Delek US Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") on February 28, 2020 (the "Annual Report on Form 10-K"). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. Unless otherwise noted or the context requires otherwise, the terms "we," "our," "us," "Delek" and the "Company" are used in this report to refer to Delek and its consolidated subsidiaries for all periods presented. You should read the following discussion of our financial condition and results of operations in conjunction with our historical condensed consolidated financial statements and notes thereto. The Company announces material information to the public about the Company, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Company’s website ( www.delekus.com ), the investor relations section of its website ( ir.delekus.com ), the news section of its website ( www.delekus.com/news ), and/or social media, including its Twitter account ( @DelekUSHoldings ). The Company encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. Forward-Looking Statements This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the recent outbreak COVID-19 and the actions of members of the Organization of Petroleum Exporting Countries (“OPEC”) and Russia with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will or will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as "may," "will," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "appears," "projects" and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • volatility in our refining margins or fuel gross profit as a result of changes in the prices of crude oil, other feedstocks and refined petroleum products and the impact of the COVID-19 Pandemic on such demand; • reliability of our operating assets; • actions of our competitors and customers; • changes in, or the failure to comply with, the extensive government regulations applicable to our industry segments, including current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic; • the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of the COVID-19 Pandemic; • our ability to execute our strategy of growth through acquisitions and capital projects and changes in the expected value of and benefits derived therefrom, including any ability to successfully integrate acquisitions, realize expected synergies or achieve operational efficiency and effectiveness; • diminishment in value of long-lived assets may result in an impairment in the carrying value of the assets on our balance sheet and a resultant loss recognized in the statement of operations; • the unprecedented market environment and economic effects of the COVID-19 Pandemic, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic; 40 | Management's Discussion and Analysis • general economic and business conditions affecting the southern, southwestern and western United States, particularly levels of spending related to travel and tourism and the ongoing and future impacts of the COVID-19 Pandemic; • volatility under our derivative instruments; • deterioration of creditworthiness or overall financial condition of a material counterparty (or counterparties); • unanticipated increases in cost or scope of, or significant delays in the completion of, our capital improvement and periodic turnaround projects; • risks and uncertainties with respect to the quantities and costs of refined petroleum products supplied to our pipelines and/or held in our terminals; • operating hazards, natural disasters, casualty losses and other matters beyond our control; • increases in our debt levels or costs; • possibility of accelerated repayment on a portion of the J. Aron supply and offtake liability if the purchase price adjustment feature triggers a change on the re-pricing dates; • changes in our ability to continue to access the credit markets; • compliance, or failure to comply, with restrictive and financial covenants in our various debt agreements; • the suspension of our quarterly dividend; • seasonality; • acts of terrorism (including cyber-terrorism) aimed at either our facilities or other facilities that could impair our ability to produce or transport refined products or receive feedstocks; • future decisions by OPEC+ members regarding production and pricing and disputes between OPEC+ members regarding such; • disruption, failure, or cybersecurity breaches affecting or targeting our IT systems and controls, our infrastructure, or the infrastructure of our cloud-based IT service providers; • changes in the cost or availability of transportation for feedstocks and refined products; and • other factors discussed under the headings "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" and in our other filings with the SEC. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate future results or period trends. We can give no assurances that any of the events anticipated by any forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise. Executive Summary Business Overview We are an integrated downstream energy business focused on petroleum refining, the transportation, storage and wholesale distribution of crude oil, intermediate and refined products and convenience store retailing. Our operating segments consist of refining, logistics, and retail, and are discussed in the sections that follow. The outbreak of COVID-19 and its development into a pandemic in March 2020 (the "COVID-19 Pandemic" or the "Pandemic") has resulted in significant economic disruption globally, including in the United States ("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 both voluntary and mandated social distancing, curfews, shutdowns and expanded safety measures have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe. This has in turn significantly reduced global economic activity which has had a significant impact on the nature and extent of travel. The COVID-19 Pandemic has had a devastating impact on the airline industry, dramatically reducing the number of domestic flights and, due to foreign travel bans and immigration restrictions abroad as well as traveler concerns over exposure, virtually eliminating international travel originating from the U.S. to many parts of the world. Additionally, the COVID-19 Pandemic has had a significant negative impact on motor vehicle use at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline. As a result, there has 41 | Management's Discussion and Analysis also been a decline in the demand for, and thus also the market prices of, crude oil and certain of our products, particularly our refined petroleum products and most notably gasoline and jet fuel. In April and June 2020, agreements were reached to cut oil production between the members of OPEC and other leading oil producing countries (together with OPEC, “OPEC+”), as part of the efforts to resolve the oil production disputes that significantly affected crude oil prices beginning in the first quarter of 2020 (the "OPEC Production Disputes"), and to provide stability in the oil markets. While OPEC+ have reached an agreement to cut oil production, the uncertainty about the duration of the COVID-19 Pandemic has caused storage constraints in the U.S. resulting from over-supply of produced oil. Based on these conditions and events, downward pressure on commodity prices, crack spreads and demand remains a significant risk and could continue for the foreseeable future. During the latter part of the second quarter of 2020, governmental authorities in various states across the U.S., particularly those in our Permian Basin and U.S. Gulf Coast regions, began to lift many of the restrictions created by actions taken to slow down the spread of COVID-19. These actions have resulted in an increase in the level of individual movement and travel and, in turn, an increase in the demand and market prices for some of our products relative to late March 2020. However, many of the states where such restrictions were lifted have recently experienced a marked increase in the spread of COVID-19 and many governmental authorities in such areas have responded by reimposing certain restrictions they had previously lifted. This response, as well as the increased infection rates, impacts regions that we serve and could significantly impact demand in ways that we cannot predict. Additionally, increased infection rates could impact our refining, logistics and retail operations, particularly in high-infection states, if our employees are personally affected by the illness, both through direct infection and quarantine procedures. During the three and nine months ended September 30, 2020, Delek has experienced the impact on demand and pricing of these unprecedented conditions, most notably in our refining segment. Our business and our third quarter 2020 results reflect the impact of decreased demand combined with crack spreads that are 53% to 71% lower, on average, compared to the same quarter in the prior year. We have also experienced operational constraints as well, including COVID-19 infections at certain of our company locations that have resulted in re-imposed or expanded remote policies and quarantine protocols. And we continue to be faced with risk from our suppliers and customers who are facing similar challenges. We have identified the following known uncertainties resulting from the COVID-19 Pandemic, which is ongoing: • Significant declines and/or volatility in prices of refined products we sell and the feedstocks we purchase as well as in crack spreads resulting from the COVID-19 Pandemic and the OPEC Production Disputes could have a significant impact on our revenues, cost of sales, operating income and liquidity, as well to the carrying value of our long-lived or indefinite-lived assets; • A decline in the market prices of refined products and feedstocks below the carrying value in our inventory may result in the adjustment of the value of our inventories to the lower market price and a corresponding loss on the value of our inventories (see also Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of specific financial statement risks); • The decline in demand for refined product could significantly impact the demand for throughput at our refineries, unfavorably impacting operating results at our refineries, and could impact the demand for storage, which could impact our logistics segment; • The decline in demand and margins impacting current results and forecasts could result in impairments in certain of our long-lived or indefinite-lived assets, including goodwill, or have other financial statement impacts that cannot currently be anticipated (see also Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of specific financial statement risks); • A significant reduction or suspension in U.S. crude oil production could adversely affect our suppliers and sources of crude oil; • An outbreak in one of our refineries, exacerbated by a limited pool of qualified replacements as well as quarantine protocols, could cause significant disruption in our production or, worst case, temporary idling of the facility; • The restrictions on travel and requirements for social distancing could significantly impact the traffic at our convenience stores, particularly the demand for fuel; • Customers of the refining segment as well as third-party customers of the logistics segment may experience financial difficulties which could interrupt the volumes ordered by those customers and/or could impact the credit worthiness of such customers and the collectability of their outstanding receivables; • The impact of COVID-19 or protocols implemented in response to COVID-19 by key or specialty suppliers may negatively affect our ability to obtain specialty equipment or services when needed; • Equity method investees may be significantly impacted by the COVID-19 Pandemic and/or the OPEC Production Disputes, which may increase the risk of impairment of those investments; • Access to capital markets may be significantly impacted by the volatility and uncertainty in the oil and gas market specifically which could restrict our ability to raise funds; 42 | Management's Discussion and Analysis • While our current liquidity needs are managed by existing facilities, sources of future liquidity needs may be impacted by the volatility in the debt market and the availability and pricing of such funds as a result of the COVID-19 Pandemic and the OPEC Production Disputes; and • The U.S. Federal Government has enacted certain stimulus and relief measures, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") passed on March 27, 2020, and is continuing to consider additional relief legislation. Beyond the direct impact of existing legislation on Delek in the current period, the extent to which the provisions of the existing or any future legislation will achieve its intention to stimulate or provide relief to the greater U.S. economy and/or consumer, as well as the impact and success of such efforts, remains unknown. Other uncertainties related to the impact of the COVID-19 Pandemic as well as global geopolitical factors may exist that have not been identified or that are not specifically listed above, and could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown. Actions taken by OPEC+ in April and June 2020, including the agreement for management of crude oil supply in the hopes of contributing to market stabilization (the "Oil Production Cuts"), as well as the U.S. Federal Government's passage and/or enactment of additional stimulus and relief measures, as well as their future actions may impact the extent to which the risk underlying these uncertainties are realized. To the extent these uncertainties have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S. Generally Accepted Accounting Principles ("GAAP"), we have considered them in the preparation of our unaudited financial statements as of and for the nine months ended September 30, 2020, which are included in Item 1, of this Quarterly Report on Form 10-Q. In addition, management continues to actively respond to the continuing impact of the COVID-19 Pandemic on our business. Such efforts include (but are not limited to) the following: • Reviewing planned production throughputs at our refineries and planning for optimization of operations; • Coordinating planned maintenance activities with possible downtime as a result of possible reductions in throughputs; • Searching for additional storage capacity if needed to store potential builds in crude oil or refined product inventories; • Finding additional suppliers for key or specialty items or securing inventory or priority status with existing vendors; • Reducing planned capital expenditures for 2020; • Suspending the share repurchase program until our internal parameters are met for resuming such repurchases, which will continue to include evaluation of our undervalued stock price in relation to opportunities to provide alternative returns and/or accretive value to investors; • Taking advantage of the income and payroll tax relief afforded to us by the CARES Act; • Implementing regular site cleaning and disinfecting procedures; • Adopting remote working where possible. Where on-site operations are required, masks are mandatory and our employees have adopted social distancing; • Reviewing dividend strategy to align with market changes and current economic conditions; • Identifying alternative financing solutions to enhance our access to sources of liquidity; and • Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and other employee related costs, workforce reduction and reducing or eliminating non-critical travel which serves the dual purpose of also complying with recommendations made by the state and federal governments because of the COVID-19 Pandemic. The most significant of these efforts to date as well as specifically identified measures that are anticipated in the near term, in terms of realized or anticipated impact, include the following: Pursuant to the provisions of the CARES Act, we 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. Additionally, we recorded an income tax receivable totaling $165.6 million as of September 30, 2020 related to the net operating loss carryback, which we expect to collect in the first half of 2021. Finally, we deferred $7.8 million of payroll tax payments under the provisions of the CARES Act during the nine months ended September 30, 2020, which will be payable in equal installments in December 2021 and December 2022. Beginning in the second quarter 2020, we made significant efforts to reduce our capital spending, particularly on growth and non-critical sustaining maintenance projects. As a result, we have spent $208.0 million in capital expenditures (as discussed further in the "Capital Spending" section of the "Liquidity and Capital Resources" section of Item 2. Management's Discussion and Analysis) during the nine months ended September 30, 2020 compared to our initial full-year forecast included in our December 31, 2019 Annual Report on Form 10-K of $325.7 million. See the "Liquidity and Capital Resources" section of Item 2. Management's Discussion and Analysis for further information. 43 | Management's Discussion and Analysis In light of the weak macro-economic environment, we elected to pull forward turnaround work into the fourth quarter of 2020 on certain units at the Krotz Springs refinery that will be conducted on a straight-time basis. This will allow us to continue running the more profitable units of the refinery and should help improve economics toward a break-even level. After this work is complete in the first quarter of next year and depending on market conditions, we have the flexibility to optimize operations at Krotz Springs by operating only the units that are producing favorable margins, thereby reducing unnecessary operating expenses, or moving back to full utilization at the facility, should the macro-economic environment and margins improve. Additionally, we have developed a cost savings plan for 2021 designed to significantly reduce operating expenses and general and administrative expenses. The majority of the expected operating expenses reduction is attributable to the temporary unit optimization at the Krotz Spring refinery, while other efforts such as targeted budgeting around outside contractor expenses and deferral of certain non-critical, non-capitalizable maintenance activities are also expected to have a favorable impact. Furthermore, both operating and general and administrative expenses will be favorably impacted by a cumulative reduction in workforce, the first of these reductions of which began in the second quarter 2020, and which are expected to be completed by the fourth quarter. Reductions in workforce are made possible in large part by significant efforts to improve process efficiency and leverage technology where cost-effective. For the three and nine months ended September 30, 2020, we have incurred incremental severance costs of $1.8 million and $4.6 million related to these workforce reductions. We have also incurred $2.4 million of severance costs subsequent to September 30, 2020. Finally, we have elected to suspend dividends beginning in the fourth quarter 2020 in order to conserve capital. We expect this will help us maintain our liquidity and manage our cost of capital in light of the COVID-19 Pandemic and lower oil prices. We also believe it will provide us with flexibility to pursue opportunities to provide value to investors with respect to our stock price, which we believe is undervalued. The combination of these efforts are expected to have a favorable impact on cash flows on a prospective basis and continuing in 2021, which will reinforce our liquidity positioning in anticipation of the continued economic impacts of the COVID-19 Pandemic. See the "Liquidity and Capital Resources" section of Item 2. Management's Discussion and Analysis for further information. The extent to which our future results are affected by the COVID-19 Pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the Pandemic; additional actions by businesses and governments in response to the Pandemic, and the speed and effectiveness of responses to combat the virus. The COVID-19 Pandemic, and the volatile regional and global economic conditions stemming from the Pandemic, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in this Form 10-Q. The COVID-19 Pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business. See also "Risk Factors" in Part II, Item 1A. of this Quarterly Report on Form 10-Q for further discussion of risks associated with the COVID-19 Pandemic and the OPEC Production Disputes. Refining Overview The refining segment processes crude oil and other feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel and aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals. The refining segment has a combined nameplate capacity of 302,000 barrels per day as of September 30, 2020. A high-level summary of the refinery activities is presented below: Tyler, Texas refinery (the "Tyler refinery") El Dorado, Arkansas refinery (the "El Dorado refinery") Big Spring, Texas refinery (the "Big Spring refinery") Krotz Springs, Louisiana refinery (the "Krotz Springs refinery") Total Nameplate Capacity (barrels per day ("bpd")) 75,000 80,000 73,000 74,000 Primary Products Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, petroleum coke and sulfur Gasoline, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, asphalt and sulfur Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, aromatics and sulfur Gasoline, jet fuel, high-sulfur diesel, light cycle oil, liquefied petroleum gases, propylene and ammonium thiosulfate Relevant Crack Spread Benchmark (1) Gulf Coast 5-3-2 Gulf Coast 5-3-2 (2) Gulf Coast 3-2-1 (3) Gulf Coast 2-1-1 (4) Marketing and Distribution The refining segment's petroleum-based products are marketed primarily in the south central, southwestern and western regions of the United States, and the refining 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, we sell motor fuels through our wholesale distribution network on an unbranded basis. (1) The term "crack spread" is a measure of the difference between market prices for crude oil and refined products. (2) While there is variability in the crude slate and the product output at the El Dorado refinery, we compare our per barrel refined product margin to the U.S. Gulf Coast ("Gulf Coast") 5-3-2 crack spread because we believe it to be the most closely aligned benchmark. 44 | Management's Discussion and Analysis (3) Our Big Spring refinery is capable of processing substantial volumes of sour crude oil, which has historically cost less than intermediate, and/or substantial volumes of sweet crude oil, and therefore the West Texas Intermediate ("WTI") Cushing/ West Texas Sour ("WTS") price differential, taking into account differences in production yield, is an important measure for helping us make strategic, market-respondent production decisions. (4) The Krotz Springs refinery has the capability to process substantial volumes of light sweet crude oil to produce a high percentage of refined light products. Our 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. Logistics Overview Our logistics segment gathers, transports and stores crude oil and markets, distributes, transports and stores refined products in select regions of the southeastern United States and West Texas for our refining segment and third parties. It is comprised of the consolidated balance sheet and results of operations of Delek Logistics Partners, LP ("Delek Logistics", NYSE:DKL), where we owned an 80.0% interest in Delek Logistics at September 30, 2020. Delek Logistics 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 currently integral to our refining and marketing operations. The logistics segment's pipelines and transportation business owns or leases capacity on approximately 400 miles of crude oil transportation pipelines, approximately 450 miles of refined product pipelines, an approximately 700-mile crude oil gathering system and associated crude oil storage tanks with an aggregate of approximately 10.2 million barrels of active shell capacity. Our logistics segment owns and operates nine light product terminals and markets light products using third-party terminals. The logistics segment also has strategic investments in pipeline joint ventures that provide access to pipeline capacity as well as the potential for earnings from joint venture operations. Additionally, on March 31, 2020, the logistics segment acquired from another of our segments approximately 200 miles of gathering and ancillary assets located in Howard, Borden and Martin Counties, Texas. In May 2020, the logistics segment acquired from another of our segments certain leased and owned tractors and trailers and related assets. The logistics segment owns or leases approximately 273 tractors and 324 trailers used to haul primarily crude oil and other products for related and third parties. Retail Overview Our retail segment at September 30, 2020 includes the operations of 253 owned and leased convenience store sites located primarily in Central and West Texas and New Mexico. Our convenience stores typically offer various grades of gasoline and diesel under the DK or Alon brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven and DK or Alon brand names pursuant to a license agreement with 7-Eleven, Inc. In November 2018, we terminated the license agreement with 7-Eleven, Inc. This agreement was amended in April 2020 to extend date for the required removal of all 7-Eleven branding on a store-by-store basis from December 31, 2021 to December 31, 2022. As of September 30, 2020, we have removed the 7-Eleven brand name at 57 of our store locations. Merchandise sales at our convenience store sites will continue to be sold under the 7-Eleven brand name until 7-Eleven branding is removed pursuant to the termination. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery, which is transferred to the retail segment at prices substantially determined by reference to published commodity pricing information. In connection with our retail strategic initiatives, as of September 30, 2020, we have closed or sold 46 under-performing or non-strategic store locations of which one was closed during the nine months ended September 30, 2020. The cost to acquire the refined fuel products we sell to our wholesale customers in our logistics segment and at our convenience stores in our retail segment depends on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. Our retail merchandise sales are driven by convenience, customer service, competitive pricing and branding. Motor fuel margin is sales less the delivered cost of fuel and motor fuel taxes, measured on a cents per gallon basis. Our motor fuel margins are impacted by local supply, demand, weather, competitor pricing and product brand. Corporate and Other Overview Our corporate activities, results of certain immaterial operating segments, including our asphalt terminal operations, our recently commenced wholesale crude operations, and intercompany eliminations are reported in corporate, other and eliminations in our segment disclosures. Additionally, our corporate activities include certain of our commodity and other hedging activities. 45 | Management's Discussion and Analysis Strategic Overview The Company's overall strategy has been to take a disciplined approach that looks to balance returning cash to our shareholders and prudently investing in the business to support safe and reliable operations, while exploring opportunities for growth. Our goal has been to balance the different aspects of this program based on evaluations of each opportunity and how it matches our strategic goals for the company, while factoring in market conditions and expected cash generation. In the face of the economic impact of the COVID-19 Pandemic and the OPEC Production Disputes, our overall strategy remains unchanged and continues to be focused on the following objectives: I. Safety and wellness. II. Reliability and integrity. III. Systems and processes. IV. Risk-based decision making. V. Positioning for growth. In addition to the above, it continues to be a strategic and operational objective to manage price and supply risk related to crude oil that is used in refinery production, and to develop strategic sourcing relationships. For that purpose, from a pricing perspective, we enter into commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future sales of refined products or to fix margins on future production. We also enter into future commitments to purchase or sell renewable identification numbers ("RINs") at fixed prices and quantities, which are used to manage the costs of our credits for commitments required by the U.S. Environmental Protection Agency ("EPA") to blend biofuels into fuel products ("RINs Obligation"). Additionally, from a sourcing perspective, we often enter into purchase and sale contracts with vendors and customers or take financial commodity positions for crude oil that may not be used immediately in production, but that may be used to manage the overall supply and availability of crude expected to ultimately be needed for production and/or to meet minimum requirements under strategic pipeline arrangements, and also to optimize and hedge availability risks associated with crude that we ultimately expect to use in production. Such transactions are inherently based on certain assumptions and judgments made about the current and possible future availability of crude. Therefore, when we take physical or financial positions for optimization purposes, our intent is generally to take offsetting positions in quantities and at prices that will advance these objectives while minimizing our positional and financial statement risk. However, because of the volatility of the market in terms of pricing and availability, it is possible that we may have material positions with timing differences or, more rarely, that we are unable to cover a position with an offsetting position as intended. Such differences could have a material impact on the classification of resulting gains/losses, assets or liabilities, and could also significantly impact net earnings. With these objectives serving as our guiding principles, we are applying the short-term measures to mitigate the impact of the COVID-19 Pandemic and the OPEC Production Disputes described in the 'Business Overview' above. And with these objectives in mind, we have achieved the following successes to date in 2020: 2020 Developments Transactions designed to maximize shareholder return Dividend Suspension On November 5, 2020, we announced that we have elected to suspend dividends beginning in the fourth quarter of 2020 in order to conserve capital. Our previous quarterly cash dividend amounts ranged between $0.27 to $0.30 per share for dividends paid throughout 2019 and was $0.31 per share for the dividends paid during each of the three quarterly periods of 2020. The declaration, amount and payment of any future dividends on our common stock will be at the sole discretion of our Board of Directors, and we are not obligated to declare or pay any dividends. 46 | Management's Discussion and Analysis Share Repurchases During the nine months ended September 30, 2020, Delek repurchased 58,713 shares for an aggregate purchase price of $1.9 million under the most recent share repurchase plan which provided for repurchases of up to $500.0 million and was approved by the board on November 6, 2018. As of September 30, 2020, there remained $229.7 million available for repurchases under the most recent repurchase plan. In our efforts to conserve capital, for the time being, we have temporarily suspended the repurchase of shares. However, in light of our November 2020 decision to suspend dividends, we acknowledge that share repurchases could resume and that potential share repurchases would take priority over future dividends or growth capital. Transactions designed to maximize return on assets Investment in Midstream Ventures In July 2019, we acquired a 15% ownership interest in Wink to Webster Pipeline ("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. It is expected to span approximately 650 miles at completion. Under the agreements governing the joint venture, we must contribute our percentage interest of the applicable construction costs (including certain costs previously incurred by WWP), and it is anticipated that our capital contributions will total approximately $340 million to $380 million over the course of construction (expected to be two to three years). Construction of the crude oil pipeline system remains on schedule, and the main segment of the pipeline system is expected to commence operations in the fourth quarter of 2020, with additional segments expected to be placed in service throughout 2021. 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 (i.e., for the Delek member, the guarantee is from Delek US Holdings, Inc.). Our investment is accounted for as an equity method investment. See further discussion in Note 5 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. Increased Investment in Delek Logistics Effective August 13, 2020, Delek Logistics completed a restructuring transaction to eliminate the incentive distribution rights held by us and convert the 2.0% economic general partner interest into a non-economic general partner interest, in exchange for a total consideration consisting of $45.0 million in cash and 14.0 million newly issued common limited partner units. Contemporaneously, we repurchased 5.2% ownership interest in Delek Logistics GP LLC, the general partner, from our affiliates, who are also members of the general partner's management and board of directors, for $23.1 million in cash. Subsequent to these transactions, we owned 34,745,868 common limited partner units increasing our ownership to 80.0% of the outstanding common units, and 100% of the outstanding interest in the general partner, Delek Logistics GP, LLC. Effective May 1, 2020, Delek through its wholly owned subsidiaries Lion Oil Company (“Lion Oil”) and Delek Refining, Ltd. (“Delek Refining”) contributed certain leased and owned tractors and trailers and related assets used in the provision of trucking and transportation services for crude oil, petroleum and certain other products throughout Arkansas, Oklahoma and Texas to Delek Trucking, LLC (“Delek Trucking”), a direct wholly owned subsidiary of Lion Oil. Following this contribution, Lion Oil sold all of the issued and outstanding membership interests in Delek Trucking (the “Acquisition”) to DKL Transportation, LLC (“DKL Transportation”), a wholly owned subsidiary of Delek Logistics. Promptly following the consummation of the Acquisition, Delek Trucking merged with and into DKL Transportation, with DKL Transportation continuing as the surviving entity. Total consideration for the Acquisition was approximately $48.0 million in cash, subject to certain post-closing adjustments, primarily financed with borrowings under Delek Logistics’ revolving credit facility. Effective March 31, 2020, Delek Logistics, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired the Big Spring Gathering System, located in Howard, Borden and Martin Counties, Texas, from Delek. 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 47 | Management's Discussion and Analysis cash component of this dropdown was financed with borrowings on the Delek Logistics Credit Facility (as defined in Note 8 of our condensed consolidated financial statements included in Item 1. Financial Statements). Additionally, in March 2020, we purchased 451,822 of Delek Logistics limited partner units from a public investor for approximately $5.0 million. As a result of these transactions, our ownership in Delek Logistics' common limited partner units was increased to 70.5% at that time. These continued investments enhance our ability to maximize the value of our logistics assets. See further discussion in Note 4 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. Sale of Bakersfield Non-Operating Refinery 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 million. GCE intends to repurpose the refinery into a renewable diesel plant. As part of the transaction, GCE granted a call option to Delek to acquire up to a 33 1/3% interest in the acquiring subsidiary, GCE Acquisitions, exercisable by Delek through the 90th day after GCE demonstrates commercial operations, as contractually defined. See further discussion in Note 2 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. Transactions designed to minimize the cost of capital/manage financial risk exposures 2020 Amendments to Supply and Offtake Agreements In January 2020, we amended our three Supply and Offtake Agreements with J. Aron which applies to the El Dorado refinery, the Big Spring refinery and the Krotz Springs refinery so that the repurchase of Baseline Volumes at the end of the Supply and Offtake Agreement term (representing the "Baseline Step-Out Liability" or, collectively, the "Baseline Step-Out Liabilities") will be based on market-indexed price subject to commodity price risk with corresponding changes to underlying market-based indices and certain differentials. The amendments resulted in Baseline Step-Out Liabilities for which the fair value is no longer subject to interest rate risk but is now subject to commodity price volatility. In April 2020, we amended and restated our three Supply and Offtake Agreements to amend and extend the terms to December 30, 2022, with J. Aron having the sole discretion to further extend to May 30, 2025 by providing at least six months notice prior to the maturity date. As part of this amendment, there were changes to the underlying market index, annual fee, the crude purchase fee, crude roll fees and timing of cash settlements related to periodic price adjustments on the fixed differential component of the Baseline Volume Step-Out Liabilities. The amendments provide us dedicated financing for the barrels covered through at least December 2022, and certain specific market-indexed provisions improve our ability to manage our exposure to commodity price volatility during the term of the Agreements. See further discussion in Note 7 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. 2020 Amendment to the Term Loan Credit Facility On May 19, 2020, we amended the Term Loan Credit Facility agreement (as defined in Note 8 of our condensed consolidated financial statements included in Item 1. Financial Statements) and borrowed $200.0 million in aggregate principal amount of incremental term loans (the “Third Incremental Term Loan”) at an original issue discount of 7.00%, requiring quarterly principal amortization payments of $0.5 million commencing with June 30, 2020. The Third Incremental Term Loan constitutes a separate class of term loans under the Term Loan Credit Facility from those initially borrowed in March 2018 and the incremental term loans borrowed in May 2019 and November 2019. There are no restrictions on the Company's use of the proceeds of the Third Incremental Term Loan, and the proceeds may be used (i) for general corporate purposes and (ii) to pay transaction fees and expenses associated with the Third Incremental Term Loan. See further discussion in Note 8 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. 48 | Management's Discussion and Analysis Market Trends Commodity Prices Our results of operations are significantly affected by fluctuations in the prices of certain commodities, including, but not limited to, crude oil, gasoline, distillate fuel, biofuels, natural gas and electricity, among others. Historically, our profitability has been affected by commodity price volatility, specifically as it relates to the price of crude oil and refined products. We have significant sources of WTI Midland crude because of our gathering system, and so accordingly favorable pricing of WTI Midland crude compared to other WTI crude can favorably impact our cost of materials and other and therefore our margins compared to other refiners. The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2019 and for the three quarterly periods in 2020. As shown in the historical graph, WTI Midland crude prices have generally been favorable as compared to WTI Cushing, though that trend has reversed slightly in the fourth quarter 2019 and the third quarter of 2020. Crack Spreads Crack spreads are used as benchmarks for predicting and evaluating a refinery's product margins by measuring the difference between the market price of feedstocks and crude oil and refined products. Generally, crack spreads represent the approximate refining margin resulting from processing one barrel of crude oil into its outputs, generally gasoline and diesel fuel. The table below reflects the quarterly average Gulf Coast 5-3-2 Ultra Low Sulfur Diesel ("ULSD"), 3-2-1 and 2-1-1 crack spreads for each of the quarterly periods in 2019 and for the three quarterly periods in 2020. As the chart illustrates, the 3-2-1 crack spread has consistently outperformed the 5-3-2 and the 2-1-1 crack spreads. In such conditions, things being equal (i.e., near-capacity throughputs and no significant outages), our Big Spring refinery, whose benchmark is the 3-2-1 crack spread, should outperform our other refineries in terms of refining margin. 49 | Management's Discussion and Analysis Refined Product Prices Our refineries produce the following products: Tyler Refinery El Dorado Refinery Big Spring Refinery Krotz Springs Refinery Primary Products Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, petroleum coke and sulfur Gasoline, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, asphalt and sulfur Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, aromatics and sulfur Gasoline, jet fuel, high-sulfur diesel, light cycle oil, liquefied petroleum gases, propylene and ammonium thiosulfate The charts below illustrate the quarterly average prices of Gulf Coast Gasoline, U.S. High Sulfur Diesel and U.S. Ultra Low Sulfur Diesel for each of the quarterly periods in 2019 and for the three quarterly periods in 2020. Crude Pricing Differentials As U.S. crude oil production has increased over recent years, domestic producers have benefited from the discount for WTI Cushing compared to Brent, a global benchmark crude. This generally leads to higher margins in our refineries, as refined product prices are influenced by Brent crude prices and the majority of our crude supply is WTI-linked. Because of our positioning in the Permian basin, we are even further benefited by discounts in the WTI Midland/WTI Cushing differential. When these discounts shrink or become premiums, our reliance on WTI-linked crude pricing, and specifically WTI Midland crude can negatively impact our results. Conversely, as these price discounts increase, so does our competitive advantage, created by our access to WTI-linked crude oil pricing, and specifically WTI Midland crude sources through our gathering systems. The chart below illustrates the differentials of both Brent crude oil and WTI Midland crude oil as compared to WTI Cushing crude oil as well as WTI Cushing as compared to Louisiana Light Sweet crude oil ("LLS") for each of the quarterly periods in 2019 and for the three quarterly periods in 2020. 50 | Management's Discussion and Analysis RIN Volatility Environmental regulations continue to affect our margins in the form of volatility in the cost of RINs. On a consolidated basis, we work to balance the cost of our RINs Obligation in order to minimize the effect of RINs on our results. While we generate RINs in both our refining and logistics segments through our ethanol blending and biodiesel production, our refining segment needs to purchase additional RINs to satisfy its obligations. As a result, increases in the price of RINs generally adversely affect our results of operations. It is not possible at this time to predict with certainty what future volumes or costs may be, but given the volatile price of RINs, the cost of purchasing sufficient RINs could have an adverse impact on our results of operations if we are unable to recover those costs in the price of our refined products. The chart below illustrates the volatility in RINs prices over several quarterly periods, beginning with the first quarter of 2019 through the third quarter of 2020. 51 | Management's Discussion and Analysis Contractual Obligations Information regarding our known contractual obligations and commercial commitments of the types described below as of September 30, 2020, is set forth in the following table (in millions): Payments Due by Period <1 Year 1-3 Years 3-5 Years >5 Years Total Long term debt and notes payable obligations $ 33.4 $ 986.0 $ 1,487.3 $ — $ 2,506.7 Interest (1) 84.4 161.2 82.0 — 327.6 Operating lease commitments (2) 54.8 73.5 39.9 51.8 220.0 Purchase commitments (3) 562.2 — — — 562.2 Transportation agreements (4) 124.8 244.7 129.1 75.3 573.9 J. Aron supply and offtake obligations (5) 15.5 239.8 — — 255.3 Total $ 875.1 $ 1,705.2 $ 1,738.3 $ 127.1 $ 4,445.7 (1) Expected interest payments on debt outstanding at September 30, 2020. Floating interest rate debt is calculated using September 30, 2020 rates. For additional information, see Note 8 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of September 30, 2020. (3) We have supply agreements to secure certain quantities of crude oil, finished product and other resources used in production at both fixed and market prices. We have estimated future payments under the market-based agreements using current market rates. Excludes purchase commitments in buy-sell transactions which have matching notional amounts with the same counterparty and are generally net settled. (4) Balances consist of contractual obligations under agreements with third parties (not including Delek Logistics) for the transportation of crude oil to our refineries. (5) Balances consists of contractual obligations under the J. Aron Supply and Offtake Agreements, including annual fees and principal obligation for the Baseline Volume Step-Out Liability. For additional information, see Note 7 of our condensed consolidated financial statements included in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. Critical Accounting Policies The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results of operations, and require our most difficult, subjective or complex judgments or estimates. Based on this definition and as further described in our 2019 Annual Report on Form 10-K, we believe our critical accounting policies include the following: (i) estimating our quarterly inventory adjustments using the last-in, first-out valuation method for the Tyler refinery, (ii) evaluating impairment for property, plant and equipment and definite life intangibles, (iii) evaluating potential impairment of goodwill, (iv) estimating environmental expenditures, and (v) estimating asset retirement obligations. During the nine months ended September 30, 2020, we updated our critical accounting policies to include accounting policies that have become critical as a result of new transactions. Accordingly, we are adding a critical accounting policy related to evaluating variable interest entities to reflect the significant judgment that is involved when determining whether an entity is a variable interest entity ("VIE") and evaluating whether we are the primary beneficiary in connection with our new investment in W2W Holdings LLC. See Note 5 of the condensed consolidated financial statements in Item 1. Financial Statements, for discussion of our investment in W2W Holdings LLC and the related accounting treatment. Evaluation of Variable Interest Entities Our consolidated financial statements include the financial statements of our subsidiaries and VIEs, of which we are the primary beneficiary. We evaluate all legal entities in which we hold an ownership or other pecuniary interest to determine if the entity is a VIE. Variable interests can be contractual, ownership or other pecuniary interests in an entity that change with changes in the fair value of the VIE’s assets. If we are not the primary beneficiary, the general partner or another limited partner may consolidate the VIE, and we record the investment as an equity method investment. Significant judgment is exercised in determining that a legal entity is a VIE and in evaluating whether we are the primary beneficiary in a VIE. Generally, the primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the right to receive benefits or obligation to absorb losses that could be potentially significant to the VIE. We evaluate the entity’s need for continuing financial support; the equity holder’s lack of a controlling financial interest; and/or if an equity holder’s voting interests are disproportionate to its obligation to absorb expected losses or receive residual returns. We evaluate our interests in a VIE to determine whether we are the primary beneficiary. We use a primarily qualitative analysis to determine if we are deemed to have a controlling financial interest in the VIE, either on a standalone basis or as part of a related party group. We continually monitor our interests in legal entities for changes in the design or activities of an entity and changes in our interests, including our status as the primary beneficiary to determine if the changes require us to revise our previous conclusions. 52 | Management's Discussion and Analysis Additionally, due to the economic and industry impact of the COVID-19 Pandemic and the OPEC Production Disputes, we also modified the application of certain of our critical accounting policies during and as of the nine months ended September 30, 2020 as follows: Goodwill and Potential Impairment Our annual goodwill impairment analysis is performed during the fourth quarter of each year. Under Accounting Standards Codification ("ASC") ASC 350, Intangibles - Goodwill and Other, goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In our assessment of the potential indicators of impairment, we considered the continued impact of the COVID-19 pandemic, including the significant decline in our stock price. We noted a decline in our stock price, which resulted in a decline in our market capitalization since June 30, 2020. To determine whether the decline in market capitalization and other negative developments arising due to the Pandemic that occurred through September 30, 2020, would more likely than not reduce the fair value of a reporting unit below its carrying amount, we performed certain analyses on the most significant inputs in our valuation model to evaluate the impact of these events on the fair value of our reporting units. Based on our initial qualitative analysis, we noted that the refining segment was most at risk for potential impairment. Therefore, we performed extensive additional sensitivity analysis and stress testing on certain of the key assumptions our valuation model. Based on our analyses, we determined that there was sufficient risk present associated with both our Big Spring refinery (“BSR”) and Krotz Springs refinery (“KSR”) reporting units to indicate that the fair values of those reporting units were more likely than not to have declined below the carrying value as of September 30, 2020. Accordingly, we updated our estimates of fair value for the BSR and KSR reporting units as of September 30, 2020, using updated inputs and assumptions based on third party data where available. The estimated fair values of the reporting units were determined using a combination of a discounted cash flow ("DCF") analysis and a market approach. The DCF analysis was based on our current projection of cash flows which reflected our updated estimates for long-term growth rates, gross margin, capital expenditures and the Weighted Average Cost of Capital or "WACC", which we adjusted to reflect the uncertainties that exist in the market as a result of the Pandemic. For the market approach, we applied an average historical multiple for guideline companies to estimated income before taxes, interest, depreciation, and amortization. Our analysis included a reconciliation of the estimated fair value of all reporting units to the company’s market capitalization. Based on these quantitative analyses, we concluded that the goodwill balances attributed to the BSR and KSR reporting unit were not impaired as of September 30, 2020. The fair value measurements for the individual reporting units’ estimated fair values represent Level 3 measurements. We performed a sensitivity analysis on our impairment test as of September 30, 2020, noting the following: Sensitivity Total Goodwill Balance at September 30, 2020 % Estimated Fair Value exceeds Carrying Value Increase in WACC that could cause impairment (1) Decrease in long-term growth rate that could cause impairment (1) BSR $528.0 < 10% 0.5%-1.0% 1% KSR 237.2 <10% 1.0%-1.5% 1% (1) Assumes no other changes in any of the key assumptions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the interim goodwill impairment test will prove to be an accurate prediction of the future. Our assessment was performed based on events that had occurred and conditions that existed as of September 30, 2020. Because conditions and events are rapidly changing, we continue to monitor developments with these events and their impact on our valuation. Continued or worsening adverse changes to these factors, as well as their impact on our cash flows, market capitalization and other assumptions and inputs, may result in the need to recognize an impairment in future periods. Specifically with respect to the BSR and KSR reporting units, it is at least reasonably possible that continued or worsening adverse change to these factors, or the presence of new factors having a negative impact on our projection of future cash flows not known as of September 30, 2020, may result in a future impairment which could be material. We will perform our annual goodwill assessment during the fourth quarter. Other than as described above, for all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies or estimates since our most recently filed Annual Report on Form 10-K. See Note 1 of the condensed consolidated financial statements in Item 1. Financial Statements, for discussion of updates to our accounting policies. 53 | Management's Discussion and Analysis Non-GAAP Measures Our management uses certain “non-GAAP” operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include: • Refining margin - calculated as the difference between net refining revenues and total cost of materials and other; • Refined product margin - calculated as the difference between net revenues attributable to refined products (produced and purchased) and related cost of materials and other (which is applicable to both the refining segment and the west Texas wholesale marketing activities within our logistics segment); and • Refining margin per barrels sold - calculated as refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period. We believe these non-GAAP operational and financial measures are useful to investors, lenders, ratings agencies and analysts to assess our ongoing performance because, when reconciled to their most comparable GAAP financial measure, they provide improved comparability between periods through the exclusion of certain items that we believe are not indicative of our core operating performance and they may obscure our underlying results and trends. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Non-GAAP Reconciliations The following table provides a reconciliation of refining margin to the most directly comparable U.S. GAAP measure, gross margin: Reconciliation of refining margin to gross margin Refining Segment Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net revenues $ 1,563.5 $ 2,176.8 $ 4,368.4 $ 6,636.6 Cost of sales 1,631.6 2,061.3 4,749.2 6,085.4 Gross margin (68.1) 115.5 (380.8) 551.2 Add back (items included in cost of sales): Operating expenses (excluding depreciation and amortization) 102.1 120.7 302.5 356.7 Depreciation and amortization 50.3 34.6 132.3 98.9 Refining margin $ 84.3 $ 270.8 $ 54.0 $ 1,006.8 54 | Management's Discussion and Analysis Summary Financial and Other Information The following table provides summary financial data for Delek: Statement of Operations Data (in millions) Consolidated 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 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 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 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 US $ (88.1) $ 51.3 $ (314.8) $ 277.9 We report operating results in three reportable segments: • Refining • Logistics • Retail Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of its reportable segments based on the segment contribution margin which is defined as net revenues less costs of materials and other and operating expenses, excluding depreciation and amortization. Results of Operations Consolidated Results of Operations — Comparison of the Three and Nine Months Ended September 30, 2020 versus the Three and Nine Months Ended September 30, 2019 Net Loss Q3 2020 vs. Q3 2019 Consolidated net loss for the third quarter of 2020 was $76.9 million compared to net income of $60.0 million for the third quarter of 2019. Consolidated net loss attributable to Delek for the third quarter of September 30, 2020 was $88.1 million, or $(1.20) per basic share, compared to net income of $51.3 million, or $0.68 per basic share, for the third quarter 2019. Explanations for significant drivers impacting net income as compared to the comparable period of the prior year are discussed in the sections below. YTD 2020 vs. YTD 2019 Consolidated net loss for the nine months ended September 30, 2020 was $285.4 million compared to net income of $298.2 million for the nine months ended September 30, 2019. Consolidated net loss attributable to Delek for the nine months ended September 30, 2020 was $314.8 million, or $(4.28) per basic share, compared to net income of $277.9 million, or $3.63 per basic share, for the nine months ended September 30, 2019. Explanations for significant drivers impacting net loss as compared to the comparable period of the prior year are discussed in the sections below. 55 | Management's Discussion and Analysis Net Revenues Q3 2020 vs. Q3 2019 In the third quarters of 2020 and 2019, we generated net revenues of $2,062.9 million and $2,334.3 million, respectively, a decrease of $271.4 million, or 11.6%. The decrease in net revenues was primarily driven by the following factors: • in our refining segment, decreases in the average price of U.S. Gulf Coast gasoline of 29.9%, ultra-low sulfur diesel of 37.3%, and high-sulfur diesel of 41.4%, partially offset by an increase in barrels sold (both refined and purchased) of 1.2 million barrels; and • in our retail segment, decreases in fuel sales volumes due to demand slowdown as a result of COVID-19 Pandemic and reduction in average number of stores, as well as a 19.4% decrease in average price charged per gallon; partially offset by an increase in merchandise sales. Such decreases were partially offset by: • increased revenues in our logistics segment associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, partially offset by decreases in the average sales prices per gallon and volumes of diesel gallon sold in our West Texas marketing operations. YTD 2020 vs. YTD 2019 For the nine months ended September 30, 2020 and 2019, we generated net revenues of $5,419.6 million and $7,014.5 million, respectively, a decrease of $1,594.9 million, or 22.7%. The decrease in net revenues was primarily driven by the following factors: • in our refining segment, decreases in the average price of U.S. Gulf Coast gasoline of 35.4%, ultra-low sulfur diesel of 37.7%, and high-sulfur diesel of 41.7%; • in our retail segment, decreases in fuel sales volumes due to demand slowdown as a result of COVID-19 Pandemic and reduction in average number of stores, as well as a 17.9% decrease in average price charged per gallon; partially offset by an increase in merchandise sales; and • in our logistics segment, decreases in average price per gallon sold in our West Texas marketing operations, partially offset by increased revenue associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, and increased throughputs at our SALA gathering system and Magnolia pipeline. Cost of Materials and Other Q3 2020 vs. Q3 2019 Cost of materials and other was $1,875.9 million for the third quarter of 2020 compared to $1,964.1 million for the third quarter of 2019, a decrease of $88.2 million, or 4.5%. The net decrease in cost of materials and other was primarily driven by the following: • decreases in cost of crude oil feedstocks at the refineries, including a 27.5% decrease in the average cost of WTI Cushing crude oil and a 26.9% decrease in the average cost of WTI Midland crude oil; • the benefit (expense) of $9.5 million related to the change in pre-tax inventory valuation recognized during the third quarter of 2020 compared to $(20.0) million recognized during the third quarter of 2019, partially offset by a decrease in hedging gains to $5.9 million recognized during the third quarter of 2020 from $13.1 million recognized during the third quarter of 2019; • decreases in the average cost per gallon of gasoline and diesel sold partially offset by increases in averages volumes of diesel sold in our West Texas marketing operations; and • a decrease in retail fuel cost of materials and other attributable to demand slowdown, a reduction in average number of stores and a decrease in average cost per gallon of $0.49. YTD 2020 vs. YTD 2019 Cost of materials and other was $5,064.3 million for the nine months ended September 30, 2020 compared to $5,731.2 million for the nine months ended September 30, 2019, a decrease of $666.9 million, or 11.6%. The net decrease in cost of materials and other was primarily driven by the following: • decreases in cost of crude oil feedstocks at the refineries, including a 31.7% decrease in the average cost of WTI Cushing crude oil and a 30.2% decrease in the average cost of WTI Midland crude oil; • decreases in the average volumes of diesel sold and average cost per gallon of gasoline and diesel sold, partially offset by increases in the average volumes of gasoline sold in our West Texas marketing operations; and 56 | Management's Discussion and Analysis • a decrease in retail fuel cost of materials and other attributable to demand slowdown, a decrease in average cost per gallon of $0.52 and a reduction in number of stores. Such decreases were partially offset by the following: • the (expense) benefit of $(65.6) million related to the change in pre-tax inventory valuation recognized during the nine months ended September 30, 2020 compared to $31.5 million recognized during the nine months ended September 30, 2019; • a decrease in hedging gains to a loss of $82.1 million recognized during the nine months ended September 30, 2020 from a gain of $63.5 million recognized during the nine months ended September 30, 2019. Operating Expenses Q3 2020 vs. Q3 2019 Operating expenses were $139.7 million for the third quarter of 2020 compared to $166.9 million for the third quarter of 2019, a decrease of $27.2 million, or 16.3%. The decrease in operating expenses was primarily driven by the following: • decrease in outside service costs across all segments due to cost reduction measures; • decreases in the refining segment related employee expenses, maintenance costs and cost reductions due to the sale of our Bakersfield refinery in the second quarter of 2020; and • decrease in retail operating expenses due to reduction in number of stores. YTD 2020 vs. YTD 2019 Operating expenses were $422.0 million for the nine months ended September 30, 2020 compared to $495.9 million for the nine months ended September 30, 2019, a decrease of $73.9 million, or 14.9%. The decrease in operating expenses was primarily driven by the following: • decrease in outside service costs across all segments due to cost reduction measures; • decreases in the refining segment related to lower employee, utilities, catalysts and maintenance costs; and • decrease in retail operating expenses due to reduction in number of stores. General and Administrative Expenses Q3 2020 vs. Q3 2019 General and administrative expenses were $57.0 million for the third quarter of 2020 compared to $65.6 million for the third quarter of 2019, a decrease of $8.6 million, or 13.1%. The decrease in general and administrative expense was primarily driven by the following: • decrease in contract services due to cost reduction measures; • decrease in stock-based compensation due to workforce reductions in 2020; and • decrease in travel related expense due to travel restrictions in place as a result of the COVID-19 Pandemic. YTD 2020 vs. YTD 2019 General and administrative expenses were $184.4 million and $197.3 million for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $12.9 million, or 6.5%. The decrease in general and administrative expense was primarily driven by the following: • decrease in contract services due to cost reduction measures; • decrease in stock-based compensation due to workforce reductions in 2020; • decrease in travel related expense due to travel restrictions in place as a result of the COVID-19 Pandemic; and • decrease in loss allowance on a note receivable. These decreases were partially offset by increases in salaried labor, including severance, partially offset by decrease in incentive accrual. 57 | Management's Discussion and Analysis Depreciation and Amortization Q3 2020 vs. Q3 2019 Depreciation and amortization (included in both cost of sales and other operating expenses) was $65.2 million for the third quarter of 2020 compared to $49.8 million for the third quarter of 2019, an increase of $15.4 million, or 30.9%, primarily due to depreciation associated with assets added during the Big Spring refinery turnaround in the first quarter of 2020 and other refining assets placed in service in late 2019 and first quarter of 2020. YTD 2020 vs. YTD 2019 Depreciation and amortization (included in both cost of sales and other operating expenses) was $177.4 million compared to $146.7 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of $30.7 million, or 20.9%, primarily due to depreciation associated with assets added during the Big Spring refinery turnaround in the first quarter of 2020, the El Dorado turnaround assets added in the second of 2019 and the addition of the alkylation unit at our Krotz Springs refinery late in the second quarter of 2019. Other Operating Loss (Income), Net Q3 2020 vs. Q3 2019 Other operating loss, net decreased by $0.2 million in the third quarter of 2020 to a loss of $0.3 million compared to a loss of $0.5 million in the third quarter of 2019. YTD 2020 vs. YTD 2019 Other operating income, net increased by $13.9 million during the nine months ended September 30, 2020 to $14.6 million compared to income of $0.7 million during the nine months ended September 30, 2019. Non-operating Expenses, Net Interest Expense Q3 2020 vs. Q3 2019 Interest expense decreased by $2.0 million, or 5.9%, to $31.9 million in the third quarter of 2020 compared to $33.9 million in the third quarter of 2019, primarily driven by the following: • a decrease in the average effective interest rate of 1.18% in the third quarter of 2020 compared to the third quarter of 2019 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding), partially offset by an increase in net average borrowings outstanding (including the obligations under the Supply and Offtake Agreements which have an associated interest charge) of approximately $430.2 million in the third quarter of 2020 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the third quarter of 2019. YTD 2020 vs. YTD 2019 Interest expense increased by $2.6 million, or 2.7%, to $98.0 million during the nine months ended September 30, 2020 compared to $95.4 million during the nine months ended September 30, 2019, primarily driven by the following: • an increase in net average borrowings outstanding (including the obligations under the supply and offtake agreements which have an associated interest charge) of approximately $393.8 million during the nine months ended September 30, 2020 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the nine months ended September 30, 2019, partially offset by a decrease in the average effective interest rate of 0.69% during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding). Results from Equity Method Investments Q3 2020 vs. Q3 2019 We recognized income of $12.8 million from equity method investments during the third quarter of 2020, compared to $16.5 million for the third quarter of 2019, a decrease of $3.7 million. This decrease was primarily driven by the following: • income from the Red River Joint Venture decreased $2.7 million due to decrease in committed volumes in July and August 2020; and • a decrease in income from our other logistics joint ventures from $3.7 million in the third quarter of 2019 to $2.9 million in third quarter of 2020. 58 | Management's Discussion and Analysis During the nine months ended September 30, 2020, we recognized income of $28.6 million from equity method investments, compared to $28.4 million for the nine months ended September 30, 2019, an increase of $0.2 million. Other During the nine months ended September 30, 2020, we recognized a gain of $56.8 million on the sale of our non-operating refinery located in Bakersfield, California, a nominal amount of which was recognized in the third quarter. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information. Q3 2020 vs. Q3 2019 Other income increased $0.8 million, to $1.0 million in third quarter of 2020 compared to $0.2 million in the third quarter of 2019. YTD 2020 vs. YTD 2019 Other income increased $6.7 million, to $3.4 million in the nine months ended September 30, 2020, compared to a loss of $3.3 million in the nine months ended September 30, 2019. Income Taxes Q3 2020 vs. Q3 2019 Income tax expense decreased by $29.0 million in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • pre-tax loss of $92.5 million in the third quarter of 2020, as compared to income of $73.4 million for the third quarter of 2019; and • a decrease in our effective tax rate which was 16.9% for the third quarter of 2020, compared to 18.3% for the third quarter of 2019 primarily due to the following: ◦ projected 2020 federal net operating loss carryback to a prior 35% tax rate year creating a 14% rate benefit; and ◦ net decrease in valuation allowance on utilization of state attributes. YTD 2020 vs. YTD 2019 Income tax expense decreased by $218.4 million during the nine months ended September 30, 2020 compared to the same period for 2019, primarily driven by the following: • pre-tax loss of $420.0 million in the nine months ended September 30, 2020, as compared to pre-tax income of $382.8 million for the nine months ended September 30, 2019; and • an increase in our effective tax rate which was 32.0% for the nine months ended September 30, 2020, compared to 21.9% for the nine months ended September 30, 2019 primarily due to the following: ◦ projected 2020 federal net operating loss carryback to a prior 35% tax rate year creating a 14% tax rate arbitrage; ◦ reversal of a valuation allowance attributable to book-tax basis differences in partnership investments reported as a discrete benefit in the first quarter; and ◦ an increase in the estimated annual effective tax rate applied to year to date loss for the year. 59 | Management's Discussion and Analysis Refining Segment The tables and charts below set forth certain information concerning our refining segment operations ($ in millions, except per barrel amounts): Refining Segment Margins Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net revenues $ 1,563.5 $ 2,176.8 $ 4,368.4 $ 6,636.6 Cost of materials and other 1,479.2 1,906.0 4,314.4 5,629.8 Refining margin 84.3 270.8 54.0 1,006.8 Operating expenses (excluding depreciation and amortization) 102.1 120.7 302.5 356.7 Contribution margin $ (17.8) $ 150.1 $ (248.5) $ 650.1 Factors Impacting Refining Profitability Our profitability in the refining segment is substantially determined by the difference between the cost of the crude oil feedstocks we purchase and the price of the refined products we sell, referred to as the "crack spread", "refining margin" or "refined product margin". Refining margin is used as a metric to assess a refinery's product margins against market crack spread trends, where "crack spread" is a measure of the difference between market prices for crude oil and refined products and is a commonly used proxy within the industry to estimate or identify trends in refining margins. The cost to acquire feedstocks and the price of the refined petroleum products we ultimately sell from our refineries depend on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions such as hurricanes or tornadoes, local, domestic and foreign political affairs, global conflict, production levels, the availability of imports, the marketing of competitive fuels and government regulation. Other significant factors that influence our results in the refining segment include operating costs (particularly the cost of natural gas used for fuel and the cost of electricity), seasonal factors, refinery utilization rates and planned or unplanned maintenance activities or turnarounds. Moreover, while the fluctuations in the cost of crude oil are typically reflected in the prices of light refined products, such as gasoline and diesel fuel, the price of other residual products, such as asphalt, coke, carbon black oil and liquefied petroleum gas ("LPG") are less likely to move in parallel with crude cost. This could cause additional pressure on our realized margin during periods of rising or falling crude oil prices. Additionally, our margins are impacted by the pricing differentials of the various types and sources of crude oil we use at our refineries and their relation to product pricing. Our crude slate is predominantly comprised of WTI crude oil. Therefore, favorable differentials of WTI compared to other crude will favorably impact our operating results, and vice versa. Additionally, because of our gathering system presence in the Midland area and the significant source of crude specifically from that region into our network, a widening of the WTI Cushing less WTI Midland spread will favorably influence the operating margin for our refineries. Alternatively, a narrowing of this differential will have an adverse effect on our operating margins. Global product prices are influenced by the price of Brent crude which is a global benchmark crude. Global product prices influence product prices in the U.S. As a result, our refineries are influenced by the spread between Brent crude and WTI Midland. The Brent less WTI Midland spread represents the differential between the average per barrel price of Brent crude oil and the average per barrel price of WTI Midland crude oil. A widening of the spread between Brent and WTI Midland will favorably influence our refineries' operating margins. Also, the Krotz Springs refinery is influenced by the spread between Brent crude and LLS. The Brent less LLS spread represents the differential between the average per barrel price of Brent crude oil and the average per barrel price of LLS crude oil. A discount in LLS relative to Brent will favorably influence the Krotz Springs refinery operating margin. The cost to acquire the refined fuel products we sell to our wholesale customers in our logistics segment and at our convenience stores in our retail segment depends on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. Our retail merchandise sales are driven by convenience, customer service, competitive pricing and branding. Motor fuel margin is sales less the delivered cost of fuel and motor fuel taxes, measured on a cents per gallon basis. Our motor fuel margins are impacted by local supply, demand, weather, competitor pricing and product brand. As part of our overall business strategy, we regularly evaluate opportunities to expand our portfolio of businesses and may at any time be discussing or negotiating a transaction that, if consummated, could have a material effect on our business, financial condition, liquidity or results of operations. 60 | Management's Discussion and Analysis Refinery Statistics Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Tyler, TX Refinery Days in period 92 92 274 273 Total sales volume - refined product (average barrels per day) (1) 77,386 80,981 74,050 76,262 Products manufactured (average barrels per day): Gasoline 40,383 41,480 39,221 40,281 Diesel/Jet 31,612 33,105 28,980 30,685 Petrochemicals, LPG, natural gas liquids ("NGLs") 3,848 3,992 3,022 3,129 Other 1,763 1,853 1,442 1,560 Total production 77,606 80,430 72,665 75,655 Throughput (average barrels per day): Crude Oil 72,651 75,266 67,693 70,594 Other feedstocks 4,975 5,565 5,422 5,710 Total throughput 77,626 80,831 73,116 76,304 Total refining revenue ($ in millions) $ 383.8 $ 597.6 $ 1,055.3 $ 1,656.5 Cost of materials and other ($ in millions) 392.4 508.5 1,003.0 1,342.2 Total refining margin ($ in millions) $ (8.6) $ 89.1 $ 52.3 $ 314.3 Per barrel of refined product sales: Tyler refining margin $ (1.21) $ 11.96 2.58 $ 15.09 Direct operating expenses $ 3.28 $ 3.11 3.35 $ 3.77 Crude Slate: (% based on amount received in period) WTI crude oil 89.0 % 94.6 % 92.1 % 91.3 % East Texas crude oil 11.0 % 2.7 % 7.9 % 8.0 % Other — % 2.8 % — % 0.7 % El Dorado, AR Refinery Days in period 92 92 274 273 Total sales volume - refined product (average barrels per day) (1) 79,594 71,282 77,742 58,310 Products manufactured (average barrels per day): Gasoline 36,801 30,766 35,855 24,396 Diesel 30,709 22,348 29,473 18,559 Petrochemicals, LPG, NGLs 1,678 834 1,933 731 Asphalt 7,268 5,886 6,655 5,894 Other 825 713 801 678 Total production 77,281 60,547 74,717 50,258 Throughput (average barrels per day): Crude Oil 74,235 58,362 72,427 49,199 Other feedstocks 2,814 1,748 2,610 1,431 Total throughput 77,049 60,110 75,037 50,630 Total refining revenue ($ in millions) $ 452.6 $ 803.8 $ 1,407.8 $ 2,379.6 Cost of materials and other ($ in millions) 405.6 775.9 1,399.1 2,246.8 Total refining margin ($ in millions) $ 47.0 $ 27.9 $ 8.7 $ 132.8 Per barrel of refined product sales: El Dorado refining margin $ 6.42 $ 4.25 $ 0.41 $ 8.34 Direct operating expenses $ 3.25 $ 5.27 $ 3.73 $ 5.88 Crude Slate: (% based on amount received in period) WTI crude oil 69.9 % 72.0 % 52.2 % 53.8 % Local Arkansas crude oil 17.7 % 20.7 % 17.2 % 25.4 % Other 12.4 % 7.2 % 30.5 % 20.8 % 61 | Management's Discussion and Analysis Refinery Statistics (continued) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Big Spring, TX Refinery Days in period 92 92 274 273 Total sales volume - refined product (average barrels per day) (1) 75,884 72,909 61,602 77,712 Products manufactured (average barrels per day): Gasoline 38,106 33,561 29,532 36,276 Diesel/Jet 28,777 28,391 22,190 27,796 Petrochemicals, LPG, NGLs 3,923 3,755 2,959 3,761 Asphalt 2,235 2,027 1,715 1,815 Other 1,397 1,423 1,030 1,339 Total production 74,438 69,157 57,426 70,986 Throughput (average barrels per day): Crude oil 72,779 70,542 57,725 71,939 Other feedstocks 2,067 (1,282) 746 (3) Total throughput 74,846 69,260 58,471 71,936 Total refining revenue ($ in millions) $ 401.9 $ 592.0 $ 1,104.4 $ 1,811.2 Cost of materials and other ($ in millions) 374.0 $ 510.1 1,069.3 1,497.7 Total refining margin ($ in millions) $ 27.9 $ 81.9 $ 35.1 $ 313.5 Per barrel of refined product sales: Big Spring refining margin $ 4.00 $ 12.21 $ 2.07 $ 14.78 Direct operating expenses $ 3.88 $ 4.50 $ 4.47 $ 3.98 Crude Slate: (% based on amount received in period) WTI crude oil 63.7 % 76.4 % 70.3 % 76.4 % WTS crude oil 36.3 % 23.6 % 29.7 % 23.6 % Krotz Springs, LA Refinery Days in period 92 92 274 273 Total sales volume - refined product (average barrels per day) (1) 67,465 72,173 69,965 75,207 Products manufactured (average barrels per day): Gasoline 32,287 34,757 26,872 35,760 Diesel/Jet 23,686 27,277 25,447 29,137 Heavy Oils 729 1,125 559 1,108 Petrochemicals, LPG, NGLs 3,394 3,814 2,417 5,103 Other 4,020 — 11,117 35 Total production 64,116 66,973 66,412 71,143 Throughput (average barrels per day): Crude Oil 60,150 69,805 64,019 70,757 Other feedstocks 3,028 (3,553) 2,415 (596) Total throughput 63,178 66,252 66,434 70,161 Total refining revenue ($ in millions) $ 335.9 $ 559.9 $ 999.1 $ 1,717.7 Cost of materials and other ($ in millions) 339.1 494.4 1,016.8 1,501.6 Total refining margin ($ in millions) $ (3.2) $ 65.5 $ (17.7) $ 216.1 Per barrel of refined product sales: Krotz Springs refining margin $ (0.50) $ 9.88 $ (0.92) $ 10.53 Direct operating expenses $ 4.25 $ 4.27 $ 3.72 $ 4.18 Crude Slate: (% based on amount received in period) WTI Crude 72.6 % 78.7 % 69.3 % 73.9 % Gulf Coast Sweet Crude 24.6 % 21.3 % 29.8 % 26.1 % Other 2.8 % — % 0.9 % — % (1) Includes inter-refinery sales and sales to other segments which are eliminated in consolidation. See tables below. 62 | Management's Discussion and Analysis Included in the refinery statistics above are the following inter-refinery and sales to other segments: Inter-refinery Sales Three Months Ended Nine Months Ended September 30, September 30, (in barrels per day) 2020 2019 2020 2019 (Unaudited) (Unaudited) Tyler refined product sales to other Delek refineries 2,479 1,543 1,813 890 El Dorado refined product sales to other Delek refineries 854 3,946 1,075 2,611 Big Spring refined product sales to other Delek refineries 2,294 1,754 1,532 1,190 Krotz Springs refined product sales to other Delek refineries 14 15,189 167 8,785 Refinery Sales to Other Segments Three Months Ended Nine Months Ended September 30, September 30, (in barrels per day) 2020 2019 2020 2019 (Unaudited) (Unaudited) Tyler refined product sales to other Delek segments 1,069 18 1,953 192 El Dorado refined product sales to other Delek segments 27 11 122 106 Big Spring refined product sales to other Delek segments 22,835 24,404 22,839 25,735 Krotz Springs refined product sales to other Delek segments 1,002 408 336 271 Pricing Statistics (average for the period presented) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) WTI — Cushing crude oil (per barrel) $ 40.88 $ 56.40 $ 38.95 $ 57.03 WTI — Midland crude oil (per barrel) $ 41.03 $ 56.12 $ 38.98 $ 55.81 WTS -- Midland crude oil (per barrel) (1) $ 40.99 $ 55.94 $ 38.84 $ 55.95 LLS (per barrel) (1) $ 42.46 $ 60.58 $ 40.67 $ 63.32 Brent crude oil (per barrel) $ 43.34 $ 62.03 $ 42.56 $ 64.73 U.S. Gulf Coast 5-3-2 crack spread (per barrel) - utilizing HSD $ 5.13 $ 14.18 $ 5.88 $ 14.25 U.S. Gulf Coast 5-3-2 crack spread (per barrel) (1) $ 7.49 $ 16.02 $ 8.30 $ 15.77 U.S. Gulf Coast 3-2-1 crack spread (per barrel) (1) $ 8.15 $ 17.55 $ 8.92 $ 17.34 U.S. Gulf Coast 2-1-1 crack spread (per barrel) (1) $ 3.51 $ 12.03 $ 4.72 $ 9.73 U.S. Gulf Coast Unleaded Gasoline (per gallon) $ 1.15 $ 1.64 $ 1.07 $ 1.65 Gulf Coast Ultra low sulfur diesel (per gallon) $ 1.16 $ 1.85 $ 1.18 $ 1.89 U.S. Gulf Coast high sulfur diesel (per gallon) $ 1.02 $ 1.74 $ 1.03 $ 1.77 Natural gas (per MMBTU) (2) $ 2.12 $ 2.33 $ 1.92 $ 2.56 (1) For our Tyler and El Dorado refineries, we compare our per barrel refining product margin to the Gulf Coast 5-3-2 crack spread consisting of WTI Cushing crude, U.S. Gulf Coast CBOB and U.S. Gulf Coast Pipeline No. 2 heating oil (ultra low sulfur diesel). For our Big Spring refinery, we compare our $1.02 per barrel refined product margin to the Gulf Coast 3-2-1 crack spread consisting of WTI Cushing crude, Gulf Coast 87 Conventional gasoline and Gulf Coast ultra low sulfur diesel, and for our Krotz Springs refinery, we compare our per barrel refined product margin to the Gulf Coast 2-1-1 crack spread consisting of LLS crude oil, Gulf Coast 87 Conventional gasoline and U.S. Gulf Coast Pipeline No. 2 heating oil (high sulfur diesel). The Tyler refinery's crude oil input is primarily WTI Midland and east Texas, while the El Dorado refinery's crude input is primarily a combination of WTI Midland, local Arkansas and other domestic inland crude oil. The Big Spring refinery’s crude oil input is primarily comprised of WTS and WTI Midland. The Krotz Springs refinery’s crude oil input is primarily comprised of LLS and WTI Midland. (2) One Million British Thermal Units ("MMBTU"). 63 | Management's Discussion and Analysis Refining Segment Operational Comparison of the Three and Nine Months Ended September 30, 2020 versus the Three and Nine Months Ended September 30, 2019 Q3 2020 vs. Q3 2019 Net revenues for the refining segment decreased by $613.3 million, or 28.2%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • decreases in the average price of U.S. Gulf Coast gasoline of 29.9%, ULSD of 37.3%, and HSD of 41.4%. Such decreases were partially offset by the following: • increases in sales volume of refined product totaling 0.7 million barrels, partially due to our El Dorado refinery which was impacted by vacuum unit outage in the comparable prior year period, and a 0.5 million barrel increase in purchased product sales. Net revenues included sales to our retail segment of $57.6 million and $97.3 million, sales to our logistics segment of $45.1 million and $66.6 million, and sales to our other segment of $9.9 million and $23.9 million reduction in sales for the three months ended September 30, 2020 and September 30, 2019, respectively. We eliminate this intercompany revenue in consolidation. YTD 2020 vs. YTD 2019 Net revenues for the refining segment decreased by $2,268.2 million, or 34.2%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • decreases in the average price of U.S. Gulf Coast gasoline of 35.4%, ULSD of 37.7%, and HSD of 41.7%; and • decreases in sales volume of refined product totaling 0.5 million barrels partially due to scheduled turnaround activities at our Big Spring refinery, partially offset by increased sales volumes at our El Dorado refinery due to prior year scheduled turnaround activities and production issues, and a 2.0 million barrel decrease in purchased product sales due to decreased demand. Net revenues included sales to our retail segment of $166.6 million and $289.2 million, sales to our logistics segment of $155.7 million and $219.2 million and sales to our other segment of $24.2 million and $31.5 million for the nine months ended September 30, 2020 and 2019, respectively. We eliminate this intercompany revenue in consolidation. 64 | Management's Discussion and Analysis Cost of Materials and Other Q3 2020 vs. Q3 2019 Cost of materials and other decreased by $426.8 million, or 22.4%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • decreases in the cost of WTI Cushing crude oil, from an average of $56.40 per barrel to an average of $40.88, or 27.5%; • decreases in the cost of WTI Midland crude oil, from an average of $56.12 per barrel to an average of $41.03, or 26.9%; and • the benefit (expense) of $9.5 million related to the change in pre-tax inventory valuation recognized during the third quarter of 2020 compared to $(20.0) million recognized during the third quarter of 2019. These decreases were partially offset by the following: • a decrease in hedging gains to $3.0 million recognized during the third quarter of 2020 from $20.0 million recognized during the third quarter of 2019; and • Increase in sales volumes partially due to production issues at El Dorado refinery in the prior year comparable period. YTD 2020 vs. YTD 2019 Cost of materials and other decreased by $1,315.4 million, or 23.4%, during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • decreases in the cost of WTI Cushing crude oil, from an average of $57.03 per barrel to an average of $38.95, or 31.7%; and • decreases in the cost of WTI Midland crude oil, from an average of $55.81 per barrel to an average of $38.98, or 30.2%. These decreases were partially offset by the following: • the (expense) benefit of $(65.8) million related to the change in pre-tax inventory valuation recognized during the nine months ended September 30, 2020 compared to $31.3 million recognized during the nine months ended September 30, 2019; and • a decrease in hedging gains to a loss of $63.5 million recognized during the nine months ended September 30, 2020 from a gain of $64.1 million recognized during the nine months ended September 30, 2019; Our refining segment purchases finished product from our logistics segment and has multiple service agreements with our logistics segment which, among other things, require the refining segment to pay terminalling and storage fees based on the throughput volume of crude and finished product in the logistics segment pipelines and the volume of crude and finished product stored in the logistics segment storage tanks, subject to minimum volume commitments. These costs and fees were $82.7 million and $55.4 million during the third quarters of 2020 and 2019, respectively, and $260.8 million and $159.8 million during the nine months ended September 30, 2020 and 2019, respectively. We eliminate these intercompany fees in consolidation. 65 | Management's Discussion and Analysis Refining Margin Q3 2020 vs. Q3 2019 Refining margin decreased by $186.5 million, or 68.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • a narrowing of the average WTI Cushing crude oil differential to WTS crude oil to $(0.11) per barrel during the third quarter of 2020 compared to $0.46 during the third quarter of 2019 and narrowing of the average WTI Midland crude oil differential to WTI Cushing crude oil to $(0.15) per barrel during the third quarter of 2020 compared to $0.28 per barrel during the third quarter of 2019; • a narrowing of the discount between WTI Midland crude oil and Brent crude oil where, during the third quarter of 2020, the WTI Midland crude oil differential to Brent crude oil was an average discount of $2.31 per barrel compared to $5.91 per barrel during the third quarter of 2019; • a 70.8% decline in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery); • a 63.8% decline in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery); • a 53.6% decline in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery); and • a decrease in hedging gains to $3.0 million recognized during the third quarter of 2020 from $20.0 million recognized during the third quarter of 2019. These decreases were partially offset by the following: • an increase attributable to the $9.5 million change in pre-tax inventory valuation benefit recognized during the third quarter of 2020 compared to an expense of $20.0 million recognized during the prior year period. 66 | Management's Discussion and Analysis YTD 2020 vs. YTD 2019 Refining margin decreased by $952.8 million, or 94.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • a narrowing of the average discount between WTI Midland crude oil compared to WTI Cushing where, during the nine months of 2020, the average WTI Midland crude oil differential to WTI Cushing crude oil was $(0.03) per barrel compared to $1.22 during the nine months of 2019; • a narrowing of the average discount between WTI Midland crude oil and Brent crude oil where, during the nine months of 2020, the WTI Midland crude oil differential to Brent crude oil was an average discount of $3.58 per barrel compared to $8.92 per barrel during the same period of 2019; • a narrowing of the average WTI Cushing crude oil differential to WTS crude oil to $0.11 per barrel during the nine months of 2020 compared to $1.08 during the nine months of 2019; • a narrowing of the discount between WTI Cushing crude oil compared to Brent where, during the nine months of 2020, the average WTI Cushing crude oil differential to Brent crude oil was $3.88 per barrel compared to $7.70 during the nine months of 2019; • a 58.7% decline in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 48.6% decline in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 51.5% decline in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery); • a decrease in hedging gains to a loss of $(63.5) million recognized during the nine months of 2020 from a gain of $64.1 million recognized during the nine months of 2019; and • a decrease in reversal benefit of inventory valuation reserve of during the during the nine months of 2020 compared to the prior year period. 67 | Management's Discussion and Analysis Operating Expenses Q3 2020 vs. Q3 2019 Operating expenses decreased by $18.6 million, or 15.4%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • decreases in contractor and maintenance costs partially due to cost reduction measures taken in the third quarter of 2020; and • decreases in employee related costs primarily related to decrease in incentive plan and workforce optimization to reduce overtime rates in the third quarter of 2020; and • reduced costs as a result of the sale of the Bakersfield refinery in May 2020. YTD 2020 vs. YTD 2019 Operating expenses decreased by $54.2 million, or 15.2%, during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • decrease in contract services and inspection costs associated with cost reduction measures taken in the nine months of 2020; • decrease in maintenance costs due to deferral of projects amidst the COVID-19 Pandemic, and the incurrence of extraordinary maintenance costs at our Big Spring refinery in the comparable prior year period; and • decreases in utilities and catalyst costs, primarily at our Big Spring and Krotz Springs refineries related to reduced throughput due to turnaround and unit downtime, respectively; and • reduced costs as a result of the sale of the Bakersfield refinery in May 2020. Contribution Margin Q3 2020 vs. Q3 2019 Contribution margin decreased by $167.9 million, or an 8.0% reduction in contribution margin percentage, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • the decline of the Midland WTI crude oil differential to Brent crude oil compared to the prior-year period; • an overall decline in the average crack spreads; and • a narrowing of the discount between WTI Cushing and WTS crude oil compared to the third quarter of 2019. These decreases were partially offset by the following: • an increase in reversal benefit related to inventory valuation reserve of during the third quarter of 2020 compared to prior year period; and • decreases in operating expenses across all refineries. YTD 2029 vs. YTD 2019 Contribution margin decreased by $898.6 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • the decline of the Midland WTI crude oil differential to Brent crude oil compared to the prior-year period; • reduced performance at our Big Spring refinery due to turnaround; • an overall decline in the average crack spreads; • an decrease in reversal benefit related to inventory valuation reserves recognized during the nine months of 2020 compared to the prior year period; and • a narrowing of the discount between WTI Cushing and WTI crude oil compared to the prior-year period. These decreases were partially offset by decreases in operating expenses across all refineries. 68 | Management's Discussion and Analysis Logistics Segment The table below sets forth certain information concerning our logistics segment operations ($ in millions, except per barrel amounts): Logistics Contribution Margin and Operating Information Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net revenues $ 142.2 $ 137.6 $ 423.3 $ 445.4 Cost of materials and other 60.7 72.6 205.9 262.7 Operating expenses (excluding depreciation and amortization) 14.3 18.4 41.5 51.8 Contribution margin $ 67.2 $ 46.6 $ 175.9 $ 130.9 Operating Information: East Texas - Tyler Refinery sales volumes (average bpd) (1) 73,417 83,953 70,376 74,607 Big Spring wholesale marketing throughputs (average bpd) 78,659 80,203 73,701 83,608 West Texas wholesale marketing throughputs (average bpd) 9,948 9,535 11,718 11,446 West Texas wholesale marketing margin per barrel $ 3.42 $ 4.82 $ 2.37 $ 4.83 Terminalling throughputs (average bpd) (2) 160,843 170,727 145,240 160,621 Throughputs (average bpd): Lion Pipeline System: Crude pipelines (non-gathered) 78,244 49,477 76,750 43,446 Refined products pipelines to Enterprise Systems 55,740 43,518 55,315 32,242 SALA Gathering System 13,659 21,632 13,520 21,143 East Texas Crude Logistics System 22,591 25,391 15,705 21,045 Big Spring Gathering Assets (3) 90,719 — 85,845 — Plains Connection System 104,314 — 96,961 — (1) Excludes jet fuel and petroleum coke. (2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, El Dorado and North Little Rock, Arkansas and Memphis and Nashville, Tennessee terminals. (3) Throughputs for the Big Spring Gathering Assets are for the approximately 180 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020. Logistics Segment Operational Comparison of the Three and Nine Months Ended September 30, 2020 versus the Three and Nine Months Ended September 30, 2019 Net Revenues Q3 2020 vs. Q3 2019 Net revenues increased by $4.6 million, or 3.3%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, which were effective April 1, 2020 and May 1, 2020, respectively. Refer to Note 4 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information. Such increase was partially offset by the following: • decreases in the average sales prices per gallon of gasoline and diesel, partially offset by in the average sales volume of diesel in our West Texas marketing operations. ◦ the average sales prices of diesel and gasoline sold decreased $0.76 per gallon and $0.60 per gallon, respectively. ◦ the average volumes of diesel sold increased 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold. Net revenues included sales to our refining segment of $92.4 million and $65.4 million for the three months ended September 30, 2020 and September 30, 2019, respectively, and sales to our other segment of $0.4 million and $0.8 million for the three months ended September 30, 2020 and 2019, respectively. We eliminate this intercompany revenue in consolidation. 69 | Management's Discussion and Analysis YTD 2020 vs. YTD 2019 Net revenues decreased by $22.1 million, or 5.0%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • decreases in the average sales prices per gallon and volumes of diesel gallon sold, partially offset by increases in the average sales volume of gasoline in our West Texas marketing operations: ◦ the average volumes of gasoline sold increased 14.3 million gallons, partially offset by a 9.7 million decrease of diesel gallons sold. ◦ the average sales prices per gallon of gasoline and diesel sold decreased $0.51 per gallon and $0.71 per gallon, respectively. Such decrease was partially offset by the following: • increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively. Refer to Note 4 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information. • increased revenues at our SALA Gathering System and Magnolia Pipeline as result of increased throughput during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019. Net revenues included sales to our refining segment of $288.3 million and $187.5 million for the nine months ended September 30, 2020 and 2019, respectively, and sales to our other segment of $1.6 million and $3.6 million for the nine months ended September 30, 2020 and 2019, respectively. We eliminate this intercompany revenue in consolidation. 70 | Management's Discussion and Analysis Cost of Materials and Other Q3 2020 vs. Q3 2019 Cost of materials and other for the logistics segment decreased $11.9 million, or 16.4%, in the third quarter of 2020 compared to the third quarter of 2019 primarily driven by the following: • decreases in the average cost per gallon of gasoline and diesel sold partially offset by increases in averages volumes of diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold decreased $0.53 per gallon and $0.74 per gallon, respectively. ◦ the average volumes of diesel sold increased by 1.8 million gallons, partially offset by a 0.1 million increase in gasoline gallons sold. Our logistics segment purchased product from our refining segment of $45.1 million and $66.6 million for the three months ended September 30, 2020 and September 30, 2019, respectively. We eliminate these intercompany costs in consolidation. YTD 2020 vs. YTD 2019 Cost of materials and other for the logistics segment decreased $56.8 million, or 21.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily driven by the following: • decreases in the average volumes of diesel sold and average cost per gallon of gasoline and diesel sold, partially offset by increases in the average volumes of gasoline sold in our West Texas marketing operations: ◦ the average volumes of gasoline sold increased 14.3 million gallons, partially offset by a 9.7 million decrease of diesel gallons sold. ◦ the average cost per gallon of gasoline and diesel sold decreased $0.44 per gallon and $0.66 per gallon, respectively. Our logistics segment purchased product from our refining segment of $155.7 million and $219.2 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. We eliminate these intercompany costs in consolidation. 71 | Management's Discussion and Analysis Operating Expenses Q3 2020 vs. Q3 2019 Operating expenses decreased by $4.1 million, or 22.3%, in the third quarter of 2020 compared to the third quarter of 2019, driven by the following: • decrease in employee and outside services costs due to cost reduction measures implemented to respond to COVID-19 including delaying non-essential projects; and • decrease in utilities and other variable expenses due to lower production. YTD 2020 vs. YTD 2019 Operating expenses decreased by $10.3 million, or 19.9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, driven by the following: • decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects; • lower operating costs associated with allocated contract services pertaining to certain of our assets; and • decreases in variable expenses such as utilities, maintenance and materials costs due to lower production. Contribution Margin Q3 2020 vs. Q3 2019 Contribution margin increased by $20.6 million, or 44.2%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • increases in revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions; and • decreases in operating expenses. Such increases were partially offset by the following: • decreases in the volumes combined with a decrease in gross margin of $1.4 per barrel in our West Texas marketing operations. YTD 2020 vs. YTD 2019 Contribution margin increased by $45.0 million, or 34.4%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • increases in revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, Magnolia Pipeline, and SALA Gathering system; and • decreases in operating expenses. Such increases were partially offset by the following: • decreases in gross margin per barrel sold of $2.46 in our West Texas marketing operations. 72 | Management's Discussion and Analysis Retail Segment The table below sets forth certain information concerning our retail segment operations (gross sales $ in millions): Retail Contribution Margins Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net revenues $ 177.7 $ 218.5 $ 521.7 $ 640.2 Cost of materials and other 136.3 176.4 400.0 521.9 Operating expenses (excluding depreciation and amortization) 23.1 23.5 66.8 71.9 Contribution margin $ 18.3 $ 18.6 $ 54.9 $ 46.4 Operating Information Number of stores (end of period) 253 263 253 263 Average number of stores 253 263 253 263 Average number of fuel stores 248 255 248 255 Retail fuel sales $ 90.9 $ 137.4 $ 273.8 $ 400.1 Retail fuel sales (thousands of gallons) 45,096 54,943 135,471 162,576 Average retail gallons sold per average number of fuel stores (in thousands) 182 215 547 638 Average retail sales price per gallon sold $ 2.01 $ 2.50 $ 2.02 $ 2.46 Retail fuel margin ($ per gallon) (1) $ 0.311 $ 0.315 $ 0.352 $ 0.269 Merchandise sales (in millions) $ 86.8 $ 81.5 $ 247.9 $ 240.2 Merchandise sales per average number of stores (in millions) $ 0.3 $ 0.3 $ 1.0 $ 0.9 Merchandise margin % 31.6 % 30.5 % 31.3 % 30.9 % Same-Store Comparison (2) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Change in same-store fuel gallons sold (18.8) % 3.0 % (15.6) % 3.1 % Change in same-store merchandise sales 8.7 % (1.5) % 8.8 % (1.3) % (1) Retail fuel margin represents gross margin on fuel sales in the retail segment, and is calculated as retail fuel sales revenue less retail fuel cost of sales. The retail fuel margin per gallon calculation is derived by dividing retail fuel margin by the total retail fuel gallons sold for the period. (2) Same-store comparisons include period-over-period increases or decreases in specified metrics for stores that were in service at both the beginning of the earliest period and the end of the most recent period used in the comparison. Retail Segment Operational Comparison of the Three and Nine Months Ended September 30, 2020 versus the Three and Nine Months Ended September 30, 2019 Net Revenue Q3 2020 vs. Q3 2019 Net revenues for the retail segment decreased by $40.8 million, or 18.7%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • total fuel sales were $90.9 million in the third quarter of 2020 compared to $137.4 million in the third quarter of 2019, attributable to the following: 73 | Management's Discussion and Analysis ◦ a decrease in total retail fuel gallons sold for the retail segment to 45.1 million gallons in the third quarter of 2020 compared to 54.9 million gallons in the third quarter of 2019 associated with same-store decrease in fuel volumes of 18.8%, primarily due to demand slowdown as a result of the COVID-19 Pandemic; and ◦ a $0.49 decrease in average price charged per gallon. • merchandise sales were $86.8 million in the third quarter of 2020 compared to $81.5 million in the third quarter of 2019 attributable to the following: ◦ same-store sales increase of 8.7% primarily due to strong sales growth for key categories such as beer, cigarettes and packaged beverages, partially offset by $1.5 million decrease related to reduction in number of stores period over period. YTD 2020 vs. YTD 2019 Net revenues for the retail segment decreased by $118.5 million, or 18.5%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • total fuel sales were $273.8 million in the nine months of 2020 compared to $400.1 million in the nine months of 2019, attributable to the following: ◦ a decrease in total retail fuel gallons sold of 135.5 million gallons in the nine months of 2020 compared to 162.6 million gallons in the nine months of 2019, primarily attributable to same-store decline in fuel volumes of 15.6%, primarily due to demand slowdown in the nine months of 2020 as a result of the COVID-19 Pandemic; ◦ a $0.44 decrease in average price charged per gallon; and ◦ $11.4 million decrease related to reduction in number of stores period over period. • merchandise sales were $247.9 million in the nine months of 2020 compared to $240.2 million in the nine months of 2019 primarily driven by the following: ▪ same-store sales increase of 8.8% due to strong sales growth for key categories such as beer, cigarettes and packaged beverages, partially offset by $11.8 million decrease related to reduction in number of stores period over period. 74 | Management's Discussion and Analysis Cost of Materials and Other Q3 2020 vs. Q3 2019 Cost of materials and other for the retail segment decreased by $40.1 million, or 22.7%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following: • a decrease in average cost per gallon of $0.49 or 22.2% applied to fuel sales volumes that decreased period over period; and. • $2.4 million decrease due to reduction in number of stores period over period. Our retail segment purchased finished product from our refining segment of $57.6 million and $97.3 million for the three months ended September 30, 2020 and September 30, 2019. We eliminate this intercompany cost in consolidation. YTD 2020 vs. YTD 2019 Cost of materials and other for the retail segment decreased by $121.9 million, or 23.4%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following: • a decrease in average cost per gallon of $0.52 or 23.8% applied to fuel sales volumes that decreased period over period; and • $18.4 million decrease due to reduction in number of stores period over period. Our retail segment purchased finished product from our refining segment of $166.6 million and $289.2 million for the nine months ended September 30, 2020 and September 30, 2019. We eliminate this intercompany cost in consolidation. Operating Expenses Q3 2020 vs. Q3 2019 Operating expenses for the retail segment decreased by $0.4 million, or 1.7% in the third quarter of 2020 compared to the third quarter of 2019 as a result of the reduction in the number of stores, as well as execution of various cost reduction initiatives throughout the business. YTD 2020 vs. YTD 2019 Operating expenses for the retail segment decreased by $5.1 million, or 7.1% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. as a result of the reduction in the number of stores, in addition to the execution of various cost reduction initiatives implemented beginning in the second quarter of 2020. Contribution Margin Q3 2020 vs. Q3 2019 Contribution margin for the retail segment decreased by $0.3 million, or 1.6%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by decrease in fuel sales and a $0.005 per gallon decline in the retail fuel margin, offset by 1.1% increase in merchandise margin. YTD 2020 vs. YTD 2019 Contribution margin for the retail segment increased by $8.5 million, or 18.3%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily driven by a $0.083 per gallon improvement in the retail fuel margin and a 0.4% increase in merchandise margin. 75 | Management's Discussion and Analysis Liquidity and Capital Resources Our primary sources of liquidity and capital resources are • cash generated from our operating activities; • borrowings under our debt facilities; and • potential issuances of additional equity and debt securities. Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash dividends and operational capital expenditures. In response to the COVID-19 Pandemic and the decline in oil prices, on November 5, 2020, we announced that we have elected to suspend dividends in the fourth quarter of 2020 in order to conserve capital. Other funding sources including borrowings under existing credit agreements and issuance of equity and debt securities have been utilized to meet our funding requirements and support our growth capital projects and acquisitions. In addition we have historically been able to source funding at terms that reflect market conditions, our financial position and our credit ratings. We continue to monitor market conditions, our financial position and our credit ratings and expect future funding sources to be at terms that are sustainable and profitable for the Company. However, there can be no assurances regarding the availability of any future debt or equity financings or whether such financings can be made available on terms that are acceptable to us; any execution of such financing activities will be dependent on the contemporaneous availability of functioning debt or equity markets. Additionally, new debt financing activities will be subject to the satisfaction of any debt incurrence limitation covenants in our existing financing agreements. Our debt limitation covenants in our existing financing documents are usual and customary for credit agreements of our type and reflective of market conditions at the time of their execution. Additionally, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and oil prices, some of which are beyond our control. If market conditions were to change, for instance due to the significant decline in oil prices or uncertainty created by the COVID-19 Pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be unfavorably impacted. As of September 30, 2020, we were in compliance with all of our debt maintenance covenants, where the most significant long-term obligation subject to such covenants was the Delek Logistics Credit Facility (see Note 8 of the condensed consolidated financial statements in Item 1. Financial Statements). After considering the current effect of the significant decline in oil prices and uncertainty created by the COVID-19 Pandemic on our operations, we currently expect to remain in compliance with our existing debt maintenance covenants, though we can provide no assurances, particularly if conditions significantly worsen beyond our ability to predict. Additionally, we were in compliance with incurrence covenants during the quarter ended September 30, 2020 to the extent that any of our activities triggered these covenants. However, given the uncertainty around economic conditions arising from the COVID-19 Pandemic, it is at least reasonably possible that conditions could change significantly, and that such changes could adversely impact our ability to meet some of these incurrence covenants. Failure to meet the incurrence covenants could impose certain incremental restrictions on our ability to incur new debt and also may limit whether and the extent to which we may resume paying dividends, as well as impose additional restrictions on our ability to repurchase our stock, make new investments and incur new liens (among others). Such restrictions would generally remain in place until such quarter that we return to compliance under the applicable incurrence based covenants. In the event that we are subject to these incremental restrictions, we believe that we have sufficient current and alternative sources of liquidity, including (but not limited to): available borrowings under our existing Wells Fargo Revolving Credit Facility, and for Delek Logistics, under its Delek Logistics Credit Facility (see Note 8 of the condensed consolidated financial statements in Item 1. Financial Statements); the allowance to incur an additional $200 million of secured debt under the Wells Fargo Term Loan Credit Facility (see Note 8 of the condensed consolidated financial statements in Item 1. Financial Statements); as well as the possibility of obtaining other secured and unsecured debt, raising capital through equity issuance, or taking advantage of transactional financing opportunities such as sale-leasebacks, as otherwise contemplated and allowed under our incurrence covenants. 76 | Cash Flows The following table sets forth a summary of our consolidated cash flows (in millions): Consolidated Nine Months Ended September 30, 2020 2019 Cash Flow Data: Operating activities $ (399.8) $ 448.4 Investing activities (163.0) (509.5) Financing activities 415.4 (11.8) Net decrease $ (147.4) $ (72.9) Cash Flows from Operating Activities Net cash used in operating activities was $399.8 million for the nine months ended September 30, 2020, compared to cash provided by operating activities of $448.4 million for the comparable period of 2019. Cash receipts from customers and cash payments to suppliers and for salaries decreased resulting in a net $925.3 million decrease in cash from operating activities mainly due to a decline in the prices and volume of refined product sold. Additionally, cash paid for debt interest increased by $2.8 million. This decrease was partially offset by a $9.9 million increase in cash received for dividends and $70 million decrease in cash paid for taxes. Cash Flows from Investing Activities Net cash used in investing activities was $163.0 million for the first nine months of 2020, compared to $509.5 million in the comparable period of 2019. The decrease in cash flows used in investing activities was primarily due to a $183.2 million decrease in equity method investment contributions primarily due to our obtaining a 33% membership interest in the Red River Pipeline Joint Venture in May 2019 for $124.7 million. During the nine months ended September 30, 2020, we contributed $11.8 million related to our Red River Pipeline Joint Venture and $18.9 million related to our interest in WWP and WWP Project Financing JV which did not exist in the comparable prior year period. Additionally, we received distributions from our WWP Project Financing JV in the amount of $69.3 million for which there was no comparable activity in the prior year period. We also received proceeds of $39.9 million from the sale of our Bakersfield refinery in the nine months ended September 30, 2020. These decreases in cash used investing activities were partially offset by an increase in cash purchases of property, plant and equipment which increased from $305.7 million in 2019, to $241.7 million in 2020 predominantly attributable to capital expenditures related to turnaround and other sustaining maintenance activities in our refining segment. Cash Flows from Financing Activities Net cash provided by financing activities was $415.4 million for the nine months ended September 30, 2020, compared to net cash used of $11.8 million in the comparable 2019 period. This increase in cash provided was predominantly due to net proceeds received from long-term revolvers of $252.3 million during the nine months ended September 30, 2020, compared to net payments of $0.5 million in the comparable 2019 period. Additionally contributing to this increase were a decrease in repurchases of common stock to $1.9 million for the nine months ended September 30, 2020 compared to $147.8 million in the comparable 2019 period due to management suspending our share repurchase program, and an increase in net proceeds from inventory financing arrangements to $142.6 million for the nine months ended September 30, 2020 compared to $18.6 million in the comparable 2019 period. Partially offsetting this increase was a decrease in net proceeds received from term debt to $150.4 million during the nine months ended September 30, 2020, compared to $215.3 million in the comparable 2019 period, and a $28.9 million increase in repurchase of non-controlling interests primarily associated with IDR simplification transactions. Cash Position and Indebtedness As of September 30, 2020, our total cash and cash equivalents were $807.9 million and we had total long-term indebtedness of approximately $2,474.0 million. The total long-term indebtedness is net of deferred financing costs and debt discount of $6.7 million and $26.0 million, respectively. Additionally, we had letters of credit issued of approximately $227.3 million. Total unused credit commitments or borrowing base availability, as applicable, under our revolving credit facilities was approximately $752.0 million. Our total long-term indebtedness consisted of the following: • an aggregate principal amount of $110.0 million under the Revolving Credit Facility, due on March 30, 2023, with average borrowing rate of 3.50%; • an aggregate principal amount of $1,276.3 million under the Term Loan Credit Facility, due on March 30, 2025, with effective interest of 3.57%; • an aggregate principal amount of $39.7 million in outstanding borrowings under the Delek Hapoalim Term Loan, due on December 31, 2022, with effective interest of 3.58%; 77 | • an aggregate principal amount of $760.7 million under the Delek Logistics Credit Facility, due on September 28, 2023, with average borrowing rate of 2.69%; • an aggregate principal amount of $250.0 million under the Delek Logistics Notes, due in 2025, with effective interest rate of 7.22%; • an aggregate principal amount of $50.0 million under the Reliant Bank Revolver, due on June 30, 2022, with fixed interest rate of 4.50%; and • an aggregate principal amount of $20.0 million under the Promissory Notes, due on January 04, 2021, with fixed interest rate of 5.50%. See Note 8 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information about our separate credit facilities. Additionally, our obligation under the supply and offtake inventory financing agreements with J. Aron amounted to $323.2 million at September 30, 2020, $220.4 million of which is due on December 30, 2022, except that a portion (not to exceed $58.8 million) of this otherwise long-term component is subject to potential earlier payment under the Periodic Price Adjustment provision. See Note 7 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information about our supply and offtake facilities. Capital Spending A key component of our long-term strategy is our capital expenditure program. Our capital expenditures for the nine months ended September 30, 2020 were $208.0 million, of which approximately $180.9 million was spent in our refining segment, $6.9 million in our logistics segment, $8.2 million in our retail segment and $12.0 million at the holding company level. The following table summarizes our actual capital expenditures for the nine months ended September 30, 2020 and planned capital expenditures for the full year 2020 by operating segment and major category (in millions): Full Year 2020 Forecast Nine Months Ended September 30, 2020 Refining Sustaining maintenance, including turnaround activities $ 159.1 $ 139.5 Regulatory 42.3 41.2 Discretionary projects 1.8 0.2 Refining segment total 203.2 180.9 Logistics Regulatory 2.2 1.4 Sustaining maintenance 2.3 0.5 Discretionary projects 16.5 5.0 Logistics segment total 21.0 6.9 Retail Regulatory 0.2 0.2 Sustaining maintenance 3.2 1.6 Discretionary projects 6.5 6.4 Retail segment total 9.9 8.2 Other Regulatory 0.5 0.3 Sustaining maintenance 1.9 0.2 Discretionary projects (1)(2) 12.2 11.5 Other total 14.6 12.0 Total capital spending $ 248.7 $ 208.0 (1) The forecast excludes forecasted expenditures on a $65 million discretionary project to complete a connector to the WWP pipeline, for which we have secured pre-approved committed financing from the WWP members, at our election. Additionally, our actual capital expenditures exclude approximately $3 million of spend in 2020 on this project that would fall under this separately committed financing . (2) Excludes purchases of rights-of-way in the amount of $2.6 million in 2020. 78 | Management's Discussion and Analysis The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects or scheduled maintenance activities. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could exceed our projections. Our capital expenditure budget may also be revised as management continues to evaluate projects for reliability or profitability. As a result of the uncertainties associated with the COVID-19 Pandemic, we have decreased our capital spending forecast for 2020 to $248.7 million, down from the prior forecast as reported in our Annual Report on Form 10-K for the year ended December 31, 2019, of $325.7 million. We continue to evaluate the adverse effects of the COVID-19 Pandemic, and may further revise our forecast as a result of changing circumstances. We have no material off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.