Delek US Holdings, Inc. 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Changes in commodity prices (mainly crude oil and refined products) and interest rates are our primary sources of market risk. When we make the decision to manage our market exposure, our objective is generally to avoid losses from adverse price changes, realizing we will not obtain the gains of beneficial price changes. 64 | Management's Discussion and Analysis Price Risk Management Activities At times, we enter into the following instruments/transactions in order to manage our market-indexed pricing risk: commodity derivative contracts which we use to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future sales of refined products or to fix margins on future production; and future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs Obligations and meet the definition of derivative instruments under Accounting Standards Codification ("ASC") 815, Derivatives and Hedging ("ASC 815"). In accordance with ASC 815, all of these commodity contracts and future purchase commitments are recorded at fair value, and any change in fair value between periods has historically been recorded in the profit and loss section of our condensed consolidated financial statements. Occasionally, at inception, the Company will elect to designate the commodity derivative contracts as cash flow hedges under ASC 815. Gains or losses on commodity derivative contracts accounted for as cash flow hedges are recognized in other comprehensive income on the condensed consolidated balance sheets and, ultimately, when the forecasted transactions are completed in net revenues or cost of materials and other in the condensed consolidated statements of income. The following table sets forth information relating to our open commodity derivative contracts, excluding our trading derivative contracts (which are discussed separately below), as of June 30, 2024 ($ in millions): Total Outstanding Notional Contract Volume by Year of Maturity Contract Description Fair Value Notional Contract Volume 2024 2025 Contracts not designated as hedging instruments: Crude oil price swaps - long (1) $ 0.1 12,764,000 12,764,000 — Crude oil price swaps - short (1) (5.7) 13,559,000 13,559,000 — Inventory, refined product and crack spread swaps - long (1) 4.3 2,951,000 2,951,000 — Inventory, refined product and crack spread swaps - short (1) (9.0) 3,909,000 3,909,000 — Natural gas swaps - long (3) — 2,002,500 1,255,000 747,500 Natural gas swaps - short (3) (0.2) 2,002,500 1,255,000 747,500 RINs commitment contracts - long (2) (7.2) 50,750,000 30,750,000 20,000,000 Total $ (17.7) (1) Volume in barrels. (2) Volume in RINs. (3) Volume in MMBtu. Interest Rate Risk We have market exposure to changes in interest rates relating to our outstanding floating rate borrowings, which totaled approximately $1,270.9 million as of June 30, 2024. The annualized impact of a hypothetical one percent change in interest rates on our floating rate debt outstanding as of June 30, 2024 would be to change interest expense by approximately $12.7 million. We also have interest rate exposure in connection with our Inventory Intermediation Agreement under which we pay a time value of money charge based on Secured Overnight Financing Rate. Inflation Inflationary factors, such as increases in the costs of our inputs, operating expenses, and interest rates may adversely affect our operating results. In addition, current or future governmental policies may increase or decrease the risk of inflation, which could further increase costs and may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales if the prices at which we are able to sell our products and services do not increase in line with increases in costs. Commodity Derivatives Trading Activities From time to time, we enter into active trading positions in a variety of commodity derivatives, which include forward physical contracts, swap contracts, and futures contracts. These trading activities are undertaken by using a range of contract types in combination to create incremental gains by capitalizing on crude oil supply and pricing seasonality. These contracts are classified as held for trading and are recognized at fair value with changes in fair value recognized in the income statement. We had no outstanding trading commodity derivative contracts as of June 30, 2024. 65 | Controls and Procedures