What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-05 · 366 added, 210 removed, 718 unchanged (45% 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 that refer to the previously announced proposed acquisition of 3 Bear Delaware Holding – NM, LLC (the “3 Bear Acquisition”), including any statements regarding the expected timing, benefits, synergies, growth opportunities, impact on liquidity and prospects, and other financial and operating benefits thereof, and the timing or satisfaction of regulatory and other closing conditions and the closing of the 3 Bear Acquisition, 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 early 2020 (the "COVID-19 Pandemic" or the "Pandemic") and its impact on oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning possible future results of operations, business and growth strategies, including as the same may be impacted by the attack on Ukraine by Russia in February 2022 (the "Russia-Ukraine War"), 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 that refer to the acquisition of 3 Bear Delaware Holding – NM, LLC (the “3 Bear Acquisition”), including any statements regarding the expected benefits, synergies, growth opportunities, impact on liquidity and prospects, and other financial and operating benefits thereof, 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 early 2020 (the "COVID-19 Pandemic" or the "Pandemic") and its impact on oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning possible future results of operations, business and growth strategies, including as the same may be impacted by the attack on Ukraine by Russia in February 2022 (the "Russia-Ukraine War"), 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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• diminishment in value of long-lived assets may result in an impairment in the carrying value of the assets on our balance sheet and a resultant loss recognized in the statement of operations;

• the unprecedented market environment and economic effects of the COVID-19 Pandemic, including uncertainty regarding the

Management's Discussion and Analysis

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

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

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

Management's Discussion and Analysis

• unanticipated increases in cost or scope of, or significant delays in the completion of, our capital improvement and periodic turnaround projects;

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• compliance, or failure to comply, with restrictive and financial covenants in our various debt agreements;

• the suspension of our quarterly dividend;

• changes in our ability to pay dividends;

• seasonality;

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Business and Economic Environment Overview

During the first quarter 2022, the economy has continued to recover from the impact of the COVID-19 Pandemic (the "Pandemic"), both globally and domestically.

The widespread availability of vaccines and testing in the U.S.

has contributed to stabilization in cases of COVID-19 and decreasing mortality rates across much of the country during recent months, and likewise has led to return to work, return to schools, and increased travel.

These conditions have, in turn, contributed to improvements in domestic demand and refining margins heading into 2022 and during the first quarter.

Additionally, while the recent and on-going Russia-Ukraine War has caused uncertainty in the geopolitical landscape and across global markets, constraints on crude oil supply resulting from sanctions on Russia have contributed to significant increases in both crude oil prices and crack spreads.

These conditions contributed to a significant improvement in our refining operating results in the first quarter of 2022 compared to the prior year period.

Further impacting the favorability of our current quarter results were significant improvements in our refining utilization rates, where last year we had outages related to turnaround activities, a fire at our El Dorado refinery and the effects of Winter Storm Uri.

Supported by strong performance in both our logistics and retail segments as well, and despite the continued impact of RINs costs on our crack spread capture rates, our operating results were significantly improved during the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021.

We continue to monitor both the Pandemic and the geopolitical environment and the related uncertainties so that we may quickly implement measures to mitigate resultant risk, as needed.

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

• Reviewing planned production throughputs at our refineries and planning for optimization of operations;

During the second quarter 2022, the domestic oil and gas industry benefited from unprecedented conditions, including continued post-Pandemic demand exacerbated by global supply constraints, which led to an extraordinary crack spread environment.

Crude oil supply constraints have persisted for a variety of reasons, including the continued effects from Pandemic-related refinery closures as well as the continuing impact of sanctions on Russian oil exports and transportation as a result of the ongoing Russia-Ukraine War.

These conditions have coalesced into an environment producing second quarter 2022 increases in our average benchmark crack spreads ranging from 152.3% to 274.1% compared to the second quarter of 2021, and increases ranging from 560.1% to 1,684.1% compared to the Pandemic low in the second quarter of 2020.

At the same time, supply chain constraints continue across industries, attributable to labor and driver shortages as well as lingering international trade tensions.

These and other factors have triggered an inflationary environment, resulting in a 9.1% year-over-year increase in the Consumer Price Index for All Urban Consumers as of June 30, 2022, as well as significant increases across virtually every category (including food, utilities and motor fuel), with fuel oil and other fuels showing the largest twelve-month increase as of June 30, 2022 of 70.4% and motor fuel showing the second largest increase of 60.2%.

To combat the inflationary environment, the Federal Reserve has raised interest rates 225 bps since January 2022, representing a 900% increase over the 0.25% fed funds rate which held steady for all of 2021.

The stock market volatility is reflective of the stressed economic environment as well, with the S&P 500 and the Dow Industrial Average falling by 11.9% and 10.3%.

respectively, compared to June 30, 2022.

For the broader market, debt and equity are generally expensive, while stock buy-backs may be at a bargain, while for the energy sector, there have been pockets of opportunity thanks to the strong energy-specific economics.

This environment provides unique opportunities for those midstream and downstream companies that have successfully weathered the Pandemic.

If downstream companies can avoid outages and maximize utilization, they are well positioned to capitalize on the record-setting or near-record crack spreads.

Additionally, midstream companies, many of which have built-in recessionary protections as a result of minimum volume commitments on throughput and dedicated acreage agreements, are positioned to run barrels through logistics assets at higher utilization than the minimums during this period.

Because of this favorability, well-positioned midstream and downstream players can potentially take advantage of capital markets when the timing is right.

Likewise, strategic acquisitions in midstream can be particularly favorable, because of that built-in recessionary protection.

Thanks to our diligent efforts to manage capital and liquidity and preserve our assets during the Pandemic, we were well-positioned coming into the second quarter 2022 to take advantage of the favorable economic environment.

From a refining perspective, as a result of

Management's Discussion and Analysis

• Coordinating planned maintenance activities with possible downtime as a result of possible reductions in throughputs;

• Searching for additional storage capacity if needed to store potential builds in crude oil or refined product inventories;

• Finding additional suppliers for key or specialty items or securing inventory or priority status with existing vendors;

• Continued monitoring of capital expenditures;

• Continuing to evaluate the suspension of the share repurchase program and dividend distributions until our internal parameters are met for resuming such activities;

• Adopting modified remote working where possible and when immediate exposure risk warrants, and where on-site operations are required, taking appropriate safety precautions;

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

• Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and other employee related costs, and reducing or eliminating non-critical travel.

As evidenced by our successful implementation of these risk mitigation activities during 2020 and 2021, we believe these strategies continue to be appropriately risk-responsive to mitigate the uncertainties related to the Pandemic and the Russia-Urkaine War and their potential impact on our cash flows and results of operations in the near term, including with respect to our liquidity positioning, operational flexibility and ability to respond to a reasonable degree of economic volatility.

See the "Liquidity and Capital Resources" section of Item 2.

MD&A for further information.

expansive and targeted surgical strike turnaround activities we conducted over the last couple of years, we made the strategic decision to run our refineries at or near capacity to take advantage of the tremendous crack spread environment.

As a result, we saw our utilization increase from 88.5% in the second quarter of 2021 to a record high of 97.6% in the second quarter of 2022, Additionally, in our midstream business, we successfully closed on an acquisition that expands our gathering footprint into the Delaware sub-basin of the Permian, and expanded our product offering to include natural gas gathering and processing as well as wastewater processing and disposal.

This acquisition not only diversifies our logistics customer base to include significantly more third-party customers, it allows us to provide comprehensive logistics services in the Delaware Basin, while also serving as a funnel into our existing midstream Permian activities.

While the impact on the second quarter is not significant (as a result of the Acquisition closing in June), we expect that the acquisition itself will be immediately accretive, delivering incremental contribution margin and cash flows attributable to existing long-term dedicated acreage agreements as well as some contracts with minimum volume commitments.

Additionally, the Delaware sub-basin is one of the most prolific drilling locations in the U.S., providing us significant opportunity for expanded gathering and processing as the producers ramp up production.

As a result of all these efforts, our revenues increased 173.0% to $6.0 billion during the second quarter 2022 compared to the second quarter 2021, while net income attributable to Delek increased $418.5 million.

On a year-to-date basis, much of the same macroeconomic favorability was applicable when comparing our results to the prior year period, and we were able to capitalize on those conditions in much the same way – namely, through higher utilization rates at our refineries.

Further impacting our year-over-year improvement in year-to-date results was the impact on the prior year period of outages related to turnaround activities, a fire at our El Dorado refinery and the effects of the February 2021 severe weather event ("Winter Storm Uri").

All of these factors led to an increase in our refining utilization rates from an average of 73.0% for the six months ended June 30, 2021 to 93.9% for the six months ended June 30, 2022, and increases to revenue and net income of $5.9 billion and $495.1 million, respectively.

Additionally, cash flows from operations increased 334.3% to $585.9 million for the six months ended June 30, 2022, compared to $134.9 million for the six months ended June 30, 2021, despite higher interest costs which were attributable to a combination of higher variable interest rates on certain of our credit facilities as well as incremental interest on borrowings used to fund the 3 Bear Acquisition.

As a result of these strong cash flows, we were able to declare both a special dividend and reinstate the quarterly dividend, as well as obtain board approval to increase our share repurchase authorization, both of which are indicative of our continued commitment to return value to shareholders.

See further discussion on macroeconomic factors and market trends, including the impact on 2021 and the outlook for 2022, in the ‘Market Trends’ section below.

See also the ‘Results of Operations’ section below for further discussion.

Refining Overview

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

The refining segment has a combined nameplate capacity of 302,000 barrels per day as of March 31, 2022.

The refining segment has a combined nameplate capacity of 302,000 barrels per day as of June 30, 2022.

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

Tyler, Texas refinery (the "Tyler refinery") El Dorado, Arkansas refinery (the "El Dorado refinery") Big Spring, Texas refinery (the "Big Spring refinery") Krotz Springs, Louisiana refinery (the "Krotz Springs refinery")

Tyler, Texas refinery

(the "Tyler refinery") El Dorado, Arkansas refinery

(the "El Dorado refinery") Big Spring, Texas refinery (the "Big Spring refinery") Krotz Springs, Louisiana refinery

(the "Krotz Springs refinery")

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

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Primary Products Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, petroleum coke and sulfur Gasoline, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, asphalt and sulfur Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, aromatics and sulfur Gasoline, jet fuel, high-sulfur diesel, light cycle oil, liquefied petroleum gases, propylene and ammonium thiosulfate

Relevant Crack Spread Benchmark Gulf Coast 5-3-2

Crack Spread Benchmark Gulf Coast 5-3-2

Gulf Coast 5-3-2 (2)

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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 Environmental Protection Agency's ("EPA") Renewable Fuel Standards regulations total output cannot exceed 75,000 bpd.

El Dorado refinery’s output generally does not exceed 75,000.

(1) While the El Dorado refinery has a total nameplate capacity of 80,000 bpd, El Dorado refinery’s output generally does not exceed 75,000, which is the maximum output for the small refinery exemption under the Environmental Protection Agency's ("EPA") Renewable Fuel Standards..

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

Gulf Coast ("Gulf Coast") 5-3-2 crack spread because we believe it to be the most closely aligned benchmark.

(3) Our Big Spring refinery is capable of processing substantial volumes of sour crude oil, which has historically cost less than intermediate, and/or substantial volumes of sweet crude oil, and therefore the West Texas Intermediate ("WTI") Cushing/ West Texas Sour ("WTS") price differential, taking into account differences in production yield, is an important measure for helping us make strategic, market-respondent production decisions.

(3) Our Big Spring refinery is capable of processing substantial volumes of sour crude oil and/or substantial volumes of sweet crude oil, and therefore the West Texas Intermediate ("WTI") Cushing/ West Texas Sour ("WTS") price differential, taking into account differences in production yield, is an important measure for helping us make strategic, market-respondent production decisions.

(4) The Krotz Springs refinery has the capability to process substantial volumes of light sweet crude oil to produce a high percentage of refined light products.

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Logistics Overview

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

It is comprised of the consolidated balance sheet and results of operations of Delek Logistics Partners, LP ("Delek Logistics", NYSE:DKL), where we owned an 78.9% interest in Delek Logistics at March 31, 2022.

Our logistics segment (or "Logistics") gathers, transports and stores crude oil and natural gas, markets, distributes, transports and stores refined products and disposes and recycles water in select regions of the southeastern United States, the Delaware Basin in New Mexico and West Texas for our refining segment and third parties.

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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The logistics segment owns or leases approximately 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties.

In addition, effective with the 3 Bear Acquisition, June 1, 2022, Delek's logistics segment now includes 3 Bear's operations of crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin in New Mexico.

The asset base includes approximately 485 miles of pipelines, 88 million cubic feet ("MMCf") per day ("MMCf/d") of cryogenic natural gas processing capacity, 140 thousand barrels ("MBbl") per day ("MBbl/d") of crude gathering capacity, 120 MBbl of crude storage capacity and 200 MBbl/d of water disposal capacity.

(See further discussion in Note 2 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

Retail Overview

Our retail segment (or "Retail") at March 31, 2022 includes the operations of 248 owned and leased convenience store sites located primarily in West Texas and New Mexico.

Our retail segment (or "Retail") at June 30, 2022 includes the operations of 248 owned and leased convenience store sites located primarily in 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.

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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, 2022, we have removed the 7-Eleven brand name at 55 of our store locations.

As of June 30, 2022, we have removed the 7-Eleven brand name at 55 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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Strategic Update

A New Framework:

Our Framework:

Long-Term Sustainability

The emphasis on environmental responsibility and long-term economic and environmental sustainability is accelerating, with increased demand for transparency evolving out of the ESG movement.

The emphasis on environmental responsibility and long-term economic and environmental sustainability is accelerating, with increased demand for transparency evolving out of the Environmental, Social and Governance ("ESG") movement.

As we evaluate our current ESG positioning in the market, we also must integrate a broader sustainability view to all of our activities, both operational and strategic.

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That means, when we make decisions, we plan to identify those risks that come with the greatest potential for success, and pursue them with care.

Increasing Shareholder Value through Payment of Dividends:

On June 21, 2022, our Board of Directors voted to declare a special cash dividend of $0.20 per share of our common stock, which was paid on July 20, 2022 to shareholders of record on July 12, 2022.

On August 1, 2022, our Board of Directors voted to declare a quarterly cash dividend of $0.20 per share of our common stock, payable on September 6, 2022 to shareholders of record on August 22, 2022.

Increasing Shareholder Value through Increase of Share Repurchase Program:

On August 1, 2022, our Board of Directors approved an approximately $170.0 million increase in its share repurchase authorization, bringing the total amount available for repurchases under current authorizations to $400.0 million.

We expect to repurchase approximately $25 to $35 million of stock in the third quarter 2022.

Increasing Flexibility through Debt Amendments:

On May 26, 2022, Delek Logistics entered into a Third Amendment to the Delek Logistics Credit Facility which, among other things, provides for certain changes to the Delek Logistics Credit Facility in connection with the 3 Bear Acquisition in respect of pro forma calculations and certain other requirements.

Further, on May 26, 2022, Delek Logistics entered into a Fourth Amendment (the “Fourth Amendment”) to the Delek Logistics Credit Facility.

Among other things, the Fourth Amendment:

(i) increased the U.S.

Revolving Credit Commitments (as defined in the Delek Logistics Credit Facility) by an amount equal to $150.0 million, for an aggregate amount of $1.0 billion, (ii) increased the U.S.

L/C Sublimit (as defined in the Delek Logistics Credit Facility) to an aggregate amount equal to $90.0 million and (iii) increased the U.S.

Swing Line Sublimit (as defined in the Delek Logistics Credit) to an aggregate amount equal to $18.0 million.

The exercise of the accordion feature gave Delek Logistics the flexibility to utilize borrowings under the Delek Logistics Credit Facility to help fund the acquisition of 3 Bear while continuing to maintain sufficient availability to continue to effectively manage working capital needs and liquidity risk, and to evaluate longer term capitalization strategies.

Increasing Shareholder Value and Reducing Outsider Risk through Stock Purchase and Cooperation Agreement:

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Icahn (collectively, the “Icahn Group”), pursuant to which the Company agreed to purchase an aggregate of 3,497,268 shares of common stock of the Company, at a price per share of $18.30, the closing price of a share of Company common stock on the New York Stock Exchange on March 4, 2022, the last trading day prior to the execution of the Ichan Group Agreement, which equals an aggregate purchase price of $64.0 million.

(See further discussion in Note 16 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

Focus on Leadership Succession Planning:

On March 28, 2022, Delek announced a Chief Executive Officer ("CEO") succession plan under which Ezra Uzi Yemin, the Company’s current President and CEO, will become Executive Chairman of the Board of Directors (the “Board”).

Under the succession plan, the Board has approved the appointment of Avigal Soreq as the next President and CEO of the Company, to be effective in June 2022.

Soreq has been the Chief Executive Officer of El Al Israel Airlines, the national airline of Israel, since January 2021.

On June 9, 2022, Avigal Soreq was appointed the President and Chief Executive Officer ("CEO") and as a member of the Board of Directors (the "Board") under a previously announced CEO succession plan.

Ezra Uzi Yemin, the Company’s previous President and CEO, was appointed as the Executive Chairman of the Board.

Soreq was previously the Chief Executive Officer of El Al Israel Airlines, the national airline of Israel, since January 2021.

Prior to that, he served as a member of the Company’s executive management team, including as the Chief Operating Officer from March 2020 until January 2021, its Chief Commercial Officer from November 2016 until March 2020, an Executive Vice President from August 2015 until January 2021, and a Vice President from 2012 until 2015.

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Soreq served as an Executive Vice President of Delek Logistics GP, LLC from 2015 until 2021, and as its Vice President from 2012 until 2015.

In addition, effective March 27, 2022, the Board named Todd O’Malley the Chief Operating Officer of the Company.

O’Malley has served as an Executive Vice President and the Chief Commercial Officer of the Company since March 2021.

The Company also announced that it has named Nithia Thaver an Executive Vice President and the Company’s President of Refining.

Thaver has served as the Company’s Senior Vice President, Refining, since December 2018.

Delek also announced on March 27, 2022, that Leonardo Moreno, a highly experienced executive in the global renewable energy and technology sector, has been appointed director to the Board.

Moreno will stand for election at the Company’s 2022 annual meeting of stockholders.

With this appointment, the Board has been expanded to comprise eight directors, seven of whom are independent and three of whom are diverse, fulfilling the Company’s objective of at least 30% of the Board comprising diverse members by 2022.

With these appointments of Messrs.

Soreq and Moreno, the Board has been expanded to comprise nine directors, seven of whom are independent and three of whom are diverse, fulfilling the Company’s objective of at least 30% of the Board comprising diverse members by 2022.

Management's Discussion and Analysis

Key Initiative:

Implementing One Delek Culture Transformation Key Initiative:

Planning for Refinery of the Future Operational Transformation

Focused Objective:

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That means, when we make decisions, we plan to identify those risks that come with the greatest potential for success, and pursue them with care.

Planned Strategic Midstream Acquisition:

On April 8, 2022, DKL Delaware Gathering, LLC (the “Purchaser”), a subsidiary of Delek Logistics, entered into a Membership Interest Purchase Agreement with 3 Bear Energy – New Mexico LLC (the “Seller”) to purchase 100% of the limited liability company interests in 3 Bear Delaware Holding – NM, LLC (the “Purchased Interests”), related to Seller’s crude oil and gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin in New Mexico (the “Purchase Agreement”).

The purchase price for the Purchased Interests is $624.7 million, subject to customary adjustments under the Purchase Agreement for net working capital and indebtedness.

The Purchaser paid a deposit under the Purchase Agreement of approximately $31.2 million.

The transactions contemplated by the Purchase Agreement are expected to close around mid-year 2022.

(See further discussion in Note 18 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

This planned acquisition provides us the opportunity to significantly expand our third-party midstream EBITDA and contribution margin within our logistics segment.

Completed Strategic Midstream Acquisition:

On June 1, 2022, DKL Delaware Gathering, LLC, a subsidiary of Delek Logistics, completed the acquisition of 100% of the limited liability company interests in 3 Bear Delaware Holding – NM, LLC (“3 Bear”) from 3 Bear Energy – New Mexico LLC (the “Seller”), related to Seller’s crude oil and gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin in New Mexico.

The purchase price for 3Bear was $624.7 million, subject to customary adjustments, and was financed through a combination of cash on hand and borrowings under Delek Logistics' existing credit agreement.

(See further discussion in Note 2 and Note 8 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

This acquisition provides us the opportunity to significantly expand our third-party midstream contribution margin within our logistics segment.

Management's Discussion and Analysis

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Historically, the impact of commodity price volatility on our refining margins (as defined under the heading "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 Renewable Identification Numbers ("RINs").

During the first quarter 2022, the economy has continued to recover from the impact of the COVID-19 Pandemic, both globally and domestically.

The widespread availability of vaccines and testing in the U.S.

These conditions have, in turn, contributed to improvements in domestic demand for refined products and refining margins, which were further impacted by the Pandemic-related reduction in crude oil production and the closure of various domestic refining operations.

Additionally, the Russia-Ukraine War has caused significant consternation among NATO countries and across the global landscape, resulting in sanctions on Russia and disrupting the global markets in ways that could not and cannot be fully anticipated.

The reduced dependence on the Russian oil supply is impacting demand for domestic crude and refined product, as well as natural gas exports.

The uncertainties surrounding future oil supply are compounded by conflicts in the Middle East, which resulted in damaged fuel storage facilities in Abu Dhabi and increases in oil production in countries such as Libya and Kazakhstan in response to blockades and other disruptions.

All of these contributing factors, combined with upward price pressures on natural gas, liquified natural gas ("LNG"), and coal energy are causing an increase in the demand for hydrocarbon-based energy.

Because of the increasing post-Pandemic demand combined with the Russia-Ukraine War putting pressure on global supply of both crude oil and petroleum-based products, there were continued marked improvements in refined product pricing and crack spreads during the first quarter 2022.

Average gasoline (CBOB) prices increased to $2.71 from $1.71 in the first quarter 2022 compared to the first quarter 2021, or a 58.2% increase, while the average 5-3-2 ULSD crack spread has increased to $23.68 from $13.57 in the first quarter 2022 compared to the first quarter 2021, or a 74.5% increase.

Subsequent to March 31, 2022, we continue to see strong market conditions in downstream refining, with distillate crack spreads reaching record highs.

The domestic WTI differentials compared to Brent continued to be favorable during the first quarter of 2022, while the WTI Midland differential to Cushing remained relatively flat coming off the fourth quarter 2021, though it was favorable to our operations compared to the premium environment that existed in the first quarter of 2021.

During the Pandemic, when demand was constrained and crack spreads did not always support running at high utilization levels, we intentionally focused our efforts on targeted operational improvements and turnaround activities that would position us well for post-Pandemic economic recoveries.

As a result of those efforts, including several targeted turnaround activities performed during 2021, and despite normal seasonality pressures, we were poised to take advantage of the current highly favorable market conditions and optimize our market share capture.

Our operating results demonstrate the success of these efforts, reflecting a crude throughput utilization rate of 95% in the first quarter 2022 compared to 64% in the first quarter of 2021.

As we look to the second quarter, we plan to continue to capitalize on our Pandemic strategic activities and expect to run our refineries at or near our nameplate capacity.

Furthermore, looking beyond the second quarter, with no planned major turnaround activity for the remainder of the year and barring unforeseen disruptions, we are well-positioned to run our refineries at optimum utilization rates for the duration of 2022 for as long as these favorable crack spread conditions persist.

Additionally, our refining margin profitability is impacted by regulatory factors, including the cost of RINs.

During the second quarter of 2022, the domestic oil and gas industry benefited from unprecedented conditions, including continued post-Pandemic demand exacerbated by global supply constraints, which led to record crack spreads.

Average gasoline (CBOB) prices increased by 71.2% to $3.40 in the second quarter 2022 compared to the second quarter 2021, while the average 5-3-2 ULSD crack spread has increased 163.3% to $44.03 from $16.72 in the second quarter 2022 compared to the second quarter 2021.

Market Outlook for the Remainder of 2022

As we finished the first quarter, we saw increasing pressure on crude oil and refined product supply, cemented with the March 8, 2022 formal announcement of a ban on US imports of Russian oil.

Looking forward to the second quarter, the pressure is only continuing to build as more countries sanction Russia and supply chain disruptions mount across the War-affected regions.

Furthermore, as the Russia-Ukraine War continues, industry forecasts predict that Russian oil exports (crude oil, products, and feedstocks) will remain significantly lower than pre-War volumes in the near term, and that such conditions may extend through the remainder of 2022.

These conditions support a bullish outlook for continued strong demand for crude oil and refined product which, barring unforeseen circumstances or significant government intervention, are widely expected to translate into continued strong crack spreads in the coming months.

Pressure in the U.S.

to curb soaring fuel prices at the pump have already resulted in some government measures, including the March 31, 2022 announcement of a 180 million barrel, six-month release of crude oil from the Strategic Petroleum Reserve (“SPR”).

Additional government measures are possible, which could result in incremental backwardation, though the nature and effect of such measures are currently unknown.

As we look to the remainder of the year, commodity markets are predicting a decline in demand as consumer purchasing continues to be eroded by inflation combined with the expectation that the federal reserve may continue to raise interest rates in response.

Such conditions could spell the declaration of an official recession, which may upend markets in unexpected ways and make capital more difficult to come by.

However, due to years of global underinvestment in oil production and the possibility of continued sanctions on Russia, demand for oil and related commodity prices may continue to be strong, sitting at or near the higher end of the life-cycle.

That said, domestic regulatory intervention could put pressure on profits of oil companies and may have unanticipated effects on the commodities markets as well as the capital markets.

For these reasons, we continue to position the Company to run at or near our nameplate capacity to take advantage of favorable pricing environments while working to integrate our new acquisition and leverage the new logistics lines of business to our advantage, always with an eye towards the One Delek vision and long-term operational sustainability.

Additionally, we will continue to balance the cost of debt and cost of equity while continuing to exercise a longer term sustainable view of capital allocation.

From a geographic positioning perspective, absent government intervention, industry analysts expect the Brent, a global benchmark crude, to WTI differential to continue to be favorable for domestic exports throughout 2022, including the U.S.

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Furthermore, while the likelihood of a favorable Midland-Cushing differential is constrained by overbuilt pipeline capacity, significant export developments and other factors could quickly shift differentials to be more favorable to our Permian-heavy positioning.

We currently employ commercial strategies to minimize differential risk associated with our concentrated gathering activities in the Permian Basin, but

Management's Discussion and Analysis

we are well-positioned to capitalize on a favorable shift in Midland WTI pricing compared to other benchmark crudes, including Cushing WTI.

Despite the tremendous market environment during the first quarter 2022, the costs of RINs regulatory compliance continues to negatively impact our ability to capture crack spreads compared to other, larger refiners.

In December 2021, the EPA proposed a rule to revise 2021 Renewable Volume Requirements and to suggest rates for 2022 and 2023, including proposed views that such changes may be sufficient to render the granting of small refinery exemptions unnecessary, based on the arguably inaccurate presumption that small refineries are not unduly burdened by the cost of RINs.

Additionally, in April 2022, the EPA overturned the previously granted 2018 SREs, of which we received three such exemptions (for all our refineries except Big Spring), though it further announced that compliance will not be required.

Many consider this move to be indicative of the EPA's unfavorable sentiment around 2019 and 2020 pending SRE applications which, if this view persists, could result in significant increases in RINs prices over the coming months.

Accordingly, while our Net RINs Obligation will not be directly impacted by the EPA's 2018 SRE reversal decision, our Net RINs Obligation in future periods may be negatively impacted by volatility in prices, likewise disproportionately impacting our ability to capture crack spread, particularly compared to our larger refinery competitors.

For these reasons, we are continuing to pursue the small refinery exemptions through legal and regulatory means available to us .

We currently employ commercial strategies to minimize differential risk associated with our concentrated gathering activities in the Permian Basin, but we are well-positioned to capitalize on a favorable shift in Midland WTI pricing compared to other benchmark crudes, including Cushing WTI.

Despite the tremendous market environment during the second quarter of 2022, the costs of RINs regulatory compliance continues to negatively impact our ability to capture crack spreads compared to other, larger refiners.

In June 2022, the EPA finalized volumes for compliance years 2020, 2021 and 2022 under the RFS program (as defined in our accounting policies in Note 2 to the audited consolidated financial statements included in Item.

8 Financial Statements and Supplementary Data, of our December 31, 2021 Annual Report on Form 10-K), announced supplemental volume obligations for compliance years 2022 and 2023 and established new provisions of the RFS which addressed bio-intermediates.

Additionally, the EPA denied the petitions for small refinery exemptions ("SREs") for prior period compliance years based on the arguably inaccurate presumption that small refineries are not unduly burdened by the cost of RINs, which resulted in the denial of our pending 2019 and 2020 SRE applications.

In April 2022, the EPA also overturned the previously granted 2018 SREs, of which we received three such exemptions (for all our refineries except Big Spring), though it further announced that compliance will not be required.

These actions by the EPA could result in significant increases in RINs prices over the coming months.

Accordingly, our net RINs Obligation in future periods may be negatively impacted by volatility in prices, likewise disproportionately impacting our ability to capture crack spread, particularly compared to our larger refinery competitors.

For these reasons, we are challenging the denial of our 2018, 2019 and 2020 SREs in federal district court in the District of Columbia.

Finally, while the global economic environment continues to support growth, both growth and stability continue to be impacted by building inflationary pressures, including with respect to essentials like housing, food, transportation and heat.

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See the following pages for further discussion on how certain key market trends impact our refining margins.

Management's Discussion and Analysis

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 or other locations.

We manage our supply chain risk to ensure that we have the barrels to meet our crude slate consumption plan for each month through gathering supply contracts and throughput agreements on various strategic pipelines, some of which include those where we hold equity method investments.

We manage market price risk on crude oil through financial derivative hedges, in accordance with our risk management strategies.The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2021 and for the first quarterly period in 2022.

Management's Discussion and Analysis

We manage market price risk on crude oil through financial derivative hedges, in accordance with our risk management strategies.

The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2021 and for the two quarterly periods in 2022.

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 key differentials impacting our refining operations, including WTI Cushing to Brent, WTI Midland to WTI Cushing, and Louisiana Light Sweet crude oil ("LLS") to WTI Cushing for each of the quarterly periods in 2021 and for the first quarterly period in 2022.

Management's Discussion and Analysis

Refined Product Prices

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

Ultra Low Sulfur Diesel ("ULSD") for each of the quarterly periods in 2021 and for the first quarterly period in 2022.

Management's Discussion and Analysis

Ultra Low Sulfur Diesel ("ULSD") for each of the quarterly periods in 2021 and for the two quarterly periods in 2022.

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 ULSD, 3-2-1 ULSD and 2-1-1 HSD/LLS crack spreads for each of the quarterly periods in 2021 and for the first quarterly period in 2022.

The table below reflects the quarterly average Gulf Coast 5-3-2 ULSD, 3-2-1 ULSD and 2-1-1 HSD/LLS crack spreads for each of the quarterly periods in 2021 and for the two quarterly periods in 2022.

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

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

Additionally, our ability to obtain RINs through blending is limited by our refined product slate, blending capabilities and market constraints.The cost to purchase these additional RINs is a significant cash outflow for our business.

Additionally, our ability to obtain RINs through blending is limited by our refined product slate, blending capabilities and market constraints.

The cost to purchase these additional RINs is a significant cash outflow for our business.

Increases in the market prices of RINs generally adversely affect our results of operations through changes in fair value to our existing RINs Obligation, to the extent we do not have offsetting RINs inventory on hand or effective economic hedges through net forward purchase commitments.

RINs prices are highly sensitive to regulatory and political influence and conditions, and therefore often do not correlate to movements in crude oil prices, refined product prices or crack spreads.

Furthermore, RIN prices are impacted by market expectations regarding whether the EPA may grant certain Small Refinery Exemptions ("SREs").

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

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 2021 through the first quarter of 2022.

Management's Discussion and Analysis

The chart below illustrates the volatility in RINs beginning with the first quarter of 2021 through the second quarter of 2022.

Energy costs are a significant element of our Refining contribution margin and can significantly impact our ability to capture crack spreads, with natural gas representing the largest component.

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We manage our risk around natural gas prices by entering into variable and fixed-price supply contracts in both the Gulf and Permian Basin or by entering into derivative hedges based on forecasted consumption and forward curve prices, as appropriate, in accordance with our risk policy.

The chart below illustrates the quarterly average prices of Waha (Permian Basin) and Henry Hub (Gulf Coast) beginning with the first quarter of 2021 through the first quarter of 2022.

The chart below illustrates the quarterly average prices of Waha (Permian Basin) and Henry Hub (Gulf Coast) beginning with the first quarter of 2021 through the second quarter of 2022.

Management's Discussion and Analysis

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(i) evaluating impairment for property, plant and equipment and definite life intangibles, (ii) evaluating potential impairment of goodwill, (iii) estimating environmental expenditures, and (iv) estimating asset retirement obligations.

Additionally, we have identified the following critical accounting policy that impacts the three months ended March 31, 2022:

Additionally, we have identified the following critical accounting policy that impacts the six months ended June 30, 2022:

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.

As of and during the three months ended March 31, 2022, 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, 2022, our estimates of the expected AETR reflected inputs which are subject to judgment including (but not necessarily limited to) the following:

• Forecasted pre-tax U.S.

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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, 2022.

Business Combinations

We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date.

Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is recorded as goodwill or gain from a bargain purchase.

The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate;

the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates;

and the market approach which uses market data and adjusts for entity-specific differences.

We use all available information to make these fair value determinations and engage third-party consultants for valuation assistance.

The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain.

Accordingly, actual results may differ materially from the projected results used to determine fair value.

Management's Discussion and Analysis

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Refining Segment

Three Months Ended March 31,

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

2022 2021 2022 2021

As Adjusted (1)

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4,242.1 2,452.6 7,691.7 4,234.4

568.4 (36.9) 612.5 (78.6)

Add back (items included in cost of sales):

Operating expenses (excluding depreciation and amortization) (1)(2)

165.0 115.0 284.9 229.7

Depreciation and amortization

49.9 51.0 102.7 103.1

Refining margin

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Consolidated Summary Statement of Operations Data

Three Months Ended

Three Months Ended Six Months Ended

(in millions) (1)

June 30, June 30,

As Adjusted (2)

Net revenues $ 5,982.6 $ 2,191.5 $ 10,441.7 $ 4,583.7

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Operating income (loss)

493.3 (50.2) 540.0 (97.6)

Total non-operating expense, net 24.3 33.1 53.1 56.7

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Net income attributed to non-controlling interests 6.8 8.6 15.0 15.9

Net loss attributable to Delek $ 6.6 $ (70.0)

Net income (loss) attributable to Delek $ 361.8 $ (56.7) $ 368.4 $ (126.7)

(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, 2022 versus the Three Months Ended March 31, 2021

Consolidated net income for the first quarter of 2022 was $14.8 million compared to net loss of $62.7 million for the first quarter of 2021.

Consolidated net income attributable to Delek for the first quarter of March 31, 2022 was $6.6 million, or $0.09 per basic share, compared to net loss of $70.0 million, or $(0.95) per basic share, for the first quarter 2021.

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 2022 and 2021, we generated net revenues of $4,459.1 million and $2,392.2 million, respectively, an increase of $2,066.9 million, or 86.4%.

Consolidated Results of Operations — Comparison of the Three and Six Months Ended June 30, 2022 versus the Three and Six Months Ended June 30, 2021

Net Income (Loss)

Consolidated net income for the second quarter of 2022 was $368.6 million compared to a net loss of $48.1 million for the second quarter of 2021.

Consolidated net income attributable to Delek for the second quarter of June 30, 2022 was $361.8 million, or $5.11 per basic share, compared to a net loss of $56.7 million, or $(0.77) per basic share, for the second quarter 2021.

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

Consolidated net income for the six months ended June 30, 2022 was $383.4 million compared to a net loss of $110.8 million for the six months ended June 30, 2021.

Consolidated net income attributable to Delek for the six months ended June 30, 2022 was $368.4 million, or $5.12 per basic share, compared to a net loss of $126.7 million, or $(1.72) per basic share, for the six months ended June 30, 2021.

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

In the second quarter of 2022 and 2021, we generated net revenues of $5,982.6 million and $2,191.5 million, respectively, an increase of $3,791.1 million, or 173.0%.

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

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Gulf Coast gasoline of 71.2%, ULSD of 104.0%, and HSD of 103.7%;

• in our logistics segment, increases in the average volumes of diesel sold and in the average sales price per gallon of diesel and gasoline sold in our West Texas marketing operations as well as incremental revenues from the 3 Bear Acquisition;

• in our retail segment, increases in fuel sales primarily attributable to a 48.9% increase in average price charged per gallon sold.

For the six months ended June 30, 2022 and 2021, we generated net revenues of $10,441.7 million and $4,583.7 million, respectively, an increase of $5,858.0 million, or 127.8%.

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 65.1%, ULSD of 91.0%, and HSD of 92.5%;

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

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Cost of Materials and Other

Cost of materials and other was $4,152.5 million for the first quarter of 2022 compared to $2,172.8 million for the first quarter of 2021, an increase of $1,979.7 million, or 91.1%.

Cost of materials and other was $5,082.6 million for the second quarter of 2022 compared to $1,960.6 million for the second quarter of 2021, an increase of $3,122.0 million, or 159.2%.

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 64.3% increase in the average cost of WTI Cushing crude oil and a 63.4% increase in the average cost of WTI Midland crude oil;

• increases in average RINs costs during the first quarter of 2022 compared to the first quarter of 2021;

• an increase in hedging losses compared to the first quarter of the prior year;

• increases in the average volumes sold and average cost per gallon of gasoline and diesel sold in our logistics segment;

• an increase in retail cost of materials and other due to 58.8% increase in average cost per gallon sold applied to higher fuel sales volumes.

Cost of materials and other was $9,235.1 million for the six months ended June 30, 2022 compared to $4,133.4 million for the six months ended June 30, 2021, an increase of $5,101.7 million, or 123.4%.

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

• increases in cost of crude oil feedstocks at the refineries, including a 64.0% increase in the average cost of WTI Cushing crude oil and a 62.3% increase in the average cost of WTI Midland crude oil;

Management's Discussion and Analysis

• increases in average RINs expense due to increased production during the six months ended June 30, 2022 compared to the six months ended June 30, 2021;

• increases in the average volumes sold and average cost per gallon of gasoline and diesel sold in our logistics segment;

• an increase in retail cost of materials and other due to 54.7% increase in average cost per gallon sold applied to higher fuel sales volumes.

Operating Expenses

Operating expenses were $166.9 million for the first quarter of 2022 compared to $155.3 million for the first quarter of 2021, an increase of $11.6 million, or 7.5%.

Operating expenses were $222.5 million for the second quarter of 2022 compared to $166.2 million for the second quarter of 2021, an increase of $56.3 million, or 33.9%.

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

• an increase in variable costs and utilities associated with higher throughput during current period;

• higher natural gas prices in the first quarter of 2022;

• higher natural gas prices in the second quarter of 2022;

• increases in employee cost primarily related to increased salaries, wages and other benefits.

Such increases were partially offset by a decrease in outside services, maintenance and lease costs.

Operating expenses were $389.4 million for the six months ended June 30, 2022 compared to $321.5 million for the six months ended June 30, 2021, an increase of $67.9 million, or 21.1%.

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

• an increase in variable costs and utilities associated with higher throughput during current period;

• higher natural gas prices in the first half of 2022;

• increases in employee cost primarily related to increased salaries, wages and other benefits.

Such increases were partially offset by a decrease in outside services, maintenance and lease costs.

General and Administrative Expenses

General and administrative expenses were $53.1 million for the first quarter of 2022 compared to $41.1 million for the first quarter of 2021, an increase of $12.0 million, or 29.2%.

The increases were primarily driven by an increase in headcount and increases in salaries, wages and other benefits.

General and administrative expenses were $126.5 million for the second quarter of 2022 compared to $53.5 million for the second quarter of 2021, an increase of $73.0 million, or 136.4%.

The increase was primarily driven by an increase in headcount, increases in salaries, wages and other benefits and incremental transaction costs related to the 3 Bear Acquisition.

General and administrative expenses were $179.6 million and $94.6 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $85.0 million, or 89.9%.

The increase was primarily driven by an increase in headcount, increases in salaries, wages and other benefits and incremental transaction costs related to the 3 Bear Acquisition.

Depreciation and Amortization

Depreciation and amortization (included in both cost of sales and other operating expenses) was $68.3 million for the first quarter of 2022 compared to $68.5 million for the first quarter of 2021, a decrease of $0.2 million, or 0.3%.

Depreciation and amortization (included in both cost of sales and other operating expenses) was $68.0 million for the second quarter of 2022 compared to $66.3 million for the second quarter of 2021, an increase of $1.7 million, or 2.6%.

Depreciation and amortization (included in both cost of sales and other operating expenses) was $136.3 million compared to $134.8 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $1.5 million, or 1.1%.

Other Operating Income, Net

Other operating income, net increased by $30.3 million in the first quarter of 2022 to $28.4 million compared to a loss of $1.9 million in the first quarter of 2021.

The increases were primarily driven by an increase due to realized hedge gains during Q1 2022.

Other operating income, net increased by $5.4 million in the second quarter of 2022 to $10.3 million compared to $4.9 million in the second quarter of 2021.

The increases were due to insurance proceeds received in the second quarter of 2022.

Other operating income, net increased by $35.7 million during the six months ended June 30, 2022 to $38.7 million compared to $3.0 million during the six months ended June 30, 2021.

The increases were primarily driven by an increase due to realized hedge gains during the 2022 period.

Management's Discussion and Analysis

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Interest Expense, Net

Interest expense,net increased by $9.0 million, or 30.6%, to $38.4 million in the first quarter of 2022 compared to $29.4 million in the first quarter of 2021, primarily driven by the following:

• an increase in the average effective interest rate of 1.27% in the first quarter of 2022 compared to the first quarter of 2021 (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 $12.6 million in the first quarter of 2022 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the first quarter of 2021.

Interest expense, net increased by $10.5 million, or 31.7%, to $43.6 million in the second quarter of 2022 compared to $33.1 million in the second quarter of 2021, primarily driven by the following:

• an increase in the average effective interest rate of 0.67% in the second quarter of 2022 compared to the second quarter of 2021 (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 $434.9 million in the second quarter of 2022 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the second quarter of 2021.

Interest expense, net increased by $19.5 million, or 31.2%, to $82.0 million during the six months ended June 30, 2022 compared to $62.5 million during the six months ended June 30, 2021, primarily driven by the following:

• an increase in the average effective interest rate of 0.62% during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 (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 $425.3 million during the six months ended June 30, 2022 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the six months ended June 30, 2021.

Results from Equity Method Investments

We recognized income of $10.9 million from equity method investments during the first quarter of 2022, compared to $4.8 million for the first quarter of 2021, an increase of $6.1 million.

We recognized income of $15.7 million from equity method investments during the second quarter of 2022, compared to $6.8 million for the second quarter of 2021, an increase of $8.9 million.

This increase was primarily driven by the following:

• increase in income from our Red River and Caddo equity method investment due to higher throughput volumes and resulting revenue increases;

• an increase in income from our investment in W2W Holdings LLC to income of $2.1 million in the first quarter of 2022 from a loss of $0.3 million in the first quarter of 2021.

Income tax expense increased by $11.4 million in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

• pre-tax income of $17.9 million in the first quarter of 2022, as compared to loss of $71.0 million for the first quarter of 2021;

• an increase in our effective tax rate which was 17.3% for the first quarter of 2022, compared to 11.7% for the first quarter of 2021 primarily due to the following:

• an increase in income from our investment in W2W Holdings LLC to income of $2.1 million in the second quarter of 2022 from a loss of $3.9 million in the second quarter of 2021.

We recognized income of $26.6 million from equity method investments during the six months ended June 30, 2022, compared to $11.6 million for the six months ended June 30, 2021, an increase of $15.0 million.

This increase was primarily driven by the following:

• increase in income from our Red River and Caddo equity method investment due to higher throughput volumes and resulting revenue increases;

• an increase in income from our investment in W2W Holdings LLC to income of $4.2 million during the six months of 2022 from a loss of $4.1 million during the six months of 2021.

Income tax expense increased by $135.6 million in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• pre-tax income of $469.0 million in the second quarter of 2022, as compared to a pre-tax loss of $83.3 million for the second quarter of 2021;

• a decrease in our effective tax rate which was 21.4% for the second quarter of 2022, compared to 42.3% for the second quarter of 2021 primarily due to the following:

◦ the impact of credits and permanent differences on the tax rate due to changes in pre-tax book income;

◦ changes in the deferred tax asset for equity-based compensation and valuation allowance for state tax attributes.

◦ changes in the valuation allowance for state tax attributes;

◦ changes in the second quarter estimated annual tax rate applied to year-to-date loss for the second quarter of 2021.

Management's Discussion and Analysis

Income tax expense increased by $147.0 million during the six months ended June 30, 2022 compared to the same period for 2021, primarily driven by the following:

• pre-tax income of $486.9 million in the six months ended June 30, 2022, as compared to a pre-tax loss of $154.3 million for the six months ended June 30, 2021;

• a decrease in our effective tax rate which was 21.3% for the six months ended June 30, 2022, compared to 28.2% for the six months ended June 30, 2021 primarily due to the following:

◦ the impact of credits and permanent differences on the tax rate due to changes in pre-tax book income;

◦ changes in the valuation allowance for state tax attributes.

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,

2022 Adjusted 2021 (1)

$ 4,810.5 $ 2,415.7 $ 8,304.2 $ 4,155.8

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Refining margin

783.3 129.1 1,000.1 254.2

Operating expenses (excluding depreciation and amortization) (1) (2)

165.0 115.0 284.9 229.7

Contribution margin (1)

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Refinery Statistics

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Tyler, TX Refinery

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Cost of materials and other ($ in millions) (2)

834.2 553.1 1,523.8 961.6

Total refining margin ($ in millions) (2)

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Direct operating expenses (3)

$ 5.61 $ 3.51 4.95 $ 3.54

(% based on amount received in period):

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Days in period

91 91 181 181

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,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Big Spring, TX Refinery

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Days in period

91 91 181 181

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

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Gulf Coast Sweet Crude 40.6 % 33.5 % 38.2 % 30.9 %

Other 10.0 % 1.5 % 5.2 % 1.2 %

(1) Includes inter-refinery sales and sales to other segments which are eliminated in consolidation.

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Inter-refinery Sales

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in barrels per day) 2022 2021 2022 2021

(Unaudited) (Unaudited)

Tyler refined product sales to other Delek refineries 2,378 1,797 1,746 1,945

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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) 2022 2021 2022 2021

(Unaudited) (Unaudited)

Tyler refined product sales to other Delek segments — 897 — 909

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Pricing Statistics (average for the period presented)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

WTI — Cushing crude oil (per barrel) $ 108.74 $ 66.19 $ 102.02 $ 62.21

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(1) For our Tyler and El Dorado refineries, we compare our per barrel refining product margin to the Gulf Coast 5-3-2 crack spread consisting of WTI Cushing crude, U.S.

Gulf Coast (CBOB) and U.S.

Gulf Coast CBOB gasoline and U.S.

Gulf Coast Pipeline No.

2 heating oil (ultra low sulfur diesel).

For our Big Spring refinery, we compare our refined product margin to the Gulf Coast 3-2-1 crack spread consisting of WTI Cushing crude, Gulf Coast 87 Conventional gasoline and Gulf Coast ultra low sulfur diesel, and for our Krotz Springs refinery, we compare our per barrel refined product margin to the Gulf Coast 2-1-1 crack spread consisting of LLS crude oil, Gulf Coast 87 Conventional gasoline and U.S.

For our Big Spring refinery, we compare our refined product margin to the Gulf Coast 3-2-1 crack spread consisting of WTI Cushing crude, Gulf Coast CBOB gasoline and Gulf Coast ultra low sulfur diesel, and for our Krotz Springs refinery, we compare our per barrel refined product margin to the Gulf Coast 2-1-1 crack spread consisting of LLS crude oil, Gulf Coast CBOB gasoline and U.S.

Gulf Coast Pipeline No.

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Management's Discussion and Analysis

Refining Segment Operational Comparison of the Three Months Ended March 31, 2022 versus the Three Months Ended March 31, 2021

Net revenues for the refining segment increased by $1,753.6 million, or 100.8%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

Refining Segment Operational Comparison of the Three and Six Months Ended June 30, 2022 versus the Three and Six Months Ended June 30, 2021

Net revenues for the refining segment increased by $2,394.8 million, or 99.1%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increases in the average price of U.S.

Gulf Coast gasoline of 71.2% ULSD of 104.0%, and HSD of 103.7% and

• an increase in sales volumes of refined and purchased product of 7.9 million barrels and 1.7 million barrels, respectively, where sales volumes were lower in the first quarter 2021 due to severe weather impacting our refineries and turnaround activities at our El Dorado refinery .

Net revenues included sales to our retail segment of $111.7 million and $69.7 million, sales to our logistics segment of $105.9 million and $65.8 million, and sales to our other segment of $8.1 million and $20.1 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

• an increase in total sales volumes of 2.2 million barrels.

Net revenues included sales to our retail segment of $160.1 million and $91.8 million, sales to our logistics segment of $143.9 million and $74.1 million, and sales to our other segment of $8.5 million and $22.9 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

We eliminate this intercompany revenue in consolidation.

Net revenues for the refining segment increased by $4,148.4 million, or 99.8%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increases in the average price of U.S.

Gulf Coast gasoline of 65.1%, ULSD of 91.0%, and HSD of 92.5%;

• an increase in total sales volumes of 8.5 million barrels, where sales volumes were lower in the six months of 2021 due to severe weather impacting our refineries and turnaround activities at our El Dorado refinery.

Net revenues included sales to our retail segment of $271.9 million and $161.5 million, sales to our logistics segment of $249.6 million and $139.9 million and sales to our other segment of $16.6 million and $43.0 million for the six months ended June 30, 2022 and 2021, respectively.

We eliminate this intercompany revenue in consolidation.

Cost of Materials and Other

Cost of materials and other increased by $1,661.9 million, or 102.9%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

Cost of materials and other increased by $1,740.6 million, or 76.1%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increases in the cost of WTI Cushing crude oil, from an average of $66.19 per barrel to an average of $108.74, or 64.3%, and increases in the cost of WTI Midland crude oil, from an average of $66.41 per barrel to an average of $108.50, or 63.4%;

• increase in RINs costs from an average cost per RIN of $1.07 and $1.17 for ethanol and biodiesel RINs, respectively during the first quarter of 2021 to an average of $1.14 and $1.43 during the first quarter of 2022;

• an increase in sales volumes.

Our refining segment 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 $123.4 million and $95.8 million during the first quarters of 2022 and 2021, respectively, which are eliminated in consolidation.

Cost of materials and other increased by $3,402.5 million, or 87.2%, during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increases in the cost of WTI Cushing crude oil, from an average of $62.21 per barrel to an average of $102.02, or 64.0%;

• increases in the cost of WTI Midland crude oil, from an average of $62.74 per barrel to an average of $101.81, or 62.3%;

• an increase in sales volumes;

• an increase in RINs expense primarily due to increased production.

Management's Discussion and Analysis

These costs and fees were $123.8 million and $101.9 million during the second quarters of 2022 and 2021, respectively, and $247.2 million and $197.7 million during the six months ended June 30, 2022 and 2021, respectively.

We eliminate these intercompany fees in consolidation.

Refining Margin

Refining margin increased by $91.7 million, or 73.3%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

• a 79.7% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 72.0% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 124.1% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery).

Refining margin increased by $654.2 million, or 506.7%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• a 186.4% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 152.3% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 274.1% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery) and;

• an increase in utilization and sales volumes.

(1) Adjusted to reflect the retrospective change in accounting policy from LIFO to FIFO for certain inventories.

For further discussion, see Note 7 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

Refining margin increased by $745.9 million, or 293.4%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• a 136.6% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 113.4% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 204.9% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery) and;

• an increase in sales volumes.

Such increase was partially offset by increases in average RINs costs in the first quarter of 2022 compared to the first quarter of 2021, and an increase in hedge losses compared to prior period.

Such increase was partially offset by an increase in RINs expense primarily due to increased production.

(1) Adjusted to reflect the retrospective change in accounting policy from LIFO to FIFO for certain inventories.

For further discussion, see Note 7 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

Operating Expenses

Operating expenses increased by $5.2 million, or 4.5%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

Operating expenses increased by $50.0 million, or 43.5%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increase in variable costs and utilities associated with higher throughput during the current period;

• higher natural gas prices in the first quarter of 2022.

Such increases were offset by a decrease in outside services, maintenance and lease costs incurred.

• higher natural gas prices in the second quarter of 2022.

Operating expenses increased by $55.2 million, or 24.0%, during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increase in variable costs and utilities associated with higher throughput during the current period;

• higher natural gas prices in the six months ended June 30, 2022 compared to the prior year for the same period.

Contribution Margin

Contribution margin increased by $86.5 million, or a 2.2% improvement in contribution margin percentage, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by an increase in refining margin primarily driven by improved crack spreads, increased sales volumes, offset by hedge losses and higher average RINs costs.

Contribution margin increased by $604.2 million, or a 12.3% improvement in contribution margin percentage, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by an increase in refining margin primarily driven by improved crack spreads, increased sales volumes, offset by increase in variable costs and utilities and natural gas prices.

Contribution margin increased by $690.7 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by an increase in refining margin primarily driven by improved crack spreads, increased sales volumes, offset by increase in variable costs and utilities, natural gas prices, and higher RINs expense primarily due to increased production.

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,

2022 2021 2022 2021

Net revenues $ 266.7 $ 168.5 $ 473.3 $ 321.4

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West Texas wholesale marketing throughputs (average bpd)

10,073 9,395 9,994 9,765

West Texas wholesale marketing margin per barrel

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(3) Excludes volumes that are being temporarily transported via trucks while connectors are under construction.

Logistics Segment Operational Comparison of the Three Months Ended March 31, 2022 versus the Three Months Ended March 31, 2021

Net revenues increased by $53.7 million, or 35.1%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by:

• improvements in the West Texas wholesale marketing business which experienced increases in the average sales prices per gallon of gasoline and diesel sold and average volume of diesel sold, partially offset by decrease in the average volume of gasoline sold;

• increases in pipeline throughputs, where the first quarter of 2021 were negatively impacted by severe weather events.

Net revenues included sales to our refining segment of $123.4 million and $95.8 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Logistics Segment Operational Comparison of the Three and Six Months Ended June 30, 2022 versus the Three and Six Months Ended June 30, 2021

Net revenues increased by $98.2 million, or 58.3%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by:

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

• incremental revenues from the 3 Bear Acquisition;

• increases in pipeline throughputs.

Net revenues included sales to our refining segment of $123.8 million and $101.9 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

We eliminate this intercompany revenue in consolidation.

Net revenues increased by $151.9 million, or 47.3%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increases in the average sales prices per gallon of gasoline and diesel sold and volume of diesel sold, partially offset by a decrease in the volume of gasoline sold in our West Texas marketing operations;

• incremental revenues from the 3 Bear Acquisition;

• increases in pipeline throughputs, where the six months ended June 30, 2021 were negatively impacted by the Pandemic as well as severe weather events.

Management's Discussion and Analysis

Net revenues included sales to our refining segment of $247.2 million and $197.7 million for the six months ended June 30, 2022 and 2021, respectively, and sales to our other segment of $0.9 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively.

We eliminate this intercompany revenue in consolidation.

Cost of Materials and Other

Cost of materials and other for the logistics segment increased $45.1 million, or 55.6%, in the first quarter of 2022 compared to the first quarter of 2021 primarily driven by the following:

Cost of materials and other for the logistics segment increased by $87.6 million, or 98.6%, in the second quarter of 2022 compared to the second quarter of 2021 primarily driven by the following:

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

◦ the average cost per gallon of gasoline and diesel sold increased $1.35 per gallon and $2.04 per gallon, respectively;

◦ the average volumes of gasoline increased by 3.4 million gallons, while diesel volumes sold decreased by 2.5 million gallons.

Our logistics segment purchased product from our refining segment of $105.9 million and $65.8 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

◦ the average volumes of gasoline and diesel sold increased by 2.2 million gallons and 0.4 million gallons, respectively, and;

• incremental cost of materials and other from the 3 Bear Acquisition.

Our logistics segment purchased product from our refining segment of $143.9 million and $74.1 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

We eliminate these intercompany costs in consolidation.

Cost of materials and other for the logistics segment increased by $132.7 million, or 78.1%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 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 sold in our West Texas marketing operations:

◦ the average cost per gallon of gasoline and diesel sold increased $1.18 per gallon and $1.64 per gallon, respectively;

◦ the average volumes of diesel sold increased by 2.9 million gallons, while gasoline volumes sold decreased by 1.2 million gallons;

• incremental cost of materials and other from the 3 Bear Acquisition.

Management's Discussion and Analysis

Our logistics segment purchased product from our refining segment of $249.6 million and $139.9 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

We eliminate these intercompany costs in consolidation.

Operating Expenses

Operating expenses increased by $3.2 million, or 21.5%, in the first quarter of 2022 compared to the first quarter of 2021, driven by the following:

Operating expenses increased by $5.5 million, or 35.5%, in the second quarter of 2022 compared to the second quarter of 2021, driven by the following:

• increase due to additional expenses associated with 3 Bear Acquisition;

• increases in employee and outside service costs after cost cutting measures previously implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended;

• increase in energy costs, due to higher natural gas prices;

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

Operating expenses increased by $8.7 million, or 28.6%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, driven by the following:

• increase due to additional expenses associated with 3 Bear Acquisition;

• increases in employee and outside service costs;

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Contribution Margin

Contribution margin increased by $5.4 million in the first quarter of 2022 compared to the first quarter of 2021 primarily driven by the following:

Contribution margin increased by $5.1 million in the second quarter of 2022 compared to the second quarter of 2021 primarily driven by the following:

• increases in revenue due to higher throughput volumes;

• partially offset by increases in operating expense.

Contribution margin increased by $10.5 million, or 8.7%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increases in revenue due to higher throughput volumes;

• partially offset by increases in operating expense.

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,

2022 2021 2022 2021

Net revenues $ 277.1 $ 209.0 $ 486.6 $ 383.8

Cost of materials and other

233.8 164.7 406.8 301.2

Operating expenses (excluding depreciation and amortization)

25.1 22.4 47.8 44.0

Contribution margin

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Number of stores (end of period)

248 252 248 252

Average number of stores

248 252 248 252

Average number of fuel stores

243 247 243 247

Retail fuel sales

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

185 174 348 336

Average retail sales price per gallon sold

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Merchandise sales per average number of stores (in millions)

$ 0.3 $ 0.3 $ 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,

2022 2021 2022 2021

Change in same-store fuel gallons sold

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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, 2022 versus the Three Months Ended March 31, 2021

Net revenues for the retail segment increased by $34.7 million, or 19.9%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

• an increase in total fuel sales which were $139.9 million in the first quarter of 2022 compared to $100.1 million in the first quarter of 2021, primarily attributable to an increase of $1.02 in average price charged per gallon sold;

• slightly offset by a decrease in merchandise sales to $69.7 million in the first quarter of 2022 compared to $74.6 million in the first quarter of 2021 attributable to a same-store sales decrease of 5.2%.

Retail Segment Operational Comparison of the Three and Six Months Ended June 30, 2022 versus the Three and Six Months Ended June 30, 2021

Net revenues for the retail segment increased by $68.1 million, or 32.6%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• an increase in total fuel sales which were $193.6 million in the second quarter of 2022 compared to $124.5 million in the second quarter of 2021, primarily attributable to an increase of $1.41 in average price charged per gallon sold;

• slightly offset by a decrease in merchandise sales to $83.4 million in the second quarter of 2022 compared to $84.5 million in the second quarter of 2021

Management's Discussion and Analysis

Net revenues for the retail segment increased by $102.8 million, or 26.8%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• an increase in total fuel sales which were $333.5 million in the six months of 2022 compared to $224.6 million in the six months of 2021, primarily attributable to a $1.24 increase in average price charged per gallon sold;

• offset by a decrease in merchandise sales to $153.1 million in the six months of 2022 compared to $159.2 million in the six months of 2021, primarily driven by the same-store sales decrease of 2.4%.

Cost of Materials and Other

Cost of materials and other for the retail segment increased by $36.5 million, or 26.7%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by an increase in average cost per gallon of $1.06 or 48.8% applied to fuel sales volumes that decreased period over period.

Our retail segment purchased finished product from our refining segment of $111.7 million and $69.7 million for the three months ended March 31, 2022 and March 31, 2021, respectively, which is eliminated in consolidation.

Cost of materials and other for the retail segment increased by $69.1 million, or 42.0%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by an increase in average cost per gallon of $1.47 or 58.8% applied to fuel sales volumes that increased period over period.

Our retail segment purchased finished product from our refining segment of $160.1 million and $91.8 million for the three months ended June 30, 2022 and June 30, 2021, respectively, which is eliminated in consolidation.

Cost of materials and other for the retail segment increased by $105.6 million, or 35.1%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by an increase in average cost per gallon of $1.28 or 54.7% applied to fuel sales volumes that increased period over period.

Our retail segment purchased finished product from our refining segment of $271.9 million and $161.5 million for the six months ended June 30, 2022 and June 30, 2021, respectively, which is eliminated in consolidation.

Operating Expenses

Retail segment operating expenses increased by $1.1 million, or 5.1%, in the first quarter of 2022 compared to the first quarter of 2021.

Retail segment operating expenses increased by $2.7 million, or 12.1%, in the second quarter of 2022 compared to the second quarter of 2021, primarily due to increased salary cost.

Management's Discussion and Analysis

Operating expenses for the retail segment increased by $3.8 million, or 8.6% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to increased salary cost.

Contribution Margin

Contribution margin for the retail segment decreased by $2.9 million, or 17.4%, in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the following:

Contribution margin for the retail segment decreased by $3.7 million, or 16.9%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• a 1.3% decrease in merchandise sales, offset by an improvement in merchandise margin percentage of 1.3%;

• a decrease in fuel sales volume and average fuel margin of $0.036 per gallon.

Management's Discussion and Analysis

• a decrease in the average fuel margin of $0.060 per gallon, partially offset by an increase in fuel sales volume.

Contribution margin for the retail segment decreased by $6.6 million, or 17.1%, in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily driven by the following:

• a 3.8% decrease in merchandise sales, partially offset by an improvement in merchandise margin percentage of 1.6%;

• a decrease in average fuel margin of $0.048 per gallon, partially offset by an increase in fuel sales volume.

Liquidity and Capital Resources

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• potential issuances of additional equity and debt securities.

At March 31, 2022 our total liquidity amounted to $2.1 billion comprised primarily of $637.5 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, 2022 our total liquidity amounted to $2.0 billion comprised primarily of $636.1 million in unused credit commitments under the Delek Revolving Credit Facility (as defined in Note 9 of the condensed consolidated financial statements in Item 1.

Financial Statements), $119.1 million in unused credit commitments under the Delek Logistics Credit Facility (as defined in Note 9 of the condensed consolidated financial statements in Item 1.

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Historically, we have generated adequate cash from operations to fund ongoing working capital requirements and pay quarterly cash dividends and operational capital expenditures.

In response to the COVID-19 Pandemic and the decline in oil prices, on November 5, 2020, we announced that we have elected to suspend dividends in order to conserve capital.

In response to the COVID-19 Pandemic and the decline in oil prices, on November 5, 2020, we announced that we elected to suspend dividends in order to conserve capital.

On June 21, 2022, our Board of Directors voted to declare a special cash dividend of $0.20 per share of our common stock, payable on July 20, 2022 to shareholders of record on July 12, 2022.

Return of cash to shareholders remains a priority for the Company along with maintaining a strong and flexible balance sheet.

On August 1, 2022, our Board voted to reinstate the quarterly cash dividend and declared a quarterly cash dividend of $0.20 per share of our common stock, payable on September 6, 2022 to shareholders of record on August 22, 2022.

In addition, on August 1, 2022, the Board approved an approximately $170.0 million increase in its share repurchase authorization, bringing the total amount available for repurchases under current authorizations to $400.0 million.

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

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

Management's Discussion and Analysis

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

We continue to monitor market conditions, our financial position and our credit ratings and expect future funding sources to be at terms that are sustainable and profitable for the Company.

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If market conditions were to change, for instance due to the uncertainty created by the COVID-19 Pandemic or the Russia-Ukraine War, 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, 2022, 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, 2022, 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 9 of the condensed consolidated financial statements in Item 1.

Financial Statements).

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, 2022 to the extent that any of our activities triggered these covenants.

Additionally, we were in compliance with incurrence covenants during the quarter ended June 30, 2022 to the extent that any of our activities triggered these covenants.

However, given the uncertainty around economic conditions, 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.

Inability 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).

Inability 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 pay dividends, as well as impose additional restrictions on our ability to repurchase our stock, make new investments and incur new liens (among others).

Such restrictions would generally remain in place until such quarter that we are able to satisfy the applicable incurrence based covenants.

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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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Financing activities 523.1 29.3

Net (decrease) increase $ (2.4) $ 6.0

Net increase $ 388.1 $ 45.5

Cash Flows from Operating Activities

Net cash provided by operating activities was $26.8 million for the three months ended March 31, 2022, compared to net cash used of $34.3 million for the comparable period of 2021.

Cash paid for debt interest decreased by $117.7 million.

Partially offsetting this increase in cash provided was an increase in cash receipts from customers and cash payments to suppliers and for salaries resulting in a net $56.6 million decrease in cash provided by operating activities.

Net cash provided by operating activities was $585.9 million for the six months ended June 30, 2022, compared to net cash used of $134.9 million for the comparable period of 2021.

The increase in cash provided by operating activities was primarily due to an increase in cash receipts from customers and cash payments to suppliers and for salaries resulting in a net $472.0 million increase in cash provided by operating activities.

Additionally, income taxes paid increased $5.2 million and dividends received decreased $3.9 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $30.2 million for the first three months of 2022, compared to $46.1 million in the comparable period of 2021.

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 $48.3 million in 2021, to $29.5 million in 2022, partially attributable to delaying non-essential projects in light of the COVID-19 Pandemic.

Net cash used in investing activities was $720.9 million for the first six months of 2022, compared to $118.7 million in the comparable period of 2021.

The increase in cash flows used in investing activities was primarily due to the $621.7 million acquisition of 3 Bear, partially offset by a $34.6 million decrease in purchases of property, plant and equipment, partially attributable to delaying non-essential projects in light of the COVID-19 Pandemic and a $9.8 million decrease in proceeds from sale of property, plant and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $1.0 million for the three months ended March 31, 2022, compared to cash provided of $86.4 million in the comparable 2021 period.

This decrease in cash provided was predominantly due to the purchase of Delek common stock from IEP Energy Holding, LLC for $64.0 million in the current period.

Additionally, there were net payments on long-term revolvers and term debt of $7.2 million during the three months ended March 31, 2022, compared to net proceeds of $17.6 million in the comparable 2021 period.

Net proceeds from inventory financing arrangements decreased $13.1 million to $64.8 million for the three months ended March 31, 2022 compared to $77.9 million in the comparable 2021 period.

Partially offsetting the decrease was $16.4 million in proceeds from the sale of Delek Logistics limited partner units in the current period.

Net cash provided by financing activities was $523.1 million for the six months ended June 30, 2022, compared to cash provided of $29.3 million in the comparable 2021 period.

This increase in cash provided was primarily due to net proceeds on our revolvers and term debt of $596.2 million during the six months ended June 30, 2022, compared to net proceeds of $101.5 million in the comparable 2021 period and $16.4 million in proceeds from the sale of Delek Logistics limited partner units in the current period, partially offset by a $158.8 million decrease in net proceeds from inventory financing arrangements and the purchase of Delek common stock from IEP Energy Holding, LLC for $64.0 million in the current period.

Cash Position, Indebtedness and Other Financing Arrangements

As of March 31, 2022, our total cash and cash equivalents were $854.1 million and we had total long-term indebtedness of approximately $2,212.8 million.

As of June 30, 2022, our total cash and cash equivalents were $1,244.6 million and we had total long-term indebtedness of approximately $2,817.7 million.

The total long-term indebtedness is net of deferred financing costs and debt discount of $10.0 million and $15.7 million, respectively.

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• an aggregate principal amount of $50.0 million under the Reliant Bank Revolver, due on June 30, 2023, with fixed interest rate of 4.50%;

• the Revolving Credit Facility, due on March 30, 2023, with borrowing rate of 3.75% for base rate loans, and no principal amount outstanding.

• the Revolving Credit Facility, due on March 30, 2023, with borrowing rate of 5.00% for base rate loans, with a nominal principal amount outstanding.

See Note 9 of the condensed consolidated financial statements in Item 1.

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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.

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 $589.3 million at March 31, 2022, $479.3 million of which is due on December 30, 2022.

Aron amounted to $770.5 million at June 30, 2022, $537.4 million of which is due on December 30, 2022.

(See Note 8 of the condensed consolidated financial statements in Item 1.

Financial Statements, for additional information about our supply and offtake facilities).

Our product financing liabilities consisted primarily of RIN financings as of March 31, 2022, and totaled $319.7 million, all of which is due by December 31, 2022.

Our product financing liabilities consisted primarily of RIN financings as of June 30, 2022, and totaled $258.5 million, all of which is due by December 31, 2022.

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.

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Management's Discussion and Analysis.

Management's Discussion and Analysis

Capital Spending

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

Our capital expenditures for the three months ended March 31, 2022 were $32.9 million, of which approximately $14.3 million was spent in our refining segment, $9.1 million in our logistics segment, $3.0 million in our retail segment and $6.5 million primarily at the holding company level.

The following table summarizes our actual capital expenditures for the three months ended March 31, 2022 and planned capital expenditures for the full year 2022 by operating segment and major category (in millions):

2022 Forecast Three Months Ended March 31, 2022

Our capital expenditures for the six months ended June 30, 2022 were $93.3 million, of which approximately $33.3 million was spent in our refining segment, $35.8 million in our logistics segment, $9.0 million in our retail segment and $15.2 million primarily at the holding company level.

The following table summarizes our actual capital expenditures for the six months ended June 30, 2022 and planned capital expenditures for the full year 2022 by operating segment and major category (in millions):

2022 Forecast Six Months Ended June 30, 2022

Sustaining maintenance, including turnaround activities $ 79.0 $ 30.0

$ 71.7 $ 13.0

Regulatory 12.5 2.3

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Long-Term Cash Requirements Under Contractual Obligations

Information regarding our known cash requirements under contractual obligations of the types described below as of March 31, 2022, is set forth in the following table (in millions):

Information regarding our known cash requirements under contractual obligations of the types described below as of June 30, 2022, is set forth in the following table (in millions):

Payments Due by Period

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Total $ 2,339.5 $ 2,975.9 $ 411.6 $ 747.3 $ 6,474.3

(1) Expected interest payments on debt outstanding at March 31, 2022.

Floating interest rate debt is calculated using March 31, 2022 rates.

(1) Expected interest payments on debt outstanding at June 30, 2022.

Floating interest rate debt is calculated using June 30, 2022 rates.

For additional information, see Note 9 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, 2022.

(3) Amounts reflect future estimated lease payments under financing leases having remaining non-cancelable terms in excess of one year as of March 31, 2022.

(2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of June 30, 2022.

(3) Amounts reflect future estimated lease payments under financing leases having remaining non-cancelable terms in excess of one year as of June 30, 2022.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis