What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-05 · 285 added, 305 removed, 779 unchanged (43% of the section changed)

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• seasonality;

• earthquakes, hurricanes, tornadoes, and other weather events, which can unforeseeably affect the price or availability of electricity, natural gas, crude oil, and other feedstocks, critical supplies, refined petroleum products and ethanol;

• increased costs of compliance with, or liability for violation of, existing or future laws, regulations and other requirements;

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Business and Economic Environment Overview

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

Through the first nine months of 2022, the recovery of demand to pre-pandemic levels for petroleum-based transportation fuels and constrained supply of those products, resulted in an increase in feedstock costs as well as a widening of market crack spreads.

Geopolitical events including the Russia-Ukraine War and new governmental policies have contributed to the ongoing volatility and unpredictability of global energy markets.

We believe that safety, reliability and environmental responsibility are critical for our success.

Through the first nine months of 2022, we have successfully taken advantage of the favorable economic environment by operating our refineries at record utilization rates.

Our continued investment in Delek Logistics has resulted in realized synergies and increased flexibility through our entire supply chain.

The integration of 3 Bear has expanded our existing crude oil gathering throughput capacity in the Permian while also extending our product offering to include natural gas gathering and processing as well as wastewater processing and disposal.

The 3 Bear assets have complimented our existing Permian gathering assets which has seen a significant increase in throughput during 2022.

Our retail operations have benefited from continued strong demand from U.S.

drivers and present several high-growth opportunities for future investment which will complement our existing operations and build brand equity.

While refining margins have reached historical levels during the year, rising natural gas prices, supply constraints, and increased labor costs have been a headwind.

A sharp increase in inflation and increases in interest rates intended to combat inflation have resulted in an expectation of a global economic downturn and an increasingly competitive capital market environment.

In addition, a global reduction of investment in carbon intensive activities driven by climate change initiatives, has resulted in higher costs of capital for most companies in our industry.

We are continuously evaluating forward markets and have actively engaged cost and risk mitigation strategies to proactively take advantage of opportunities through disciplined capital allocation.

We are committed to lowering costs and improving the efficiency of our cost structure in all aspects of our business and are challenging ourselves to continue to focus on operational excellence.

We are continuously looking to improve our operating and general and administrative cost structure and are exploring a zero-based budgeting process for 2023.

Our focus on reduction of greenhouse gas emissions is a key objective as we strive to be a leader in the transition to a carbon neutral future.

Delek formed the New Energy Task Force in 2021, and the group has been studying and internally reporting our current emissions status, pinpointing potential means of achieving emissions reductions, providing updates on carbon capture opportunities and regulatory

Management's Discussion and Analysis

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.

issues facing the industry and Delek specifically, and identifying transformational opportunities consistent with the Intergovernmental Panel on Climate Change’s 2°scenarios.

Delek prioritizes stewardship of the environment, and we focus on how to positively impact our shareholders, employees, customers, and the communities where we operate.

We believe shareholder value is strengthened through, among other things, a stable dividend complemented by share repurchases.

We also want to reward our shareholders with a competitive long-term capital allocation framework.

In the second quarter 2022, we reinstated a regular cash dividend of $0.20 per share which lays a foundation that we believe can be supported throughout the business cycle.

Through September 30, 2022, we have paid a special dividend and reinstated the quarterly dividend for a total return of $28.3 million.

On October 31, 2022, we increased the quarterly cash dividend by $0.1 per share to $0.21.

In August 2022, we announced an expansion of the share repurchase authorization to $400 million, which reflects our desire to deliver increased cash returns during periods of strong free cash flow generation.

During the three months ended September 30, 2022, we made repurchases of $40.0 million.

In addition, we are evaluating opportunities to reduce our long term debt which will reward our shareholders with a competitive long-term capital allocation framework and demonstrates our commitment to our balance sheet strength.

Our near-term focus is centered around unlocking the "sum of the parts" value of our existing business while identifying growth opportunities to enhance the Company's scale and diversify revenue streams, including in the alternative energy markets.

As part of our plan, we have hired Mark Hobbs who is an experienced investment banker with over 28 years of energy experience to fill the role of EVP, Corporate Development and who will work closely with the rest of our management team to unlock the “sum of parts” value.

In addition, we have also hired third party advisors to work alongside our management team to identify strategic options.

We believe this process will maximize the value of our shareholders while optimizing our asset portfolio and balance sheet.

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.

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

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

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

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

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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, 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.

(1) While the El Dorado refinery has a total nameplate capacity of 80,000 barrels per day ("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 refining 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.

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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.

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 June 30, 2022.

Delek Logistics was formed by Delek in 2012 to own, operate, acquire and construct crude oil and refined products logistics and marketing assets.

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Retail Overview

Our retail segment (or "Retail") at June 30, 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 September 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 June 30, 2022, we have removed the 7-Eleven brand name at 55 of our store locations.

As of September 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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We know there is always room for improvement, and those improvements can make every employee more effective and valued.

Improving Efficiency and Processes to Drive Enhanced Analytics by implementing a New Enterprise Resource Planning System:

In October 2022, we implemented a new enterprise resource planning system, designed to improve the efficiency of our internal operational and administrative activities.

This system implementation is part of our ongoing business transformation initiatives and we expect these system infrastructure investments will result in more efficient and scalable operational processes and provide enhanced analytics to drive business performance.

Improving Consistency and Transparency by Conforming Refining Inventory Accounting Methodology:

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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.

On October 31, 2022, our Board of Directors voted to declare a quarterly cash dividend of $0.21 per share of our common stock, which is payable on December 2, 2022 to shareholders of record on November 18, 2022.

In addition, a special cash dividend of $0.20 per share of our common stock was paid on July 20, 2022 to shareholders of record on July 12, 2022 and a quarterly cash dividend of $0.20 per share of our common stock was paid 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 $170.3 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.

During both the three and nine months ended September 30, 2022, Delek repurchased 1,435,602 shares for an aggregate purchase price of $40.0 million.

As of September 30, 2022, there was $360.0 million of authorization remaining for repurchases.

Increasing Flexibility through Debt Amendments:

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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.

On October 13, 2022, Delek Logistics entered into a fourth amended and restated senior secured revolving credit agreement with Fifth Third, as administrative agent and a syndicate of lenders (the "Amended and Restated Delek Logistics Credit Facility").

The Amended and Restated Delek Logistics Credit Facility, among other things, (i) increased total aggregate commitments to $1.2 billion, comprised of (A) senior secured revolving commitments of $900.0 million in aggregate (eliminating the Canadian dollar tranche), with sublimit of up to $115.0 million for letters of credit and $25.0 million for swing line loans (the “Delek Logistics Revolving Facility”) with an extend maturity date of October 13, 2027, and (B) a new senior secured term loan facility for a term loan in the original principal amount of $300.0 million (the “Delek Logistics Term Facility”), (ii) reset the accordion feature under the Delek Logistics Revolving Facility, such that aggregate revolving commitments can be increased to up to $1.15 billion upon the agreement of Delek Logistics and one or more existing or new lenders and (ii) provided for the Delek Logistics Term Facility be drawn in full on October 13, 2022, with a maturity date of October 13, 2024 and with a prepayment requirement for the proceeds obtained from certain senior unsecured notes issuances.

Management's Discussion and Analysis

On October 26, 2022, Delek entered into a third amended and restated credit agreement with Wells Fargo Bank, as administrative agent, Delek, as borrower, certain subsidiaries of Delek, as guarantors, and the other lenders party thereto, providing for a senior secured asset-based revolving credit facility with total credit commitment of $1.1 billion with an extended maturity date of October 26, 2027 (the “Amended and Restated Revolving Credit Facility”).

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

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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:

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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.

The purchase price for 3 Bear was $628.1 million 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).

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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 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.

Additionally, our refining margin profitability is impacted by regulatory factors, including the cost of renewable identification numbers ("RINs").

Market Outlook for the Remainder of 2022

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.

Gulf Coast region.

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 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.

Federal Reserve and fellow central banks have made and are considering further rate changes to combat the rising inflation.

Successful efforts along these lines could cause the cost of capital to rise and could negatively impact construction and other growth efforts that drive demand for our products, but could also reduce the burden on consumers which could lead to increases in discretionary travel and other activities requiring refined fuel products.

Because of this uncertainty, there continues to be risk around inflation as well as the potential impact of regulatory efforts to curb inflation which cannot currently be determined.

During the third quarter of 2022, the domestic oil and gas industry witnessed a contraction of domestic market crack spreads compared to the unprecedented favorable market conditions that existed during the second quarter of 2022.

We expect the volatility in the global energy markets will continue until supply can meet the current demand and fears of an economic downturn subside.

Although the possibility of an economic downturn exists, Delek is witnessing a strong demand environment for refined products which is being driven by a rebound in domestic on road fuel demand.

To capture the macro environment, we have positioned the Company to continue to run safely, reliably and environmentally responsibly at near nameplate capacity while leveraging our new 3 Bear logistics lines of business with an eye towards the One Delek vision.

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.

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.

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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.

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 three quarterly periods in 2022.

Crude Pricing Differentials

crude oil production has increased over recent years, domestic refiners have benefited from the discount for WTI Cushing compared to Brent.

Historically, domestic refiners have benefited from the discount for WTI Cushing compared to Brent.

This generally leads to higher margins in our refineries, as refined product prices are influenced by Brent crude prices and the majority of our crude supply is WTI-linked.

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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 two quarterly periods in 2022.

Management's Discussion and Analysis

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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

The charts below illustrate the quarterly average prices of Gulf Coast Gasoline ("CBOB"), U.S.

The charts below illustrate the quarterly average prices of CBOB, U.S.

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

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

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

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Environmental regulations and the political environment continue to affect our refining margins in the form of volatility in the price of RINs.

We enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs of our credits for commitments required by the EPA to blend biofuels into fuel products ("RINs Obligation").

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

On a consolidated basis, we work to balance our RINs Obligation in order to minimize the effect of RINs on our results.

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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 second quarter of 2022.

The chart below illustrates the volatility in RINs beginning with the first quarter of 2021 through the third 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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Additionally, geographic location of facilities make consumers vulnerable to price differentials of natural gas available at different supply hubs.

Within Delek’s geographic footprint, we source the majority of our natural gas from the Gulf Coast, and secondarily from the Permian, coinciding with the physical locations of our refineries.

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 second quarter of 2022.

Within Delek’s geographic footprint, we source the majority of our natural gas from the Gulf Coast, and secondarily

Management's Discussion and Analysis

from the Permian, coinciding with the physical locations of our refineries.

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 third quarter of 2022.

Critical Accounting Estimates

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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 six months ended June 30, 2022:

Additionally, we have identified the following critical accounting policy that impacts the nine months ended September 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 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:

As of and during the nine months ended September 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 six months ended June 30, 2022.

Management's Discussion and Analysis

Business Combinations

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These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• Refining margin - calculated as the difference between net refining revenues and total cost of materials and other;

• Refined product margin - calculated as the difference between net revenues attributable to refined products (produced and purchased) and related cost of materials and other (which is applicable to both the refining segment and the West Texas wholesale marketing activities within our logistics segment);

• Refining margin - calculated based on the regional market sales price of refined products produced, less allocated transportation, RFS renewable volume obligation and associated feedstock costs.

This measure reflects the economics of each refinery exclusive of the financial impact of inventory price risk mitigation programs and marketing uplift strategies;

• Refining segment margin- calculated as the difference between net refining revenues and total cost of materials and other;

• Refining margin per barrels sold - calculated as refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period.

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Refining Segment

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

2022 2021 2022 2021

Three Months Ended September 30, Nine Months Ended September 30,

As Adjusted (1)

$ 4,246.1 $ 2,814.6 $ 12,550.3 $ 6,970.4

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48.9 45.9 151.6 149.0

Refining margin

$ 783.3 $ 129.1 $ 1,000.1 $ 254.2

Refining segment margin $ 278.0 $ 166.3 $ 1,278.1 $ 420.5

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

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Consolidated Summary Statement of Operations Data

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

(in millions) (1)

June 30, June 30,

September 30, September 30,

As Adjusted (2)

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

See the Consolidated Condensed Statements of Income included in Item 1.

See the Condensed Consolidated Statements of Income included in Item 1.

to this Quarterly Report on Form 10-Q for more detail regarding our results of operations and net loss per share.

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Results of Operations

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

Consolidated Results of Operations — Comparison of the Three and Nine Months Ended September 30, 2022 versus the Three and Nine Months Ended September 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.

Consolidated net income for the third quarter of 2022 was $16.8 million compared to net income of $20.6 million for the third quarter of 2021.

Consolidated net income attributable to Delek for the third quarter of September 30, 2022 was $7.4 million, or $0.11 per basic share, compared to a net income of $11.8 million, or $0.16 per basic share, for the third 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.

Consolidated net income for the nine months ended September 30, 2022 was $400.2 million compared to a net loss of $90.2 million for the nine months ended September 30, 2021.

Consolidated net income attributable to Delek for the nine months ended September 30, 2022 was $375.8 million, or $5.26 per basic share, compared to a net loss of $114.9 million, or $(1.55) per basic share, for the nine months ended September 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%.

In the third quarter of 2022 and 2021, we generated net revenues of $5,324.9 million and $2,956.5 million, respectively, an increase of $2,368.4 million, or 80.1%.

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

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• in our retail segment, increases in fuel sales primarily attributable to a 26.8% 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%.

For the nine months ended September 30, 2022 and 2021, we generated net revenues of $15,766.6 million and $7,540.2 million, respectively, an increase of $8,226.4 million, or 109.1%.

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

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Cost of Materials and Other

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%.

Cost of materials and other was $4,916.0 million for the third quarter of 2022 compared to $2,678.0 million for the third quarter of 2021, an increase of $2,238.0 million, or 83.6%.

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

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• an increase in retail cost of materials and other due to 29.4% 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%.

Cost of materials and other was $14,151.1 million for the nine months ended September 30, 2022 compared to $6,811.4 million for the nine months ended September 30, 2021, an increase of $7,339.7 million, or 107.8%.

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

• increases in cost of crude oil feedstocks at the refineries, including a 64.0% increase in the average cost of WTI Cushing crude oil and a 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 cost of crude oil feedstocks at the refineries, including a 51.4% increase in the average cost of WTI Cushing crude oil and a 50.1% increase in the average cost of WTI Midland crude oil;

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

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

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Operating Expenses

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%.

Operating expenses were $226.4 million for the third quarter of 2022 compared to $128.5 million for the third quarter of 2021, an increase of $97.9 million, or 76.2%.

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 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%.

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

• increases in employee costs including incentive compensation costs.

Operating expenses were $615.8 million for the nine months ended September 30, 2022 compared to $450.0 million for the nine months ended September 30, 2021, an increase of $165.8 million, or 36.8%.

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

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• 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.

• increases in employee costs including incentive compensation costs.

General and Administrative Expenses

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.

General and administrative expenses were $62.4 million for the third quarter of 2022 compared to $53.0 million for the third quarter of 2021, an increase of $9.4 million, or 17.7%.

The increase was primarily driven by an increase in employee costs including incentive compensation costs and incremental transaction costs related to the 3 Bear Acquisition.

General and administrative expenses were $242.0 million and $147.6 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $94.4 million, or 64.0%.

The increase was primarily driven by an increase in employee costs including incentive compensation costs 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 $68.0 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%.

Depreciation and amortization (included in both cost of sales and other operating expenses) was $72.9 million for the third quarter of 2022 compared to $60.8 million for the third quarter of 2021, an increase of $12.1 million, or 19.9%.

Depreciation and amortization (included in both cost of sales and other operating expenses) was $209.2 million compared to $195.6 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $13.6 million, or 7.0%.

Other Operating Income, Net

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.

Other operating income, net increased by $4.1 million in the third quarter of 2022 to $5.8 million compared to $1.7 million in the third quarter of 2021.

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

Other operating income, net increased by $39.8 million during the nine months ended September 30, 2022 to $44.5 million compared to $4.7 million during the nine months ended September 30, 2021.

The increases were primarily driven by an increase due to realized hedge gains during the 2022 period and insurance proceeds received in 2022.

Management's Discussion and Analysis

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Interest Expense, Net

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.

Interest expense, net increased by $13.2 million, or 35.2%, to $50.7 million in the third quarter of 2022 compared to $37.5 million in the third quarter of 2021, primarily driven by the following:

• an increase in the average effective interest rate of 56 basis points in the third quarter of 2022 compared to the third 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 $738.4 million in the third quarter of 2022 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the third quarter of 2021.

Interest expense, net increased by $32.7 million, or 32.7%, to $132.7 million during the nine months ended September 30, 2022 compared to $100.0 million during the nine months ended September 30, 2021, primarily driven by the following:

• an increase in the average effective interest rate of 101 basis points during the nine months ended September 30, 2022 compared to the nine months ended September 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 $316.1 million during the nine months ended September 30, 2022 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the nine months ended September 30, 2021.

Results from Equity Method Investments

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.

We recognized income of $17.8 million from equity method investments during the third quarter of 2022, compared to $2.9 million for the third quarter of 2021, an increase of $14.9 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 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.

• an increase in income from our investment in W2W Holdings LLC to income of $1.2 million in the third quarter of 2022 from a loss of $8.8 million in the third quarter of 2021.

We recognized income of $44.4 million from equity method investments during the nine months ended September 30, 2022, compared to $14.5 million for the nine months ended September 30, 2021, an increase of $29.9 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 $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:

• an increase in income from our investment in W2W Holdings LLC to income of $5.4 million during the nine months of 2022 from a loss of $12.9 million during the nine months of 2021.

During the three and nine months ended September 30, 2021, we recognized a receivable of $27.5 million, $20.9 million of which is included as a gain in other income, related to payment to be received from a loan buy-out agreement between Wink to Webster Pipeline LLC and the Company.

Refer to Note 6 of the condensed consolidated financial statements in Item 1.

Financial Statements, for additional information.

Income tax expense decreased by $0.5 million in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• pre-tax income of $20.8 million in the third quarter of 2022, as compared to a pre-tax loss of $25.1 million for the third quarter of 2021;

Management's Discussion and Analysis

• an increase in our effective tax rate which was 19.2% for the third quarter of 2022, compared to 17.9% for the third 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 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:

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

Income tax expense increased by $146.5 million during the nine months ended September 30, 2022 compared to the same period for 2021, primarily driven by the following:

• pre-tax income of $507.7 million in the nine months ended September 30, 2022, as compared to a pre-tax loss of $129.2 million for the nine months ended September 30, 2021;

• a decrease in our effective tax rate which was 21.2% for the nine months ended September 30, 2022, compared to 30.2% for the nine months ended September 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;

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Refining Segment Margins

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 Adjusted 2021 (1)

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Cost of materials and other 3,968.1 2,648.3 11,272.2 6,549.9

Refining margin

783.3 129.1 1,000.1 254.2

Refining segment margin 278.0 166.3 1,278.1 420.5

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

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Factors Impacting Refining Profitability

Our profitability in the refining segment is substantially determined by the difference between the cost of the crude oil feedstocks we purchase and the price of the refined products we sell, referred to as the "crack spread", "refining margin" or "refined product margin".

Refining margin is used as a metric to assess a refinery's product margins against market crack spread trends, where "crack spread" is a measure of the difference between market prices for crude oil and refined products and is a commonly used proxy within the industry to estimate or identify trends in refining margins.

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Finally, as part of our overall business strategy, we regularly evaluate opportunities to expand our portfolio of businesses and may at any time be discussing or negotiating a transaction that, if consummated, could have a material effect on our business, financial condition, liquidity or results of operations.

Management's Discussion and Analysis

Refinery Statistics

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Three Months Ended Nine Months Ended

September 30, September 30,

As Adjusted (2)

(Unaudited) (Unaudited)

Tyler, TX Refinery

Total Refining Segment

Days in period 92 92 273 273

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

Total sales volume - refined product (average bpd) (1)

300,129 343,007 303,084 311,532

Products manufactured (average barrels per day):

Total production (average bpd) 300,235 287,784 293,969 245,849

Crude oil 299,973 282,000 289,046 241,120

Other feedstocks 2,276 7,931 6,536 7,342

Total throughput (average bpd):

302,249 289,931 295,582 248,462

Total refining segment margin ($ in millions) (2)

$ 278.0 $ 166.3 $ 1,278.1 $ 420.5

Total refining segment operating expenses ($ in millions) (3)

172.0 84.2 456.9 313.9

Total refining segment contribution margin ($ in millions) (2)

$ 106.0 $ 82.1 $ 821.2 $ 106.6

(% based on amount received in period)

WTI crude oil 75.2 % 70.8 % 67.1 % 70.1 %

Gulf Coast Sweet Crude 5.3 % 8.5 % 8.4 % 7.0 %

Local Arkansas crude oil 3.5 % 4.0 % 4.1 % 4.7 %

Other 16.0 % 16.7 % 20.4 % 18.2 %

Management's Discussion and Analysis

Refinery Statistics (continued)

Three Months Ended Nine Months Ended

September 30, September 30,

As Adjusted (2)

(Unaudited) (Unaudited)

Tyler, AR Refinery

Products manufactured (average bpd):

Gasoline 35,210 35,221 35,021 37,410

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Total production 73,332 67,489 70,085 69,869

Throughput (average barrels per day):

Throughput (average bpd):

Crude Oil 74,796 67,199 69,335 68,206

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Total throughput 73,673 67,727 70,367 70,227

Total refining revenue ($ in millions) $ 1,039.9 $ 625.0 $ 1,809.8 $ 1,115.0

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

834.2 553.1 1,523.8 961.6

Total refining margin ($ in millions) (2)

$ 205.7 $ 71.9 $ 286.0 $ 153.4

Per barrel of refined product sales:

Tyler refining margin (2)

$ 31.27 $ 10.18 21.67 $ 11.24

Direct operating expenses (3)

Per barrel of throughput:

Operating expenses (3)

$ 6.93 $ 3.54 5.87 $ 3.73

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El Dorado, AR Refinery

Days in period

91 91 181 181

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

84,299 55,381 82,825 52,561

Products manufactured (average barrels per day):

Products manufactured (average bpd):

Gasoline 40,577 40,108 38,946 28,017

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Total production 82,647 81,580 80,149 57,514

Throughput (average barrels per day):

Throughput (average bpd):

Crude Oil 80,711 78,744 78,136 56,026

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Total throughput 84,012 82,859 81,290 58,445

Total refining revenue ($ in millions) $ 1,130.1 $ 489.5 $ 1,942.2 $ 926.2

Cost of materials and other ($ in millions) 939.2 479.1 1,711.8 930.0

Total refining margin ($ in millions) $ 190.9 $ 10.4 $ 230.4 $ (3.8)

Per barrel of refined product sales:

El Dorado refining margin $ 24.88 $ 2.06 $ 15.37 $ (0.39)

Direct operating expenses (3)

Per barrel of throughput:

Operating expenses (3)

$ 4.73 $ 1.90 $ 4.65 $ 4.31

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Other 17.6 % 28.4 % 32.4 % 28.2 %

Management's Discussion and Analysis

Refinery Statistics (continued)

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Big Spring, TX Refinery

Days in period 91 91 181 181

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

72,928 69,191 71,039 68,947

Products manufactured (average barrels per day):

Products manufactured (average bpd):

Gasoline 34,431 36,051 34,087 34,133

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Total production 67,018 69,558 65,821 65,195

Throughput (average barrels per day):

Management's Discussion and Analysis

Refinery Statistics (continued)

Three Months Ended Nine Months Ended

September 30, September 30,

As Adjusted (2)

As Adjusted (3)

(Unaudited) (Unaudited)

Throughput (average bpd):

Crude oil 70,955 70,473 67,455 66,693

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Total throughput 67,766 71,049 66,589 66,625

Total refining revenue ($ in millions) $ 1,116.4 $ 615.1 $ 1,941.9 $ 1,117.1

Cost of materials and other ($ in millions) 922.9 572.0 1,650.5 1,033.2

Total refining margin ($ in millions) $ 193.5 $ 43.1 $ 291.4 $ 83.9

Per barrel of refined product sales:

Big Spring refining margin $ 29.16 $ 6.84 $ 22.66 $ 6.72

Per barrel of throughput:

Direct operating expenses (3)

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Krotz Springs, LA Refinery

Days in period

91 91 181 181

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

75,791 77,318 77,800 51,286

Products manufactured (average barrels per day):

Products manufactured (average bpd):

Gasoline 32,371 31,465 32,111 23,639

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Total production 77,238 69,156 77,916 55,430

Throughput (average barrels per day):

Throughput (average bpd):

Crude Oil 73,510 65,583 74,120 50,197

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Total throughput 76,797 68,296 77,336 55,610

Total refining revenue ($ in millions) $ 1,514.0 $ 687.4 $ 2,604.1 $ 1,007.1

Cost of materials and other ($ in millions) 1,271.3 668.4 2,319.1 974.0

Total refining margin ($ in millions) $ 242.7 $ 19.0 $ 285.0 $ 33.1

Per barrel of refined product sales:

Krotz Springs refining margin $ 35.20 $ 2.71 $ 20.24 $ 3.56

Per barrel of throughput:

Direct operating expenses (3)

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Other 6.7 % — % 5.7 % 0.7 %

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

(1) Includes sales to other segments which are eliminated in consolidation.

See tables below.

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(3) Reflects the prior period conforming reclassification adjustment between operating expenses and general and administrative expenses.

Management's Discussion and Analysis

Included in the refinery statistics above are the following inter-refinery and sales to other segments:

Inter-refinery Sales

Three Months Ended 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

El Dorado refined product sales to other Delek refineries 1,531 961 1,201 704

Big Spring refined product sales to other Delek refineries 470 874 554 801

Krotz Springs refined product sales to other Delek refineries 1,061 590 783 297

Included in the refinery statistics above are the following sales to other segments:

Refinery Sales to Other Segments

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in barrels per day) 2022 2021 2022 2021

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Krotz Springs refined product sales to other Delek segments — 3,180 — 2,423

Management's Discussion and Analysis

Pricing Statistics (average for the period presented)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

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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 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.

For our Big Spring refinery, we compare our refining 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 refining 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 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.

Refining Segment Operational Comparison of the Three and Nine Months Ended September 30, 2022 versus the Three and Nine Months Ended September 30, 2021

Net revenues for the refining segment increased by $1,431.5 million, or 50.9%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by increases in the average price of U.S.

Gulf Coast gasoline of 23.3% ULSD of 67.9%, and HSD of 60.1% and

• 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.

Net revenues included sales to our retail segment of $132.1 million and $92.3 million, sales to our logistics segment of $124.7 million and $89.9 million, and sales to our other segment of $0.0 million and $28.7 million for the three months ended September 30, 2022 and September 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:

Net revenues for the refining segment increased by $5,579.9 million, or 80.1%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increases in the average price of U.S.

Gulf Coast gasoline of 49.3%, ULSD of 82.4%, and HSD of 80.3%;

• 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.

• an increase in total sales volumes of 13.1 million barrels, where sales volumes were lower in the nine 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 $404.0 million and $253.8 million, sales to our logistics segment of $374.3 million and $229.8 million and sales to our other segment of $16.7 million and $71.7 million for the nine months ended September 30, 2022 and 2021, respectively.

We eliminate this intercompany revenue in consolidation.

Cost of Materials and Other

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

Cost of materials and other increased by $1,319.8 million, or 49.8%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• increases in the cost of WTI Cushing crude oil, from an average of $70.54 per barrel to an average of $91.63, or 29.9%, and increases in the cost of WTI Midland crude oil, from an average of $70.74 per barrel to an average of $91.43, or 29.2%;

• an increase in sales volumes.

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:

Cost of materials and other increased by $4,722.3 million, or 72.1%, during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increases in the cost of WTI Cushing crude oil, from an average of $65.06 per barrel to an average of $98.50, or 51.4%;

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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 $123.8 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.

These costs and fees were $126.1 million and $109.3 million during the third quarters of 2022 and 2021, respectively, and $375.1 million and $307.0 million during the nine months ended September 30, 2022 and 2021, respectively.

We eliminate these intercompany fees in consolidation.

Refining Margin

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:

Refining Segment Margin

Refining segment margin increased by $111.7 million, or 67.2%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• a 70.5% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 67.8% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 93.8% 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:

Refining margin increased by $857.6 million, or 203.9%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• a 110.8% improvement in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 95.6% improvement in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 157.9% improvement in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery) and;

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

Operating expenses increased by $87.8 million, or 104.3%, in the third quarter of 2022 compared to the third 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 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:

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

Operating expenses increased by $143.0 million, or 45.6%, during the nine months ended September 30, 2022 compared to the nine months ended September 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.

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

Management's Discussion and Analysis

Contribution Margin

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.

Contribution margin increased by $23.9 million, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by an increase in refining margin primarily driven by improved crack spreads offset by increase in variable costs and utilities and natural gas prices.

Contribution margin increased by $714.6 million for the nine months ended September 30, 2022 compared to the nine months ended September 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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

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Plains Connection System 184,254 131,571 166,864 120,905

Trucking Assets 15,763 11,450 13,606 10,655

(1) Excludes jet fuel and petroleum coke.

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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 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;

Logistics Segment Operational Comparison of the Three and Nine Months Ended September 30, 2022 versus the Three and Nine Months Ended September 30, 2021

Net revenues increased by $104.5 million, or 55.1%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by:

• increases in the average sales prices per gallon of diesel and gasoline sold, partially offset by a decrease in the volumes of gasoline and 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.

Net revenues included sales to our refining segment of $126.1 million and $109.3 million for the three months ended September 30, 2022 and September 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:

Net revenues increased by $256.4 million, or 50.2%, in the nine months ended September 30, 2022 compared to the nine months ended September 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.

• increases in pipeline throughputs, where the nine months ended September 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.

Net revenues included sales to our refining segment of $375.1 million and $307.0 million for the nine months ended September 30, 2022 and 2021, respectively, and sales to our other segment of $2.0 million and $1.4 million for the nine months ended September 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 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:

Cost of materials and other for the logistics segment increased by $72.6 million, or 69.1%, in the third quarter of 2022 compared to the third 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 $0.56 per gallon and $1.42 per gallon, respectively;

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

◦ the average volumes of gasoline and diesel sold decreased by 0.8 million gallons and 1.1 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.

Our logistics segment purchased product from our refining segment of $124.7 million and $89.9 million for the three months ended September 30, 2022 and September 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:

Cost of materials and other for the logistics segment increased by $205.3 million, or 74.7%, in the nine months ended September 30, 2022 compared to the nine months ended September 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:

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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.

Our logistics segment purchased product from our refining segment of $374.3 million and $229.8 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

We eliminate these intercompany costs in consolidation.

Operating Expenses

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:

Operating expenses increased by $8.3 million, or 47.2%, in the third quarter of 2022 compared to the third quarter of 2021, driven by the following:

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

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• 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:

Operating expenses increased by $17.0 million, or 35.4%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven by the following:

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

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Contribution Margin

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:

Contribution margin increased by $23.6 million in the third quarter of 2022 compared to the third 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:

Contribution margin increased by $34.1 million, or 18.1%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increases in revenue due to higher throughput volumes;

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Retail Contribution Margins

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

30 unchanged sentences

Same-Store Comparison (2)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

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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 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

Retail Segment Operational Comparison of the Three and Nine Months Ended September 30, 2022 versus the Three and Nine Months Ended September 30, 2021

Net revenues for the retail segment increased by $46.6 million, or 22.6%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• an increase in total fuel sales which were $169.0 million in the third quarter of 2022 compared to $124.9 million in the third quarter of 2021, primarily attributable to an increase of $0.80 in average price charged per gallon sold;

• an increase in merchandise sales to $84.2 million in the third quarter of 2022 compared to $81.7 million in the third quarter of 2021.

Net revenues for the retail segment increased by $149.4 million, or 25.3%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

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%.

• an increase in total fuel sales which were $502.4 million in the nine months of 2022 compared to $349.5 million in the nine months of 2021, primarily attributable to a $1.09 increase in average price charged per gallon sold;

• partially offset by a decrease in merchandise sales to $237.3 million in the nine months of 2022 compared to $240.9 million in the nine months of 2021, primarily driven by the same-store sales decrease of 0.3%.

Cost of Materials and Other

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.

Cost of materials and other for the retail segment increased by $45.1 million, or 27.3%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by an increase in average cost per gallon of $0.78 or 29.4% applied to fuel sales volumes that increased period over period.

Our retail segment purchased finished product from our refining segment of $132.1 million and $92.3 million for the three months ended September 30, 2022 and September 30, 2021, respectively, which is eliminated in consolidation.

Cost of materials and other for the retail segment increased by $150.7 million, or 32.3%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by an increase in average cost per gallon of $1.11 or 45.5% applied to fuel sales volumes that increased period over period.

Our retail segment purchased finished product from our refining segment of $404.0 million and $253.8 million for the nine months ended September 30, 2022 and September 30, 2021, respectively, which is eliminated in consolidation.

Operating Expenses

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.

Retail segment operating expenses increased by $2.0 million, or 8.5%, in the third quarter of 2022 compared to the third quarter of 2021, primarily due to increased salary cost and credit card expenses due to a higher price per gallon.

Operating expenses for the retail segment increased by $5.8 million, or 8.6% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to increased employee costs.

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 $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 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.

Contribution margin for the retail segment decreased by $0.5 million, or 2.8%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• a decline in merchandise margin percentage of 1.1%;

• an increase in operating expense.

Contribution margin for the retail segment decreased by $7.1 million, or 12.6%, in the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily driven by the following:

• a decrease in average fuel margin of $0.025 per gallon and an increase in fuel sales volume;

• a 1.5% decrease in merchandise sales, partially offset by an increase in merchandise margin percentage of 0.6%.

Liquidity and Capital Resources

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• potential issuances of additional equity and debt securities.

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.

At September 30, 2022 our total liquidity amounted to $2.1 billion comprised primarily of $787.4 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), $193.1 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.

Financial Statements) and $1,153.8 million in cash and cash equivalents.

Refer to Note 19 of the condensed consolidated financial statements in Item 1.

Financial Statements for information on our recent amendments to our debt facilities.

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

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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.

On October 31, 2022 , our Board declared a quarterly cash dividend of $0.21 per share of our common stock, payable on December 2, 2022 to shareholders of record on November 18, 2022.

In addition, on August 1, 2022, the Board approved an approximately $170.3 million increase in its share repurchase authorization, bringing the total amount available for repurchases under current authorizations to $400.0 million.

During the third quarter 2022, we repurchased approximately 1.4 million shares of Delek US common stock for approximately $40 million, with an average price of $27.86 per share.

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

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.

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 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.

As of September 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 June 30, 2022 to the extent that any of our activities triggered these covenants.

Additionally, we were in compliance with incurrence covenants during the quarter ended September 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.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flow Data:

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Cash Flows from 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.

Net cash provided by operating activities was $716.1 million for the nine months ended September 30, 2022, compared to cash provided of $210.2 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 $555.4 million increase in cash provided by operating activities.

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

Additionally, interest paid increased $34.4 million, income taxes paid increased $22.4 million and dividends received increased $7.3 million.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $819.9 million for the first nine months of 2022, compared to $143.2 million in the comparable period of 2021.

The increase in cash flows used in investing activities was primarily due to the $625.4 million acquisition of 3 Bear, an $29.7 million increase in purchases of property, plant and equipment, partially attributable to delaying non-essential projects in light of the COVID-19 Pandemic and a $10.4 million decrease in proceeds from sale of property, plant and equipment.

Cash Flows from Financing Activities

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.

Net cash provided by financing activities was $401.1 million for the nine months ended September 30, 2022, compared to net cash used of $23.9 million in the comparable 2021 period.

This increase in cash provided was primarily due to net proceeds on our revolvers and term debt of $510.0 million during the nine months ended September 30, 2022, compared to net repayments of $125.8 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 $95.6 million decrease in net proceeds from inventory financing arrangements, the purchase of Delek common stock from IEP Energy Holding, LLC for $64.0 million in the current period, $40.0 million of share repurchases and $28.3 million dividends paid in the period.

Cash Position, Indebtedness and Other Financing Arrangements

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.

As of September 30, 2022, our total cash and cash equivalents were $1,153.8 million and we had total long-term indebtedness of approximately $2,733.6 million.

The total long-term indebtedness is net of deferred financing costs and debt discount of $9.2 million and $14.3 million, respectively.

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• an aggregate principal amount of $1,250.2 million under the Term Loan Credit Facility, due on March 30, 2025, with effective interest rate of 6.41%;

• an aggregate principal amount of $9.0 million in outstanding borrowings under the Delek Hapoalim Term Loan, due on December 31, 2022, with effective interest rate of 6.52%;

• an aggregate principal amount of $806.9 million under the Delek Logistics Credit Facility, due on September 28, 2023, with average borrowing rate of 5.64%;

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• an aggregate principal amount of $400.0 million under the Delek Logistics 2028 Notes, due in 2028, with effective interest rate of 7.40%;

• 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 5.00% for base rate loans, with a nominal principal amount outstanding.

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

• an aggregate principal amount of $50.0 million under the United Community Bank Revolver (formally Reliant Bank), due on June 30, 2023, with fixed interest rate of 7.00%;

• the Revolving Credit Facility, due on March 30, 2023, with borrowing rate of 6.50% for base rate loans, with no principal amount outstanding.

See Note 9 and Note 19 of the condensed consolidated financial statements in Item 1.

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

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Our supply and offtake obligation with J.

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

Aron amounted to $596.2 million at September 30, 2022, $413.0 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 June 30, 2022, and totaled $258.5 million, all of which is due by December 31, 2022.

Our product financing liabilities consisted primarily of RIN financings as of September 30, 2022, and totaled $305.7 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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A key component of our long-term strategy is our capital expenditure program.

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

Our capital expenditures for the nine months ended September 30, 2022 were $174.1 million, of which approximately $56.0 million was spent in our refining segment, $68.0 million in our logistics segment, $22.6 million in our retail segment and $27.5 million primarily at the holding company level.

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

2022 Forecast Nine Months Ended September 30, 2022

Sustaining maintenance, including turnaround activities $ 100.9 $ 50.6

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Total capital spending (1)

$ 300.0 $ 174.1

(1) The current year spend excludes approximately $8.1 million for equipment purchased during the nine months ended September 30, 2021 to be used in future expansion projects.

The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects and subject to the changes and uncertainties discussed under the 'Forward-Looking Statements' section of Item 2, of this Quarterly Report on Form 10-Q.

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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 June 30, 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 September 30, 2022, is set forth in the following table (in millions):

Payments Due by Period

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Total $ 2,690.8 $ 2,030.5 $ 331.1 $ 725.8 $ 5,778.2

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

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

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

Floating interest rate debt is calculated using September 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 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.

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

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

16 unchanged sentences

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