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 filed with the Securities and Exchange Commission ("SEC") on March 1, 2021 (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. Delek US Holdings, Inc. is a registrant pursuant to the Securities Act of 1933, as amended ("Securities Act") and is listed on the New York Stock Exchange ("NYSE") under the ticker symbol "DK". 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 US Holdings, Inc. 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 SEC, 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 Securities Exchange Act of 1934 ("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 outbreak of COVID-19 and its development into a pandemic in March 2020 (the "COVID-19 Pandemic" or the "Pandemic") and the actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, “OPEC+”), with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our planned capital expenditures by segment for 2021, 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; • 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 32 | Management's Discussion and Analysis regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic; • general economic and business conditions affecting the southern, southwestern and western United States, particularly levels of spending related to travel and tourism and the ongoing and future impacts of the COVID-19 Pandemic; • volatility under our derivative instruments; • 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, weather related disruptions, 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 Impact of the COVID-19 Pandemic The outbreak of COVID-19 Pandemic has resulted in significant economic disruption globally, including in the United States 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 activity. As a result, and certainly during 2020, we experienced 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. Uncertainty about the duration of the COVID-19 Pandemic has caused periodic storage constraints in the U.S. 33 | Management's Discussion and Analysis resulting from over-supply of produced oil, while some of this oversupply was alleviated during and after Winter Storm Uri, which caused disruption in pipelines and other supply sources in PADD 3 during February and early March. While in the last few months, we have seen successful domestic efforts to distribute the vaccine across the U.S. which has led to some improved stability in the capital markets as well as improved pricing in crude oil, refined products and related forward curves, there continues to be uncertainty, and demand for refined product, and likewise for our logistics assets, has not yet returned to normal levels. 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. We have previously identified the following known uncertainties resulting from the COVID-19 Pandemic. And while the risk surrounding these uncertainties appears to be lessening, they still represent risks that could impact our operations, financial condition and results of operations. They are as follows: • 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 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 products 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 which may increase the risk of impairment of those investments; • Access to capital markets may be significantly impacted by the volatility and uncertainty in the oil and gas market specifically which could restrict our ability to raise funds; while our current liquidity needs are managed by existing facilities, sources of future liquidity needs may be impacted by the volatility in the debt market and the availability and pricing of such funds as a result of the COVID-19 Pandemic; and • The U.S. Federal Government has enacted certain stimulus and relief measures and may consider additional relief legislation. Beyond the direct impact of existing legislation on Delek in the current or prior periods (as applicable), 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. The U.S. Federal Government's passage and/or enactment of additional stimulus and relief measures, as well as their future actions may impact the extent to which the risk underlying these uncertainties are realized. To the extent these uncertainties have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S. Generally Accepted Accounting Principles ("GAAP"), we have considered them in the preparation of our unaudited financial statements as of and for the three months ended March 31, 2021, which are included in Item 1, of this Quarterly Report on Form 10-Q. 34 | Management's Discussion and Analysis In addition, management has actively responded to the continuing impact of the COVID-19 Pandemic on our business. Additionally, to the extent warranted, we continue to monitor the impact and implement measures to mitigate the risk. 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 discretionary capital expenditures; • Suspending the share repurchase program and dividend distributions until our internal parameters are met for resuming such activities; • Taking advantage of the income and payroll tax relief afforded to us by the CARES Act or other Pandemic relief legislation; • Implementing regular site cleaning and disinfecting procedures; • Adopting remote working where possible, and where on-site operations are required, taking appropriate safety precautions; • Identifying alternative financing solutions as needed 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, and reducing or eliminating non-critical travel. 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: • For the year ended December 31, 2020 pursuant to the provisions of the CARES Act, we recognized $16.8 million of current federal income tax benefit attributable to anticipated tax refunds from net operating loss carryback to prior 35% tax rate years, and deferred $10.9 million of payroll tax payments which will be payable in equal installments in December 2021 and December 2022. Additionally, we recorded an income tax receivable totaling $156.2 million as of December 31, 2020 related to the net operating loss carryback, which we expect to collect $135.6 million in 2021 and the remaining balance in 2022. • We made significant efforts to reduce our capital spending, particularly on growth and non-critical sustaining maintenance projects. See the "Liquidity and Capital Resources" section of Item 2. MD&A further information. • 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 our Krotz Springs refinery that was conducted on a straight-time basis. This allowed us to continue running the more profitable units of the refinery and should help improve economics toward a break-even level. We completed this turnaround work late in the first quarter 2021 and have begun moving back to full utilization at the facility. • Additionally, we developed a cost savings plan for 2021 designed to continue to 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 Springs 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. Reductions in workforce are made possible in large part by significant efforts to improve process efficiency and leverage technology where cost-effective. • Finally, we 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 impacted by the Pandemic, and we 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 continue to have a favorable impact on cash flows as well as our operations process effectiveness, which will improve our liquidity positioning and operational flexibility and response in anticipation of the continued economic impacts of the COVID-19 Pandemic. See the "Liquidity and Capital Resources" section of Item 2. MD&A 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, the speed and effectiveness of responses to combat the virus and any new variants and the challenges with the vaccination rollout. 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, 2020 and in this Form 10-Q, as applicable. 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. 35 | Management's Discussion and Analysis Other Significant Events During February 2021, the Company experienced a severe weather event ("Winter Storm Uri") which temporarily impacted operations at all of our refineries. Due to the extreme freezing conditions, we experienced reduced throughputs at our Tyler and Big Spring refineries as there was a disruption in the crude supply, as well as damages to various units at our refineries requiring additional operating and capital expenditures. As a result of this event and the related outages at our El Dorado refinery, we accelerated certain of our planned turnaround activities to coincide with repairs of any damaged units, therefore optimizing and limiting our downtime. As a result of the temporary unit optimization at our Krotz Springs refinery, there was limited disruption to its operations. Additionally, the severe weather conditions and the resultant industry downtime caused energy prices to rise in certain regions where we operate, which has resulted in additional operating expenses for the refineries impacted. On February 27, 2021, our El Dorado refinery experienced a fire in its Penex unit, in which six Delek employees were injured. Our on-site emergency response team, with the assistance of the El Dorado Fire Department, extinguished the fire, and we immediately began to monitor the air quality within the refinery and the community. The incident is currently being investigated by the Occupational Safety and Health Administration. The facility was in the process of undergoing turnaround activity, so there were no operational disruptions as a result of the fire. (See Note 11 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about losses incurred and related insurance coverages). Refining Overview The refining segment (or "Refining") processes crude oil and other feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel and aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals. The refining segment has a combined nameplate capacity of 302,000 barrels per day as of March 31, 2021. 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 Gulf Coast 5-3-2 Gulf Coast 5-3-2 (1) Gulf Coast 3-2-1 (2) Gulf Coast 2-1-1 (3) 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) 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. (2) 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. (3) 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. 36 | Management's Discussion and Analysis Logistics Overview Our logistics segment (or "Logistics") 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 March 31, 2021. 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, and an approximately 900-mile crude oil gathering system and associated crude oil storage tanks with an aggregate of approximately 10.2 million barrels of active shell capacity. It also owns and operates nine light product terminals and markets light products using third-party terminals. Logistics has strategic investments in pipeline joint ventures that provide access to pipeline capacity as well as the potential for earnings from joint venture operations. The logistics segment owns or leases approximately 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties. Retail Overview Our retail segment (or "Retail") at March 31, 2021 includes the operations of 253 owned and leased convenience store sites located primarily in Central and West Texas and New Mexico. Our convenience stores typically offer various grades of gasoline and diesel under the DK or Alon brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven and DK or Alon brand names pursuant to a license agreement with 7-Eleven, Inc. In November 2018, we terminated the license agreement with 7-Eleven, Inc. and the terms of such termination and subsequent amendment require the removal of all 7-Eleven branding on a store-by-store basis by December 31, 2023. 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. As of March 31, 2021, we have removed the 7-Eleven brand name at 57 of our store locations. 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, we closed or sold 46 under-performing or non-strategic store locations since the fourth quarter of 2018. 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, 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. 37 | 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 flows. Having taken into account the significance of the economic impact of the COVID-19 Pandemic and the OPEC Production Disputes in early 2020, 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. 2021 Developments Our principle focus during the first quarter of 2021 was to execute on the following initiatives, consistent with those discussed above in the context of the COVID-19 Pandemic measures: • effectively implementing and executing on our operating cost savings initiatives; • continuing to be focused on controlling capital expenditures; • focusing on operating efficiently, including the Krotz Springs refinery optimization; • continuing to position ourselves to manage our supply chain risk, our customer risk and our liquidity sources; • continuing to maintain a strong retail business; and • with our sights also set on recovery from the Pandemic and the future, continuing to explore and investigate growth opportunities for midstream or other lines of business. While, as previously noted above, COVID-19 conditions seem to be improving, as is the outlook, with the continued successful distribution of effective vaccines, we were faced with some unprecedented challenges which required our focus during the first quarter 2021. These included the effects of Winter Storm Uri as well as the El Dorado fire (described above). We believe that managing the efforts listed above, plus managing through the disruption caused by these two unexpected events, were critical to managing our results in this continued challenging environment. That said, and related to the last bullet above, we did successfully execute on a strategic opportunity in our logistics segment, as described below. Exclusivity Supply Agreement In May 2021, Delek Logistics executed a strategic exclusivity supply agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker"), for the supply of chemicals to meet IMO regulations through blending competencies utilizing proprietary intellectual property.The agreement has a 5-year initial term and a 5-year extension option. Terms of the agreement are intended to incentivize a cooperative arrangement relating to strategic blending activities to be operated by Delek Logistics, and provides an exciting growth opportunity in our logistics segment. 38 | Management's Discussion and Analysis Market Trends 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, the impact of commodity price volatility on our refining margins (as defined in our 'Non-GAAP Measures' on page 45), specifically as it relates to the price of crude oil as compared to the price of refined products and timing differences in the movements of those prices (subject to our inventory costing methodology), as well as location differentials, may be favorable or unfavorable compared to peers. Additionally, our refining margin profitability is impacted by regulatory factors, including the cost of RINs. Crude Prices WTI crude oil represents the largest component of our crude slate at all of our refineries, and can be sourced through our gathering channels or optimization efforts from Midland, Texas or Cushing, Oklahoma. The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2020 and for the first quarterly period in 2021. As shown in the historical graph, WTI Midland crude prices can be favorable or unfavorable as compared to WTI Cushing. Crude Pricing Differentials As U.S. crude oil production has increased over recent years, domestic refiners have benefited from the discount for WTI Cushing compared to Brent ("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, including our access to significant sources of WTI Midland crude through our gathering system, we are even further benefited by discounts for WTI Midland/WTI Cushing differentials. When these discounts shrink or become premiums, our reliance on WTI-linked crude pricing, and specifically WTI Midland crude, can negatively impact our refining margins. Conversely, as these price discounts widen, so does our competitive advantage, created specifically by our access to WTI Midland crude sourced 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 2020 and for the first quarterly period in 2021. 39 | 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 (CBOB), U.S. High Sulfur Diesel ("HSD") and U.S. ULSD for each of the quarterly periods in 2020 and for the first quarterly period in 2021. 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/crude oil and the resultant refined products. Generally, a crack spread represents 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 2020 and for the first quarterly period in 2021. As the chart illustrates, the 3-2-1 crack spread has consistently outperformed the 5-3-2 and the 2-1-1 crack spreads. When market conditions consist of 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, which are benchmarked against either the 5-3-2 or the 2-1-1 crack spreads. 40 | 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 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 and blending, our refining segment still needs to purchase additional RINs to satisfy its obligations. The cost to purchase these additional RINs is a significant cash outflow for our business. Additionally, increases in the market prices of RINs generally adversely affect our results of operations through changes in fair value to our existing RINs Obligation, to the extent we do not have offsetting RINs inventory on hand or effective economic hedges through net forward purchase commitments. The volatility of RINs prices is highly sensitive to regulatory and political influence and conditions, and therefore often does not correlate to movements in crude oil prices, refined product prices or crack spreads. Additionally, the pricing of RINs and the resulting impact on a refiner's margins is dependent on the type of refined product produced. Furthermore, RIN prices are impacted by market expectations regarding whether the EPA may grant certain small refinery exemptions. Therefore, the recent judicial rulings overturning certain small refinery exemptions, as well as the new presidential administration's vocal support for faster-moving clean energy initiatives, have caused significant recent increases in RINs prices to levels not seen in many years. 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 to satisfy our obligation could have an adverse impact on our results of operations if we are unable to recover those costs in the sale price of our refined products. The chart below illustrates the volatility in RINs prices over several quarterly periods, beginning with the first quarter of 2020 through the first quarter of 2021. 41 | Management's Discussion and Analysis Contractual Obligations Information regarding our known contractual obligations and commercial commitments of the types described below as of March 31, 2021, 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 $ 13.4 $ 902.6 $ 1,480.8 $ — $ 2,396.8 Interest (1) 78.9 140.2 62.7 — 281.8 Operating lease commitments (2)(7) 47.1 80.6 43.3 55.7 226.7 Purchase commitments (3) 219.0 (0.2) — — 218.8 Product financing commitments (4) 277.8 — — — 277.8 Transportation agreements (5) 135.7 236.9 190.7 96.3 659.6 J. Aron supply and offtake obligations (6) 15.5 298.8 — — 314.3 Total $ 787.4 $ 1,658.9 $ 1,777.5 $ 152.0 $ 4,375.8 (1) Expected interest payments on debt outstanding at March 31, 2021. Floating interest rate debt is calculated using March 31, 2021 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 March 31, 2021. (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 RINs product financing arrangements. (5) Balances consist of obligations under agreements with third parties (not including Delek Logistics) for the transportation of crude oil to our refineries. (6) 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. (7) Includes an immaterial amount of financing lease cost. Critical Accounting Policies The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results of operations, and require our most difficult, subjective or complex judgments or estimates. Based on this definition and as further described in our 2020 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. Additionally, we have identified the following critical accounting policy that impacts the first quarter of 2021: Under ASC 740, Accounting for Income Taxes, we use an estimated annual effective tax rate ("AETR") to record income taxes. The development of the estimated AETR involves significant judgment, particularly early in the year and in times of economic uncertainty. In the first quarter of 2021, our estimates of the expected AETR reflected inputs which are subject to judgment including (but not necessarily limited to) the following: • Forecasted pre-tax GAAP income or loss for the year • Estimates of expected permanent differences in GAAP income or loss and taxable income or loss for the year • Forecasted capital expenditures for the year and future years (where such activities were significantly impacted by the recent weather event and can likewise be impacted by unanticipated events) • Expected applicable jurisdictional tax rates • Estimated impact of possible deduction and tax credit limitations • Estimates regarding net operating losses, carryback and carryforward provisions (and limitations) and valuation allowances All of these inputs are subject to significant judgment and assumptions about future events impacting 2021, some of which are based on historical trends and results, operational plans, and projections regarding future pricing and profitability (where we utilize third party forward curves and pricing sources, where possible, but where expectations regarding capture rates and other factors involve judgment). We also note that, while economic conditions affecting our industry and industry outlooks related to COVID-19 are stabilizing and improving, there remains a level of uncertainty related to COVID-19 and the expectations for recovery that increases the level of judgment involved with 42 | Management's Discussion and Analysis some of these assumptions, particularly during the first quarter of 2021. Accordingly, where appropriate, we may consider the probability of certain components in determining what we believe to be a reasonable estimate based on conditions and events that were in existence as of our reporting date, which may also involve the use of significant management judgment. Furthermore, many of our assumptions are inter-relational, where changing one assumption can impact other assumptions (e.g., in terms of the applicability of or limitations under various tax code provisions). The nature of the AETR estimation approach for recording income taxes requires continuous review and adjustment during the year based on actual results, and as better information regarding forecasted results and assumptions becomes available. Significant changes in any of these assumptions or in actual results compared to our forecasts and assumptions could cause material changes in our AETR, which could result in cumulative adjustments to reflect the new estimates in future periods. We have developed and utilized methodologies and rationales for the development of our assumptions, subject to internal controls and sensitivity or probability assessments, as appropriate, and we believe our process provides a reasonable basis for our estimated AETR as well as the income taxes as of and for the three months ended March 31, 2021. 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 that 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 March 31, 2021 2020 Net revenues $ 1,740.1 $ 1,727.9 Cost of sales 1,813.4 2,055.5 Gross margin (73.3) (327.6) Add back (items included in cost of sales): Operating expenses (excluding depreciation and amortization) 113.6 111.7 Depreciation and amortization 52.1 37.2 Refining margin $ 92.4 $ (178.7) 43 | Management's Discussion and Analysis Summary Financial and Other Information The following table provides summary financial data for Delek: Summary Statement of Operations Data (in millions) (1) Consolidated Three Months Ended March 31, 2021 2020 Net revenues $ 2,392.2 $ 1,821.2 Total operating costs and expenses 2,472.3 2,182.7 Operating loss (80.1) (361.5) Total non-operating expense, net 23.6 28.6 Loss before income tax benefit (103.7) (390.1) Income tax benefit (12.4) (83.1) Net loss (91.3) (307.0) Net income attributed to non-controlling interests 7.3 7.4 Net loss attributable to Delek $ (98.6) $ (314.4) (1) This information is presented at a summary level for your reference. See the Consolidated Condensed Statements of Income included in Item 1. to this Quarterly Report on Form 10-Q for more detail regarding our results of operations and net loss per share. 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 Months Ended March 31, 2021 versus the Three Months Ended March 31, 2020 Net Loss Consolidated net loss for the first quarter of 2021 was $91.3 million compared to net loss of $307.0 million for the first quarter of 2020. Consolidated net loss attributable to Delek for the first quarter of March 31, 2021 was $98.6 million, or $(1.34) per basic share, compared to net loss of $314.4 million, or $(4.28) per basic share, for the first quarter 2020. Explanations for significant drivers impacting net income as compared to the comparable period of the prior year are discussed in the sections below. Net Revenues In the first quarters of 2021 and 2020, we generated net revenues of $2,392.2 million and $1,821.2 million, respectively, an increase of $571.0 million, or 31.4%. The increase in net revenues was primarily driven by the following factors: • in our refining segment, we achieved similar results in the current period as compared to prior year, despite challenges impacting our refineries, including the severe weather event in February 2021, the El Dorado fire and turnaround activities, and the temporary suspension of crude refining unit production at our Krotz Spring refinery; such results were driven by increases in the average price of U.S. Gulf Coast gasoline of 36.9%, ULSD of 16.0%, and HSD of 10.3%; and • in our corporate and other segment, an increase in wholesale crude activity which began in the second quarter of 2020. 44 | Management's Discussion and Analysis Such increases were partially offset by: • in our retail segment, decreases in fuel sales volumes due to demand slowdown as a result of COVID-19 Pandemic, partially offset by an increase in merchandise sales as well as a 12.9% increase in average price charged per gallon. Total Operating Costs and Expenses Cost of Materials and Other Cost of materials and other was $2,205.5 million for the first quarter of 2021 compared to $1,910.6 million for the first quarter of 2020, an increase of $294.9 million, or 15.4%. The net increase in cost of materials and other was primarily driven by the following: • increases in cost of crude oil feedstocks at the refineries, including a 27.3% increase in the average cost of WTI Cushing crude oil and a 29.4% increase in the average cost of WTI Midland crude oil; • an increase in wholesale crude activity which began in the second quarter of 2020; and • a decrease in hedging gains to a loss of $57.4 million recognized during the first quarter of 2021 from a gain of $77.9 million recognized during the first quarter of 2020; These increases were partially offset by: • the benefit (expense) of $20.4 million related to the change in pre-tax inventory valuation recognized during the first quarter of 2021 compared to $(280.8) million recognized during the first quarter of 2020; • decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average cost per gallon of gasoline and diesel sold in our West Texas marketing operations; and • a decrease in total retail fuel gallons sold due to demand slowdown as a result of the COVID-19 Pandemic, partially offset by an increase in average cost per gallon. Operating Expenses Operating expenses were $149.3 million for the first quarter of 2021 compared to $154.5 million for the first quarter of 2020, a decrease of $5.2 million, or 3.4%. The decrease in operating expenses was primarily driven by the following: • a decrease in employee expenses partially due to staff reductions and suspension of matching contributions to our 401(k) match; and • decreases in contract services partially due to cost reduction measures continuing in the first quarter of 2021. Such decrease was offset by the following: • an increase in utilities costs primarily associated with higher natural gas costs during the February 2021 severe freezing conditions that affected most of the regions where we operate, partially offset by lower production at our El Dorado and Krotz Springs refineries. General and Administrative Expenses General and administrative expenses were $47.1 million for the first quarter of 2021 compared to $65.7 million for the first quarter of 2020, a decrease of $18.6 million, or 28.3%. The decrease in general and administrative expense was primarily driven by the following: • a decrease in employee expenses partially due to staff reductions, suspension of matching contributions to our 401(k) plan, and reduction of stock-based compensation; • a decrease in contract services due to cost reduction measures; and • a decrease in travel related expense due to travel restrictions in place as a result of the COVID-19 Pandemic. Depreciation and Amortization Depreciation and amortization (included in both cost of sales and other operating expenses) was $68.5 million for the first quarter of 2021 compared to $52.6 million for the first quarter of 2020, an increase of $15.9 million, or 30.2%. This increase was primarily due to depreciation associated with assets added during the Big Spring refinery turnaround in the first quarter of 2020, as well as other refining assets placed in service. Other Operating Loss (Income), Net Other operating loss, net increased by $2.6 million in the first quarter of 2021 to a loss of $1.9 million compared to income of $0.7 million in the first quarter of 2020. 45 | Management's Discussion and Analysis Non-operating Expenses, Net Interest Expense Interest expense decreased by $6.7 million, or 18.5%, to $29.6 million in the first quarter of 2021 compared to $36.3 million in the first quarter of 2020, primarily driven by the following: • a decrease in the average effective interest rate of 1.44% in the first quarter of 2021 compared to the first quarter of 2020 (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 $221.9 million in the first quarter of 2021 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the first quarter of 2020. Results from Equity Method Investments We recognized income of $4.8 million from equity method investments during the first quarter of 2021, compared to $5.1 million for the first quarter of 2020, a decrease of $0.3 million. Income Taxes Income tax expense increased by $70.7 million in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • a pre-tax loss of $103.7 million in the first quarter of 2021, as compared to $390.1 million for the first quarter of 2020; and • a decrease in our effective tax rate which was 12.0% for the first quarter of 2021, compared to 21.3% for the first quarter of 2020 primarily due to the following: ◦ changes in valuation allowance for state attributes in the first quarter of 2021 compared to the first quarter of 2020; ◦ the reversal of a valuation allowance for deferred tax assets in partnership investments in the first quarter of 2020; and ◦ changes in the state income tax footprint for separate state jurisdictions. 46 | Management's Discussion and Analysis Refining Segment The tables and charts below set forth certain information concerning our refining segment operations ($ in millions, except per barrel amounts): Refining Segment Margins Three Months Ended March 31, 2021 2020 Net revenues $ 1,740.1 $ 1,727.9 Cost of materials and other 1,647.7 1,906.6 Refining margin 92.4 (178.7) Operating expenses (excluding depreciation and amortization) 113.6 111.7 Contribution margin $ (21.2) $ (290.4) 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. 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 47 | Management's Discussion and Analysis sales of refined products or to fix margins on future production. We also enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage our RINs Obligation. Additionally, from a sourcing perspective, we often enter into purchase and sale contracts with vendors and customers or take physical or 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 refining contribution margin. Finally, 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. 48 | Management's Discussion and Analysis Refinery Statistics Three Months Ended March 31, 2021 2020 (Unaudited) Tyler, TX Refinery Days in period 90 91 Total sales volume - refined product (average barrels per day) (1) 73,224 74,981 Products manufactured (average barrels per day): Gasoline 39,560 40,041 Diesel/Jet 27,741 27,403 Petrochemicals, LPG, natural gas liquids ("NGLs") 1,724 1,992 Other 1,471 1,242 Total production 70,496 70,678 Throughput (average barrels per day): Crude Oil 64,753 65,966 Other feedstocks 5,978 5,741 Total throughput 70,731 71,707 Total refining revenue ($ in millions) $ 490.0 $ 419.6 Cost of materials and other ($ in millions) 441.2 566.4 Total refining margin ($ in millions) $ 48.8 $ (146.8) Per barrel of refined product sales: Tyler refining margin 7.41 $ (21.51) Direct operating expenses 3.57 $ 3.73 Crude Slate: (% based on amount received in period) WTI crude oil 92.6 % 92.6 % East Texas crude oil 6.8 % 7.4 % Other 0.6 % — % El Dorado, AR Refinery Days in period 90 91 Total sales volume - refined product (average barrels per day) (1) 49,711 77,551 Products manufactured (average barrels per day): Gasoline 17,553 36,407 Diesel 13,973 27,637 Petrochemicals, LPG, NGLs 751 2,061 Asphalt 3,670 6,641 Other 438 972 Total production 36,385 73,718 Throughput (average barrels per day): Crude Oil 34,766 71,621 Other feedstocks 1,666 2,643 Total throughput 36,432 74,264 Total refining revenue ($ in millions) $ 436.8 $ 611.9 Cost of materials and other ($ in millions) 450.9 671.5 Total refining margin ($ in millions) $ (14.1) $ (59.6) Per barrel of refined product sales: El Dorado refining margin $ (3.16) $ (8.45) Direct operating expenses $ 6.36 $ 4.42 Crude Slate: (% based on amount received in period) WTI crude oil 44.0 % 34.4 % Local Arkansas crude oil 32.2 % 19.2 % Other 23.8 % 46.4 % 49 | Management's Discussion and Analysis Refinery Statistics (continued) Three Months Ended March 31, 2021 2020 (Unaudited) Big Spring, TX Refinery Days in period 90 91 Total sales volume - refined product (average barrels per day) (1) 68,699 38,086 Products manufactured (average barrels per day): Gasoline 32,812 14,607 Diesel/Jet 20,935 9,796 Petrochemicals, LPG, NGLs 3,148 1,381 Asphalt 1,793 850 Other 1,404 480 Total production 60,092 27,114 Throughput (average barrels per day): Crude oil 59,758 29,905 Other feedstocks 929 (1,327) Total throughput 60,686 28,578 Total refining revenue ($ in millions) $ 502.0 $ 409.8 Cost of materials and other ($ in millions) 461.2 453.5 Total refining margin ($ in millions) $ 40.8 $ (43.7) Per barrel of refined product sales: Big Spring refining margin $ 6.60 $ (12.60) Direct operating expenses $ 6.43 $ 7.37 Crude Slate: (% based on amount received in period) WTI crude oil 62.8 % 56.3 % WTS crude oil 37.2 % 43.7 % Krotz Springs, LA Refinery Days in period 90 91 Total sales volume - refined product (average barrels per day) (1) 24,964 81,016 Products manufactured (average barrels per day): Gasoline 6,118 29,933 Diesel/Jet 4,003 30,932 Heavy Oils 182 731 Petrochemicals, LPG, NGLs 1,265 3,006 Other 11,216 — Total production 22,784 64,602 Throughput (average barrels per day): Crude Oil 13,554 72,481 Other feedstocks 11,381 (8,383) Total throughput 24,935 64,098 Total refining revenue ($ in millions) $ 319.7 $ 443.6 Cost of materials and other ($ in millions) 305.6 454.6 Total refining margin ($ in millions) $ 14.1 $ (11.0) Per barrel of refined product sales: Krotz Springs refining margin $ 6.25 $ (1.49) Direct operating expenses $ 9.07 $ 3.43 Crude Slate: (% based on amount received in period) WTI Crude 81.2 % 66.1 % Gulf Coast Sweet Crude 18.8 % 33.9 % Other — % — % (1) Includes inter-refinery sales and sales to other segments which are eliminated in consolidation. See tables below. 50 | 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 March 31, (in barrels per day) 2021 2020 (Unaudited) Tyler refined product sales to other Delek refineries 2,095 763 El Dorado refined product sales to other Delek refineries 445 1,466 Big Spring refined product sales to other Delek refineries 728 1,025 Krotz Springs refined product sales to other Delek refineries — 293 Refinery Sales to Other Segments Three Months Ended March 31, (in barrels per day) 2021 2020 (Unaudited) Tyler refined product sales to other Delek segments 922 3,207 El Dorado refined product sales to other Delek segments 7 328 Big Spring refined product sales to other Delek segments 22,110 25,112 Krotz Springs refined product sales to other Delek segments 2,007 — Pricing Statistics (average for the period presented) Three Months Ended March 31, 2021 2020 (Unaudited) WTI — Cushing crude oil (per barrel) $ 58.03 $ 45.57 WTI — Midland crude oil (per barrel) $ 58.90 $ 45.51 WTS -- Midland crude oil (per barrel) (1) $ 58.77 $ 44.99 LLS (per barrel) (1) $ 60.18 $ 47.63 Brent crude oil (per barrel) $ 61.17 $ 50.82 U.S. Gulf Coast 5-3-2 crack spread (per barrel) - utilizing HSD $ 10.13 $ 8.76 U.S. Gulf Coast 5-3-2 crack spread (per barrel) (1) $ 13.57 $ 10.74 U.S. Gulf Coast 3-2-1 crack spread (per barrel) (1) $ 14.33 $ 11.41 U.S. Gulf Coast 2-1-1 crack spread (per barrel) (1) $ 7.65 $ 8.12 U.S. Gulf Coast Unleaded Gasoline (per gallon) $ 1.71 $ 1.25 Gulf Coast Ultra low sulfur diesel (per gallon) $ 1.71 $ 1.47 U.S. Gulf Coast high sulfur diesel (per gallon) $ 1.50 $ 1.36 Natural gas (per MMBTU) (2) $ 2.72 $ 1.87 (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 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"). 51 | Management's Discussion and Analysis Refining Segment Operational Comparison of the Three Months Ended March 31, 2021 versus the Three Months Ended March 31, 2020 Net Revenues Net revenues for the refining segment increased by $12.2 million, or 0.7%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • increases in the average price of U.S. Gulf Coast gasoline of 36.9%, ULSD of 16.0%, and HSD of 10.3%. Such increase was partially offset by the following: • a decrease in sales volumes of refined product totaling 5.2 million barrels, partially due to the temporary suspension of crude refining unit production at our Krotz Springs refinery from November 2020 through February 2021 and related turnaround activities, severe weather impacting our refineries in February 2021, and turnaround at our El Dorado refinery, partially offset by a 1.2 million barrel increase in purchased product sales and increased sales volumes at our Big Spring refinery which was in a turnaround in the prior year period. Net revenues included sales to our retail segment of $69.7 million and $68.6 million, sales to our logistics segment of $65.8 million and $80.7 million, and sales to our other segment of $20.1 million and $9.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. We eliminate this intercompany revenue in consolidation. Cost of Materials and Other Cost of materials and other decreased by $258.9 million, or 13.6%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • a decrease in refined sales volumes at our Krotz Springs refinery and El Dorado refinery, partially offset by increased sales volumes at Big Spring refinery; and • the benefit (expense) of $20.6 million related to the change in pre-tax inventory valuation recognized during the first quarter of 2021 compared to $(271.6) million recognized during the first quarter of 2020. These decreases were partially offset by the following: • increases in the cost of WTI Cushing crude oil, from an average of $45.57 per barrel to an average of $58.03, or 27.3%; • increases in the cost of WTI Midland crude oil, from an average of $45.51 per barrel to an average of $58.90, or 29.4%; and • a decrease in hedging gains to a loss $5.0 million recognized during the first quarter of 2021 from a gain of $80.4 million recognized during the first quarter of 2020. 52 | Management's Discussion and Analysis 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 $95.8 million and $105.7 million during the first quarters of 2021 and 2020, respectively. We eliminate these intercompany fees in consolidation. Refining Margin Refining margin increased by $271.1 million, or 151.7%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • a 15.6% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery); • a 25.6% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery); and • an increase attributable to the $20.6 million change in pre-tax inventory valuation benefit recognized during the first quarter of 2021 compared to an expense of $271.6 million recognized during the prior year period. These increases were partially offset by the following: • a higher percentage of purchased product with a decrease in overall sales volumes; • a 5.8% decline in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery); • a narrowing of the average WTI Cushing crude oil differential to WTS crude oil to $(0.74) per barrel during the first quarter of 2021 compared to $0.58 during the first quarter of 2020 and narrowing of the average WTI Midland crude oil differential to WTI Cushing crude oil to $(0.87) per barrel during the first quarter of 2021 compared to $0.06 per barrel during the first quarter of 2020; • a narrowing of the discount between WTI Midland crude oil and Brent crude oil where, during the first quarter of 2021, the WTI Midland crude oil differential to Brent crude oil was an average discount of $2.27 per barrel compared to $5.31 per barrel during the first quarter of 2020; and • a decrease in hedging gains to a loss of $5.0 million recognized during the first quarter of 2021 from a gain of $80.4 million recognized during the first quarter of 2020. 53 | Management's Discussion and Analysis Operating Expenses Operating expenses increased by $1.9 million, or 1.7%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • an increase in utilities costs primarily associated with higher natural gas costs during the February 2021 severe freezing conditions that affected most of the regions where we operate, partially offset by lower production at our Krotz Springs refinery. Such increase was offset by the following: • decreases in contract services partially due to cost reduction measures continuing in the first quarter of 2021; and • decreases in employee related costs partially due to staff reductions made in prior year and suspension of matching contributions to our 401(k) plan. Contribution Margin Contribution margin increased by $269.2 million, or a 15.6% improvement in contribution margin percentage, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • an overall increase in the average crack spreads; and • an increase in reversal benefit related to inventory valuation reserve during the first quarter of 2021 compared to prior year period. These increases were partially offset by the following: • the decline of the Midland WTI crude oil differential to Brent crude oil compared to the prior-year period; • a narrowing of the discount between WTI Cushing and WTS crude oil compared to the first quarter of 2020; and • an increase in hedging losses compared to the prior-year period. 54 | Management's Discussion and Analysis Logistics Segment The table below sets forth certain information concerning our logistics segment operations ($ in millions, except per barrel amounts): Logistics Contribution Margin and Operating Information Three Months Ended March 31, 2021 2020 Net revenues $ 152.9 $ 163.4 Cost of materials and other 81.1 101.3 Operating expenses (excluding depreciation and amortization) 14.1 14.8 Contribution margin $ 57.7 $ 47.3 Operating Information: East Texas - Tyler Refinery sales volumes (average bpd) (1) 71,963 72,650 Big Spring wholesale marketing throughputs (average bpd) 72,927 66,386 West Texas wholesale marketing throughputs (average bpd) 10,138 16,081 West Texas wholesale marketing margin per barrel $ 3.42 $ 2.70 Terminalling throughputs (average bpd) (2) 144,539 135,329 Throughputs (average bpd): Lion Pipeline System: Crude pipelines (non-gathered) 44,118 55,471 Refined products pipelines to Enterprise Systems 26,349 54,106 SALA Gathering System 11,880 34,906 East Texas Crude Logistics System 26,075 14,174 Big Spring Gathering Assets (3) 73,724 — Plains Connection System 108,361 — (1) Excludes jet fuel and petroleum coke. (2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas terminals, El Dorado and North Little Rock, Arkansas terminals and Memphis and Nashville, Tennessee terminals. (3) The Big Spring Gathering Assets Acquisition was effective March 31, 2020; therefore, there is no comparable activity for first quarter 2020. Logistics Segment Operational Comparison of the Three Months Ended March 31, 2021 versus the Three Months Ended March 31, 2020 Net Revenues Net revenues decreased by $10.5 million, or 6.4%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • decreases in the average volumes of gasoline and diesel sold partially offset by increases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations: ◦ the average volumes of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively. ◦ the average sales prices of gasoline and diesel sold increased $0.24 per gallon and $0.12 per gallon, respectively. • decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. • decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance. 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 Big Spring Refinery Crude Pipeline (the "BSR Crude Pipeline") during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 as a result of new contracts executed in the second quarter of 2020. 55 | Management's Discussion and Analysis Net revenues included sales to our refining segment of $95.8 million and $105.7 million for the three months ended March 31, 2021 and March 31, 2020, respectively, and sales to our other segment of $0.4 million and $0.9 million for the three months ended March 31, 2021 and 2020, respectively. We eliminate this intercompany revenue in consolidation. Cost of Materials and Other Cost of materials and other for the logistics segment decreased $20.2 million, or 19.9%, in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by the following: • decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average cost per gallon of gasoline and diesel sold in our West Texas marketing operations: ◦ the average volumes of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively. ◦ the average cost per gallon of gasoline and diesel sold increased $0.27 per gallon and $0.10 per gallon, respectively. Our logistics segment purchased product from our refining segment of $65.8 million and $80.7 million for the three months ended March 31, 2021 and March 31, 2020, respectively. We eliminate these intercompany costs in consolidation. 56 | Management's Discussion and Analysis Operating Expenses Operating expenses decreased by $0.7 million, or 4.7%, in the first quarter of 2021 compared to the first quarter of 2020, driven by the following: • a decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic including delaying non-essential projects; • lower operating costs associated with allocated contract services pertaining to certain of our assets; • decreases in variable expenses such as maintenance and materials costs due to lower throughput; and • partially offset by the increase in utility costs as a result of significantly higher energy costs during the February 2021 severe freezing conditions that affected most of the regions where we operate. Contribution Margin Contribution margin increased by $10.4 million, or 22.0%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • an increase in gross margin of $0.72 per barrel in our West Texas marketing operations; and • increases in revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions. Such increases were partially offset by the following: • decreases in gasoline and diesel volumes sold in our West Texas marketing operations. 57 | 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 March 31, 2021 2020 Net revenues $ 174.8 $ 178.6 Cost of materials and other 136.5 144.1 Operating expenses (excluding depreciation and amortization) 21.4 22.2 Contribution margin $ 16.9 $ 12.3 Operating Information Three Months Ended March 31, 2021 2020 Number of stores (end of period) 253 253 Average number of stores 253 253 Average number of fuel stores 248 248 Retail fuel sales $ 100.1 $ 106.9 Retail fuel sales (thousands of gallons) 39,765 47,959 Average retail gallons sold per average number of fuel stores (in thousands) 161 194 Average retail sales price per gallon sold $ 2.52 $ 2.23 Retail fuel margin ($ per gallon) (1) $ 0.350 $ 0.307 Merchandise sales (in millions) $ 74.6 $ 71.7 Merchandise sales per average number of stores (in millions) $ 0.3 $ 0.3 Merchandise margin % 32.7 % 31.6 % Same-Store Comparison (2) Three Months Ended March 31, 2021 2020 Change in same-store fuel gallons sold (17.0) % (8.2) % Change in same-store merchandise sales 4.2 % 1.7 % (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 changes in specified metrics for stores that were in service at both the beginning of the earliest period and the end of the most recent period used in the comparison. Retail Segment Operational Comparison of the Three Months Ended March 31, 2021 versus the Three Months Ended March 31, 2020 Net Revenue Net revenues for the retail segment decreased by $3.8 million, or 2.1%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • total fuel sales were $100.1 million in the first quarter of 2021 compared to $106.9 million in the first quarter of 2020, attributable to the following: ◦ a decrease in total retail fuel gallons sold for the retail segment to 39.8 million gallons in the first quarter of 2021 compared to 48.0 million gallons in the first quarter of 2020 associated with same-store decrease in fuel volumes of 17.0%, primarily due to demand slowdown as a result of the COVID-19 Pandemic; and 58 | Management's Discussion and Analysis ◦ an offsetting $0.29 increase in average price charged per gallon. • merchandise sales were $74.6 million in the first quarter of 2021 compared to $71.7 million in the first quarter of 2020 attributable to a same-store sales increase of 4.2%, primarily due to strong sales growth for key categories such as beer, packaged beverages and services. Cost of Materials and Other Cost of materials and other for the retail segment decreased by $7.6 million, or 5.3%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by the following: • a decrease in total retail fuel gallons sold due to demand slowdown as a result of the COVID-19 Pandemic; and • an offsetting increase in average cost per gallon of $0.25 or 12.9% applied to fuel sales volumes that decreased period over period. Our retail segment purchased finished product from our refining segment of $69.7 million and $68.6 million for the three months ended March 31, 2021 and March 31, 2020. We eliminate this intercompany cost in consolidation. Operating Expenses Operating expenses for the retail segment decreased by $0.8 million, or 3.6% in the first quarter of 2021 compared to the first quarter of 2020 as a result of the execution of various cost reduction initiatives throughout the business. Contribution Margin Contribution margin for the retail segment increased by $4.6 million, or 37.4%, in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by a 4.1% improvement in merchandise sales, an improvement in merchandise margin percentage of 1.1%, and a 3.6% reduction in operating expenses. 59 | 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. At March 31, 2021 our total liquidity amounted to $1.5 billion comprised of $ 635.4 million in unused credit commitments under the Delek Revolving Credit Facility (as defined in Note 8 of the condensed consolidated financial statements in Item 1. Financial Statements), $ 112.5 million in unused credit commitments under the Delek Logistics Credit Facility (as defined in Note 8 of the condensed consolidated financial statements in Item 1. Financial Statements) and $793.5 million in cash and cash equivalents. 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 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 March 31, 2021, we believe 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 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 March 31, 2021 to the extent that any of our activities triggered these covenants. However, given the 60 | Management's Discussion and Analysis 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 (each as defined in 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 Term Loan Credit Facility (as defined in 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. Cash Flows The following table sets forth a summary of our consolidated cash flows (in millions): Consolidated Three Months Ended March 31, 2021 2020 Cash Flow Data: Operating activities $ (34.3) $ (154.1) Investing activities (46.1) (146.6) Financing activities 86.4 130.3 Net increase (decrease) $ 6.0 $ (170.4) Cash Flows from Operating Activities Net cash used in operating activities was $34.3 million for the three months ended March 31, 2021, compared to $154.1 million for the comparable period of 2020. Cash payments to suppliers and for salaries decreased resulting in a $201.7 million decrease in cash used in operating activities. Additionally, cash paid for debt interest increased by $109.9 million. Cash Flows from Investing Activities Net cash used in investing activities was $46.1 million for the first three months of 2021, compared to $146.6 million in the comparable period of 2020. The decrease in cash flows used in investing activities was primarily due to a decrease in cash purchases of property, plant and equipment which decreased from $189.2 million in 2020, to $48.3 million in 2021, partially attributable to delaying non-essential projects in light of the COVID-19 Pandemic. Additionally, equity method investment contributions decreased $25.6 million primarily due to contributions made related to our Red River Pipeline Joint Venture and WWP Project Financing JV for $8.2 million and $18.9 million, respectively, during the three months ended March 31, 2020. During the three months ended March 31, 2021, we contributed $1.4 million related to our Red River Pipeline Joint Venture and $0.1 million related to our WWP Project Financing JV. These decreases in cash used in investing activities were partially offset by distributions received in the prior year from our WWP Project Financing JV to return excess capital contributions made in the amount of $69.3 million for which there was no comparable activity in the current year period. Cash Flows from Financing Activities Net cash provided by financing activities was $86.4 million for the three months ended March 31, 2021, compared to $130.3 million in the comparable 2020 period. This decrease in cash provided was predominantly due to net proceeds received from long-term revolvers of $40.9 million during the three months ended March 31, 2021, compared to $176.7 million in the comparable 2020 period. Such decreases were partially offset by an increase in net proceeds from inventory financing arrangements to $77.9 million for the three months ended March 31, 2021 compared to $21.0 million in the comparable 2020 period. Additionally, cash paid decreased $1.9 million and $23.1 million, respectively, due to suspension of our share repurchase program in the second quarter of 2020 and suspension of dividend payment in the fourth quarter of 2020. Also, there was a decrease in net payments under our term debt of $23.3 million during the three months ended March 31, 2021, compared to $27.9 million in the comparable 2020 period. During the three months ended March 31, 2020, we also repurchased 451,822 of Delek Logistics limited partner units from an investor for $5.0 million with no comparable activity in the current year period. 61 | Cash Position and Indebtedness As of March 31, 2021, our total cash and cash equivalents were $793.5 million and we had total long-term indebtedness of approximately $2,367.8 million. The total long-term indebtedness is net of deferred financing costs and debt discount of $6.0 million and $23.0 million, respectively. Additionally, we had letters of credit issued of approximately $314.6 million. Total unused credit commitments or borrowing base availability, as applicable, under our revolving credit facilities was approximately $747.9 million. Our total long-term indebtedness consisted of the following: • an aggregate principal amount of $50.0 million under the Revolving Credit Facility, due on March 30, 2023, with average borrowing rate of 3.50%; • an aggregate principal amount of $1,269.8 million under the Term Loan Credit Facility, due on March 30, 2025, with effective interest rate of 3.61%; • an aggregate principal amount of $39.5 million in outstanding borrowings under the Delek Hapoalim Term Loan, due on December 31, 2022, with effective interest rate of 3.54%; • an aggregate principal amount of $737.5 million under the Delek Logistics Credit Facility, due on September 28, 2023, with average borrowing rate of 2.45%; • an aggregate principal amount of $250.0 million under the Delek Logistics Notes, due in 2025, with effective interest rate of 7.25%; and • 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%. 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 $410.7 million at March 31, 2021, $287.1 million of which is due on December 30, 2022, except that a portion (not to exceed $33.1 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. 62 | Management's Discussion and Analysis Capital Spending A key component of our long-term strategy is our capital expenditure program. Our capital expenditures for the three months ended March 31, 2021 were $67.0 million, of which approximately $57.8 million was spent in our refining segment, $7.8 million in our logistics segment, $0.8 million in our retail segment and $0.6 million at the holding company level. The following table summarizes our actual capital expenditures for the three months ended March 31, 2021 and planned capital expenditures for the full year 2021 by operating segment and major category (in millions): Full Year 2021 Forecast Three Months Ended March 31, 2021 Refining Sustaining maintenance, including turnaround activities (1) $ 115.3 $ 57.4 Regulatory 4.0 0.4 Discretionary projects 0.9 — Refining segment total 120.2 57.8 Logistics Regulatory 8.4 0.5 Sustaining maintenance 4.7 — Discretionary projects 14.7 7.3 Logistics segment total 27.8 7.8 Retail Regulatory — — Sustaining maintenance 2.5 0.6 Discretionary projects 2.4 0.2 Retail segment total 4.9 0.8 Other Regulatory 4.2 0.4 Sustaining maintenance 13.2 0.2 Discretionary projects 9.9 — Other total 27.3 0.6 Total capital spending $ 180.2 $ 67.0 (1) Excludes potential additional capital expenditures associated with the effects of Winter Storm Uri and/or the El Dorado fire that are not yet determinable and/or which we reasonably expect to be covered under our applicable insurance policies and likewise reimbursable by insurance recoveries. 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. We have no material off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.