset retirement obligations and environmental liabilities associated with this refinery, which is included in gain on sale of non-operating refinery on the accompanying condensed consolidated statements of income. 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 of GCE, exercisable by Delek through the 90th day after GCE demonstrates commercial operations, as contractually defined. The refining segment's petroleum-based products are marketed primarily in the south central, southwestern and western regions of the United States. This segment also ships and sells gasoline into wholesale markets in the southern and eastern United States. Motor fuels are sold under the Alon or Delek brand through various terminals to supply Alon or Delek branded retail sites. In addition, Alon sells motor fuels through its wholesale distribution network on an unbranded basis. Logistics Segment Our logistics segment owns and operates crude oil and refined products logistics and marketing assets. The logistics segment generates revenue by charging fees for gathering, transporting and storing crude oil and for marketing, distributing, transporting and storing intermediate and refined products in select regions of the southeastern United States and West Texas for our refining segment and third parties, and sales of wholesale products in the West Texas market. Retail Segment Our retail segment consists of 253 owned and leased convenience store sites as of September 30, 2020, located primarily in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline and diesel primarily under the Alon or Delek 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 Alon brand names. 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 November 2018, we terminated the license agreement with 7-Eleven, Inc. This agreement was amended in April 2020 to extend the date for the required removal of all 7-Eleven branding on a store-by-store basis from December 31, 2021 to December 31, 2022. Merchandise sales at our convenience store sites will continue to be sold under the 7-Eleven brand name until 7-Eleven branding is removed at such convenience store sites. Significant Inter-segment Transactions All inter-segment transactions have been eliminated in consolidation and consist primarily of the following: • refining segment refined product sales to the retail segment to be sold through the store locations; • refining segment sales of asphalt and refined product to entities included in corporate, other and eliminations; • logistics segment service fee revenue under service agreements with the refining segment based on the number of gallons sold and to share a portion of the margin achieved in return for providing marketing, sales and customer services; 14 | Notes to Condensed Consolidated Financial Statements (Unaudited) • logistics segment sales of wholesale finished product to our refining segment; and • logistics segment crude transportation, terminalling and storage fee revenue from our refining segment for the utilization of pipeline, terminal and storage assets. Business Segment Operating Performance The following is a summary of business segment operating performance as measured by contribution margin for the period indicated (in millions): Three Months Ended September 30, 2020 (In millions) Refining Logistics Retail Corporate, Other and Eliminations Consolidated Net revenues (excluding inter-segment fees and revenues) $ 1,450.8 $ 49.4 $ 177.7 $ 385.0 $ 2,062.9 Inter-segment fees and revenues 112.7 92.8 — ( 205.5 ) — Operating costs and expenses: Cost of materials and other 1,479.2 60.7 136.3 199.7 1,875.9 Operating expenses (excluding depreciation and amortization presented below) 102.1 14.3 23.1 0.2 139.7 Segment contribution margin $ ( 17.8 ) $ 67.2 $ 18.3 $ ( 20.4 ) 47.3 Depreciation and amortization $ 50.3 $ 9.4 $ 2.9 $ 2.6 65.2 General and administrative expenses 57.0 Other operating loss, net 0.3 Operating loss $ ( 75.2 ) Capital spending (excluding business combinations) $ 0.6 $ 3.2 $ 0.7 $ 0.2 $ 4.7 Three Months Ended September 30, 2019 Refining (1) Logistics Retail Corporate, Other and Eliminations (1) Consolidated Net revenues (excluding inter-segment fees and revenues) $ 2,036.9 $ 71.4 $ 218.5 $ 7.5 $ 2,334.3 Inter-segment fees and revenues 139.9 66.2 — ( 206.1 ) — Operating costs and expenses: Cost of materials and other 1,906.0 72.6 176.4 ( 190.9 ) 1,964.1 Operating expenses (excluding depreciation and amortization presented below) 120.7 18.4 23.5 4.3 166.9 Segment contribution margin $ 150.1 $ 46.6 $ 18.6 $ ( 12.0 ) 203.3 Depreciation and amortization $ 34.6 $ 6.6 $ 3.0 $ 5.6 49.8 General and administrative expenses 65.6 Other operating loss, net 0.5 Operating income $ 87.4 Capital spending (excluding business combinations) $ 63.3 $ 4.0 $ 3.8 $ 39.4 $ 110.5 15 | Notes to Condensed Consolidated Financial Statements (Unaudited) Nine Months Ended September 30, 2020 (In millions) Refining Logistics Retail Corporate, Other and Eliminations Consolidated Net revenues (excluding inter-segment fees and revenues) $ 4,021.9 $ 133.4 $ 521.7 $ 742.6 $ 5,419.6 Inter-segment fees and revenues 346.5 289.9 — ( 636.4 ) — Operating costs and expenses: Cost of materials and other 4,314.4 205.9 400.0 144.0 5,064.3 Operating expenses (excluding depreciation and amortization presented below) 302.5 41.5 66.8 11.2 422.0 Segment contribution margin $ ( 248.5 ) $ 175.9 $ 54.9 $ ( 49.0 ) ( 66.7 ) Depreciation and amortization $ 132.3 $ 24.4 $ 9.1 $ 11.6 177.4 General and administrative expenses 184.4 Other operating income, net ( 14.6 ) Operating loss $ ( 413.9 ) Capital spending (excluding business combinations) $ 180.9 $ 6.9 $ 8.2 $ 12.0 $ 208.0 Nine Months Ended September 30, 2019 Refining (1) Logistics Retail Corporate, Other and Eliminations (1) Consolidated Net revenues (excluding inter-segment fees and revenues) $ 6,096.7 $ 254.3 $ 640.2 $ 23.3 $ 7,014.5 Inter-segment fees and revenues 539.9 191.1 — ( 731.0 ) — Operating costs and expenses: Cost of materials and other 5,629.8 262.7 521.9 ( 683.2 ) 5,731.2 Operating expenses (excluding depreciation and amortization presented below) 356.7 51.8 71.9 15.5 495.9 Segment contribution margin $ 650.1 $ 130.9 $ 46.4 $ ( 40.0 ) 787.4 Depreciation and amortization $ 98.9 $ 19.8 $ 11.5 $ 16.5 146.7 General and administrative expenses 197.3 Other operating income, net ( 0.7 ) Operating income $ 444.1 Capital spending (excluding business combinations) $ 193.8 $ 6.2 $ 14.3 $ 110.5 $ 324.8 (1) The refining segment results of operations for the three and nine months ended September 30, 2019, includes hedging gains, a component of cost of materials and other, of $ 22.6 million and $ 50.0 million, respectively, which was previously included and reported in corporate, other and eliminations. Other Segment Information Total assets by segment were as follows as of September 30, 2020: Refining Logistics Retail Corporate, Other and Eliminations Consolidated Total assets $ 6,103.2 $ 957.7 $ 299.1 $ ( 835.0 ) $ 6,525.0 Less: Inter-segment notes receivable ( 1,326.3 ) — — 1,326.3 — Inter-segment right of use lease assets ( 393.8 ) — — 393.8 — Total assets, excluding inter-segment notes receivable and right of use assets $ 4,383.1 $ 957.7 $ 299.1 $ 885.1 $ 6,525.0 16 | Notes to Condensed Consolidated Financial Statements (Unaudited) Property, plant and equipment and accumulated depreciation as of September 30, 2020 and depreciation expense by reporting segment for the three and nine months ended September 30, 2020 are as follows (in millions): Refining Logistics Retail Corporate, Other and Eliminations Consolidated Property, plant and equipment $ 2,558.2 $ 684.2 $ 164.8 $ 108.5 $ 3,515.7 Less: Accumulated depreciation ( 758.9 ) ( 216.7 ) ( 45.4 ) ( 70.8 ) ( 1,091.8 ) Property, plant and equipment, net $ 1,799.3 $ 467.5 $ 119.4 $ 37.7 $ 2,423.9 Depreciation expense for the three months ended September 30, 2020 $ 48.5 $ 9.5 $ 2.7 $ 2.6 $ 63.3 Depreciation expense for the nine months ended September 30, 2020 $ 127.3 $ 24.4 $ 8.5 $ 11.6 $ 171.8 I n accordance with ASC 360, Property, Plant and Equipment ("ASC 360"), Delek evaluates the realizability of property, plant and equipment as events occur that might indicate potential impairment. T here were no indicators of impairment related to our property, plant and equipment as of September 30, 2020 (see Note 1 for further discussion on the impact of COVID-19 Pandemic and OPEC Production Disputes). Note 3 - Earnings (Loss) Per Share Basic earnings per share (or "EPS") is computed by dividing net income (loss) by the weighted average common shares outstanding. Diluted earnings per share is computed by dividing net income (loss), as adjusted for changes to income that would result from the assumed settlement of the dilutive equity instruments included in diluted weighted average common shares outstanding, by the diluted weighted average common shares outstanding. For all periods presented, we have outstanding various equity-based compensation awards that are considered in our diluted EPS calculation (when to do so would be dilutive), and is inclusive of awards disclosed in Note 15 to these condensed consolidated financial statements. For those instruments that are indexed to our common stock, they are generally dilutive when the market price of the underlying indexed share of common stock is in excess of the exercise price. 17 | Notes to Condensed Consolidated Financial Statements (Unaudited) The following table sets forth the computation of basic and diluted earnings per share. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Numerator: Numerator for EPS (Loss) income from continuing operations, net of tax $ ( 76.9 ) $ 60.0 $ ( 285.4 ) $ 299.0 Less: Income from continuing operations attributed to non-controlling interest 11.2 8.7 29.4 20.3 (Loss) Income from continuing operations attributable to Delek $ ( 88.1 ) $ 51.3 $ ( 314.8 ) $ 278.7 Numerator for EPS - discontinued operations Loss from discontinued operations attributable to Delek $ — $ — $ — $ ( 0.8 ) Denominator: Weighted average common shares outstanding (denominator for basic EPS) 73,669,310 75,028,562 73,551,970 76,463,435 Dilutive effect of stock-based awards — 673,749 — 704,399 Weighted average common shares outstanding, assuming dilution (denominator for diluted EPS) 73,669,310 75,702,311 73,551,970 77,167,834 EPS: Basic (loss) income per share: (Loss) Income from continuing operations $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.64 Loss from discontinued operations — — $ — ( 0.01 ) Basic (loss) income per share $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.63 Diluted (loss) income per share: (Loss) Income from continuing operations $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.61 Loss from discontinued operations $ — — $ — ( 0.01 ) Diluted (loss) income per share $ ( 1.20 ) $ 0.68 $ ( 4.28 ) $ 3.60 The following equity instruments were excluded from the diluted weighted average common shares outstanding because their effect would be antidilutive: Antidilutive stock-based compensation (because average share price is less than exercise price) 3,873,055 1,846,919 3,807,699 2,003,283 Antidilutive due to loss 363,603 — 330,412 — Total antidilutive stock-based compensation 4,236,658 1,846,919 4,138,111 2,003,283 18 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 4 - Delek Logistics Delek Logistics is a publicly traded limited partnership that was formed by Delek in 2012 to own, operate, acquire and construct crude oil and refined products logistics and marketing assets. A substantial majority of Delek Logistics' assets are integral to Delek’s refining and marketing operations. On August 13, 2020, Delek Logistics completed a transaction to eliminate the incentive distribution rights ("IDRs") held by Delek Logistics GP, LLC, the general partner, and convert the 2.0 % economic general partner interest into a non-economic general partner interest in exchange for total consideration consisting of $ 45.0 million cash and 14.0 million newly issued common limited partner units. Contemporaneously, we repurchased 5.2 % ownership interest in the general partner from affiliates, who are also members of the general partner's management and board of directors, for $ 23.1 million, increasing our ownership interest in the general partner to 100.0 %. As a result of these transactions, the non-controlling interest in our consolidated balance sheets decreased by $ 50.8 million, with a $ 37.2 million increase to additional paid-in capital which is net of $ 11.5 million related to deferred income taxes and $ 2.1 million of transaction costs. In August 2020, Delek Logistics filed a shelf registration statement, which subsequently became effective, with the U.S. Securities and Exchange Commission for the proposed re-sale or other disposition from time to time by Delek of up to 14.0 million common limited partner units representing our limited partner interests in Delek Logistics. As of September 30, 2020, we owned an 80.0 % interest in Delek Logistics, consisting of 34,745,868 common limited partner units and the non-economic general partner interest. The limited partner interests in Delek Logistics not owned by us are reflected in net income attributable to non-controlling interest in the accompanying condensed consolidated statements of income and in non-controlling interest in subsidiaries in the accompanying condensed consolidated balance sheets. We have agreements with Delek Logistics that, among other things, establish fees for certain administrative and operational services provided by us and our subsidiaries to Delek Logistics, provide certain indemnification obligations and establish terms for fee-based commercial logistics and marketing services provided by Delek Logistics and its subsidiaries to us. The revenues and expenses associated with these agreements are eliminated in consolidation. Delek Logistics is a variable interest entity, as defined under GAAP, and is consolidated into our condensed consolidated financial statements, representing our logistics segment. The assets of Delek Logistics can only be used to settle its own obligations and its creditors have no recourse to our assets. Exclusive of intercompany balances and the marketing agreement intangible asset between Delek Logistics and Delek which are eliminated in consolidation, the Delek Logistics condensed consolidated balance sheets as presented below are included in the condensed consolidated balance sheets of Delek (unaudited, in millions). 19 | Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2020 December 31, 2019 ASSETS Cash and cash equivalents $ 6.0 $ 5.5 Accounts receivable 17.5 13.2 Accounts receivable from related parties 9.9 — Inventory 1.7 12.6 Other current assets 0.4 2.3 Property, plant and equipment, net 467.5 295.0 Equity method investments 255.4 247.0 Operating lease right-of-use assets 18.1 3.7 Goodwill 12.2 12.2 Intangible assets, net 161.8 146.6 Other non-current assets 7.0 6.3 Total assets $ 957.5 $ 744.4 LIABILITIES AND DEFICIT Accounts payable $ 4.7 $ 12.5 Accounts payable to related parties — 8.9 Current portion of operating lease liabilities 5.5 1.4 Accrued expenses and other current liabilities 13.8 12.2 Long-term debt 1,006.1 833.1 Asset retirement obligations 5.9 5.6 Deferred tax liabilities 1.2 0.2 Operating lease liabilities, net of current portion 12.6 2.3 Other non-current liabilities 19.2 19.3 Deficit ( 111.5 ) ( 151.1 ) Total liabilities and deficit $ 957.5 $ 744.4 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, financed primarily with borrowings under Delek Logistics’ revolving credit facility. In connection with the Acquisition, Delek Refining, Lion Oil and DKL Transportation entered into a Transportation Services Agreement pursuant to which DKL Transportation will gather, coordinate the pickup of, transport and deliver petroleum products for Delek Refining and Lion Oil, as well as provide ancillary services as requested. Prior periods have not been recast in our Segment Data Note 2, as these assets did not constitute a business in accordance with ASU 2017-01, Clarifying the Definition of a Business , and the transaction was accounted for as an acquisition of assets between entities under common control. 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, which included the execution of related commercial agreements. In connection with the closing of the transaction, Delek, Delek Logistics and various of their respective subsidiaries entered into a Throughput and Deficiency Agreement (the “T&D Agreement”). Under the T&D Agreement, Delek Logistics will operate and maintain the Big Spring Gathering System connecting our interests in and to certain crude oil production with the Delek Logistics' Big Spring, Texas terminal and provide gathering, transportation and other related services. 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 (as defined in Note 8). Prior periods have not been recast in our Segment Data Note 2, as these assets did not constitute a business in accordance with ASU 2017-01 and the transaction was accounted for as an acquisition of assets between entities under common control. Additionally, in March 2020, we purchased 451,822 of Delek Logistics limited partner units from an investor pursuant to a Common Unit Purchase Agreement between Delek Marketing & Supply, LLC and such investor. The purchase price of the units amounted to approximately $ 5.0 million. 20 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 5 - Equity Method Investments On July 30, 2019, we, through our wholly-owned direct subsidiary Delek US Energy, Inc. ("Delek Energy" or "Delek Member"), entered into a limited liability company agreement (the “LLCA”) and related agreements with multiple joint venture members of Wink to Webster Pipeline LLC (“WWP”). Pursuant to the LLCA, Delek Energy acquired a 15 % ownership interest in WWP. WWP intends to construct and operate a crude oil pipeline system from Wink, Texas to Webster, Texas along with certain pipelines from Webster, Texas to other destinations in the Gulf Coast area. Pursuant to the LLCA, Delek Energy will be required to contribute its percentage interest of the applicable construction costs (including certain costs previously incurred by WWP) and, at the date we acquired our ownership interest, it was anticipated that Delek Energy’s capital contributions would total approximately $ 340 million to $ 380 million over the course of construction (expected to be two to three years ). Construction of the crude oil pipeline system remains ongoing, where the main segment of the pipeline system connecting the Permian Basin to Houston, Texas was recently completed and began transporting crude oil in October 2020. During the nine months ended September 30, 2020 and September 30, 2019, we made capital contributions totaling $ 18.9 million and $75.3 million, respectively. As of December 31, 2019, Delek's investment balance in WWP totaled $ 125.3 million and we recognized a nominal amount of income on the investment for the three and nine months ended September 30, 2019. 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"). The WWP Project Financing JV was created for the specific purpose of obtaining financing, through its wholly-owned subsidiary, W2W Finance LLC, to fund the majority of our combined capital calls resulting from and occurring during the construction period of the pipeline system under the WWP Joint Venture, and to service that debt. In connection with the arrangement, both Delek Energy and MPLX contributed their respective 15 % ownership interests to the WWP Project Financing JV as collateral for and in service of the related project financing. 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. The Company evaluated Delek Member's investment in HoldCo and determined that HoldCo is a variable interest entity. The Company determined it is not the primary beneficiary since it does not have the power to direct activities that most significantly impact HoldCo. The Company does not hold a controlling financial interest in HoldCo because no single party has the power to direct the activities that most significantly impact HoldCo’s economic performance since power to make the decisions about the significant activities is shared equally with MPLX and all significant decisions require unanimous consent of the Board of Directors. The Company accounts for its investment in HoldCo using the equity method of accounting due to its significant influence with its 50% membership interest. The Company's maximum exposure to any losses incurred by HoldCo is limited to its investment. As of September 30, 2020, except for the guarantee of member obligations under the W2W Holdings LLC Agreement, the Company does not have other existing guarantees with or to HoldCo, or any third-party work contracted with it. As of September 30, 2020, Delek's investment balance in WWP Project Financing Joint Venture totaled $ 73.3 million and is included as part of total assets in corporate, other and eliminations in our segment disclosure. During the nine months ended September 30, 2020, we received distributions of $ 69.3 million from WWP Project Financing Joint Venture to return excess contributions made. In addition on the investment, we recognized income totaling $ 0.2 million and a loss of $ 1.8 million for the three and nine months ended September 30, 2020, respectively. Delek Logistics Investments In May 2019, Delek Logistics, through its wholly owned indirect subsidiary DKL Pipeline, LLC (“DKL Pipeline”), entered into a Contribution and Subscription Agreement (the “Contribution Agreement”) with Plains Pipeline, L.P. (“Plains”) and Red River Pipeline Company LLC (“Red River”). Pursuant to the Contribution Agreement, DKL Pipeline contributed $ 124.7 million, substantially all of which was financed under the Delek Logistics Credit Facility (as defined in Note 8), to Red River in exchange for a 33 % membership interest in Red River and DKL Pipeline’s admission as a member of Red River (the "Red River Pipeline Joint Venture"). Red River owns a 16-inch crude oil pipeline running from Cushing, Oklahoma to Longview, Texas. In August 2020, Red River completed a planned expansion project to increase the pipeline capacity which commenced operations on October 1, 2020. Delek Logistics contributed an additional $ 3.5 million related to such expansion project in May 2019. During the nine months ended September 30, 2020, we made additional capital contributions totaling $ 11.8 million based on capital calls received. As of September 30, 2020 and December 31, 2019, Delek's investment balance in Red River totaled $ 143.5 million and $ 131.0 million, respectively. We recognized income on the investment totaling $ 2.0 million and $ 6.8 million for the three and nine months ended September 30, 2020, respectively and $4.7 million and $7.0 million for the three and nine months ended September 30, 2019, respectively. This investment is accounted for using the equity method and is included as part of total assets in our 21 | Notes to Condensed Consolidated Financial Statements (Unaudited) logistics segment. In addition to Red River, Delek Logistics has two joint ventures that own and operate logistics assets, and which serve third parties and subsidiaries of Delek. We own a 50 % membership interest in the entity formed with an affiliate of Plains All American Pipeline, L.P. to operate one of these pipeline systems (the "Caddo Pipeline") and a 33 % membership interest in Andeavor Logistics Rio Pipeline LLC which operates the other pipeline system (the "Rio Pipeline"). As of September 30, 2020 and December 31, 2019, Delek Logistics' investment balances in these joint ventures totaled $ 111.8 million and $ 116.0 million, respectively, and were accounted for using the equity method. We recognized income on these investments totaling $ 2.9 million and $ 10.1 million for the three and nine months ended September 30, 2020, respectively and $ 3.7 million and $ 7.9 million for the three and nine months ended September 30, 2019, respectively. Other Investments We have a 50 % interest in a joint venture that owns an asphalt terminal located in Brownwood, Texas. As of September 30, 2020 and December 31, 2019, Delek's investment balance in this joint venture was $ 40.7 million and $ 30.7 million, respectively. We recognized income on this investment totaling $ 7.5 million and $ 13.0 million for the three and nine months ended September 30, 2020, respectively and $ 7.9 million and $ 13.1 million for the three and nine months ended September 30, 2019, respectively. This investment is accounted for using the equity method and is included as part of total assets in corporate, other and eliminations in our segment disclosure. Delek Renewables, LLC, a wholly-owned subsidiary of Delek, has a joint venture that owns, operates and maintains a terminal consisting of an ethanol unit train facility with an ethanol tank in North Little Rock, Arkansas. As of September 30, 2020 and December 31, 2019, Delek Renewables, LLC's investment balance in this joint venture was $ 3.8 million and $ 4.3 million, respectively, and was accounted for using the equity method. The investment in this joint venture is reflected in the refining segment. Note 6 - Inventory Crude oil, work in process, refined products, blendstocks and asphalt inventory for all of our operations, excluding the Tyler refinery and merchandise inventory in our retail segment, are stated at the lower of cost determined using FIFO basis or net realizable value. Cost of all inventory at the Tyler refinery is determined using the LIFO inventory valuation method and inventory is stated at the lower of cost or market. Retail merchandise inventory consists of cigarettes, beer, convenience merchandise and food service merchandise and is stated at estimated cost as determined by the retail inventory method. Carrying value of inventories consisted of the following (in millions): September 30, 2020 December 31, 2019 Refinery raw materials and supplies $ 261.4 $ 400.4 Refinery work in process 82.9 109.1 Refinery finished goods 299.1 397.5 Retail fuel 5.9 7.3 Retail merchandise 21.0 19.8 Logistics refined products 1.7 12.6 Total inventories $ 672.0 $ 946.7 At September 30, 2020, we recorded a pre-tax inventory valuation reserve of $ 67.5 million, $ 65.0 million of which related to LIFO inventory, due to a market price decline below our cost of certain inventory products. At December 31, 2019, we recorded a pre-tax inventory valuation reserve of $ 1.7 million, $ 1.2 million of which related to LIFO inventory, which reversed in the first quarter of 2020 due to the sale of inventory quantities that gave rise to the December 31, 2019 reserve. We recognized a net reduction (increase) in cost of materials and other in the accompanying condensed consolidated statements of income related to the change in pre-tax inventory valuation of $ 9.5 million and $( 65.6 ) million for the three and nine months ended September 30, 2020, respectively, and $( 20.0 ) million and $ 31.5 million for the three and nine months ended September 30, 2019, respectively. 22 | Note 7 - Crude Oil Supply and Inventory Purchase Agreement Delek has Supply and Offtake Agreements with J. Aron & Company ("J. Aron") in connection with its El Dorado, Big Spring and Krotz Springs refineries (collectively, the "Supply and Offtake Agreements"). Pursuant to the Supply and Offtake Agreements, (i) J. Aron agrees to sell to us, and we agree to buy from J. Aron, at market prices, crude oil for processing at these refineries and (ii) we agree to sell, and J. Aron agrees to buy, at market prices, certain refined products produced at these refineries. The Supply and Offtake Agreements also provide for the lease to J. Aron of crude oil and refined product storage facilities, and the identification of prospective purchasers of refined products on J. Aron’s behalf. At the inception of the Supply and Offtake Agreements, we transferred title to a certain number of barrels of crude and other inventories to J. Aron (the "Step-In"), and the Supply and Offtake Agreements require the repurchase of remaining inventory (including certain "Baseline Volumes") at the termination of those Agreements (the "Step-Out"). The Supply and Offtake Agreements are accounted for as inventory financing arrangements under the fair value election provided by ASC 815 Derivatives and Hedging ("ASC 815") and ASC 825, Financial Instruments ("ASC 825"). Barrels subject to the Supply and Offtake Agreements are as follows: (in millions) El Dorado Big Spring Krotz Springs Baseline Volumes pursuant to the respective Supply and Offtake Agreements 2.0 0.8 1.3 Barrels of inventory consigned under the respective Supply and Offtake Agreements as of September 30, 2020 (1) 3.8 1.3 1.4 Barrels of inventory consigned under the respective Supply and Offtake Agreements as of December 31, 2019 (1) 3.5 2.0 1.7 (1) Includes Baseline Volumes plus/minus over/short quantities. The Supply and Offtake Agreements have certain termination provisions, which may include requirements to negotiate with third parties for the assignment to us of certain contracts, commitments and arrangements, including procurement contracts, commitments for the sale of product, and pipeline, terminalling, storage and shipping arrangements. The Supply and Offtake Agreements were amended in December 2018 for Big Spring and in January 2019 for El Dorado and Krotz Springs so that the Baseline Step-Out Liabilities, as defined below, were based upon a fixed price. As a result, we recorded gains on the change in fair value resulting from the modification in cost of materials and other in the periods in which the amendments occurred, including a gain of $ 7.6 million which was recognized in the first quarter of 2019. As a result of these amendments, the subsequent changes in fair value of the Baseline Step-Out Liabilities were recorded in interest expense. In January 2020, we amended our three Supply and Offtake Agreements 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") was based on market-indexed prices subject to commodity price risk. As a result of the amendment, such Baseline Step-Out Liabilities continued to be recorded at fair value under the fair value election provided by ASC 815 and ASC 825, where the fair value now reflected changes in commodity price risk rather than interest rate risk with subsequent changes in fair value being recorded in cost of materials and other. We recognized a loss in the first quarter of 2020 of $ 1.5 million on the change in fair value resulting from the modification. In April 2020, we amended and restated our three Supply and Offtake Agreements to renew and extend the terms to December 30, 2022, with J. Aron having the sole discretion to further extend to May 30, 2025 by giving at least 6 months prior notice to the current 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 (the "Periodic Price Adjustments"). The Baseline Step-Out Liabilities continue to be recorded at fair value under the fair value election included under ASC 815 and ASC 825. The Baseline Step-Out Liabilities have a floating component whose fair value reflects changes to commodity price risk with changes in fair value recorded in cost of materials and other and a fixed component whose fair value reflects changes to interest rate risk with changes in fair value recorded in interest expense. There was no amendment date change in fair value resulting from the modification. The Baseline Step-Out Liabilities are reflected as non-current liabilities on our consolidated balance sheet to the extent that they are not contractually due within twelve months. Pursuant to the Periodic Price Adjustments provision in the Supply and Offtake Agreements, the Company may be required to pay down all or a portion of the fixed component of the Baseline Step-Out Liabilities or may receive additional proceeds depending on the change in fair value of the inventory collateral subject to a threshold at certain specified Periodic Pricing Dates, which occur on October 1st and May 1st, annually, not to extend beyond expiration of the Supply and Offtake Agreements. Additionally, at the Periodic Pricing Dates, if a Periodic Price Adjustment is triggered, the prospective pricing underlying the fixed component of the Baseline Step-Out Liabilities will be adjusted to reflect either the pay-down or the incremental proceeds, accordingly. As of September 30, 2020, the fixed component of the Baseline Step-Out Liabilities subject to the Periodic Price Adjustments amounted to approximately $58.8 million. All or some portion of that amount may become due or payable in periods occurring within twelve months, if Periodic Price Adjustments are triggered in October 2020 and May 23 | 2021. See Note 19 - Subsequent Events , for details on the subsequent Periodic Price Adjustment and paydown triggered on October 1, 2020. Monthly activity resulting in over and short volumes continue to be valued using market-indexed pricing, and are included in current liabilities (or receivables) on our consolidated balance sheet. Net balances payable (receivable) under the Supply and Offtake Agreements were as follows as of the balance sheet dates: (in millions) El Dorado Big Spring Krotz Springs Total Balances as of September 30, 2020: Baseline Step-Out Liability $ 100.5 $ 49.1 $ 70.8 $ 220.4 Revolving over/short inventory financing liability 80.6 19.7 2.5 102.8 Total Obligations Under Supply and Offtake Agreements 181.1 68.8 73.3 323.2 Less: Current portion 80.6 19.7 2.5 102.8 Obligations Under Supply and Offtake Agreements - Noncurrent portion $ 100.5 $ 49.1 $ 70.8 $ 220.4 Other current payable for monthly activity true-up $ 12.6 $ 1.0 $ — $ 13.6 (in millions) El Dorado Big Spring Krotz Springs Total Balances as of December 31, 2019: Baseline Step-Out Liability $ 125.5 $ 57.2 $ 87.6 $ 270.3 Revolving over/short inventory financing liability 93.0 73.5 40.5 207.0 Total Obligations Under Supply and Offtake Agreements 218.5 130.7 128.1 477.3 Less: Current portion 218.5 73.5 40.5 332.5 Obligations Under Supply and Offtake Agreements - Noncurrent portion $ — $ 57.2 $ 87.6 $ 144.8 Other current receivable for monthly activity true-up $ ( 16.4 ) $ ( 3.1 ) $ ( 3.5 ) $ ( 23.0 ) The Supply and Offtake Agreements require payments of fixed annual fees which are factored into the interest rate yield under the fair value accounting model. Recurring cash fees paid during the periods presented were as follows: (in millions) El Dorado Big Spring Krotz Springs Total Recurring cash fees paid during the three months ended September 30, 2020 $ 1.5 $ 0.7 $ 1.1 $ 3.3 Recurring cash fees paid during the three months ended September 30, 2019 $ 2.9 $ 1.5 $ 2.5 $ 6.9 Recurring cash fees paid during the nine months ended September 30, 2020 $ 7.4 $ 2.8 $ 3.1 $ 13.3 Recurring cash fees paid during the nine months ended September 30, 2019 $ 8.5 $ 4.4 $ 7.6 $ 20.5 Interest expense recognized under the Supply and Offtake Agreements includes the yield attributable to recurring cash fees, one-time cash fees (e.g., in connection with amendments), as well as other changes in fair value, which may increase or decrease interest expense. Total interest expense incurred during the periods presented was as follows: (in millions) El Dorado Big Spring Krotz Springs Total Interest expense for the three months ended September 30, 2020 $ 1.5 $ 0.7 $ 1.1 $ 3.3 Interest expense for the three months ended September 30, 2019 $ 3.7 $ 2.0 $ 2.7 $ 8.4 Interest expense for the nine months ended September 30, 2020 $ 7.8 $ 5.9 $ 3.5 $ 17.2 Interest expense for the nine months ended September 30, 2019 $ 10.9 $ 3.6 $ 8.8 $ 23.3 Reflected in interest expense are losses totaling $ 3.9 million for the nine months ended September 30, 2020, and gains totaling $ 7.7 million and gains totaling $ 11.4 million for the three and nine months ended September 30, 2019, respectively, related to the changes in fair value in the Baseline Step-Out Liabilities component of Obligations Under Supply and Offtake Agreements. There were no such gains 24 | or losses for three months ended September 30, 2020. We maintained letters of credit under the Supply and Offtake Agreements as follows: (in millions) El Dorado Big Spring and Krotz Springs Letters of credit outstanding as of September 30, 2020 $ 170.0 $ 10.0 Letters of credit outstanding as of December 31, 2019 $ 180.0 $ 44.0 Note 8 - Long-Term Obligations and Notes Payable Outstanding borrowings, net of unamortized debt discounts and certain deferred financing costs, under Delek’s existing debt instruments are as follows (in millions): September 30, 2020 December 31, 2019 Revolving Credit Facility $ 110.0 $ 30.0 Term Loan Credit Facility (1) 1,248.6 1,069.5 Delek Logistics Credit Facility 760.7 588.4 Hapoalim Term Loan (2) 39.3 39.5 Delek Logistics Notes (3) 245.4 244.7 Reliant Bank Revolver 50.0 50.0 Promissory Notes 20.0 45.0 2,474.0 2,067.1 Less: Current portion of long-term debt and notes payable 33.4 36.4 $ 2,440.6 $ 2,030.7 (1) Net of deferred financing costs of $ 3.0 million and $ 3.5 million and debt discount of $ 24.7 million and $ 12.5 million at September 30, 2020 and December 31, 2019, respectively. (2) Net of deferred financing costs of $ 0.2 million and $ 0.3 million and debt discount of $ 0.2 million and $ 0.2 million at September 30, 2020 and December 31, 2019, respectively. (3) Net of deferred financing costs of $ 3.5 million and $ 4.0 million and debt discount of $ 1.1 million and $ 1.3 million at September 30, 2020 and December 31, 2019, respectively. Delek Revolver and Term Loan On March 30, 2018 (the "Closing Date"), Delek entered into (i) a new term loan credit agreement with Wells Fargo Bank, National Association, as administrative agent (the "Term Administrative Agent"), Delek, as borrower, certain subsidiaries of Delek, as guarantors, and the lenders from time to time party thereto, providing for a senior secured term loan facility in an amount of $ 700.0 million (the "Term Loan Credit Facility") and (ii) a second amended and restated credit agreement with Wells Fargo Bank, National Association, as administrative agent (the "Revolver Administrative Agent"), Delek, as borrower, certain subsidiaries of Delek, as guarantors, and the other lenders party thereto, providing for a senior secured asset-based revolving credit facility with commitments of $ 1.0 billion (the "Revolving Credit Facility" and, together with the Term Loan Credit Facility, the "New Credit Facilities"). The Revolving Credit Facility permits borrowings in Canadian dollars of up to $ 50.0 million. The Revolving Credit Facility also permits the issuance of letters of credit of up to $ 400.0 million, including letters of credit denominated in Canadian dollars of up to $ 10.0 million. Delek may designate restricted subsidiaries as additional borrowers under the Revolving Credit Facility. The Term Loan Credit Facility was drawn in full for $ 700.0 million on the Closing Date at an original issue discount of 0.50 %. Proceeds under the Term Loan Credit Facility, as well as proceeds of approximately $ 300.0 million in borrowings under the Revolving Credit Facility on the Closing Date, were used to repay certain indebtedness of Delek and its subsidiaries (the “Refinancing”), as well as certain fees, costs and expenses in connection with the closing of the New Credit Facilities, with any remaining proceeds held in cash. Proceeds of future borrowings under the Revolving Credit Facility will be used for working capital and general corporate purposes of Delek and its subsidiaries. 25 | Notes to Condensed Consolidated Financial Statements (Unaudited) On May 22, 2019 (the "First Incremental Effective Date"), we amended the Term Loan Credit Facility agreement pursuant to the terms of the First Incremental Amendment to Term Loan Credit Agreement (the "Incremental Amendment"). Pursuant to the Incremental Amendment, the Company borrowed $ 250.0 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”) at an original issue discount of 0.75 %, increasing the aggregate principal amount of loans outstanding under the Term Loan Credit Facility on the First Incremental Effective Date to $ 943.0 million. On November 12, 2019 (the "Second Incremental Effective Date"), we amended the Term Loan Credit facility agreement pursuant to the terms of the Second Incremental Amendment to the Term Loan Credit Agreement (the "Second Incremental Amendment") and borrowed $ 150.0 million in aggregate principal amount of incremental term loans (the "Incremental Loans") at an original issue discount of 1.21 %, increasing the aggregate principal amount of loans outstanding under the Term Loan Credit Facility on the Second Incremental Effective Date to $ 1,088.3 million. The terms of the Incremental Term Loans and Incremental Loans are substantially identical to the terms applicable to the initial term loans under the Term Loan Credit Facility borrowed in March 2018. There are no restrictions on the Company's use of the proceeds of the Incremental Term Loans and Incremental Loans. The proceeds may be used for (i) reducing utilizations under the Revolving Credit Facility, (ii) general corporate purposes and (iii) paying transaction fees and expenses associated with the incremental amendments. On May 19, 2020, we amended the Term Loan Credit Facility agreement 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 %. The Third Incremental Term Loan constitutes a separate class of term loan (the "Class B Loan") 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 (collectively, the "Class A Loans"). Delek will be required to pay a make-whole prepayment fee if the Third Incremental Term Loan is prepaid pursuant to an optional prepayment, in connection with a non-permitted debt issuance or in connection with an acceleration within one year of the incurrence of the Third Incremental Term Loan. Delek may voluntarily prepay the outstanding Third Incremental Term Loans at any time subject to customary “breakage” costs with respect to LIBOR loans and subject to a prepayment premium of 1.00 % in connection with certain customary repricing events that may occur during the period from the day after the first anniversary of the Third Incremental Term Loan through the second anniversary of the Third Incremental Term Loan. The other terms of the Third Incremental Term Loan are substantially identical to the terms applicable to the Class A Loans. The proceeds of the Third Incremental Term Loan may be used (i) for general corporate purposes and (ii) to pay transaction fees and expenses associated with the Third Incremental Term Loan. Interest and Unused Line Fees The interest rates applicable to borrowings under the Term Loan Credit Facility and the Revolving Credit Facility are based on a fluctuating rate of interest measured by reference to either, at Delek’s option, (i) a base rate, plus an applicable margin, or (ii) a reserve-adjusted LIBOR, plus an applicable margin (or, in the case of Revolving Credit Facility borrowings denominated in Canadian dollars, the Canadian dollar bankers' acceptances rate ("CDOR")). The initial applicable margin for all Term Loan Credit Facility borrowings was 1.50 % per annum with respect to base rate borrowings and 2.50 % per annum with respect to LIBOR borrowings. On October 26, 2018, Delek entered into an amendment to the Term Loan Credit Facility (the “First Amendment”) to reduce the margin on certain borrowings under the Term Loan Credit Facility and incorporate certain other changes. The First Amendment decreased the applicable margins for Class A Loans under (i) Base Rate Loans from 1.50 % to 1.25 % and (ii) LIBOR Rate Loans from 2.50 % to 2.25 %, as such terms are defined in the Term Loan Credit Facility. Class B Loans incurred under the Third Incremental Term Loan bear interest at a rate that is determined, at the Company’s election, at LIBOR or at base rate, in each case, plus an applicable margin of 5.50 % with respect to LIBOR borrowings and 4.50 % with respect to base rate borrowings. Additionally, Class B loans that are LIBOR borrowings are subject to a minimum LIBOR rate floor of 1.00 %. The initial applicable margin for Revolving Credit Facility borrowings was 0.25 % per annum with respect to base rate borrowings and 1.25 % per annum with respect to LIBOR and CDOR borrowings, and the applicable margin for such borrowings after September 30, 2018 is based on Delek’s excess availability as determined by reference to a borrowing base, ranging from 0.25 % to 0.75 % per annum with respect to base rate borrowings and from 1.25 % to 1.75 % per annum with respect to LIBOR and CDOR borrowings. In addition, the Revolving Credit Facility requires Delek to pay an unused line fee on the average amount of unused commitments thereunder in each quarter, which the fee is at a rate of 0.25 % or 0.375 % per annum, depending on average commitment usage for such quarter. As of September 30, 2020, the unused line fee was 0.375 % per annum. Maturity and Repayments The Revolving Credit Facility will mature and the commitments thereunder will terminate on March 30, 2023. The Term Loan Credit Facility matures on March 30, 2025 and requires scheduled quarterly principal payments on the last business day of the applicable quarter. Pursuant to the Incremental Amendment, quarterly payments increased from $ 1.75 million to $ 2.38 million. Pursuant to the Second Incremental Amendment, the quarterly payments increased to $ 2.75 million commencing with December 31, 2019. Additionally, the Term Loan Credit Facility requires prepayments by Delek with the net cash proceeds from certain debt incurrences, asset dispositions and insurance or condemnation events with respect to Delek’s assets, subject to certain exceptions, thresholds and reinvestment rights. The Term Loan Credit Facility also requires annual prepayments with a variable percentage of Delek’s excess cash flow, ranging from 50.0 % to 26 | Notes to Condensed Consolidated Financial Statements (Unaudited) 0 % depending on Delek’s consolidated fiscal year end secured net leverage ratio. The Third Incremental Term Loan requires quarterly payments on the Class B Loans of $ 0.5 million commencing June 30, 2020. Guarantee and Security The obligations of the borrowers under the New Credit Facilities are guaranteed by Delek and each of its direct and indirect, existing and future, wholly-owned domestic subsidiaries, subject to customary exceptions and limitations, and excluding Delek Logistics Partners, LP, Delek Logistics GP, LLC, and each subsidiary of the foregoing (collectively, the "MLP Subsidiaries"). Borrowings under the New Credit Facilities are also guaranteed by DK Canada Energy ULC, a British Columbia unlimited liability company and a wholly-owned restricted subsidiary of Delek. The Revolving Credit Facility is secured by a first priority lien over substantially all of Delek’s and each guarantor's receivables, inventory, renewable identification numbers, instruments, intercompany loan receivables, deposit and securities accounts and related books and records and certain other personal property, subject to certain customary exceptions (the "Revolving Priority Collateral"), and a second priority lien over substantially all of Delek's and each guarantor's other assets, including all of the equity interests of any subsidiary held by Delek or any guarantor (other than equity interests in certain MLP Subsidiaries) subject to certain customary exceptions, but excluding real property (such real property and equity interests, the "Term Priority Collateral"). The Term Loan Credit Facility is secured by a first priority lien on the Term Priority Collateral and a second priority lien on the Revolving Priority Collateral, all in accordance with an intercreditor agreement between the Term Administrative Agent and the Revolver Administrative Agent and acknowledged by Delek and the subsidiary guarantors. Certain excluded assets are not included in the Term Priority Collateral and the Revolving Priority Collateral. Additional Information At September 30, 2020, the weighted average borrowing rate under the Revolving Credit Facility was 3.50 % and was comprised entirely of a base rate borrowing, and the principal amount outstanding thereunder was $ 110.0 million. Additionally, there were letters of credit issued of approximately $ 227.3 million as of September 30, 2020 under the Revolving Credit Facility. Unused credit commitments under the Revolving Credit Facility, as of September 30, 2020, were approximately $ 662.7 million. At September 30, 2020, the weighted average borrowing rate under the Term Loan Credit Facility was approximately 3.04 % comprised entirely of LIBOR borrowings, and the principal amount outstanding thereunder was $ 1,276.3 million. As of September 30, 2020, the effective interest rate related to the Term Loan Credit Facility was 3.57 %. Delek Hapoalim Term Loan On December 31, 2019, Delek entered into a term loan credit and guaranty agreement (the "Agreement") with Bank Hapoalim B.M. ("BHI") as the administrative agent. Pursuant to the Agreement, on December 31, 2019, Delek borrowed $ 40.0 million (the "BHI Term Loan"). The interest rate under the Agreement is equal to LIBOR plus a margin of 3.00 %. The Agreement has a current maturity of December 31, 2022 and requires quarterly loan amortization payments of $ 0.1 million, commencing March 31, 2020. Proceeds may be used for general corporate purposes. The Agreement has an accordion feature that allows increasing the term loan to maximum size of $ 100.0 million, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent. Any such additional borrowings must be completed by December 31, 2021. At September 30, 2020, the weighted average borrowing rate under the term loan was approximately 3.15 % comprised entirely of a LIBOR borrowing and the principal amount outstanding thereunder was $ 39.7 million. As of September 30, 2020, the effective interest rate related to the BHI Term Loan was 3.58 %. Delek Logistics Credit Facility On September 28, 2018, Delek Logistics and all of its subsidiaries entered into a third amended and restated senior secured revolving credit agreement with Fifth Third Bank ("Fifth Third") as administrative agent and a syndicate of lenders (hereafter, the "Delek Logistics Credit Facility") with lender commitments of 850.0 million. The Delek Logistics Credit Facility also contains an accordion feature whereby Delek Logistics can increase the size of the credit facility to an aggregate of $ 1.0 billion, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent. The obligations under the Delek Logistics Credit Facility remain secured by first priority liens on substantially all of Delek Logistics' tangible and intangible assets. Additionally, a subsidiary of Delek provided a limited guaranty of Delek Logistics' obligations under the Delek Logistics Credit Facility. The guaranty was (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek in favor of the subsidiary guarantor (the "Holdings Note") and (ii) secured by the subsidiary guarantor's pledge of the Holdings Note to the Delek Logistics Credit Facility lenders. Effective March 30, 2020, the limited guaranty and pledge of the Holdings Note was terminated pursuant to a guaranty and pledge release approved by the required lenders under the Delek Logistics Credit Facility. 27 | Notes to Condensed Consolidated Financial Statements (Unaudited) The Delek Logistics Credit Facility has a maturity date of September 28, 2023. Borrowings under the Delek Logistics Credit Facility bear interest at either a U.S. dollar prime rate , Canadian dollar prime rate , LIBOR , or a CDOR rate, in each case plus applicable margins, at the election of the borrowers and as a function of draw down currency. The applicable margin in each case and the fee payable for the unused revolving commitments vary based upon Delek Logistics' most recent total leverage ratio calculation delivered to the lenders, as called for and defined under the terms of the Delek Logistics Credit Facility. At September 30, 2020, the weighted average borrowing rate was approximately 2.69 %. Additionally, the Delek Logistics Credit Facility requires Delek Logistics to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of September 30, 2020, this fee was 0.40 % on an annualized basis. In connection with the elimination of IDRs in August 2020, Delek Logistics entered into a First Amendment to the Delek Logistics Credit Facility which, among other things, permitted the transfer of cash and equity consideration for the elimination of IDRs. It also modified the total leverage ratio and the senior leverage ratio (each as defined in the Delek Logistics Credit Facility) calculations to reduce the total funded debt (as defined in the Delek Logistics Credit Facility) component thereof by the total amount of unrestricted consolidated cash and cash equivalents on the balance sheet of the Delek Logistics and its subsidiaries up to $20.0 million. As of September 30, 2020, Delek Logistics had $ 760.7 million of outstanding borrowings under the Delek Logistics Credit Facility, with no letters of credit in place. Unused credit commitments under the Delek Logistics Credit Facility, as of September 30, 2020, were $ 89.3 million. Delek Logistics Notes On May 23, 2017, Delek Logistics and Delek Logistics Finance Corp. (collectively, the “Issuers”) issued $ 250.0 million in aggregate principal amount of 6.75 % senior notes due 2025 (the “Delek Logistics Notes”) at a discount. The Delek Logistics Notes are general unsecured senior obligations of the Issuers. The Delek Logistics Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by Delek Logistics' existing subsidiaries (other than Delek Logistics Finance Corp., the "Guarantors") and will be unconditionally guaranteed on the same basis by certain of Delek Logistics' future subsidiaries. The Delek Logistics Notes rank equal in right of payme nt with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers. Interest on the Delek Logistics Notes is payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 2017. Beginning on May 15, 2020, th e Issuers may, subject to certain conditions and limitations, redeem all or part of the Delek Logistics Notes, at a redemption price of 105.063 % of the redeemed principal for the twelve-month period beginning on May 15, 2020, 103.375 % for the twelve-month period beginning on May 15, 2021, 101.688 % for the twelve-month period beginning on May 15, 2022 and 100.00 % beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if any. In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the Delek Logistics Notes from holders at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest. In May 2018, the Delek Logistics Notes were exchanged for new notes with terms substantially identical in all material respects with the 2025 Notes except the new notes do not contain terms with respect to transfer restrictions. As of September 30, 2020, we had $ 250.0 million in outstanding principal amount under the Delek Logistics Notes. As of September 30, 2020, the effective interest rate related to the Delek Logistics Notes was 7.22 %. Reliant Bank Revolver Delek has an unsecured revolving credit agreement with Reliant Bank (the "Reliant Bank Revolver"). On December 16, 2019, we amended the Reliant Bank Revolver to extend the maturity date to June 30, 2022, reduce the fixed interest rate from 4.75 % to 4.50 % per annum and increase the revolver commitment amount from $ 30.0 million to $ 50.0 million. There were no other significant changes to the agreement . The revolving credit agreement requires us to pay a quarterly fee of 0.50 % on an annualized basis on the average unused revolving commitment. As of September 30, 2020, we had $ 50.0 million outstanding and had no unused credit commitments under the Reliant Bank Revolver. Promissory Notes Delek has four notes payable (the "Promissory Notes") with various assignees of Alon Israel Oil Company, Ltd., the holder of a predecessor consolidated promissory note, which bear interest at a fixed rate of 5.50 % per annum and which, collectively, require annual principal amortization payments of $ 25.0 million to be made each January through 2020, followed by a final principal amortization payment of $ 20.0 million at maturity on January 4, 2021. As of September 30, 2020, a total principal amount of $ 20.0 million was outstanding under the Promissory Notes. Restrictive Covenants Under the terms of our Revolving Credit Facility, Term Loan Credit Facility, Delek Logistics Credit Facility, Delek Logistics Notes, Reliant Bank Revolver and BHI Agreement, we are required to comply with certain usual and customary financial and non-financial covenants. The 28 | Notes to Condensed Consolidated Financial Statements (Unaudited) terms and conditions of the Revolving Credit Facility include periodic compliance with a springing minimum fixed charge coverage ratio financial covenant if excess availability under the revolver borrowing base is below certain thresholds, as defined in the credit agreement. The Term Loan Credit Facility does not have any financial maintenance covenants. We believe we were in compliance with all covenant requirements under each of our credit facilities as of September 30, 2020. Certain of our debt facilities contain limitations on the incurrence of additional indebtedness, making of investments, creation of liens, dispositions and acquisitions of assets, and making of restricted payments and transactions with affiliates. These covenants may also limit the payment, in the form of cash or other assets, of dividends or other distributions, or the repurchase of shares with respect to the equity of certain of our subsidiaries. Additionally, some of our debt facilities limit our ability to make investments, including extensions of loans or advances to, or acquisitions of equity interests in, or guarantees of obligations of, certain other entities. Note 9 - Derivative Instruments We use the majority of our derivatives to reduce normal operating and market risks with the primary objective of reducing the impact of market price volatility on our results of operations. As such, our use of derivative contracts is aimed at: • limiting the exposure to price fluctuations of commodity inventory above or below target levels at each of our segments; • managing our exposure to commodity price risk associated with the purchase or sale of crude oil, feedstocks and finished grade fuel products at each of our segments; • managing the cost of our credits for commitments required by the U.S. Environmental Protection Agency ("EPA") to blend biofuels into fuel products ("RINs Obligation") using future commitments to purchase or sell renewable identification numbers ("RINs") at fixed prices and quantities; and • limiting the exposure to interest rate fluctuations on our floating rate borrowings. We primarily utilize commodity swaps, futures, forward contracts and options contracts, generally with maturity dates of three years or less, and from time to time interest rate swap or cap agreements, to achieve these objectives. Futures contracts are standardized agreements, traded on a futures exchange, to buy or sell the commodity at a predetermined price at a specified future date. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Commodity swap and futures contracts require cash settlement for the commodity based on the difference between a fixed or floating price and the market price on the settlement date, and options require payment of an upfront premium. Because these derivatives are entered into to achieve objectives specifically related to our inventory and production risks, such gains and losses (to the extent not designated as accounting hedges and recognized on an unrealized basis in other comprehensive income) are recognized in cost of materials and other. Forward contracts are agreements to buy or sell a commodity at a predetermined price at a specified future date, and for our transactions, generally require physical delivery. Forward contracts where the underlying commodity will be used or sold in the normal course of business qualify as normal purchases and normal sales pursuant to ASC 815 and are not accounted for as derivative instruments. Rather, such forward contracts are accounted for under other applicable GAAP. Forward contracts entered into for trading purposes that do not meet the normal purchases, normal sales exception are accounted for as derivative instruments at fair value with changes in fair value recognized in earnings in the period of change. As of September 30, 2020 and December 31, 2019, and for the three and nine months ended September 30, 2020 and September 30, 2019, all of our forward contracts that were accounted for as derivative instruments primarily consisted of contracts related to our Canadian crude trading operations. Since Canadian crude trading activity is not related to managing supply or pricing risk of the actual inventory that will be used in production, such unrealized and realized gains and losses are recognized in other operating income, net rather than cost of materials and other on the accompanying condensed consolidated statements of income. Futures, swaps or other commodity related derivative instruments that are utilized to specifically provide economic hedges on our Canadian forward contract or investment positions are recognized in other operating income, net because that is where the related underlying transactions are reflected. From time to time, 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 Obligation. These future RIN commitment contracts meet the definition of derivative instruments under ASC 815 , and are recorded at estimated fair value in accordance with the provisions of ASC 815. Changes in the fair value of these future RIN commitment contracts are recorded in cost of materials and other on the condensed consolidated statements of income. As of September 30, 2020, we do not believe there is any material credit risk with respect to the counterparties to any of our derivative contracts. In accordance with ASC 815, certain of our commodity swap contracts have been designated as cash flow hedges and the change in fair value between the execution date and the end of period has been recorded in other comprehensive income. The fair value of these contracts is recognized in income in the same financial statement line item as hedged transaction at the time the positions are closed and 29 | Notes to Condensed Consolidated Financial Statements (Unaudited) the hedged transactions are recognized in income. The following table presents the fair value of our derivative instruments as of September 30, 2020 and December 31, 2019. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under our master netting arrangements, including cash collateral on deposit with our counterparties. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below differ from the amounts presented in our condensed consolidated balance sheets. See Note 10 for further information regarding the fair value of derivative instruments (in millions). September 30, 2020 December 31, 2019 Derivative Type Balance Sheet Location Assets Liabilities Assets Liabilities Derivatives not designated as hedging instruments: Commodity derivatives (1) Other current assets $ 90.9 $ ( 71.3 ) $ 188.9 $ ( 202.1 ) Commodity derivatives (1) Other current liabilities 881.2 ( 896.2 ) 24.4 ( 34.0 ) Commodity derivatives (1) Other long-term assets 0.1 — — — Commodity derivatives (1) Other long-term liabilities 374.9 ( 376.7 ) 23.4 ( 24.8 ) RIN commitment contracts (2) Other current assets 2.9 — 0.6 — RIN commitment contracts (2) Other current liabilities — ( 1.1 ) — ( 1.9 ) Derivatives designated as hedging instruments: Commodity derivatives (1) Other current assets 2.7 ( 1.5 ) 3.4 ( 2.0 ) Commodity derivatives (1) Other long-term assets — — 0.2 ( 0.1 ) Total gross fair value of derivatives $ 1,352.7 $ ( 1,346.8 ) $ 240.9 $ ( 264.9 ) Less: Counterparty netting and cash collateral (3) 1,319.6 ( 1,328.7 ) 210.7 ( 249.5 ) Total net fair value of derivatives $ 33.1 $ ( 18.1 ) $ 30.2 $ ( 15.4 ) (1) As of September 30, 2020 and December 31, 2019, we had open derivative positions representing 193,693,716 and 86,484,065 barrels, respectively, of crude oil and refined petroleum products. Of these open positions, contracts representing 90,000 and 600,000 barrels were designated as cash flow hedging instruments as of September 30, 2020 and December 31, 2019, respectively. Additionally, as of September 30, 2020 and December 31, 2019, we had open derivative positions representing 13,180,000 and 40,050,000 One Million British Thermal Units ("MMBTU") of natural gas products, respectively. (2) As of September 30, 2020 and December 31, 2019, we had open RIN commitment contracts representing 59,200,000 and 147,000,000 RINs, respectively. (3) As of September 30, 2020 and December 31, 2019, $ 9.1 million and $ 38.8 million, respectively, of cash collateral held by counterparties has been netted with the derivatives with each counterparty. Total gains on our hedging derivatives and RIN commitment contracts recorded in the condensed consolidated statements of income are as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Gains (losses) on commodity derivatives not designated as hedging instruments recognized in cost of materials and other (1) $ 5.1 $ 34.2 $ ( 85.8 ) $ 118.5 Gains (losses) on commodity derivatives not designated as hedging instruments recognized in other operating income, net (1) (2) 0.1 ( 0.3 ) 7.9 0.2 Realized gains (losses) reclassified out of accumulated other comprehensive income and into cost of materials and other on commodity derivatives designated as cash flow hedging instruments 0.8 ( 21.1 ) 3.7 ( 55.0 ) Total gains (losses) $ 6.0 $ 12.8 $ ( 74.2 ) $ 63.7 (1) Gains (losses) on commodity derivatives that are economic hedges but not designated as hedging instruments include unrealized (losses) gains of $( 19.4 ) million and $ 9.2 million for the three and nine months ended September 30, 2020, respectively, and $ 0.5 million and $( 30.1 ) million for the three and nine months ended September 30, 2019, respectively. Of these amounts, approximately $ 0.4 million and $( 13.0 ) million as of September 30, 2020 and September 30, 2019, respectively, represent unrealized gains (losses) where the instrument has matured but where it has not cash settled as of period end. Derivative instruments that have matured but not cash settled at the balance sheet date continue to be reflected in derivative assets or liabilities on our balance sheet. (2) See separate table below for disclosures about "trading derivatives." The effect of cash flow hedge accounting on the condensed consolidated statements of income is as follows (in millions): 30 | Notes to Condensed Consolidated Financial Statements (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Gain (loss) on cash flow hedging relationships recognized in cost of materials and other: Commodity contracts: Hedged items $ ( 0.8 ) $ 21.1 $ ( 3.7 ) $ 55.0 Derivative designated as hedging instruments 0.8 ( 21.1 ) 3.7 ( 55.0 ) Total $ — $ — $ — $ — For cash flow hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for the three and nine months ended September 30, 2020 or 2019. Gains, net of tax, on settled commodity contracts of $ 0.7 and $ 3.0 million during the three and nine months ended September 30, 2020, respectively, and $( 16.6 ) million and $( 43.4 ) million during the three and nine months ended September 30, 2019, respectively, were reclassified into cost of materials and other in the condensed consolidated statements of income. As of September 30, 2020, we estimate that $ 1.2 million of deferred gains related to commodity cash flow hedges will be reclassified into cost of materials and other over the next 12 months as a result of hedged transactions that are forecasted to occur. Total (losses) gains on our trading physical forward contract derivatives (none of which were designated as hedging instruments) recorded in other operating loss (income), net on the condensed consolidated statements of income are as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Realized (losses) gains $ ( 0.4 ) $ ( 1.4 ) $ ( 3.4 ) $ 3.3 Unrealized (losses) gains 0.2 4.5 ( 0.5 ) 6.6 Total $ ( 0.2 ) $ 3.1 $ ( 3.9 ) $ 9.9 Note 10 - Fair Value Measurements Delek applies the provisions of ASC 820, Fair Value Measurements ("ASC 820"), which defines fair value, establishes a framework for its measurement and expands disclosures about fair value measurements. ASC 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants. Our commodity derivative contracts, which consist of commodity swaps, exchange-traded futures, options and physical commodity forward purchase and sale contracts (that do not qualify as normal purchases or normal sales exception under ASC 815), are valued based on exchange pricing and/or price index developers such as Platts or Argus and are, therefore, classified as Level 2. Investment commodities, which represent those commodities (generally crude oil) physically on hand as a result of trading activities with physical forward contracts, are valued using published market prices of the commodity on the applicable exchange and are, therefore, classified as Level 1. Such investment stores, included in other current assets on the condensed consolidated balance sheets, are maintained on a weighted average cost basis for determining realized gains and losses on physical sales under forward contracts, and ending balances are adjusted to fair value at each reporting date. The unrealized gain (loss) on commodity investments for the three and nine months ended September 30, 2020 totaled $ 0.1 million and $ 1.0 million, respectively, and totaled $ 0.1 million and $( 1.9 ) million for the three and nine months ended September 30, 2019, respectively. In April 2020, we entered into a contract with the Department of Energy to deposit one million barrels of crude oil into one of the Strategic Petroleum Reserve ("SPR") storage locations where they will be stored on our behalf until October 2020 for a fee of approximately 100,000 barrels. The fee of 100,000 barrels was recorded as a prepaid asset at cost, and the right to receive the 900,000 barrels was recorded as a financial asset (the "Right to receive crude oil barrels"), measured at fair value based on the value of the underlying commodity using published market prices of the commodity on the applicable exchange. Such asset is, therefore, classified as Level 2. The unrealized gain 31 | Notes to Condensed Consolidated Financial Statements (Unaudited) on the underlying commodity related to the SPR financial asset for the three and nine months ended September 30, 2020 of $ 0.9 million and $ 10.6 million was recorded in other (income) expense, net. Our RIN commitment contracts are future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs Obligation. These RIN commitment contracts are categorized as Level 2, and are measured at fair value based on quoted prices from an independent pricing service. Our environmental credits obligation surplus or deficit is based on the amount of RINs or other emissions credits subject to fair value accounting that we must purchase, net of amounts internally generated and purchased and the price of those RINs or other emissions credits as of the balance sheet date, by refinery/obligor. The environmental credits obligation surplus or deficit is categorized as Level 2 if measured at fair value either directly through observable inputs or indirectly through market-corroborated inputs. As of and for the nine months ended September 30, 2020 and 2019, we elected to account for our J. Aron step-out liability at fair value in accordance with ASC 825 , as it pertains to the fair value option. This standard permits the election to carry financial instruments and certain other items similar to financial instruments at fair value on the balance sheet, with all changes in fair value reported in earnings. With respect to the amended and restated Supply and Offtake Agreements, such amendments being effective April 2020 for all the agreements, we apply fair value measurement as follows: (1) we determine fair value for our amended variable step-out liability based on changes in fair value related to market volatility based on a floating commodity-index price, and for our amended fixed step-out liability based on changes to interest rates and the timing and amount of expected future cash settlements where such obligation is categorized as Level 2. Gains (losses) related to changes in fair value due to commodity-index price are recorded as a component of cost of materials and other, and changes in fair value due to interest rate risk are recorded as a component of interest expense in the condensed consolidated statements of income; and (2) we determine fair value of the commodity-indexed revolving over/short inventory financing liability based on the market prices for the consigned crude oil and refined products collateralizing the financing/funding where such obligation is categorized as Level 2 and is presented in the current portion of the Obligation under Supply and Offtake Agreements on our condensed consolidated balance sheets. Gains (losses) related to the change in fair value are recorded as a component of cost of materials and other in the condensed consolidated statements of income. Before the January 2020 amendments, we determined the fair value for the fixed price step-out liability based on changes to interest rates reflecting changes to the interest rate risk, with obligation categorized as Level 2. For all other financial instruments, the fair value approximates the historical or amortized cost basis comprising our carrying value and therefore are not included in the table below. The fair value hierarchy for our financial assets and liabilities accounted for at fair value on a recurring basis was as follows (in millions): September 30, 2020 Level 1 Level 2 Level 3 Total Assets Commodity derivatives $ — $ 1,349.8 $ — $ 1,349.8 Commodity investments 1.0 — — 1.0 Right to receive crude oil barrels — 36.6 — 36.6 RIN commitment contracts — 2.9 — 2.9 Total assets 1.0 1,389.3 — 1,390.3 Liabilities Commodity derivatives — ( 1,345.7 ) — ( 1,345.7 ) RIN commitment contracts — ( 1.1 ) — ( 1.1 ) Environmental credits obligation deficit — ( 233.6 ) — ( 233.6 ) J. Aron supply and offtake obligations — ( 323.2 ) — ( 323.2 ) Total liabilities — ( 1,903.6 ) — ( 1,903.6 ) Net assets (liabilities) $ 1.0 $ ( 514.3 ) $ — $ ( 513.3 ) 32 | Notes to Condensed Consolidated Financial Statements (Unaudited) December 31, 2019 Level 1 Level 2 Level 3 Total Assets Commodity derivatives $ — $ 240.3 $ — $ 240.3 Investment commodities 12.1 — — 12.1 RIN commitment contracts — 0.6 — 0.6 Environmental credits obligation surplus — 16.8 — 16.8 Total assets 12.1 257.7 — 269.8 Liabilities Commodity derivatives — ( 263.0 ) — ( 263.0 ) RIN commitment contracts — ( 1.9 ) — ( 1.9 ) Environmental credits obligation deficit — ( 18.5 ) — ( 18.5 ) J. Aron supply and offtake obligations — ( 477.3 ) — ( 477.3 ) Total liabilities — ( 760.7 ) — ( 760.7 ) Net assets (liabilities) $ 12.1 $ ( 503.0 ) $ — $ ( 490.9 ) The derivative values above are based on analysis of each contract as the fundamental unit of account as required by ASC 820. In the table above, derivative assets and liabilities with the same counterparty are not netted where the legal right of offset exists. This differs from the presentation in the financial statements which reflects our policy, wherein we have elected to offset the fair value amounts recognized for multiple derivative instruments executed with the same counterparty and where the legal right of offset exists. As of September 30, 2020 and December 31, 2019, $ 9.1 million and $ 38.8 million, respectively, of cash collateral was held by counterparty brokerage firms and has been netted in the financial statements with the net derivative positions with each counterparty. See Note 9 for further information regarding derivative instruments. Note 11 - Commitments and Contingencies Litigation In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our financial statements. Certain environmental matters that have or may result in penalties or assessments are discussed below in the " Environmental, Health and Safety" section of this note. One of our Alon subsidiaries was the defendant in a legal action related to an easement dispute arising from a purchase of property that occurred in October 2013. In June 2019, the court found in favor of the plaintiffs and assessed damages against such subsidiary, which were reduced in the fourth quarter of 2019 to $ 6.4 million. Such amount is included as of September 30, 2020 in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheet. Self-insurance Delek records a self-insurance accrual for workers’ compensation claims up to a $ 4.0 million deductible on a per accident basis, general liability claims up to $ 4.0 million on a per occurrence basis and medical claims for eligible full-time employees up to $ 0.3 million per covered individual per calendar year. We also record a self-insurance accrual for auto liability up to a $ 4.0 million deductible on a per accident basis. We have umbrella liability insurance available to each of our segments in an amount determined reasonable by management. Environmental, Health and Safety We are subject to extensive federal, state and local environmental and safety laws and regulations enforced by various agencies, including the EPA, the United States Department of Transportation, the Occupational Safety and Health Administration, as well as numerous state, regional and local environmental, safety and pipeline agencies. These laws and regulations govern the discharge of materials into the environment, waste management practices, pollution prevention measures and the composition of the fuels we produce, as well as the safe operation of our plants and pipelines and the safety of our workers and the public. Numerous permits or other authorizations are required under these laws and regulations for the operation of our refineries, renewable fuels facilities, terminals, pipelines, underground 33 | Notes to Condensed Consolidated Financial Statements (Unaudited) storage tanks, trucks, rail cars and related operations, and may be subject to revocation, modification and renewal. These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters which could include soil and water contamination, air pollution, personal injury and property damage allegedly caused by substances which we manufactured, handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which we have assumed responsibility. We believe that our current operations are in substantial compliance with existing environmental and safety requirements. However, there have been and will continue to be ongoing discussions about environmental and safety matters between us and federal and state authorities, including notices of violations, citations and other enforcement actions, some of which have resulted or may result in changes to operating procedures and in capital expenditures. While it is often difficult to quantify future environmental or safety related expenditures, we anticipate that continuing capital investments and changes in operating procedures will be required for the foreseeable future to comply with existing and new requirements, as well as evolving interpretations and more strict enforcement of existing laws and regulations. As of September 30, 2020, we have recorded an environmental liability of approximately $ 112.7 million, primarily related to the estimated probable costs of remediating or otherwise addressing certain environmental issues of a non-capital nature at our refineries, as well as terminals, some of which we no longer own. This liability includes estimated costs for ongoing investigation and remediation efforts for known contamination of soil and groundwater. Approximately $ 6.6 million of the total liability is expected to be expended over the next 12 months, with most of the balance expended by 2032, although some costs may extend up to 30 years. In the future, we could be required to extend the expected remediation period or undertake additional investigations of our refineries, pipelines and terminal facilities, which could result in the recognition of additional remediation liabilities. Crude Oil and Other Releases We have experienced several crude oil and other releases involving our assets. There were no material releases that occurred during the nine months ended September 30, 2020. For releases that occurred in prior years, we have received regulatory closure or a majority of the cleanup and remediation efforts are substantially complete. For the release sites that have not yet received regulatory closure, we expect to receive regulatory closure in late 2020 or 2021 and do not anticipate material costs associated with any fines or penalties or to complete activities that may be needed to achieve regulatory closure. Expenses incurred for the remediation of these crude oil and other releases are included in operating expenses in our consolidated statements of income. Letters of Credit As of September 30, 2020, we had in place letters of credit totaling approximately $ 227.3 million with various financial institutions securing obligations primarily with respect to our commodity transactions for the refining segment and certain of our insurance programs. There were no amounts drawn by beneficiaries of these letters of credit at September 30, 2020. Note 12 - Income Taxes Under ASC 740, Income Taxes (“ASC 740”) we used an estimated annual tax rate to record income taxes for the three and nine months ended September 30, 2020 and September 30, 2019. Our effective tax rate was 16.9 % and 32.0 % for the three and nine months ended September 30, 2020, respectively, compared to 18.3 % and 21.9 % for the three and nine ended September 30, 2019, respectively. The difference between the effective tax rate and the statutory rate is generally attributable to permanent differences and discrete items. The change in our effective tax rate for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 was primarily due to tax benefit for federal tax credits attributable to the Company’s biodiesel blending operations that were re-enacted in December 2019, reversal of a valuation allowance for deferred tax assets in partnership investments due to changes in the future realizability of deferred tax basis differences, and expected net operating loss carryback provided under the CARES Act which allows the Company to recover federal taxes paid in prior years at a 35% tax rate creating a 14% tax rate benefit. On March 27, 2020, the Coronavirus Aid Relief, and Economic Security Act (the "CARES Act") was enacted into law. The CARES Act includes several significant provisions for corporations, including the usage of net operating losses, interest deductions and payroll benefits. The Company recognized $ 16.8 million of current federal income tax benefit for the nine months ended September 30, 2020, attributable to anticipated tax refunds from net operating loss carryback to prior 35% tax rate years under the CARES Act. Additionally, we recorded an federal income tax receivable totaling $ 165.6 million as of September 30, 2020 related to the federal net operating loss carryback. 34 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 13 - Related Party Transactions Our related party transactions consist primarily of transactions with our equity method investees (See Note 5). Transactions with our related parties were as follows for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 2020 2019 Revenues (1) $ 27.6 $ 45.1 $ 57.5 $ 73.3 Cost of materials and other (2) $ 10.9 $ 20.3 $ 31.4 $ 33.7 (1) Consists primarily of asphalt sales which are recorded in corporate, other and eliminations segment. (2) Consists primarily of pipeline throughput fees paid by the refining segment and asphalt purchases. Note 14 - Other Assets and Liabilities The detail of other current assets is as follows (in millions): Other Current Assets September 30, 2020 December 31, 2019 RINs assets $ 231.1 $ 14.5 Income and other tax receivables 181.1 61.9 Right to receive crude oil barrels (see Note 10) 36.6 — Short-term derivative assets (see Note 9) 33.0 30.2 Prepaid expenses 19.2 21.9 Environmental Credits Obligation surplus (see Note 10) 7.3 16.8 Biodiesel tax credit (see Note 2) 3.2 97.5 Investment commodities 1.0 12.1 Other 3.4 13.8 Total $ 515.9 $ 268.7 The detail of other non-current assets is as follows (in millions): Other Non-Current Assets September 30, 2020 December 31, 2019 Supply and Offtake receivable $ 32.7 $ 32.7 Other equity Investments 10.4 8.9 Deferred financing costs 7.3 8.5 Other 18.1 17.7 Total $ 68.5 $ 67.8 35 | Notes to Condensed Consolidated Financial Statements (Unaudited) The detail of accrued expenses and other current liabilities is as follows (in millions): Accrued Expenses and Other Current Liabilities September 30, 2020 December 31, 2019 Environmental Credits Obligation deficit (see Note 10) $ 237.6 $ 18.5 Product financing agreements 168.5 21.1 Income and other taxes payable 88.3 119.6 Crude purchase liabilities 74.3 72.1 Employee costs 23.8 47.6 Short-term derivative liabilities (see Note 9) 16.3 14.1 Interest payable 9.6 8.8 Environmental liabilities (see Note 11) 6.6 8.2 Accrued utilities 3.7 4.4 Tank inspection liabilities 3.1 5.6 Other 25.3 26.8 Total $ 657.1 $ 346.8 The detail of other non-current liabilities is as follows (in millions): Other Non-Current Liabilities September 30, 2020 December 31, 2019 Liability for unrecognized tax benefits $ 15.2 $ 12.1 Tank inspection liabilities 9.4 9.9 Pension and other postemployment benefit liabilities, net 3.1 5.3 Long-term derivative liabilities (see Note 9) 1.8 1.4 Deferred payroll taxes 7.8 — Other 0.1 2.2 Total $ 37.4 $ 30.9 Note 15 - Equity-Based Compensation Delek US Holdings, Inc. 2006 and 2016 and Alon USA Energy, Inc. 2005 Long-Term Incentive Plans (collectively, the "Incentive Plans") On May 5, 2020, the Company's stockholders approved an amendment to the Delek US Holdings, Inc. 2016 Long-Term Incentive Plan that increased the number of shares of Common Stock available for issuance under this plan by 2,120,000 shares to 11,020,000 shares. Compensation expense related to equity-based awards granted under the Incentive Plans amounted to $ 6.6 million and $ 17.4 million for the three and nine months ended September 30, 2020, respectively, and $ 7.3 million and $ 18.7 million for the three and nine months ended September 30, 2019, respectively. These amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of income. As of September 30, 2020, there was $ 42.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.8 years. We issued net shares of common stock of 68,265 and 314,204 as a result of exercised or vested equity-based awards during the three and nine months ended September 30, 2020, respectively, and 78,695 and 462,318 for the three and nine months ended September 30, 2019, respectively. These amounts are net of 31,020 and 161,469 shares withheld to satisfy employee tax obligations related to the exercises and vesting during the three and nine months ended September 30, 2020, respectively, and 146,148 and 470,232 for the three and nine months ended September 30, 2019, respectively. Delek Logistics GP, LLC 2012 Long-Term Incentive Plan The Delek Logistics GP, LLC 2012 Long-Term Incentive Plan (the "LTIP") was adopted by the Delek Logistics GP, LLC board of directors in connection with the completion of Delek Logistics' initial public offering in November 2012. The LTIP is administered by the Conflicts Committee of the board of directors of Delek Logistics' general partner. 36 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 16 - Shareholders' Equity Dividends During the nine months ended September 30, 2020, our Board of Directors declared the following dividends: Approval Date Dividend Amount Per Share Record Date Payment Date February 24, 2020 $ 0.31 March 10, 2020 March 24, 2020 May 4, 2020 $ 0.31 May 20, 2020 June 3, 2020 August 3, 2020 $ 0.31 August 19, 2020 September 3, 2020 Stock Repurchase Program On November 6, 2018, our Board of Directors authorized a share repurchase program for up to $ 500.0 million of Delek common stock. Any share repurchases under the repurchase program may be implemented through open market transactions or in privately negotiated transactions, in accordance with applicable securities laws. The timing, price and size of repurchases are made at the discretion of management and will depend on prevailing market prices, general economic and market conditions and other considerations. The repurchase program does not obligate us to acquire any particular amount of stock and does not expire. During the nine months ended September 30, 2020, 58,713 shares of our common stock were repurchased for a total of $ 1.9 million. No repurchases of our common stock were made in the three months ended September 30, 2020. During the three and nine months ended September 30, 2019, we repurchased 1,236,854 and 4,175,576 shares of our common stock for a total of $ 43.0 million and $ 147.8 million, respectively. As of September 30, 2020, there was $ 229.7 million of authorization remaining under Delek's aggregate stock repurchase program. Stockholder Rights Plan On March 20, 2020, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of Delek’s common stock and adopted a stockholder rights plan (the “Rights Agreement”). The dividend was distributed in a non-cash transaction on March 30, 2020 to the stockholders of record on that date. The Rights initially trade with, and are inseparable from, Delek’s common stock. Once the Rights become exercisable, each Right will allow its holder to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $ 0.01 per share (a “Preferred Share”) for $ 92.24 , subject to adjustment (the “Exercise Price”). This portion of a Preferred Share will give the stockholder approximately the same dividend, voting and liquidation rights as would one share of Delek’s common stock. Prior to exercise, the Right does not give its holder any dividend, voting or liquidation rights. The Rights will not be exercisable until 10 days after the public announcement that a person or group that has become an “Acquiring Person” (as defined in the Rights Agreement). The point at which these terms are met is otherwise referred to as the "Distribution Date." If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, for the Exercise Price, purchase shares of the Company’s common stock with a market value of two times the Exercise Price, based on the market price of the common stock prior to such acquisition. In addition, subject to certain conditions set forth in the Rights Agreement, the Board may extinguish the Rights. If the Company is later acquired in a merger or similar transaction after the Distribution Date, all holders of Rights except the Acquiring Person may, for the Exercise Price, purchase shares of the acquiring corporation with a market value of two times the Exercise Price, based on the market price of the acquiring corporation’s stock prior to such merger. In the event the Company receives a fully financed, all-cash tender offer satisfying the conditions set forth in the Rights Agreement (a “Qualifying Offer”), and certain other events occur, the Rights Agreement provides a mechanism for stockholders holding more than 20 % of the shares of Delek common stock then outstanding (excluding shares beneficially owned by the person making the Qualifying Offer) to demand a special meeting of the stockholders of the Company to vote on a resolution exempting such Qualifying Offer from the provisions of the Rights Agreement. The Rights will expire on March 19, 2021, subject to a possible earlier expiration to the extent provided in the Rights Agreement. Preferred Stock On March 20, 2020, our Board of Directors authorized 1,000,000 shares of preferred stock with a par value of $ 0.01 per share as Series A Junior Participating Preferred Stock. 37 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 17 - Employees Postretirement Benefits The net periodic (benefit) cost for our postretirement benefit plans was not material for the three and nine months ended September 30, 2020 or 2019. Additionally, our estimated contributions to our pension plans during 2020 have not changed significantly from amounts previously disclosed in the notes to the consolidated financial statements for the year ended December 31, 2019. Note 18 - Leases We lease certain retail stores, land, building and various equipment from others. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 15 years or more. The exercise of existing lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Some of our lease agreements include a rate based on equipment usage and others include a rate with fixed increases or inflationary indices based increase. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease certain real estate and equipment to third parties. Our sublease portfolio consists primarily of operating leases within our retail stores and crude storage equipment. As of September 30, 2020, $ 26.8 million of our net property, plant, and equipment balance is subject to an operating lease. This agreement does not include options for the lessee to purchase our leasing equipment, nor does it include any material residual value guarantees or material restrictive covenants. The agreement includes a one-year renewal option and certain variable payment based on usage. The following table presents additional information related to our operating leases in accordance ASC 842, Leases ("ASC 842"): Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 2020 2019 Lease Cost Operating lease costs $ 16.9 $ 13.5 $ 48.5 $ 44.1 Short-term lease costs (1) 5.4 4.0 19.1 11.3 Sublease income ( 1.8 ) ( 1.9 ) ( 5.7 ) ( 6.4 ) Net lease costs $ 20.5 $ 15.6 $ 61.9 $ 49.0 Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ ( 16.9 ) $ ( 13.5 ) $ ( 48.5 ) $ ( 44.1 ) Leased assets obtained in exchange for new operating lease liabilities $ 8.5 $ 1.5 $ 30.7 $ 9.6 September 30, 2020 Weighted-average remaining lease term (years) operating leases 6.1 Weighted-average discount rate operating leases (2) 5.9 % (1) Includes an immaterial amount of variable lease cost. (2) Our discount rate is primarily based on our incremental borrowing rate in accordance with ASC 842. Note 19 - Subsequent Events Dividend Suspension We have elected to suspend dividends beginning in the fourth quarter of 2020 in order to conserve capital. 38 | Notes to Condensed Consolidated Financial Statements (Unaudited) Supply and Offtake Agreements Pursuant to the Supply and Offtake Agreements' Periodic Price Adjustment provision, we determined that the provision was triggered on October 1, 2020 and a paydown amounting to $ 20.8 million was made to J. Aron on October 30, 2020. The prospective pricing underlying the fixed component of the Baseline Step-Out liabilities will be adjusted accordingly to reflect this payment, resulting in a reduction to the fixed differential component of our long-term Supply and Offtake Obligation totaling $ 20.8 million and a prospective contractual reset of the fixed differentials subject to future Periodic Price Adjustments. Contemporaneous with the payment, J. Aron separately refunded to us the $ 10.0 million of deferred additional monthly fees. 39 | Management's Discussion and Analysis