What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-07 · 444 added, 229 removed, 670 unchanged (50% of the section changed)

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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.

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, its development into a pandemic in March 2020, and any subsequent mutation of COVID-19 into one or more variants (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.

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• actions of our competitors and customers;

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

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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;

regarding the timing, pace and extent of economic recovery in the United States ("U.S.") due to the COVID-19 Pandemic;

• general economic and business conditions affecting the southern, southwestern and western U.S., 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;

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

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

• future decisions by OPEC+ members regarding production and pricing and disputes between OPEC+ members regarding the same;

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

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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.

The COVID-19 Pandemic has resulted in significant economic disruption globally, including in the U.S.

and specific geographic areas where we operate.

Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through 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.

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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.

As a result, and particularly 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.

resulting from over-supply

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.

of produced oil.

Additionally, significant environmental events, such as extreme weather conditions or natural disasters can impact pipeline accessibility and utilization, other supply sources, as well as demand.

While in the last several months, we have seen successful domestic efforts to distribute the COVID-19 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 general economic uncertainty, and, accordingly, demand for refined product and for our logistics assets has not yet returned to normal levels.

Such uncertainty has been further aggravated by the mutation of the COVID-19 virus into one or more variants and plateauing demand for currently available vaccines.

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.

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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.

Generally Accepted Accounting

Management's Discussion and Analysis

Principles ("GAAP"), we have considered them in the preparation of our unaudited financial statements as of and for the six months ended June 30, 2021, which are included in Item 1, of this Quarterly Report on Form 10-Q.

In addition, management has actively responded to the continuing impact of the COVID-19 Pandemic on our business.

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• 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;

• Taking advantage of the income and payroll tax relief afforded to us by the Coronavirus Aid Relief, and Economic Security Act (the "CARES Act") or other Pandemic relief legislation;

• Implementing regular site cleaning and disinfecting procedures;

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• 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.

Additionally, we recorded a current income tax receivable of $135.6 million and a non-current tax receivable of $20.6 million as of December 31, 2020, related to the net operating loss carryback, all of which was received in the third quarter of 2021.

• 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.

MD&A for 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.

We completed this turnaround work late in the first quarter 2021 and have since returned to normalized production.

• Additionally, we developed a cost savings plan for 2021 designed to continue to reduce operating expenses and general and administrative expenses.

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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.

• Finally, we elected to suspend share repurchases and dividends beginning in the second and fourth quarters of 2020, respectively, 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.

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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.

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

Management's Discussion and Analysis

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.

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.

Due to the extreme freezing conditions, and despite the acceleration of planned and ongoing turnaround work at the El Dorado and Krotz Spring refineries (which provided some mitigation), we experienced reduced throughputs at our refineries as there was a disruption in the crude supply, increases in natural gas costs, as well as damages to various units at our refineries requiring additional operating and capital expenditures.

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.

The incident is currently being investigated by the Occupational Safety and Health Administration and Chemical Safety Board.

Contrary to initial assessments, and despite occurring during the early stages of turnaround activity, the facility did suffer operational disruptions as a result of the fire.

Work to determine the full extent of covered business interruption and property and casualty losses and potential insurance claims is ongoing and is expected to result in the future recognition of insurance recoveries.

The extent of any incremental losses is not yet determinable and may also be subject to insurance recoveries.

(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).

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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.

The refining segment has a combined nameplate capacity of 302,000 barrels per day as of June 30, 2021.

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

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Total Nameplate Capacity (barrels per day ("bpd")) 75,000 80,000 (1)

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

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

(1) While the El Dorado refinery has a total nameplate capacity of 80,000 bpd, in order to qualify for the small refinery exemption under the EPA’s Renewable Fuel Standards regulations total output cannot exceed 75,000 bpd.

We currently expect that the El Dorado refinery’s output will remain under the 75,000 bpd threshold in the current economic environment.

(2) While there is variability in the crude slate and the product output at the El Dorado refinery, we compare our per barrel refined product margin to the U.S.

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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.

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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.

Our retail segment (or "Retail") at June 30, 2021 includes the operations of 252 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 grams 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.

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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.

As of June 30, 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.

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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:

Having taken into account the significance of the economic impact of the COVID-19 Pandemic and the OPEC production disputes in early 2020, our strategy continued to focus on the following objectives during the first six months of 2021:

Safety and wellness.

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Positioning for growth.

As we look to the remainder of the year and the economic environment that is emerging, and while our core values continue to be the bedrock of the Company's operations and focus, we are actively reviewing our strategies and related operational objectives and will consider the need for changes in order to address the evolving industry and market, while ensuring that we continue to appropriately consider and capitalize on our operational strengths and strategic positioning.

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.

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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:

Our principle focus during 2021 has been to execute on the following initiatives, consistent with those discussed above in the context of the COVID-19 Pandemic:

• 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;

• focusing on operating efficiently;

• continuing to position ourselves to manage our supply chain risk, our customer risk and our liquidity sources;

• continuing to maintain a strong retail business;

• 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).

• with our sights also set on recovery from the Pandemic and the future, continuing to explore and investigate potential growth opportunities for midstream or other lines of business.

While, as previously noted above, COVID-19 conditions seem to be improving, we were faced with some unprecedented challenges which required our focus during the first half of 2021, including the effects of Winter Storm Uri as well as the El Dorado fire (described above).

These events continue to be a significant area of focus as we continue to work on identifying and estimating losses (both realized and incurred and unrealized lost profit) in order to aggressively pursue insurance recoveries under our existing policies.

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.

Our RINs cost and RINs Obligation have been negatively impacted during 2021 and as of June 30, 2021 by rapidly escalating RINs prices which resulted from an unfavorable ruling against companies previously granted the EPA's Small Refinery Exemptions (or "SREs") under

Management's Discussion and Analysis

the Renewable Fuel Standard (the "RFS") which governs RINs volume obligations for U.S.

hydrocarbon refining companies.

Additionally, the industry has been faced with worsening environmental regulatory sentiment in Washington, D.C.

following the change in the presidential administration in January 2021 has continued to put upward pressure on RIN prices.

The 10th Circuit Court of Appeals ruling, which was subsequently appealed and (for the majority of the period) was waiting to be heard by the U.S.

Supreme Court, stalled the approval of 2019 SRE applications already submitted (inclusive of SRE applications for each of our four refineries) and led to the postponement of 2020 SRE applications.

Because of these delays and uncertainties, the EPA issued, by Final Rule, extensions on the compliance deadline under the RFS as well as the deadline for submission of the obligated party attestation reports, as follows:

the 2019 compliance deadline was extended to November 30, 2021, and the submission deadline for the related report was extended to June 1, 2022, for small refineries;

and the 2020 compliance deadline was extended to January 31, 2021, and the submission deadline for the related report was extended to June 1, 2022, for small refineries.

While the uncertainty regarding the likelihood of SREs persisted, the RINs prices increased significantly, leaving our outlook regarding our ability to capture crack spreads, as well as those of many other downstream companies, also very uncertain.

In late June 2021, the U.S.

Supreme Court overturned the previous appeals court's ruling regarding RINs, resulting in market optimism that the stalled SRE applications from 2019, as well as new applications for 2020, may be granted, based on the published criteria.

Immediately following this ruling, we undertook efforts to prepare 2020 SRE applications for our refineries and we submitted them in August 2021.

While we cannot know the outcome of our SRE applications, we have a history of being granted the waivers for all four refineries, but most often the Krotz Springs and El Dorado refineries.

In 2018, we were granted SREs for our Tyler, Krotz Springs and El Dorado refineries.

Additionally, while our current Net RINs Obligation reflects current RINs market prices as of June 30, 2021, the financial statement impact, including both the income statement and net cash impact, of any future receipt of SRE(s) is not determinable because of the complexity of the Net RINs Obligation and related transactions, where such financial statement impact is dependent upon the following:

(1) which refineries receive exemptions;

(2) the composition of those specific Net RINs Obligation (in terms of the vintages of RINs we currently own versus the waived RINs Obligation) and the related market prices at the date each exemption is granted;

(3) the composition of our RINs forward commitment contracts that may be settled or positions closed as a result of any exemption and the related gains or losses;

(4) the settlement requirements of related RINs product financing arrangements;

and (5) the quantity of and dates at which excess RINs can be sold and the sales price (see also Note 9, Note 10 and Note 14 to the condensed consolidated financial statements included as well as our related accounting policies related to RINs included in Note 2 to the audited consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data, of our December 31, 2020 Annual Report on Form 10-K).

We note that our total gross RINs Obligation for 2020, for all four refineries, was approximately 340 million RINs, across several RIN categories, and that receipt of any SREs could result in significant benefit, both in terms of income statement effect and cash flows.

Regardless of whether we expect to be granted SREs, we continue to actively manage our RINs inventory portfolio as well as monitor prices and positions on existing and expected RINs Obligations to mitigate our income statement and cash flow exposure.

See additional discussion of the effect of RINs prices and volatility on our refining margins in the "Market Trends" section below.

In addition to these management efforts, we successfully executed on several strategic opportunities as described below.

Delek US Holdings, Inc.

Employee Stock Purchase Plan

In June 2021, the Company's board of directors adopted the Delek US Holdings, Inc.

Employee Stock Purchase Plan (the "ESPP").

The ESPP is structured as a qualified employee stock purchase plan.

The Company authorized the issuance of 2,000,000 shares of common stock under the ESPP.

On each purchase date, eligible employees (as defined in the ESPP) can purchase the Company's stock at a price per share equal to 85.0% of the closing price of the Company's common stock on the exercise date, but no less than par value.

There are four offering periods of three months during each fiscal year, beginning each January 1st, April 1st, July 1st, and October 1st.

(See further discussion in Note 15 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

Delek Logistics 2028 Notes

On May 24, 2021, Delek Logistics and its wholly owned subsidiary Delek Logistics Finance Corp.

(“Finance Corp.” and together with Delek Logistics, the “Co-issuers”), sold $400.0 million in aggregate principal amount of the Co-issuers 7.125% Senior Notes due 2028 (the “Delek Logistic 2028 Notes”) at par, pursuant to an indenture with U.S.

Bank, National Association as trustee .

The Delek Logistics 2028 Notes are general unsecured senior obligations of the Co-issuers and are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Guarantors and will be unconditionally guaranteed on the same basis by certain of the Delek Logistics’ future subsidiaries.

The Delek Logistic 2028 Notes rank equal in right of payment with all existing and future senior indebtedness of the Co-issuers, and senior in right of payment to any future subordinated indebtedness of the Co-issuers.

The Delek Logistic 2028 Notes will mature on June 1, 2028, and interest is payable semi-annually in arrears on each June 1 and December 1, commencing December 1, 2021.

(See further discussion in Note 8 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

Management's Discussion and Analysis

Exclusive Supply Agreement

In May 2021, we executed an exclusive supply and strategic relationship agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker").

The agreement provides that, under certain circumstances, Baker will supply certain chemicals exclusively to us within a defined territory.

Those chemicals allow us, through blending competencies utilizing proprietary intellectual property, to clarify slurry which can then be used in International Maritime Organization-compliant products.

The agreement has a 5-year initial term and a 5-year extension option.

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.

Historically, the impact of commodity price volatility on our refining margins (as defined in our "Non-GAAP Measures" in MD&A Item 2.), 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.

During the first half of 2021, despite improved consumer demand resulting from stabilization in cases during much of the period and across much of the country, and corresponding to the availability of vaccines, improvements in domestic refining margins have been slow.

This is largely attributable to the increasing supply from international markets where consumer demand improvement has lagged behind the U.S and, similarly, the closing of much of the U.S.

export arbitrage.

market for transportation fuels has attracted higher infusion of international supply due in part to supply disruptions in the U.S.

that occurred during the first six months of 2021.

In February 2021, the operations of many U.S.

refineries, including ours, were temporarily disrupted due to the negative effects arising out of Winter Storm Uri.

This contributed to a significant depletion of transportation fuel inventories throughout much of the country.

Additionally, in May 2021, there was a cybersecurity incident with the Colonial Pipeline which resulted in pipeline shutdowns that interrupted supply to much of the eastern U.S.

for six days, and which caused disruption for Delek primarily at our Krotz Springs refinery.

As a result of both of these events, the U.S.

market attracted higher levels of supply from international markets, which diluted price increases and associated refining margins.

Furthermore, while there have been improving crack spreads during 2021, driven largely by the improvement in domestic consumer demand and the modest economic improvement and outlook associated with stabilizing Pandemic uncertainties, the ability of U.S.

refiners to capture those improvements were significantly dampened by sharply increasing RIN prices.

As previously discussed, the RINs market was impacted by last year's judicial rulings imposing limitations on smaller refinery's abilities to qualify for the EPA's SREs under the RFS, combined with worsening environmental regulatory sentiment coming out of Washington, D.C..

These conditions were pervasive for the majority of the first half of 2021.

Following the June 2021 U.S.

Supreme Court reversal of the lower court's ruling, however, there was a notable improvement in market optimism that existing SRE applications from 2019, as well as new applications for 2020, may be granted.

While it is possible that SREs may be granted before the extended compliance deadlines, refining companies in the U.S.

likely will not see much impact to RINs prices and, accordingly, refining margins until the EPA actually begins granting SREs on a relatively widespread basis.

See below for further discussion on how certain key market trends impact our refining margins.

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.

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 two quarterly periods in 2021.

As shown in the historical graph, WTI Midland crude prices can be favorable or unfavorable as compared to WTI Cushing.

Management's Discussion and Analysis

Crude Pricing Differentials

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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.

Management's Discussion and Analysis

Refined Product Prices

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High Sulfur Diesel ("HSD") and U.S.

ULSD for each of the quarterly periods in 2020 and for the first quarterly period in 2021.

Ultra Low Sulfur Diesel ("ULSD") for each of the quarterly periods in 2020 and for the two quarterly periods in 2021.

Management's Discussion and Analysis

Crack Spreads

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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.

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

Management's Discussion and Analysis

RIN Volatility

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

Environmental regulations and the political environment continue to affect our refining 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.

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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.

Furthermore, RIN prices are impacted by market expectations regarding whether the EPA may grant certain SREs.

The 2020 unfavorable SRE judicial rulings, as well as the recent changes in regulatory sentiment following the presidential administration change, have caused significant increases in RINs prices to levels not seen in many years.

Because of the volatility in RINs prices, it is not possible to predict future RINs cost with certainty, and movements in RIN prices can have significant and unanticipated adverse effects on our refining margins that are outside of our control.

The chart below illustrates the volatility in RINs beginning with the first quarter of 2020 through the second quarter of 2021.

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):

Information regarding our known contractual obligations and commercial commitments of the types described below as of June 30, 2021, is set forth in the following table (in millions):

Payments Due by Period

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127.4 385.5 172.3 149.4 834.6

Purchase commitments (3)

219.0 (0.2) — — 218.8

Product financing commitments (3)

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Total $ 780.9 $ 1,474.5 $ 1,940.6 $ 687.2 $ 4,883.2

(1) Expected interest payments on debt outstanding at March 31, 2021.

Floating interest rate debt is calculated using March 31, 2021 rates.

(1) Expected interest payments on debt outstanding at June 30, 2021.

Floating interest rate debt is calculated using June 30, 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.

(2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of June 30, 2021.

(3) Balances consist of contractual obligations under RINs product financing arrangements.

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

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.

Additionally, we have identified the following critical accounting policy that impacts the six months ended June 30, 2021:

Under Accounting Standards Codification ("ASC") 740, Income Taxes (“ASC 740”), 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:

As of and during the six months ended June 30, 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

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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

Accordingly, where appropriate, we may consider the probability of certain components in determining what

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.

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).

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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

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Refining Segment

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

$ 2,415.7 $ 1,077.0 $ 4,155.8 $ 2,804.9

Cost of sales

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Operating expenses (excluding depreciation and amortization)

113.8 88.7 227.4 200.4

Depreciation and amortization

51.0 44.8 103.1 82.0

Refining margin

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Summary Statement of Operations Data (in millions) (1)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net revenues $ 2,191.5 $ 1,535.5 $ 4,583.7 $ 3,356.7

Total operating costs and expenses 2,276.9 1,512.7 4,749.2 3,695.4

Operating loss (80.1) (361.5)

Total non-operating expense, net 23.6 28.6

Loss before income tax benefit (103.7) (390.1)

Operating (loss) income (85.4) 22.8 (165.5) (338.7)

Total non-operating expense (income), net 33.1 (39.8) 56.7 (11.2)

(Loss) income before income tax benefit (118.5) 62.6 (222.2) (327.5)

Income tax benefit (46.0) (35.9) (58.4) (119.0)

Net loss (91.3) (307.0)

Net (loss) income (72.5) 98.5 (163.8) (208.5)

Net income attributed to non-controlling interests 8.6 10.8 15.9 18.2

Net loss attributable to Delek $ (98.6) $ (314.4)

Net (loss) income attributable to Delek $ (81.1) $ 87.7 $ (179.7) $ (226.7)

(1) This information is presented at a summary level for your reference.

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Results of Operations

Consolidated Results of Operations — Comparison of the Three Months Ended March 31, 2021 versus the Three Months Ended March 31, 2020

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.

Consolidated Results of Operations — Comparison of the Three and Six Months Ended June 30, 2021 versus the Three and Six Months Ended June 30, 2020

Consolidated net loss for the second quarter of 2021 was $72.5 million compared to net income of $98.5 million for the second quarter of 2020.

Consolidated net loss attributable to Delek for the second quarter of June 30, 2021 was $81.1 million, or $(1.10) per basic share, compared to net income of $87.7 million, or $1.19 per basic share, for the second 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.

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%.

Consolidated net loss for the six months ended June 30, 2021 was $163.8 million compared to net loss of $208.5 million for the six months ended June 30, 2020.

Consolidated net loss attributable to Delek for the six months ended June 30, 2021 was $179.7 million, or $(2.43) per basic share, compared to a net loss of $226.7 million, or $(3.08) per basic share, for the six months ended June 30, 2020.

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

In the second quarters of 2021 and 2020, we generated net revenues of $2,191.5 million and $1,535.5 million, respectively, an increase of $656.0 million, or 42.7%.

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%;

• in our corporate and other segment, an increase in wholesale crude activity which began in the second quarter of 2020.

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.

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

Gulf Coast gasoline of 145.4%, ULSD of 114.7%, and HSD of 128.2%;

• in our logistics segment, increases in the average volumes of gasoline and diesel sold and in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations;

• in our retail segment, increases in fuel sales primarily attributable to a 61.8% increase in average price charged per gallon sold.

For the six months ended June 30, 2021 and 2020, we generated net revenues of $4,583.7 million and $3,356.7 million, respectively, an increase of $1,227.0 million, or 36.6%.

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

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

Gulf Coast gasoline of 81.3%, ultra-low sulfur diesel of 54.0%, and high-sulfur diesel of 52.2%;

• in our logistics segment, increases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations, as well increased revenues associated with agreements executed in six months ended June 30, 2020, partially offset by decreased throughputs due to the impact of Winter Storm Uri;

• in our retail segment, increases in fuel sales primarily attributable to a 34.1% increase in average price charged per gallon sold.

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%.

Cost of materials and other was $1,995.8 million for the second quarter of 2021 compared to $1,277.8 million for the second quarter of 2020, an increase of $718.0 million, or 56.2%.

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 122.3% increase in the average cost of WTI Cushing crude oil and a 123.1% increase in the average cost of WTI Midland crude oil;

• an increase in wholesale crude activity which began in the second quarter of 2020;

• 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;

• 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.

• increases in average RINs costs during the second quarter of 2021 compared to the second quarter of 2020;

• the benefit of $9.7 million related to the change in pre-tax inventory valuation recognized during the second quarter of 2021 compared to $203.1 million recognized during the second quarter of 2020;

• increases in the average volumes and average cost per gallon of gasoline and diesel sold in our West Texas marketing operations;

• an increase in retail cost of materials and other due to 86.5% increase in average cost per gallon sold applied to higher fuel sales volumes.

Such increases were partially offset by the following:

• a decrease in commodity hedging losses to a loss of $22.9 million recognized during the second quarter of 2021 from a loss of $153.7 million recognized during the second quarter of 2020.

Cost of materials and other was $4,201.3 million for the six months ended June 30, 2021 compared to $3,188.4 million for the six months ended June 30, 2020, an increase of $1,012.9 million, or 31.8%.

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 64.0% increase in the average cost of WTI Cushing crude oil and a 65.5% increase in the average cost of WTI Midland crude oil;

• increases in average RINs costs during the six months ended June 30, 2021 compared to the six months ended June 30, 2020;

• an increase in hedging gains to a loss of $28.2 million recognized during the six months ended June 30, 2021 from a loss of $89.2 million recognized during the six months ended June 30, 2020;

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

• an increase in retail fuel cost of materials and other primarily attributable to a 41.9% increase in average cost per gallon sold.

Such increases were partially offset by the following:

• the benefit (expense) of $30.1 million related to the change in pre-tax inventory valuation recognized during the six months ended June 30, 2021 compared to $(75.1) million recognized during the six months ended June 30, 2020.

Management's Discussion and Analysis

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;

• 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.

Operating expenses were $161.1 million for the second quarter of 2021 compared to $127.8 million for the second quarter of 2020, an increase of $33.3 million, or 26.1%.

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

• an increase in variable costs partially due to higher natural gas and electric costs at our refineries as well as higher chemical and catalyst costs driven by lower comparable year period at our Krotz Springs refinery;

• increases in maintenance, outside services and lease costs due to continued costs associated with Winter Storm Uri as well as unit outages at certain of our refineries.

Operating expenses were $310.4 million for the six months ended June 30, 2021 compared to $282.3 million for the six months ended June 30, 2020, a increase of $28.1 million, or 10.0%.

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

• an increase in variable expenses primarily associated with higher natural gas costs during the February 2021 severe freezing conditions that affected most of the regions where we operate;

• increases in maintenance, outside services and lease costs due to continued costs associated with Winter Storm Uri as well as unit outages at certain of our refineries.

Such increases were partially offset by the following:

• a decrease in expenses at our El Dorado refinery due to current year turnaround activities;

• decreases related to certain cost-cutting measures.

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%.

General and administrative expenses were $58.6 million for the second quarter of 2021 compared to $61.7 million for the second quarter of 2020, a decrease of $3.1 million, or 5.0%.

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;

• a decrease in contract services due to additional legal and consulting services associated with the drop downs in prior year and cost reduction measures.

General and administrative expenses were $105.7 million and $127.4 million for the six months ended June 30, 2021 and 2020, respectively, a decrease of $21.7 million, or 17.0%.

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

• a decrease in employee expenses partially due to additional severance costs incurred in prior year and suspension of matching contributions to our 401(k) plan for the six months ended June 30, 2021 while the plan was still in place during the six months ended June 30, 2020;

• a decrease in contract services due to additional legal and consulting services associated with the drop downs in prior year and cost reduction measures;

• 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.

Depreciation and amortization (included in both cost of sales and other operating expenses) was $66.3 million for the second quarter of 2021 compared to $59.6 million for the second quarter of 2020, an increase of $6.7 million, or 11.2%.

This increase was primarily due to depreciation associated with assets added during the El Dorado refinery turnaround in the first quarter of 2021, as well as other refining assets placed in service.

Depreciation and amortization (included in both cost of sales and other operating expenses) was $134.8 million compared to $112.2 million for the six months ended June 30, 2021 and 2020, respectively, an increase of $22.6 million, or 20.1%, primarily due to depreciation associated with assets added during the Big Spring refinery turnaround in the first quarter of 2020 and the El Dorado refinery turnaround in 2021, as well as other refining assets placed in service.

Management's Discussion and Analysis

Other Operating Income, Net

Other operating income, net decreased by $9.3 million in the second quarter of 2021 to $4.9 million compared to $14.2 million in the second quarter of 2020.

Other operating income, net decreased by $11.9 million during the six months ended June 30, 2021 to $3.0 million compared to $14.9 million during the six months ended June 30, 2020.

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.

Interest expense increased by $3.4 million, or 11.4%, to $33.2 million in the second quarter of 2021 compared to $29.8 million in the second quarter of 2020, primarily driven by the following:

• an increase in the average effective interest rate of 0.28% in the second quarter of 2021 compared to the second quarter of 2020 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding);

• an increase in net average borrowings outstanding (including the obligations under the Supply and Offtake Agreements which have an associated interest charge) of approximately $128.7 million in the second quarter of 2021 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the second quarter of 2020.

Interest expense decreased by $3.3 million, or 5.0%, to $62.8 million during the six months ended June 30, 2021 compared to $66.1 million during the six months ended June 30, 2020, primarily driven by the following:

• a decrease in the average effective interest rate of 0.36% during the six months ended June 30, 2021 compared to the six months ended June 30, 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 $64.9 million during the six months ended June 30, 2021 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the six months ended June 30, 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 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;

• 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;

◦ changes in the state income tax footprint for separate state jurisdictions.

We recognized income of $6.8 million from equity method investments during the second quarter of 2021, compared to $10.7 million for the second quarter of 2020, a decrease of $3.9 million.

This decrease was primarily driven by the following:

• a decrease in income from our investment in W2W Holdings LLC to a loss of $3.9 million in the second quarter of 2021 from a loss of $0.9 million in the second quarter of 2020.

During the six months ended June 30, 2021, we recognized income of $11.6 million from equity method investments, compared to $15.8 million for the six months ended June 30, 2020, an decrease of $4.2 million.

This decrease was primarily driven by the following:

• decrease in income from our logistics' equity method investments due to lower volumes as the impact of the February 2021 Winter Storm Uri was pervasive across all of our equity method investments' pipeline systems;

• a decrease in income from our investment in W2W Holdings LLC to a loss of $4.1 million in the second quarter of 2021 from a loss of $2.0 million in the second quarter of 2020.

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

See Note 2 of the condensed consolidated financial statements in Item 1.

Financial Statements, for additional information.

Management's Discussion and Analysis

Income tax benefit increased by $10.1 million in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• a pre-tax loss of $118.5 million in the second quarter of 2021, as compared to income of $62.6 million for the second quarter of 2020;

• an increase in our effective tax rate which was 38.8% for the second quarter of 2021, compared to (57.3)% for the second quarter of 2020 primarily due to the following:

◦ 2020 federal net operating loss carryback to a prior 35% tax rate year creating a 14% rate benefit reported as a discrete adjustment in the second quarter of 2020;

◦ changes in the second quarter estimated AETR applied to year-to-date loss for the second quarter of 2020 exceeded changes in AETR applied to year-to-date loss for the second quarter of 2021.

Income tax benefit decreased by $60.6 million during the six months ended June 30, 2021 compared to the same period for 2020, primarily driven by the following:

• pre-tax loss of $222.2 million in the six months ended June 30, 2021, as compared to pre-tax loss of $327.5 million for the six months ended June 30, 2020;

• a decrease in our effective tax rate which was 26.3% for the six months ended June 30, 2021, compared to 36.3% for the six months ended June 30, 2020 primarily due to the following:

◦ 2020 federal net operating loss carryback to a prior 35% tax rate year creating a 14% rate benefit reported as a discrete adjustment in the second quarter of 2020;

◦ the reversal of a valuation allowance attributable to book-tax basis differences in partnership investments reported as a discrete benefit in the first quarter of 2020.

Management's Discussion and Analysis

Refining Segment

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Refining Segment Margins

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

$ 2,415.7 $ 1,077.0 $ 4,155.8 $ 2,804.9

Cost of materials and other

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Refining margin

93.9 148.4 186.3 (30.3)

Operating expenses (excluding depreciation and amortization)

113.8 88.7 227.4 200.4

Contribution margin

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For that purpose, from a pricing perspective, we enter into commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future

For that purpose, from a pricing perspective, we enter into

Management's Discussion and Analysis

sales of refined products or to fix margins on future production.

commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future sales of refined products or to fix margins on future production.

We also enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage our RINs Obligation.

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Refinery Statistics

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Tyler, TX Refinery

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Tyler refining margin (2)

$ 5.20 $ 32.72 6.26 $ 4.62

Direct operating expenses $ 3.51 $ 3.00 3.54 $ 3.38

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Days in period

91 91 181 182

Total sales volume - refined product (average barrels per day) (1)

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Refinery Statistics (continued)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Big Spring, TX Refinery

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Days in period

91 91 181 182

Total sales volume - refined product (average barrels per day) (1)

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See tables below.

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

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

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

Management's Discussion and Analysis

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Inter-refinery Sales

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in barrels per day) 2021 2020 2021 2020

(Unaudited) (Unaudited)

Tyler refined product sales to other Delek refineries 1,797 2,190 1,945 1,477

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Refinery Sales to Other Segments

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in barrels per day) 2021 2020 2021 2020

(Unaudited) (Unaudited)

Tyler refined product sales to other Delek segments 897 1,592 909 2,400

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Pricing Statistics (average for the period presented)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

WTI — Cushing crude oil (per barrel) $ 66.19 $ 29.77 $ 62.21 $ 37.93

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WTS -- Midland crude oil (per barrel) $ 66.57 $ 29.61 $ 62.73 $ 37.69

$ 58.77 $ 44.99

LLS (per barrel) $ 68.04 $ 31.30 $ 64.21 $ 39.73

$ 60.18 $ 47.63

Brent crude oil (per barrel) $ 69.08 $ 33.35 $ 65.22 $ 42.16

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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 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:

Refining Segment Operational Comparison of the Three and Six Months Ended June 30, 2021 versus the Three and Six Months Ended June 30, 2020

Net revenues for the refining segment increased by $1,338.7 million, or 124.3%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in the average price of U.S.

Gulf Coast gasoline of 145.41%, ULSD of 114.67%, and HSD of 128.18%;

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.

• an increase in sales volumes of refined and purchased product of 0.3 million barrels and 1.0 million barrels, respectively.

Net revenues included sales to our retail segment of $91.8 million and $40.4 million, sales to our logistics segment of $74.1 million and $29.7 million, and sales to our other segment of $22.9 million and $5.0 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

We eliminate this intercompany revenue in consolidation.

Net revenues for the refining segment increased by $1,350.9 million, or 48.2%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increases in the average price of U.S.

Gulf Coast gasoline of 81.3%, ULSD of 54.0%, and HSD of 52.2%;

• decreases in sales volume of refined product totaling 5.0 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 2.2 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 $161.5 million and $109.0 million, sales to our logistics segment of $139.9 million and $110.5 million and sales to our other segment of $43.0 million and $14.3 million for the six months ended June 30, 2021 and 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;

• 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:

Cost of materials and other increased by $1,393.2 million, or 150.0%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in the cost of WTI Cushing crude oil, from an average of $29.77 per barrel to an average of $66.19, or 122.3%;

• increases in the cost of WTI Midland crude oil, from an average of $29.77 per barrel to an average of $66.41, or 123.1%;

• 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.

• an increase attributable to the $9.6 million change in pre-tax inventory valuation benefit recognized during the second quarter of 2021 compared to $193.7 million recognized during the prior year period;

• increase in RINs costs from an average cost per RIN of $0.40 and $0.54 for ethanol and biodiesel RINs, respectively during the second quarter of 2020 to and average of $1.62 and $1.71 during the second quarter of 2021;

Management's Discussion and Analysis

• a 31% increase purchased product volumes sold.

These increases were partially offset by the following:

• a decrease in hedging losses to a loss $22.6 million recognized during the second quarter of 2021 from a loss of $146.8 million recognized during the second quarter of 2020.

Cost of materials and other increased by $1,134.3 million, or 40.0%, during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increases in the cost of WTI Cushing crude oil, from an average of $37.93 per barrel to an average of $62.21, or 64.0%;

• increases in the cost of WTI Midland crude oil, from an average of $37.90 per barrel to an average of $62.74, or 65.5%;

• increases in RINs costs from an average cost per RIN of $0.34 and $0.51 for ethanol and biodiesel RINs, respectively during the six months ended June 30, 2020 to an average of $1.34 and $1.44 during the six months ended June 30, 2021;

• a 31% increase purchased product volumes sold.

These increases were partially offset by the following:

• the benefit (expense) of $30.2 million related to the change in pre-tax inventory valuation recognized during the six months ended June 30, 2021 compared to $(75.3) million recognized during the six months ended June 30, 2020;

• a decrease in hedging losses to $27.6 million recognized during the six months ended June 30, 2021 as compared to $66.4 million recognized during the six months ended June 30, 2020.

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.

These costs and fees were $101.9 million and $90.0 million during the second quarters of 2021 and 2020, respectively, and $197.7 million and $195.7 million during the six months ended June 30, 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);

• 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.

Refining margin decreased by $54.5 million, or 36.7%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in average RINs costs in the second quarter of 2021 compared to the second quarter of 2020;

• a decrease attributable to the $9.6 million change in pre-tax inventory valuation benefit recognized during the second quarter of 2021 compared to $193.7 million recognized during the prior year period;

• a 31% increase purchased product volumes sold, while overall sales increased only 4%.

Such decrease was partially offset by the following:

Management's Discussion and Analysis

• a 224.9% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 158.3% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 316.6% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery);

• a $124.2 million decrease in hedging losses.

Refining margin increased by $216.6 million, or 714.9%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• a 75.8% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 75.8% decline in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 63.6% decline in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery);

• a $38.8 million decrease in hedging losses;

• an increase in reversal benefit of inventory valuation reserve of during the during the six months of 2021 compared to 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;

• 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.

• increases in average RINs costs during the six months ended June 30, 2021 compared to the six months ended June 30, 2020;

• a 31% increase purchased product volumes sold, while overall sales volumes decreased.

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:

Such increase was offset by the following:

• decreases in contract services partially due to cost reduction measures continuing in the first quarter of 2021;

• decreases in employee related costs partially due to staff reductions made in prior year and suspension of matching contributions to our 401(k) plan.

Operating expenses increased by $25.1 million, or 28.3%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• an increase outside services, maintenance and lease costs primarily due to continued repairs and equipment rentals related to Winter Storm Uri, unplanned unit outage at our Tyler refinery, and additional repairs at our Big Spring and Krotz Springs refineries;

• an increase in variable cost primarily due to increased catalyst cost incurred at our Krotz Springs refinery and higher natural gas costs.

Operating expenses increased by $27.0 million, or 13.5%, during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• an increase outside services, maintenance and lease costs primarily due to continued repairs and equipment rentals related to Winter Storm Uri;

• an increase in utilities costs primarily associated with higher natural gas costs during the February 2021 related to Winter Storm Uri.

Such increases were offset by the following:

• a decrease in variable costs at our El Dorado refinery due to turnaround activities during the six months ended June 30, 2020

Management's Discussion and Analysis

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;

• 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;

• an increase in hedging losses compared to the prior-year period.

Contribution margin decreased by $79.6 million, or a 6.4% decline in contribution margin percentage, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• a decrease in refining margin primarily driven by higher average RINs costs, a decrease in reversal benefit related to inventory valuation reserve and higher percentage of purchased product sold, partially offset by improved crack spreads and decrease in hedging losses;

• an increase in operating expenses of $25.1 million, or 28.3%.

Contribution margin increased by $189.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• an increase in refining margin primarily driven by an overall increase in the average crack spreads, an increase in reversal benefit related to inventory valuation reserves and decrease in hedging losses, partially offset by higher percentage of purchased product sold and increase in average RINs cost.

Such increase was offset by the following:

• an increase in operating expenses of $27.0 million, or 13.5%

Management's Discussion and Analysis

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Logistics Contribution Margin and Operating Information

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net revenues $ 168.5 $ 117.7 $ 321.4 $ 281.1

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Big Spring Gathering Assets (3)

79,589 105,162 76,672 105,162

Plains Connection System 122,529 — 115,484 —

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(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 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:

(3) Prior-year period throughputs for the Big Spring Gathering Assets are for the 91 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

Logistics Segment Operational Comparison of the Three and Six Months Ended June 30, 2021 versus the Three and Six Months Ended June 30, 2020

Net revenues increased by $50.8 million, or 43.2%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• an increase in 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.

• increases in the average volumes of gasoline and diesel sold and 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 0.3 million gallons and 0.7 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:

◦ the average sales prices of gasoline and diesel sold increased by $1.14 per gallon and $1.08 per gallon, respectively.

Net revenues included sales to our refining segment of $101.9 million and $90.0 million for the three months ended June 30, 2021 and June 30, 2020, respectively, and sales to our other segment of $0.5 million and $0.4 million for the three months ended June 30, 2021 and 2020, respectively.

We eliminate this intercompany revenue in consolidation.

Net revenues increased by $40.3 million, or 14.3%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

Management's Discussion and Analysis

• 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.

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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.

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.

• increased revenues at our Big Spring Refinery Crude Pipeline (the "BSR Crude Pipeline"), as a result of new contracts executed in the second quarter of 2020, during the six months ended June 30, 2021 when compared to the six months ended June 30, 2020.

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

◦ the average sales prices per gallon of gasoline and diesel sold increased $0.57 per gallon and $0.55 per gallon, respectively.

◦ the average volumes of gasoline sold increased 13.6 million gallons, partially offset by a 8.5 million decrease of diesel gallons sold.

Such increases were partially offset by the following:

• 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 six months ended June 30, 2021 when compared to the six months ended June 30, 2020.

• decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance.

Net revenues included sales to our refining segment of $197.7 million and $195.7 million for the six months ended June 30, 2021 and 2020, respectively, and sales to our other segment of $0.9 million and $1.2 million for the six months ended June 30, 2021 and 2020, respectively.

We eliminate this intercompany revenue in consolidation.

Management's Discussion and Analysis

Cost of Materials and Other

Cost of materials and other for the logistics segment 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.

Cost of materials and other for the logistics segment increased $44.9 million, or 102.3%, in the second quarter of 2021 compared to the second quarter of 2020 primarily driven by the following:

• increases in the average cost per gallon of gasoline and diesel sold, and increases in the volume of diesel and gasoline sold in our West Texas marketing operations:

◦ the average volumes of gasoline and diesel sold increased by 0.3 million gallons and 0.7 million gallons, respectively.

◦ the average cost per gallon of gasoline and diesel sold increased $1.21 per gallon and $1.04 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.

Our logistics segment purchased product from our refining segment of $74.1 million and $29.7 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

We eliminate these intercompany costs in consolidation.

Management's Discussion and Analysis

Cost of materials and other for the logistics segment increased $24.7 million, or 17.0%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily driven by the following:

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

◦ the average cost per gallon of gasoline and diesel sold increased $0.62 per gallon and $0.52 per gallon, respectively.

◦ the average volumes of gasoline sold increased 13.6 million gallons, partially offset by a 8.5 million decrease of diesel gallons sold.

Our logistics segment purchased product from our refining segment of $139.9 million and $110.5 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

We eliminate these intercompany costs in consolidation.

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;

• 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.

Operating expenses increased by $3.1 million, or 25.0%, in the second quarter of 2021 compared to the second quarter of 2020, driven by the following:

• increases in employee and outside service costs due to reduction of cost cutting measures were implemented to respond to the COVID-19 Pandemic such as delaying non-essential projects;

• increases in utilities and other variable expenses due to higher throughput.

Operating expenses increased by $2.4 million, or 8.8%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, driven by the following:

• increases in employee and outside service costs due to the reduction of cost cutting measures were implemented to respond to the COVID-19 Pandemic such as delaying non-essential projects;

Management's Discussion and Analysis

• increases in variable expenses such as maintenance and materials costs due to higher throughput;

• increases 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:

Contribution margin increased by $2.8 million, or 4.6%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• an increase in volumes sold and increase in gross margin of $3.60 per barrel in our West Texas marketing operations;

• 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:

• an increase in operating expenses.

Contribution margin increased by $13.2 million, or 12.1%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• an increase in gross margin of $1.85 per barrel in our West Texas marketing operations;

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Such increases were partially offset by the following:

• decreases in gasoline and diesel volumes sold in our West Texas marketing operations.

• a decrease in gasoline and diesel volumes sold in our West Texas marketing operations;

• an increase in operating expenses.

Management's Discussion and Analysis

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Retail Contribution Margins

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net revenues $ 209.0 $ 165.4 $ 383.8 $ 344.0

Cost of materials and other

164.7 119.6 301.2 263.7

Operating expenses (excluding depreciation and amortization)

22.4 21.5 43.8 43.7

Contribution margin

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Operating Information

Three Months Ended

Number of stores (end of period)

252 253 252 253

Average number of stores

252 253 252 253

Average number of fuel stores

247 248 247 248

Retail fuel sales

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Average retail gallons sold per average number of fuel stores (in thousands)

174 171 336 365

Average retail sales price per gallon sold

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Merchandise sales per average number of stores (in millions)

$ 0.3 $ 0.4 $ 0.6 $ 0.6

Merchandise margin %

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Same-Store Comparison (2)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Change in same-store fuel gallons sold

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Change in same-store merchandise sales

(5.4) % 13.1 % (1.9) % 7.6 %

(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.

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(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 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;

Retail Segment Operational Comparison of the Three and Six Months Ended June 30, 2021 versus the Three and Six Months Ended June 30, 2020

Net revenues for the retail segment increased by $43.6 million, or 26.4%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• an increase in total fuel sales which were $124.5 million in the second quarter of 2021 compared to $75.9 million in the second quarter of 2020, primarily attributable to an increase of $1.11 in average price charged per gallon sold;

• slightly offset by a decrease in merchandise sales to $84.5 million in the second quarter of 2021 compared to $89.4 million in the second quarter of 2020 attributable to a same-store sales decrease of 5.4%.

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.

Net revenues for the retail segment increased by $39.8 million, or 11.6%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• an increase in total fuel sales which were $224.6 million in the six months of 2021 compared to $182.9 million in the six months of 2020, primarily attributable to a $0.69 increase in average price charged per gallon sold, slightly offset by a decrease in total retail fuel gallons sold;

• slightly offset by a decrease in merchandise sales to $159.2 million in the six months of 2021 compared to $161.1 million in the six months of 2020, primarily driven by the same-store sales decrease of 1.9%

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;

• 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.

Cost of materials and other for the retail segment increased by $45.1 million, or 37.7%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• an increase in average cost per gallon of $1.16 or 86.5% applied to fuel sales volumes that increased period over period.

Our retail segment purchased finished product from our refining segment of $91.8 million and $40.4 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

We eliminate this intercompany cost in consolidation.

Cost of materials and other for the retail segment increased by $37.5 million, or 14.2%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• an increase in average cost per gallon of $0.69 or 41.9% applied to fuel sales volumes that decreased slightly period over period.

Our retail segment purchased finished product from our refining segment of $161.5 million and $109.0 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

We eliminate this intercompany cost in consolidation.

Management's Discussion and Analysis

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.

Operating expenses for the retail segment increased by $0.9 million, or 4.2% in the second quarter of 2021 compared to the second quarter of 2020.

Operating expenses for the retail segment increased by $0.1 million, or 0.2% in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

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.

Management's Discussion and Analysis

Contribution margin for the retail segment decreased by $2.4 million, or 9.9%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• a decrease in average fuel margin of $0.0570 per gallon;

• a 5.5% decrease in merchandise sales, offset by an improvement in merchandise margin percentage of 2.0%;

• and a 4.2% increase in operating expenses.

Contribution margin for the retail segment increased by $2.2 million, or 6.0%, in the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily driven by a 1.6% increase in merchandise margin.

Liquidity and Capital Resources

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• 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.

At June 30, 2021 our total liquidity amounted to $2.1 billion comprised primarily of $694.1 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), $561.2 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.

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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.

Management's Discussion and Analysis

acquisitions.

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

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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.

As of June 30, 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

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.

Additionally, we were in compliance with incurrence covenants during the quarter ended June 30, 2021 to the extent that any of our activities triggered these covenants.

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

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

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

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

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) the following:

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.

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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.

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, each as otherwise contemplated and allowed under our incurrence covenants.

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

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flow Data:

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Cash Flows from Operating Activities

Net cash used in operating activities was $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.

Net cash provided by operating activities was $134.9 million for the six months ended June 30, 2021, compared to net cash used of $323.1 million for the comparable period of 2020.

Cash receipts from customers and cash payments to suppliers and for salaries increased resulting in a net $455.1 million increase in cash provided by operating activities.

Additionally, cash paid for debt interest decreased by $10.4 million.

Partially offsetting these increases in cash provided were an increase in income taxes paid of $3.8 million and a decrease in dividends received of $3.7 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.

Net cash used in investing activities was $118.7 million for the first six months of 2021, compared to $155.9 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 $235.4 million in 2020, to $132.7 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.

Additionally, equity method investment contributions decreased $27.9 million primarily due to contributions made related to our Red River Pipeline Joint Venture and WWP Project Financing JV (each as defined in Note 5 of the condensed consolidated financial statements in Item 1.

Financial Statements) for $10.5 million and $18.9 million, respectively, during the six months ended June 30, 2020.

During the six months ended June 30, 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 and proceeds of $39.9 million from the sale of the Bakersfield refinery in the prior year 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.

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.

Net cash provided by financing activities was $29.3 million for the six months ended June 30, 2021, compared to $372.7 million in the comparable 2020 period.

This decrease in cash provided was predominantly due to net payments on long-term revolvers and term debt of $101.5 million during the six months ended June 30, 2021, compared to net proceeds of $385.4 million in the comparable 2020 period.

Such decreases were partially offset by an increase in net proceeds from inventory financing arrangements to $156.0 million for the six months ended June 30, 2021 compared to $59.9 million in the comparable 2020 period.

Additionally, cash provided increased $46.0 million due to suspension of dividends in the fourth quarter of 2020.

Cash Position, Indebtedness and Other Financing Arrangements

As of June 30, 2021, our total cash and cash equivalents were $833.0 million and we had total long-term indebtedness of approximately $2,244.3 million.

The total long-term indebtedness is net of deferred financing costs and debt discount of $11.8 million and $21.6 million, respectively.

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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 $1,266.5 million under the Term Loan Credit Facility, due on March 30, 2025, with effective interest rate of 3.53%;

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• an aggregate principal amount of $250.0 million under the Delek Logistics 2025 Notes, due in 2025, with effective interest rate of 7.21%;

• an aggregate principal amount of $400.0 million under the Delek Logistics 2028 Notes, due in 2028, with effective interest rate of 7.41%;

• an aggregate principal amount of $33.0 million under the Reliant Bank Revolver, due on June 30, 2022, with fixed interest rate of 4.50%;

• the Revolving Credit Facility, due on March 30, 2023, with average borrowing rate of 3.50%, no principal amount outstanding.

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.

Financial Statements, for additional information about our separate credit facilities included in long-term indebtedness.

Additionally, we also utilize other financing arrangements to finance operating assets and/or, from time to time, to monetize other assets that may not be needed in the near term, when internal cost of capital and other criteria are met.

Such arrangements include our supply and offtake arrangements, which finance a significant portion of our first-in, first-out inventory at the refineries and, from time to time, RINs or other non-inventory product financing liabilities.

Our supply and offtake obligation with J.

Aron amounted to $496.3 million at June 30, 2021, $329.0 million of which is due on December 30, 2022, except that a portion (not to exceed $28.6 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.

Management's Discussion and Analysis

Our product financing liabilities consisted primarily of RIN financings as of June 30, 2021, and totaled $358.8 million, all of which is due by December 31, 2021.

See further description of these types of arrangements in the Environmental Credits and Related Regulatory Obligations accounting policy disclosed in Note 2 to our audited consolidated financial statements included Item 8.

Financial Statements and Supplementary Data, of our December 31, 2020 Annual Report on Form 10-K.

For both arrangements and the related commitments, see also our "Contractual Obligations" section included in Item 2.

Management's Discussion and 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):

2021 Forecast Three Months Ended March 31, 2021

Our capital expenditures for the six months ended June 30, 2021 were $132.7 million, of which approximately $118.5 million was spent in our refining segment, $10.4 million in our logistics segment, $1.3 million in our retail segment and $2.5 million at the holding company level.

The following table summarizes our actual capital expenditures for the six months ended June 30, 2021 and planned capital expenditures for the full year 2021 by operating segment and major category (in millions):

2021 Forecast Six Months Ended June 30, 2021

Sustaining maintenance, including turnaround activities (1)

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What changed 10-Q

Item 2. Management’s Discussion and Analysis