What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-28 · 351 added, 227 removed, 396 unchanged (59% of the section changed)

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See "Forward-Looking Statements" below for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.

Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," "we," "us," "our," or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole.

Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," “we,” “us,” or “our” or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole.

Unless otherwise noted or the context requires otherwise, references in this report to "Delek Holdings" refer collectively to Delek US Holdings, Inc.

and any of its subsidiaries, other than the Partnership, its subsidiaries and its general partner.

Management's Discussion and Analysis

and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner.

Effective August 13, 2020, the Partnership closed the transaction contemplated by a definitive exchange agreement with the general partner to eliminate all of the incentive distribution rights ("IDRs") held by the general partner and convert the 2.0% economic general partner interest into a non-economic general partner interest, all in exchange for 14.0 million newly issued common limited partner units and $45.0 million in cash ("IDR Restructuring Transaction").

Contemporaneously, Delek Holdings purchased a 5.2% ownership interest in our general partner from certain affiliates, who were also members of our general partner's management and board of directors.

See Note 4 to the accompanying consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information.

Effective May 1, 2020, the Partnership, through its wholly-owned subsidiary DKL Transportation, LLC, acquired Delek Trucking, LLC consisting of certain leased and owned tractors and trailers and related assets (the "Trucking Assets") from Delek Holdings, such transaction the "Trucking Assets Acquisition." See Note 3 to the accompanying consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information.

Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired from Delek Holdings a crude oil gathering system located in Howard, Borden and Martin Counties, Texas (the "Big Spring Gathering Assets"), and certain related assets, such transaction the "Big Spring Gathering Assets Acquisition." See Note 3 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information.

Effective March 1, 2018, the Partnership acquired from Delek Holdings certain logistics assets primarily located at or adjacent to Delek Holdings' Big Spring, Texas refinery (the "Big Spring Refinery").

See Note 3 to our accompanying consolidated financial statements for additional information on the acquisition.

See Note 3 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information on the acquisition.

The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its Twitter account (@DelekLogistics).

The Partnership encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information.

Please note that this list may be updated from time to time.

Forward-Looking Statements

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These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities.

Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts.

Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the COVID-19 Pandemic and the actions of members of OPEC+ with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts.

Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.

Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

Forward-looking information is based on information

Management's Discussion and Analysis

available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to:

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• changes in insurance markets impacting costs and the level and types of coverage available;

the timing and extent of changes in commodity prices and demand for refined products;

• the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand;

• the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business;

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• the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements;

• the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of the COVID-19 Pandemic;

• disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent;

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• our reliance on information technology systems in our day-to-day operations;

changes in general economic conditions;

the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the FERC and state commissions and those relating to environmental protection, pipeline integrity and safety;

• changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic;

• the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and state commissions and those relating to environmental protection, pipeline integrity and safety as well as current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic;

• competitive conditions in our industry;

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• our ability to successfully implement our business plan;

an inability to have growth projects completed on time and on budget;

• inability to complete growth projects on time and on budget;

• our ability to successfully integrate acquired businesses;

• disruptions due to acts of God, including natural disasters, weather-related delays, casualty losses and other matters beyond our control;

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

• changes or volatility in interest and inflation rates;

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• the effects of future litigation;

Management's Discussion and Analysis

• other factors discussed elsewhere in this Annual Report on Form 10-K.

Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 Pandemic and any worsening of the global business and economic environment.

In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them.

In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends.

We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.

We can give no assurances

Management's Discussion and Analysis

that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.

All forward-looking statements included in this report are based on information available to us on the date of this report.

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The Partnership is not a taxable entity for federal income tax purposes or the income taxes of those states that follow the federal income tax treatment of partnerships.

See "Part 1—Item 1.

Business—Company Overview" for further details.

See "Part 1—Items 1 and 2.

Business and Properties—Company Overview" for further details.

The COVID-19 outbreak and its development into a pandemic in March 2020 (the "COVID-19 Pandemic" or the "Pandemic") has resulted in significant economic disruption globally, including in the U.S.

and specific geographic areas where we operate.

Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through both voluntary and mandated social distancing, curfews, shutdowns and expanded safety measures, have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe.

This has in turn significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use, leading to a substantial decrease in consumer demand for gasoline and other hydrocarbons.

As a result, there has also been a decline in the demand for refined petroleum products and most notably gasoline and jet fuel.

There is continued uncertainty about the duration of the COVID-19 Pandemic which caused reduced consumer demand for gasoline and other hydrocarbons during the year ended December 31, 2020 in the United States and globally.

Therefore, downward pressure on commodity prices has remained and could continue for the foreseeable future.

In October 2020, governmental authorities in various states across the U.S., particularly those states in our Permian Basin and U.S.

Gulf Coast regions, lifted many of the restrictions created by actions taken to slow down the spread of COVID-19.

These actions resulted in an increase in the level of individual movement and travel and, in turn, an increase in the demand and market prices for some of our products relative to late March 2020.

However, many of the states where such restrictions were lifted subsequently experienced a marked increase in the spread of COVID-19 and many governmental authorities in such areas responded by re-imposing certain restrictions they had previously lifted.

In addition, certain countries globally recently re-imposed previously lifted restrictions due to worsening effects of the increased spread of COVID-19.

This response, as well as the increased infection rates, impacts regions that we serve and could significantly impact demand in ways that we cannot predict.

Additionally, increased infection rates could impact our logistics operations, particularly in high-infection states, if our employees are personally affected by the illness, both through direct infection and quarantine procedures.

During the year ended December 31, 2020, both our West Texas wholesale marketing business and many of our pipeline and transportation customers have experienced the impact on demand and pricing of these unprecedented conditions.

Our pipelines and transportation revenue streams were largely protected by minimum commitments under existing throughput contracts with customers during the current period, but continued pressure on our customers could present risks to our existing and new business opportunities as well as on collectability on our receivables.

We continue to experience operational constraints as well, including COVID-19 infections at certain of our company locations that have resulted in re-imposed or expanded remote policies and quarantine protocols.

We continue to be faced with risk from our suppliers and customers who are facing similar challenges.

We have identified the following uncertainties resulting from the COVID-19 Pandemic and other events, including the impact related to crude storage space shortages:

• Customers directly impacted by the COVID-19 Pandemic and other events in terms of demand for refined product may reduce throughputs which could, likewise, impact the throughput demand for our pipelines, and may seek to renegotiate minimums under contractual force majeure provisions.

Such reductions could have a significant impact on our revenues, cost of sales, operating income and liquidity, as well to the carrying value of long-lived or indefinite-lived assets;

• Customers may experience financial difficulties which could interrupt the volumes ordered by those customers and/or could impact the credit worthiness of such customers and the collectability of their outstanding receivables;

• Equity method investees may be significantly impacted by the COVID-19 Pandemic and/or other events, which may increase the risk of impairment of those investments;

Management's Discussion and Analysis

• The decline in demand and pricing on our wholesale marketing segment and a decline in demand for pipelines and transportation impacting current results and/or forecasts could result in impairments in certain of our long-lived or indefinite-lived assets, including goodwill, or have other financial statement impacts that cannot currently be anticipated;

• While our current liquidity needs are managed by existing credit facilities, sources of future liquidity needs may be impacted by the volatility in the debt market and the availability and pricing of such funds as a result of the COVID-19 Pandemic and other events;

Federal Government has enacted certain stimulus and relief measures and is continuing to consider additional relief legislation.

To the extent that the provisions do not directly impact the Partnership in the current period or are intended to stimulate or provide relief to the greater U.S.

economy and/or consumer, the impact and success of such efforts remains unknown.

Other uncertainties related to the impact of the COVID-19 Pandemic and other events may exist that have not been identified or that are not specifically listed above, and could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown.

Actions taken by OPEC+ in April and June 2020, including the agreement for management of crude oil supply in the hopes of contributing to market stabilization (the "Oil Production Cuts"), as well as the U.S.

Federal Government's passage and/or enactment of additional stimulus and relief measures, may impact the extent to which the risk underlying these uncertainties are realized.

To the extent these uncertainties have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S.

generally accepted accounting principles, we have considered them in the preparation of our consolidated financial statements as of and for the year ended December 31, 2020.

In addition, management continues to actively respond to the impact of the COVID-19 Pandemic and other events on our business.

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

• Reducing planned capital expenditures for 2021;

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

• Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and reducing or eliminating non-critical travel which serves the dual purpose of also complying with recommendations made by the state and federal governments because of the COVID-19 Pandemic;

• Implementing regular site cleaning and disinfecting procedures;

• Adopting remote working where possible.

Where on-site operations are required, appropriate safety precautions taken;

• Working with our employees to implement other site-specific precautionary measures to reduce the risk of exposure.

The extent to which our future results are affected by COVID-19 Pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the Pandemic;

additional actions by businesses and governments in response to the COVID-19 Pandemic;

and the speed and effectiveness of responses to combat the virus.

The COVID-19 Pandemic, and the volatile regional and global economic conditions stemming from the Pandemic, could also exacerbate the risk factors identified in this Annual Report on Form 10-K.

The COVID-19 Pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.

See also 'Risk Factors' in Part I, Item 1A.

of this Annual Report on Form 10-K for further discussion of risks associated with the COVID-19 Pandemic.

Our Reporting Segments and Assets

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The assets in our wholesale marketing and terminalling segment consist of refined products terminals and pipelines in Texas, Tennessee, Arkansas and Oklahoma.

We generate revenue in our wholesale marketing and terminalling segment by providing marketing services for the refined products output of the Tyler and Big Spring refineries, engaging in wholesale activity at our terminals in West Texas and at terminals owned by third parties, whereby we purchase light products for sale and exchange to third parties, and by providing terminalling services at our refined products terminals to independent third parties and Delek Holdings.

Management's Discussion and Analysis

terminals owned by third parties, whereby we purchase light products for sale and exchange to third parties, and by providing terminalling services at our refined products terminals to independent third parties and Delek Holdings.

2020 Developments

Restructuring Transaction

Effective August 13, 2020, the Partnership closed the transaction contemplated by a definitive exchange agreement with the general partner to eliminate all of the IDRs held by the general partner and convert the 2% economic general partner interest into a non-economic general partner interest, both in exchange for 14.0 million newly issued common limited partner units and $45.0 million in cash (the "IDR Restructuring Transaction").

See Note 3 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information.

In August 2020, we filed a shelf registration statement with the U.S.

Securities and Exchange Commission, which subsequently became effective, for the proposed re-sale or other disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units representing limited partner interests in the Partnership.

We will not sell any securities under this shelf registration statement and we will not receive any proceeds from the sale of the securities by Delek Holdings.

Red River Expansion project

In August 2020, Red River, a joint venture equity method investment which owns a crude oil pipeline running from Cushing, Oklahoma to Longview, Texas, completed a planned expansion project to increase the pipeline capacity from 150,000 bpd to 235,000 bpd.

The expansion project commenced operations on October 1, 2020.

Inflation Adjustments

On July 1, 2019, the tariffs on our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek Holdings and third parties that are subject to adjustment using the FERC indexing decreased by approximately 0.1%, which was the amount of the change in the FERC oil pipeline index.

See "Part 1—Item 1.

Business—Company Overview—2019 Developments" for further details.

Paline Pipeline Capacity

During the year ended December 31, 2018, we had separate agreements with an unrelated third party and a related party, Delek Refining, Ltd., for such parties to utilize certain capacity on the Paline Pipeline System.

The initial term of each agreement ran through February 2019.

The Partnership elected not to offer to extend these agreements and these agreements terminated on February 28, 2019.

As a result, since March 1, 2019, the capacity previously used by these parties has been available for any party to ship on the capacity of the pipeline subject to a tariff on file with the FERC for service provided on the Paline Pipeline System.

See "Part 1—Item 1.

Business—Company Overview—2019 Developments" for further details.

Red River Pipeline Joint Venture

In May 2019, the Partnership, through its wholly owned indirect subsidiary DKL Pipeline, LLC (“DKL Pipeline”), entered into a Contribution and Subscription Agreement (the “Contribution Agreement”) with Plains Pipeline, L.P.

(“Plains”) and Red River Pipeline Company LLC (“Red

Management's Discussion and Analysis

Pursuant to the Contribution Agreement, DKL Pipeline contributed $124.7 million to Red River, which was financed by borrowings under the DKL Credit Facility, in exchange for a 33% membership interest in Red River and DKL Pipeline’s admission as a member of Red River ("Red River Pipeline Joint Venture").

Red River intends to proceed with an expansion project to increase the capacity of the pipeline from 150,000 bpd to 235,000 bpd and, pursuant to the Contribution Agreement, in May 2019 we contributed an additional $3.5 million for such expansion project.

See Note 14 to our accompanying consolidated financial statements for additional information on the Red River Pipeline Joint Venture.

On July 1, 2020, the tariffs on our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek Holdings and third parties that are subject to adjustment using the FERC indexing increased by approximately 2%, which was the amount of the change in the FERC oil pipeline index.

Under certain of our other agreements with Delek Holdings and third parties, the fee adjusted based on the consumer price index increased 1.6% and the fees adjusted based on producer price index decreased approximately 1.2%.

See "Part 1—Items 1 and 2.

Business and Properties—Company Overview—2020 Developments" for further details.

Trucking Assets Acquisition

See Note 2 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information.

Big Spring Gathering Assets Acquisition

Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired the Big Spring Gathering Assets from Delek Holdings, located in Howard, Borden and Martin Counties, Texas.

See Note 2 to our accompanying consolidated financial statements, in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information.

On March 31, 2020, in connection with the completion of the Big Spring Gathering Assets Acquisition, the Board of the general partner waived distributions in respect of the Incentive Distribution Rights ("IDRs") associated with the 5.0 million newly issued common limited partner units ("Additional Units") for at least two years, through at least the distribution for the quarter ending March 31, 2022 ("IDR Waiver").

The IDR Waiver essentially reduced the distribution made to the holders of the IDRs during this period, as the holders would not receive a share of the distribution made on the Additional Units.

An additional waiver letter was signed that waived all of the distributions for the first quarter of 2020 on the Additional Units with respect to base distributions and the IDRs.

The Restructuring Transaction on August 13, 2020, permanently eliminated all of the IDRs.

See Note 3 to our accompanying consolidated financial statements, in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information.

Business Strategies

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In new service contracts, we will endeavor to include minimum volume throughput or other commitments, similar to those included in our current commercial agreements with Delek Holdings.

Management's Discussion and Analysis

• Focus on Growing Our Business.

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See Note 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of our material commercial agreements with Delek Holdings.

Management's Discussion and Analysis

Other Transactions

Starting in 2018, the Partnership manages a long-term capital project on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of a 250-mile gathering system in the Permian Basin (the "Delek Permian Gathering Project").

As of December 31, 2020, approximately 178 miles of the gathering system were completed and operational, however, additional costs pertaining to a pipeline connection that was not contributed to the Partnership continue to be incurred and are still subject to the terms of the DPG Management Agreement.

The Partnership is also considered the operator for the project and is responsible for the oversight of the project design, procurement and construction of project segments and for providing other related services.

See Note 4 for additional information on the DPG Management Agreement.

See Note 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information on the DPG Management Agreement.

Management's Discussion and Analysis

How We Evaluate Our Operations

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These metrics are significant factors in assessing our operating results and profitability and include:

volumes (including pipeline throughput and terminal volumes);

contribution margin per barrel;

operating and maintenance expenses;

cost of materials and other;

EBITDA and distributable cash flow (as such terms are defined below).

(i) volumes (including pipeline throughput and terminal volumes);

(ii) contribution margin per barrel;

(iii) operating and maintenance expenses;

(iv) cost of materials and other;

(v) EBITDA and distributable cash flow (as such terms are defined below).

The amount of revenue we generate primarily depends on the volumes of crude oil and refined products that we handle in our pipeline, transportation, terminalling, storage and marketing operations.

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These costs include:

all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products;

costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other

costs related to fuel, truck leases and repairs and maintenance;

the cost of pipeline capacity leased from any third parties;

gains and losses related to our commodity hedging activities.

(i) all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products;

(ii) costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance;

(iii) the cost of pipeline capacity leased from any third parties;

(iv) gains and losses related to our commodity hedging activities.

The Partnership paid a cash distribution to its unitholders at a distribution rate of $0.910 per unit for the quarter ended December 31, 2020 ($3.64 per unit on an annualized basis).

Our Partnership Agreement requires that the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to its unitholders quarterly.

As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our DKL Credit Facility and any potential future issuances of equity and debt securities.

As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our revolving credit facility and any potential future issuances of equity and debt securities.

See Note 12 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of historic cash distributions.

Market Trends

Master Limited Partnerships

Business Environment

Fluctuations in crude oil prices and the prices of related refined products impact our operations and the operations of other master limited partnerships in the midstream energy sector.

In particular, crude oil prices and the prices of related refined products have the ability to influence drilling activity in many basins and the amounts of capital spending that crude oil exploration and production companies incur to support future growth.

Prior to 2017, depressed crude oil prices resulted in a reduction in drilling activity, which created excess capacity and reduced throughput on many crude oil pipelines in the United States and limited the need for new infrastructure projects as crude oil production in the United States was in a period of decline.

However, in 2017, the prices of crude oil and related refined products increased relative to the prior year's level.

Throughout the majority of 2018, the prices of crude oil and related refined products remained relatively consistent.

Nevertheless, during the fourth quarter of 2018 the prices of crude oil and related refined products decreased significantly due to seasonal impacts.

During the first half of 2019, the prices of crude oil and related refined products began to rebound and increase but fell slightly in the second half of 2019.

Drilling activity in the Permian Basin continues to be a source of favorable market conditions for the midstream companies in the area.

As a result, our assets remain in demand and our operations should benefit from this activity for as long as it continues, particularly in the West Texas area where our results are most driven by market factors.

Additionally, we believe these market conditions will continue to facilitate the development of profitable growth projects that are needed to support future distribution growth in the midstream energy sector and for the Partnership.

We are aware that certain industry participants structured as master limited partnerships have addressed certain key variables (including investor sentiments, declining distributions, and recent changes in tax law, among others) by restructuring as corporations subject to tax.

These variables are unique for each such restructuring or restructured master limited partnership.

We have no current plan or intention to undertake a similar restructuring.

During the first half of 2019, the prices of crude oil and related refined products increased but fell slightly in the third quarter of 2019.

During the first quarter of 2020, reduced demand for crude oil and refined products related to the COVID-19 Pandemic, combined with production increases from OPEC+, led to a significant reduction in crude oil prices.

While OPEC+ reached an agreement to cut oil production, the uncertainty about the duration of the COVID-19 Pandemic continues to slow down the recovery of demand for gasoline and other hydrocarbons.

Therefore, the downward pressure on commodity prices has remained and could continue for the foreseeable future.

Oil prices have been extremely volatile during the year ended December 31, 2020.

The January 2020 high closing price of oil (WTI Cushing) was $63.27 per barrel, which declined to close at $20.48 per barrel on March 31, 2020, reached a second quarter 2020 low of $10.01 per barrel on April 21, 2020 and closed at $39.27 per barrel on June 30, 2020.

The WTI Cushing oil price recovered slightly to close at $40.22 per barrel on September 30, 2020 and at $48.40 on December 31, 2020.

In response to the rapid decline in commodity prices, some companies in the Permian Basin acted swiftly to reduce drilling and completion activity starting late in the first quarter and continued into the second and third quarter of 2020.

The current market conditions have resulted in lower refinery utilization which in turn has impacted the throughput for our assets and operations.

This has impacted our operations leading to a decrease in revenues albeit with at least an equivalent decrease in cost and expenses in some instances.

Due to the stabilization in oil prices, albeit at lower prices, during the second half of the year, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the first half of 2020.

We believe we are strategically positioned, in these tougher market conditions, to continue developing profitable growth projects that are needed to support future distribution growth in the midstream energy sector and for the Partnership.

West Texas Marketing Operations

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Additionally, volatility in crude oil, intermediate and refined products prices in the West Texas area and the value attributable to RINs can affect the results of our West Texas operations.

For example, as discussed above, drilling activity and the prices of crude oil and related refined products were stable for the majority of 2018 and in spite of a decrease in prices during the fourth quarter of 2018, demand for refined products from our West Texas operations to industries that support crude oil exploration and production began to rebound in the first half of 2019 with a slight reduction in the second half of 2019.

However, finished products prices saw a larger decrease.

For example, as discussed above, drilling activity and the prices of crude oil and related refined products increased in the first half of 2019 and in spite of a slight decrease in prices in the third quarter of 2019, demand for refined products from our West Texas operations to industries that support crude oil exploration and production began to rebound early in the first quarter of 2020.

However due to the impact of the COVID-19 Pandemic there was lower demand and sales of refined products during later part of the first quarter and remained down during the second quarter of 2020.

However, during the third quarter and fourth quarter of 2020, demand and sales of the refined products began to rebound from the second quarter lows.

Management's Discussion and Analysis

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As part of our overall business strategy, management considers aspects such as location, acquisition and expansion opportunities and factors impacting the utilization of the refineries (and therefore throughput volumes), which may impact our performance in the market.

Management's Discussion and Analysis

Non-GAAP Measures

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our generally accepted accounting principles ("GAAP") financial information presented in accordance with U.S.

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S.

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

• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying consolidated statements of income.

Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash.

• Distributable cash flow - calculated as net cash flow from

operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash.

Delek Logistics believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.

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Year Ended December 31,

Net income $ 159,256 $ 96,749

Income tax expense 223 967

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Interest expense, net 42,874 47,328

$ 245,295 $ 178,956

Reconciliation of net cash from operating activities to distributable cash flow (in thousands)

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Maintenance and regulatory capital expenditures (2)

(1,296) (8,569)

Reimbursement from Delek Holdings for capital expenditures (3)

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Deferred income taxes (401) (496)

Loss (gain) on asset disposals

Other operating income, net 66 197

Distributable cash flow (1)

$ 207,664 $ 127,002

For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures" above.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount.

Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different assumptions and conditions.

We believe that our critical accounting policies are limited to those described below.

Property, Plant and Equipment and Intangibles Impairment

Property, plant and equipment and intangibles are evaluated for impairment whenever indicators of impairment exist.

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities.

We prepare our consolidated financial statements in conformity with GAAP, and in the process of applying these principles, we must make judgments, assumptions and estimates based on the best available information at the time.

To aid a reader's understanding, management has identified our critical accounting policies.

These policies are considered critical because they are both most important to the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments.

Often they require judgments and estimation about matters which are inherently uncertain and involve measuring at a specific point in time, events which are continuous in nature.

Actual results may differ based on the accuracy of the information utilized and subsequent events, some over which we may have little or no control.

Property, Plant and Equipment and Definite-lived Intangibles Impairment

Property, plant and equipment and definite-lived intangibles are evaluated for impairment whenever indicators of impairment exist.

An indicator exists when events or conditions indicate that it is more likely than not that the future cash flows associated with an asset group will be insufficient to recover the carrying value.

Accounting standards require that if an impairment indicator is present, we must assess whether the carrying amount of the asset is unrecoverable by estimating the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges.

We derive the required undiscounted cash flow estimates from our historical experience and our internal business plans.

If the carrying amount is more than the recoverable amount, an impairment charge must be recognized based on the fair value of the asset.

We derive the required undiscounted cash flow estimates, including salvage values (when applicable), from our historical experience and our internal business plans, which requires judgment.

We use quoted market prices when available and our internal cash flow estimates discounted at an appropriate interest rate to determine fair value, as appropriate.

Since late 2018, we have been in the process of decommissioning certain of the gathering pipelines on the Gathering Assets.

The decommissioning entailed taking certain pipelines out of service in an effort to improve the safety and integrity of the Gathering Assets.

If the carrying amount is more than the estimated recoverable amount, an impairment charge must be recognized based on the fair value of the asset.

In late 2018, we began the process of decommissioning certain common carrier pipelines on the El Dorado Gathering System.

The decommissioning entailed taking certain pipelines out of service in an effort to improve the safety and integrity of the El Dorado Gathering System.

The project was completed in August 2019.

The pipelines that were decommissioned remained physically in place, and the decommissioning has not had a material effect on the financial statements.

The pipelines that were decommissioned remained physically in place, and the decommissioning did not have a material effect on our financial results.

We performed an impairment analysis of our rights-of-ways ("ROWs") associated with the decommissioning project.

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This impairment, however, did not have a material effect on our 2019 financial results.

Goodwill and Potential Impairment

Goodwill represents the excess of the fair value of the consideration conveyed in an acquisition over the fair value of net assets acquired.

Goodwill is evaluated for impairment annually, or more frequently if indicators of impairment exist, such as disruptions in our business, unexpected significant declines in operating results, or a sustained market capitalization decline.

We have identified the COVID-19 Pandemic as a significant event during the year ended December 31, 2020 that adversely affected the global economy and the oil and gas industry.

The COVID-19 Pandemic has resulted in government-imposed temporary business closures and shelter-at-home directives.

This has had the secondary effect of impacting prices of crude oil and refined products as well as supply and demand for crude oil and refined products, where such conditions may impact our cash flows either directly through our West Texas wholesale operations or indirectly because those prices and supply/demand may impact our customers' needs for our logistics assets/services.

Additionally, the Pandemic has given rise to other identified uncertainties, as discussed in the 'Business Overview' section of Management's Discussion and Analysis.

For these reasons, we have considered the uncertainties and the related risks in our consideration of the recoverability of Property, plant and equipment and definite-lived intangibles.

Factors impacting our evaluation include the favorable factor that many of our assets were acquired from entities under common control, and therefore were recorded at their original amortized book value instead of their higher fair value on acquisition, as well as the presence of minimum volume commitments in our Commercial Agreements with customers.

Judgment is required to assess the credit worthiness of our customers as well as contractual risk which may not always be visible (depending on the customer).

Because approximately 90% of our throughput Commercial Agreements are with Delek Holdings, a related party, we believe we had adequate information to reasonably assess these risks.

Based on these factors and our judgments about their impact, we concluded that we did not have an indicator of impairment with respect to our property, plant and equipment and definite-lived intangibles.

In response to the identified significant event relating to the COVID-19 Pandemic, we assessed whether the carrying amount of our Property, plant and equipment and definite-lived intangibles were recoverable by comparing the expected future cash flows to our carrying amount.

Based on our analyses, we determined that the Property, plant and equipment of $464.8 million and definite-lived intangibles of $123.8 million were not impaired as of December 31, 2020.

Goodwill and Indefinite-lived Intangible Assets Potential Impairment

Goodwill in an acquisition represents the excess of the aggregate purchase price over the fair value of the identifiable net assets.

Goodwill is reviewed at least annually for impairment, or more frequently if indicators of impairment exist, such as disruptions in our business, unexpected significant declines in operating results or a sustained market capitalization decline.

Goodwill is evaluated for impairment by comparing the carrying amount of the reporting unit to its estimated fair value.

Prior to the adoption of Accounting Standard Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment, if a reporting unit's carrying amount exceeded its fair value (Step 1), the impairment assessment lead to the testing of the implied fair value of the reporting unit's goodwill to its carrying amount (Step 2).

If the implied fair value was less than the carrying amount, a goodwill impairment charge was recorded.

Subsequent to adoption of ASU 2017-04 (which we adopted during the fourth quarter of 2018, as permitted by the ASU), Step 2 is no longer required, but rather any impairment is determined based on the results of Step 1.

In assessing the recoverability of goodwill, assumptions are made with respect to future business conditions and estimated expected future cash flows to determine the fair value of a reporting unit.

We may consider inputs such as a market participant weighted average cost of capital, estimated growth rates for revenue, gross profit and capital expenditures based on history and our best estimate of future forecasts, all of which are subject to significant judgment and estimates.

We may also estimate the fair values of the reporting units using a multiple of expected future cash flows, such as those used by market participants.

If these estimates and assumptions change in the future, due to factors such as a decline in general economic conditions, competitive pressures on sales and margins and other economic and industry factors beyond management's control, an impairment charge may be required.

We may also elect to perform a qualitative impairment assessment of goodwill balances.

Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other , provides that companies may first apply an optional qualitative approach to test indefinite-lived intangible assets for impairment.

The qualitative assessment permits companies to assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount.

If a company concludes that, based on the qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company is required to perform the quantitative impairment test.

Alternatively, if a company concludes based on the qualitative assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it has completed its goodwill impairment test and does not need to perform the quantitative impairment test.

At December 31, 2019 , the Partnership had approximately $12.2 million of goodwill recorded, the majority of which was related to the West Texas assets.

Our quantitative assessment for testing goodwill for impairment performed in 2017 yielded a significant cushion of fair value over carrying value.

This enabled us to elect the optional qualitative assessment for testing goodwill for impairment in 2018 and 2019.

As our assessment relied primarily on a discounted cash flow ("DCF") model, we have identified the following assumptions to be the most sensitive inputs to the fair value calculation:

Weighted Average Cost of Capital

Terminal Growth Rate (Long Term Growth Rate)

Barrels per Day Sold/Throughput for West Texas and Pipeline and Storage

Alternatively, if a company concludes based on the qualitative assessment that it is not more

Management's Discussion and Analysis

For Pipeline and Storage, Barrels per Day Sold is primarily driven by minimum throughput commitment agreements with Delek Holdings

Gross Margin per Barrel (West Texas only)

We considered events and circumstances that transpired since 2017 and noted that no negative events have occurred that are significant enough to indicate impairment of the carrying value of goodwill.

likely than not that the fair value of a reporting unit is less than its carrying amount, it has completed its goodwill impairment test and does not need to perform the quantitative impairment test.

We perform our annual goodwill impairment assessment during the fourth quarter.

When applying the quantitative approach to assessing the recoverability of goodwill, assumptions are made with respect to future business conditions and estimated expected future cash flows to determine the fair value of a reporting unit.

We may consider inputs such as a market participant weighted average cost of capital ("WACC"), estimated growth rates for revenue, barrels per day sold/throughput, rates including FERC regulated rates, contribution margin, capital expenditures, and long-term growth rate based on history and our best estimate of future forecasts, all of which are subject to significant judgment and estimates.

We may also corroborate the fair values of the reporting units using a multiple of expected future cash flows, such as those used by third-party analysts.

If these estimates and assumptions change in the future, due to factors such as a decline in general economic conditions, sustained decrease in rates, competitive pressures on sales and margins and other economic and industry factors beyond management's control, an impairment charge may be required.

The most significant risks to our valuation and the potential future impairment of goodwill are the WACC and the throughput and rates, which are mostly driven by the minimum throughput on our commercial agreements with Delek.

Because of the significant historical cushion by which the fair value of our reporting units exceeded our carrying value and the relative insignificance of our total goodwill balance ($12.2 million as of December 31, 2020 and 2019) to our balance sheet as a whole, we elected to perform a qualitative assessment for purposes of our annual goodwill impairment test during the fourth quarter in 2020, 2019 and 2018.

Our assessment was performed based on the events that had occurred through our annual assessment date, and included certain analyses on the most significant inputs in our most recent valuation model to evaluate the impact of these events on the fair value of our reporting units.

This included sensitivity analysis and stress testing on certain of our inputs, including the weighted-average cost of capital and the barrel per day ("BPD") sold/throughput, which is driven by demand for crude oil and refined products.

Except for West Texas, our throughput volume is primarily driven by the minimum throughput in our commercial agreements with Delek Holdings.

Additionally, our 2020 assessment included consideration of the effects of the COVID-19 Pandemic, including its effect on the prices of crude oil and refined products as well as supply and demand for crude oil and refined products, where such conditions may impact our cash flows either directly through our West Texas wholesale operations or indirectly because those prices and supply/demand may impact our customers' needs for our logistics assets/services (see further discussion of the Pandemic and related uncertainties as discussed in the 'Business Overview' section of Management's Discussion and Analysis).

Factors impacting our evaluation include the favorable factor that many of our indefinite-lived intangible assets were acquired from entities under common control, and therefore were recorded at their original carrying amount instead of a higher fair value at acquisition, as well as the presence of minimum value commitments in our Commercial Agreements with customers.

Judgment is required to assess the credit worthiness of our customers as well as contractual risk which may not always be visible (depending on the customer).

Because approximately 90% of our throughput Commercial Agreements are with Delek, a related party, we believe we had adequate information to reasonably assess these risks.

Based on our annual assessment which involved these qualitative analyses, we determined that there was no indicator that fair value was more likely than not to have declined below carrying value of our reporting units as of our annual assessment dates during each of the years ended December 31, 2020, 2019 or 2018.

Therefore, the quantitative approach was not required.

Accordingly, our annual assessment of goodwill and indefinite-lived intangible assets did not result in an impairment charge during the years ended December 31, 2020, 2019 or 2018.

December 31, 2020.

Additionally, because conditions and events are rapidly changing, we continue to monitor developments with these events and their impact on our valuation.

However, there is uncertainty in and around the impact of the COVID-19 Pandemic and other events that have not yet occurred or for existing conditions and events that may have future ramifications that cannot yet be anticipated.

Continued or sustained adverse change to these factors may result in potential future impairment of some or all of our goodwill balance.

New Accounting Pronouncements

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The discussion of the year-over-year changes immediately following presents the consolidated results of operations for the year ended December 31, 2020.

A detailed discussion of the fiscal 2018 year-over-year changes can be found in Item 7, Managements' Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K filed on March 1, 2019.

A detailed discussion of the fiscal 2019 year-over-year changes can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K filed on February 28, 2020.

Year Ended December 31,

Net revenues:

Affiliate $ 382,666 $ 261,014

Third-Party 180,752 322,978

Total Consolidated 563,418 583,992

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The decrease was primarily driven by the following:

decreases in the average volumes sold and in the average sales prices per gallon of gasoline and diesel in our West Texas marketing operations as a result of declines in crude oil and refined products due to market volatility in the West Texas area.

the average volumes of gasoline and diesel sold in 2019 and 2018 decreased by 14.3 million gallons and 21.8 million gallons, respectively.

the average sales prices per gallon of gasoline and diesel sold in 2019 and 2018 decreased by $0.14 per gallon and $0.22 per gallon, respectively.

Such decreases were partially offset by the following events:

increased revenues associated with the assets we acquired in the Big Spring Logistic Assets Acquisition, which we owned for the entirety of the year ended December 31, 2019 (compared to ten months during the year ended December 31, 2018 );

increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the year ended December 31, 2018 , during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee, compared to the ten months during the year ended December 31, 2019 , during which the pipeline was subject to a FERC tariff;

increased revenues associated with the gathering assets as a result of increased throughput due to diversification of market locations during the year ended December 31, 2019 compared to the year ended December 31, 2018 ;

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

◦ the volume of gasoline sold increased 12.6 million gallons, partially offset by a 8.1 million decrease of diesel gallons sold.

◦ the average sales prices per gallon of gasoline and diesel sold decreased $0.49 per gallon and $0.71 per gallon, respectively.

Such decreases were partially offset by the following:

• increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively;

• increased revenues at our El Dorado Gathering System and Magnolia Pipeline as result of increased throughput during the year ended December 31, 2020 when compared to the year ended December 31, 2019.

Management's Discussion and Analysis

increased revenues associated with our trucking assets.

Cost of Materials and Other

Cost of materials and other decreased by $67.4 million, or 20.0%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

decreases in the average volumes sold and in average cost per gallon of gasoline and diesel sold in our West Texas marketing operations.

the average volumes of gasoline and diesel sold in 2019 and 2018 decreased by $14.3 million gallons and $21.8 million gallons, respectively.

the average cost per gallon of gasoline and diesel sold in 2019 and 2018 decreased by $0.15 per gallon and $0.19 per gallon, respectively.

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

◦ the average volumes of gasoline sold increased 12.6 million gallons, partially offset by a 8.1 million decrease of diesel gallons sold.

◦ the average cost per gallon of gasoline and diesel sold decreased $0.43 per gallon and $0.66 per gallon, respectively.

Operating Expenses

Operating expenses increased by $15.4 million , or 26.2% , in the year ended December 31, 2019 compared to the year ended December 31, 2018 , primarily driven by the following:

costs in the amount of $7.1 million associated with the clean-up of a finished product release involving one of our pipelines that occurred in October 2019 near Sulphur Springs, Texas;

higher operating costs associated with allocated contract services pertaining to certain of our assets;

higher employee costs allocated to us as a result of an increase in allocated employee headcount in various operational groups as the Partnership continues to experience growth.

These increases were partially offset by:

decreases in variable expenses such as utilities, maintenance and material costs.

Operating expenses decreased by $17.9 million, or 24.1%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

• lower operating costs associated with allocated contract services pertaining to certain of our assets.

General and Administrative Expenses

General and administrative expenses increased by $1.8 million, or 8.5%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

a reduction in employee related expenses allocated to us in connection with the management of various projects for Delek Holdings pursuant to the DPG Management Agreement during the year ended December 31, 2018 , with no comparable expense reduction during the year ended December 31, 2019 , as these fees were reclassified to revenue for 2019 ;

increases in allocated employee headcount in various operational groups as the Partnership continues to experience growth;

increases in professional consulting fees associated with the Red River Pipeline Joint Venture

• increases in allocated employee headcount in various operational groups as the Partnership continues to experience growth due to the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition;

• increases in legal and professional consulting fees due to various transactions undertaken by the Partnership.

Depreciation and Amortization

The changes in depreciation and amortization for the year ended December 31, 2019 compared to the year ended December 31, 2018 were immaterial.

Depreciation and amortization increased by $9.0 million, or 33.8%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• addition of assets to our asset base as a result of the Trucking Assets Acquisition and the Big Spring Gathering Assets Acquisition.

Interest Expense

Interest expense increased by $6.1 million , or 14.7% in the year ended December 31, 2019 compared to the year ended December 31, 2018 , primarily driven by the following:

increased borrowings under the DKL Credit Facility as a result of the Big Spring Logistic Assets Acquisition that occurred late in the first quarter of 2018 and our contributions to the Red River Pipeline Joint Venture in May 2019, prior to which we had lower average debt balances;

higher floating interest rates applicable to the DKL Credit Facility.

Management's Discussion and Analysis

Interest expense decreased by $4.5 million, or 9.4%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• lower floating interest rates applicable to the DKL Credit Facility;

• partially offset by increased borrowings under the DKL Credit Facility as a result of our Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition and the IDR Restructuring Transaction.

Results from Equity Method Investments

Income from equity method investments increased by $2.9 million, or 14.4%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

the addition of the Red River Pipeline Joint Venture as a result of the Partnership's efforts to grow the midstream business;

an increase in income from our investments in Andeavor Logistics and CP LLC.

• an increase in income from our investments in Andeavor Logistics, Red River and CP LLC (as defined in Note 14 of the accompanying consolidated financial statements in Item 15, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K), which operate the RIO Pipeline, Red River Pipeline and the Caddo Pipeline System, respectively, as a result of increased revenues for both pipeline systems.

Management's Discussion and Analysis

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Segment contribution margin is defined as follows:

Segment contribution margin =

Net revenues -

Cost of materials and other -

Operating expenses, excluding depreciation and amortization

Segment contribution margin = Net revenues - Cost of materials and other - Operating expenses, excluding depreciation and amortization

Pipelines and Transportation Segment

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These assets include:

the Lion Pipeline System

the Gathering Assets

• the pipeline assets used to support Delek Holdings' El Dorado refinery (the "El Dorado Assets")

• the gathering system that supports transportation of crude oil to the El Dorado Refinery (the "El Dorado Gathering System")

• the Paline Pipeline System

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• refined product pipeline capacity leased from Enterprise TE Products Pipeline Company ("Enterprise") that runs from El Dorado, Arkansas to our Memphis terminal and the Big Spring Pipeline

Effective March 1, 2018 , this segment also includes the pipelines and storage assets acquired in the Big Spring Logistic Assets Acquisition

• pipelines and storage assets acquired in the Big Spring Logistics Assets Acquisition

• assets acquired in the Big Spring Gathering Assets Acquisition

• assets acquired in the Trucking Assets Acquisition

In addition to these operating systems, we own or lease 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties.

The following table and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the years ended December 31, 2020 and 2019.

A detailed discussion of the fiscal 2019 year-over-year changes can be found in Item 7, Managements' Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K filed on February 28, 2020.

Pipelines and Transportation

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Net Revenues:

Affiliate $ 233,873 $ 155,211

Third-Party 17,596 23,107

Total Pipelines and Transportation 251,469 178,318

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Segment contribution margin $ 163,268 $ 100,665

Management's Discussion and Analysis

Throughputs (average bpd)

Year Ended December 31,

Lion Pipeline System:

El Dorado Assets:

Crude pipelines (non-gathered) 74,179 49,485

Refined products pipelines to Enterprise Systems 53,702 37,716

Gathering Assets

El Dorado Gathering System 13,466 15,325

East Texas Crude Logistics System 15,960 19,927

Management's Discussion and Analysis

Big Spring Gathering System (1)

Plains Connection System (1)

(1) Throughputs for the Big Spring Gathering System and the Plains Connection System are for approximately 275 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

Operational Comparison of the Year Ended December 31, 2020 versus the Year Ended December 31, 2019

Net revenues for the pipelines and transportation segment increased by $73.2 million, or 41.0%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, driven primarily by the following:

increased revenues generated by the pipelines and storage assets acquired in the Big Spring Logistic Assets Acquisition, which we owned for the entirety of the year ended December 31, 2019 (compared to ten months during the year ended December 31, 2018);

increased revenues associated with our Paline Pipeline as a result of increased rates and a change in the fee structure from the year ended December 31, 2018 during which the capacity of the Paline Pipeline was contracted to separate parties for a monthly fee compared to the ten months during the year ended December 31, 2019 , during which the pipeline was subject to a FERC tariff;

increased revenues associated with our trucking assets.

• increased revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition, which were effective March 31, 2020 and May 1, 2020, respectively;

• increased revenues at our El Dorado Assets and Magnolia Pipeline as result of increased throughput during the year ended December 31, 2020 when compared to the year ended December 31, 2019.

Cost of Materials and Other

Cost of materials and other for the pipelines and transportation segment increased by $23.1 million, or 101.2%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, driven primarily by the following:

increased costs associated with product purchases from third parties, in the year ended December 31, 2019 , with no comparable activity in the year ended December 31, 2018 ;

increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expense proportionate to increases in fees, insurance, supplies and maintenance expenses;

increased costs associated with our leased refined product pipeline capacity pursuant to the provisions of a new agreement for the capacity that was effective June 1, 2018.

• increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expense proportionate to increase in fees, insurance, supplies and maintenance expenses.

Operating Expenses

Operating expenses for the pipelines and transportation segment increased by $14.9 million , or 37.3% , in the year ended December 31, 2019 compared to the year ended December 31, 2018 , primarily driven by the following:

higher operating costs associated with allocated contract services pertaining to certain of our assets;

higher employee costs allocated to us as a result of an increase in allocated employee headcount in various operational groups as the Partnership continues to experience growth;

a higher incentive expense allocated to us as a result of an increase in the incentive accrual and increase in allocated employee headcount in various operational groups as the partnership continues to experience growth.

These increases were partially offset by:

decreases in variable expenses such as utilities, maintenance and materials costs.

Operating expenses for the pipelines and transportation segment decreased by $12.6 million, or 22.9%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic including delaying non-essential projects.

Contribution Margin

Contribution margin for the pipelines and transportation segment increased by $62.6 million, or 62.2%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

increases in net revenues generated under the agreements executed in connection with our Paline Pipeline System, the Big Spring Logistic Assets Acquisition, and the Gathering Assets, as described above.

the net revenue increase was offset by the increase in cost of materials and other and in operating expenses, as described above.

• increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition, Magnolia Pipeline, and El Dorado Assets;

• decreases in operating expenses.

Management's Discussion and Analysis

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The table and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the years ended December 31, 2020 and 2019.

Wholesale Marketing and Terminalling

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Net revenues:

Affiliate $ 148,793 $ 105,803

Third-Party 163,156 299,871

Total Wholesale Marketing and Terminalling 311,949 405,674

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East Texas - Tyler Refinery sales volumes (average bpd) (1)

71,182 74,206

Big Spring marketing throughputs (average bpd) 76,345 82,695

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Terminalling throughputs (average bpd) (2)

147,251 160,075

(1) Excludes jet fuel and petroleum coke.

Throughputs for the year ended December 31, 2018 are for the 306 days we marketed certain finished products produced at or sold from the Big Spring Refinery following the execution of the Big Spring Marketing Agreement, effective March 1, 2018, as defined in Note 3 to our accompanying consolidated financial statements.

(2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas terminals, our El Dorado and North Little Rock, Arkansas terminals and our Memphis and Nashville, Tennessee terminals.

Throughputs for the Big Spring terminal for the year ended December 31, 2018 are for the 306 days we operated the terminal following its acquisition effective March 1, 2018.

Barrels per day are calculated for only the days we operated each terminal.

Total throughput for the year ended December 31, 2018 was 56.6 million barrels, which averaged 155,193 bpd for the period.

Operational Comparison of the Year Ended December 31, 2020 versus the Year Ended December 31, 2019

Net revenues for the wholesale marketing and terminalling segment decreased by $93.7 million, or 23.1%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

the average volumes of gasoline and diesel sold in 2019 and 2018 decreased by 14.3 million gallons and 21.8 million gallons, respectively.

the average sales prices per gallon of gasoline and diesel sold in 2019 and 2018 decreased by $0.14 per gallon and $0.22 per gallon, respectively.

Management's Discussion and Analysis

Such decreases were partially offset by the following:

increased revenues generated by the marketing and terminalling assets acquired in the Big Spring Logistic Assets Acquisition, which we owned for the entirety of the year ended December 31, 2019 (compared to ten months during the year ended December 31, 2018).

• decreases in the volume of diesel sold and in the average sales prices per gallon of gasoline and diesel, partially offset by increase in the volume of gasoline sold in our West Texas marketing operations.

◦ the volume of gasoline sold increased 12.6 million gallons partially offset by a decrease of 8.1 million gallons in diesel sold;

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.49 per gallon and $0.71 per gallon, respectively.

The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations for the years ended December 31, 2020 and 2019.

Management's Discussion and Analysis

Cost of Materials and Other

Cost of materials and other for the wholesale marketing and terminalling segment decreased by $90.5 million, or 28.8% , in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

decreases in the average volumes and in the average cost per gallon of gasoline and diesel sold in our West Texas marketing operations.

the average volumes of gasoline and diesel sold in 2019 and 2018 decreased by 14.3 million gallons and 21.8 million gallons, respectively.

the average cost per gallon of gasoline and diesel sold in 2019 and 2018 decreased by $0.15 per gallon and $0.19 per gallon, respectively.

• decreases in the volume of diesel sold and in the average cost per gallon of gasoline and diesel sold, partially offset by increase in the volume of gasoline sold in our West Texas marketing operations.

◦ the volume of gasoline sold increased 12.6 million gallons partially offset by a decrease of 8.1 million gallons in diesel sold;

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.43 per gallon and $0.66 per gallon, respectively.

The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the years ended December 31, 2020 and 2019.

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Operating Expenses

The changes in operating expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018 were immaterial.

Operating expenses decreased by $5.3 million, or 27.5%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• lower operating costs associated with allocated contract services pertaining to certain of our assets;

• decreases in variable expenses such as utilities, maintenance and materials costs.

Contribution Margin

Contribution margin for the wholesale marketing and terminalling segment decreased by $3.4 million , or 4.4% in the year ended December 31, 2019 compared to the year ended December 31, 2018 , primarily driven by the following:

decreases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations as described above.

Contribution margin for the wholesale marketing and terminalling segment increased by $2.1 million, or 2.9%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• decreases in cost of materials and other due to decreases in average cost per gallon of diesel and gasoline sold as described above.

Such decreases were partially offset by:

increase in net revenues under the agreements executed in connection with the Big Spring Logistic Assets Acquisition as described above;

decrease in cost of materials as the cost per gallon of gasoline and diesel also decreased as described above.

• decreases in revenue due to decreases in average price per gallon of diesel and gasoline as described above.

Management's Discussion and Analysis

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We have the ability to increase the DKL Credit Facility to $1.0 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility.

Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay minimum quarterly cash distributions and operational capital expenditures, and we expect the same trend to continue in the foreseeable future.

Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash distributions and operational capital expenditures, and we expect the same to continue in the foreseeable future.

Other funding sources, including the issuance of additional debt securities, have been utilized to fund growth capital projects such as dropdowns.

In addition, we have historically been able to source funding at rates 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 rates that are sustainable and profitable for the Company.

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

However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us.

We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, minimum quarterly cash distributions and capital expenditures.

At times, we may consider utilizing other funding sources.

We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, quarterly cash distributions and capital expenditures.

Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and crude oil prices, some of which are beyond our control.

Our largest customer is Delek Holdings, a related party, with whom we have various commercial agreements.

Delek Holdings has initiated several steps as part of a strategic plan to navigate the current volatile markets and preserve or enhance its liquidity, including re-negotiating and extending financing arrangements, temporary suspension of growth and non-essential projects, reductions in capital and operating expenditures, divesting of non-strategic and underperfoming assets, suspension of its stock repurchases and dividends, and exploring other potential financing opportunities.

We believe such actions will allow Delek Holdings to continue to honor its commercial agreements with us.

In addition, we eliminated the IDRs which helped lower our cost of capital and preserve our liquidity.

We continuously review our liquidity and capital resources.

If market conditions were to change, for instance due to a significant decline in crude oil prices or uncertainty created by the COVID-19 Pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced.

Additionally, it could cause the rating agencies to lower our credit ratings.

There are no ratings triggers that would accelerate the maturity of any borrowings under our debt agreements.

Management continues to actively respond to the impact of the COVID-19 Pandemic to enhance our liquidity position.

Such actions include reducing planned capital expenditures for 2021, seeking alternative financing solutions and enacting cost reduction measures.

Refer to the Business Overview section of this MD&A for a complete discussion of the uncertainties identified by management and the actions taken to respond to the COVID-19 Pandemic.

We believe we were in compliance with the covenants in all our debt facilities as of December 31, 2020.

After considering the current and potential effect of a significant decline in oil prices and uncertainty created by the COVID-19 Pandemic on our operations, we currently expect to remain in compliance with our debt covenants.

See Note 11 to our consolidated financial statements for a complete discussion of our third-party indebtedness.

Cash Distributions

On January 24, 2020 , we announced that the board of directors of our general partner had declared a distribution of $0.885 per common unit (the "GP Distribution"), which equates to $ 30.6 million per quarter, or $122.5 million for the year ended December 31, 2020, based on the number of common and general partner units outstanding as of February 4, 2020 .

The GP Distribution was paid on February 12, 2020 to common unitholders of record on February 4, 2020 and represents a 9.3% increase over the fourth quarter 2018 distribution.

On January 22, 2021, we announced that the board of directors had declared a distribution of $0.910 per common unit (the "Distribution"), which equates to approximately $40 million per quarter, or $158.1 million per year, based on the number of common units outstanding as of February 2, 2021.

The Distribution was paid on February 9, 2021 to common unitholders of record on February 2, 2021 and represents a 2.8% increase over the fourth quarter 2019 distribution.

We have set a range for distribution growth guidance of $0.005 - $0.015 per unit each quarter for 2021.

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Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit.

Management's Discussion and Analysis

The table below summarizes the quarterly distributions related to our 2020 quarterly financial results:

Quarter Ended

Total Quarterly Distribution Per Limited Partner Unit

Total Quarterly Distribution Per Limited Partner Unit, Annualized

Total Cash Distribution, including general partner interest and IDRs (in thousands)

Date of Distribution

Unitholders Record Date

March 31, 2019

June 30, 2019

August 13, 2019

August 5, 2019

September 30, 2019

November 12, 2019

November 4, 2019

December 31, 2019

February 12, 2020

February 4, 2020

Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Quarterly Distribution Per Limited Partner Unit, Annualized Total Cash Distribution, including general partner interest and IDRs (in thousands) Date of Distribution Unitholders Record Date

March 31, 2020 $0.890 $3.56 $30,878 May 12, 2020 May 5, 2020

June 30, 2020 $0.900 $3.60 $35,969 August 12, 2020 August 7, 2020

September 30, 2020 $0.905 $3.62 $39,308 November 12, 2020 November 6, 2020

December 31, 2020 $0.910 $3.64 $39,533 February 9, 2021 February 2, 2021

The following table sets forth a summary of our consolidated cash flows for the years ended December 31, 2020 and 2019 (in thousands):

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Net cash used in investing activities (123,138) (147,416)

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Management's Discussion and Analysis

Net cash (used in) provided by financing activities (71,180) 18,040

Net (decrease) increase in cash and cash equivalents $ (1,302) $ 1,023

Operating Activities

Net cash provided by operating activities decreased by $22.6 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 .

The decrease in cash provided by operations was primarily due to higher cash paid out to suppliers for inventory (as opposed to cash received from customers) during the year ended December 31, 2019 compared to the year ended December 31, 2018 as a result of a decrease in volumes sold for the marketing operations.

In addition there were increased operational expense payments as the partnership continues to experience growth.

These cash payment increments were offset by the increase in net cash receipts from the Pipelines and Transporting operations.

Net cash provided by operating activities increased by $62.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The increase in cash provided by operations was primarily due to lower cash paid out to suppliers for inventory (as opposed to cash received from customers) during the year ended December 31, 2020 compared to the year ended December 31, 2019 as a result of a decrease in volumes sold for the marketing operations.

In addition there were decreases in operational expense payments and increase in cash dividends from the Equity Method Investments.

These cash flow increases were offset by the decrease in net cash receipts from customers.

Investing Activities

Net cash used in investing activities decreased by $24.3 million during the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease in cash used in investing activities was primarily due to no acquisitions during the year ended December 31, 2019 , compared to an asset acquisition of $72.4 million for the assets acquired in the Big Spring Logistic Assets Acquisition during the year ended December 31, 2018 .

Additionally, the Partnership paid $144.2 million in connection with a new marketing agreement with Delek Holdings in connection with the Big Spring Logistics Assets Acquisition, whereby the Partnership markets certain refined products produced at or sold from the Big Spring Refinery to various customers in return for a marketing fee (the "Marketing Contract Intangible Acquisition"), with no comparable acquisition during the year ended December 31, 2019 .

Partially offsetting the decrease, were increases in contributions made to our joint ventures.

We contributed approximately $139.3 million in cash to our joint ventures during the year ended December 31, 2019 , primarily related to our membership interest in Red River and the expansion project planned to increase the pipeline capacity, compared to contributions of approximately $0.2 million during the year ended December 31, 2018 .

The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments during the year ended December 31, 2020 compared to the year ended December 31, 2019, partially offset by the acquisition of the Big Spring Gathering Assets and Trucking Assets during the year ended December 31, 2020.

We disbursed $12.2 million in additional contributions to our equity method investments during the year ended December 31, 2020 compared to $139.3 million during the year ended December 31, 2019.

The Big Spring Gathering Assets Acquisition was partially financed with cash from drawdown of the DKL Credit Facility amounting to $100.0 million and the Trucking Assets Acquisition was financed with cash from drawdown of the DKL Credit Facility amounting to $48.0 million of which $0.5 million was recorded as investing activity with $47.6 million recorded in financing activities as a distribution to Delek Holdings and general partner unitholders pursuant to the asset acquisitions under common control guidance.

Transaction costs paid amounting to $1.0 million were capitalized for the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition.

There was no asset acquisition during the year ended December 31, 2019.

In addition there were additions to property, plant and equipment amounting to $13.3 million and distributions from equity method investments amounting $2.7 million during the year ended December 31, 2020 compared to additions to property, plant and equipment amounting to $9.1 million and distributions from equity method investments amounting to $0.8 million during the year ended December 31, 2019.

Financing Activities

Net cash provided by financing activities decreased by $89.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease in cash provided by financing activities was primarily due to a decrease in net proceeds under our revolving credit facility.

We received net proceeds of $131.7 million under the DKL Credit Facility during the year ended December 31, 2019 , compared to net proceeds of $276.8 million under the DKL Credit Facility during the year ended December 31, 2018 .

We paid quarterly cash distributions totaling $113.7 million during the year ended December 31, 2019 , compared to quarterly cash distributions totaling $97.8 million during the year ended December 31, 2018 .

Partially offsetting the decrease were distributions of $98.8 million related to the Big Spring Logistic Assets Acquisition made during the year ended December 31, 2018 , for which there was no comparable distribution during the year ended December 31, 2019 .

The decrease was primarily due to the $47.6 million excess of purchase consideration over the carrying amount of the assets acquired in the Trucking Assets Acquisition treated as a distribution to Delek Holdings and general partner unitholders pursuant to the asset acquisitions under common control guidance and $45.0 million paid to the general partner in the IDR Restructuring Transaction to eliminate the general partners' IDRs, convert the general partners economic interest to non-economic interest and issue 14.0 million common limited units.

This was partially offset by the increase in net proceeds under the revolving credit facility (defined below).

We received net proceeds of $158.2 million under the revolving credit facility during the year ended December 31, 2020, compared to net proceeds of $131.7 million under the revolving credit facility during the year ended December 31, 2019.

In addition, we

Management's Discussion and Analysis

paid quarterly cash distributions totaling $136.8 million during the year ended December 31, 2020, compared to quarterly cash distributions totaling $113.7 million during the year ended December 31, 2019.

The sources of cash to finance the asset acquisitions from Delek Holdings during the year ended December 31, 2020 primarily consisted of the $100.0 million drawdown under the DKL Credit Facility to part-finance the Big Spring Gathering Assets Acquisition and $48.0 million drawdown to finance the Trucking Asset Acquisition.

The Big Spring Gathering Assets Acquisition was also financed by the issuance of 5.0 million units to Delek US Energy, Inc.

(a wholly owned subsidiary of Delek US Holdings, Inc.).

Debt Overview

As of December 31, 2020, we had total indebtedness of $992.3 million comprised of $746.6 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $245.7 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount.

Amortization of deferred financing costs and original issue discount on the 2025 Notes amounted to $0.7 million and $0.2 million , respectively.

The increase of $132.7 million in our long-term debt balance compared to the balance at December 31, 2018 resulted from the borrowings under the DKL Credit Facility in 2019.

Deferred financing costs and original issue discount on the 2025 Notes amounted to $3.3 million and $1.0 million, respectively.

The increase of $159.2 million in our long-term debt balance compared to the balance at December 31, 2019 resulted from the borrowings under the DKL Credit Facility in 2020, primarily driven by the Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition, the IDR restructuring and amortization of the deferred financing costs and original issuance discount under our 2025 Notes.

As of December 31, 2020, our total indebtedness consisted of:

• An aggregate principal amount of $746.6 million under the Delek Logistics Credit Facility ("revolving credit facility"), due on September 28, 2023, with average borrowing rate of 2.44%.

• An aggregate principal amount of $245.7 million, under the Delek Logistics Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.45%.

In September 2018 the DKL Credit Facility was amended to, among other changes, increase the lender commitments from $700 million to $850 million.

The obligations under the DKL Credit Facility remain secured by first priority liens on substantially all of the Partnership's and its subsidiaries' tangible and intangible assets.

Additionally, Delek Marketing & Supply, LLC, a subsidiary of Delek Holdings ("Delek Marketing"), continues to provide a limited guaranty of the Partnership's obligations under the DKL Credit Facility.

Delek Marketing's guaranty is (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek Holdings in favor of Delek Marketing (the "Holdings Note") and (ii) secured by Delek Marketing's pledge of the Holdings Note to the lenders under the DKL Credit Facility.

As of December 31, 2019 , the principal amount of the Holdings Note was $102.0 million .

Additionally, Delek Marketing, a subsidiary of Delek Holdings, had provided a limited guaranty of the Partnership's obligations under the DKL Credit Facility.

Delek Marketing's guaranty was (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek Holdings in favor of Delek Marketing (the "Holdings Note") and (ii) secured by Delek Marketing's pledge of the Holdings Note to the lenders under the DKL Credit Facility.

Effective March 30, 2020, Delek Marketing's limited guaranty and pledge of the Holdings Note was terminated pursuant to a guaranty and pledge release approved by the required lenders under the DKL Credit Facility.

In connection with the IDR Restructuring Transaction, the Partnership entered into a First Amendment to the DKL Credit Facility (the "First Amendment") which, among other things, permitted the exchange of the IDRs and the general partner interest in the Partnership for the noneconomic general partner interest, the newly issued limited partner interests in the Partnership, plus $45.0 million in cash.

The First Amendment also modified the total leverage and senior leverage ratios (as defined in the DKL Credit Facility) calculations to reduce the total funded debt (as defined in the DKL Credit Facility) component thereof by the total amount of unrestricted consolidated cash and cash equivalents on the balance sheet of the Partnership and its subsidiaries up to $20.0 million.

The DKL Credit Facility has a maturity date of September 28, 2023.

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Interest on the 2025 Notes is payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 2017.

Beginning on May 15, 2020, th e Issuers may, subject to certain conditions and limitations, redeem all or part of the 2025 Notes at a redemption price of 105.063% of the redeemed principal for the twelve-month period beginning on May 15, 2020, 103.375% for the twelve-month period beginning on May 15, 2021, 101.688% for the twelve-month period beginning on May 15, 2022 and 100.00% beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if any.

In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the 2025 Notes from holders at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

On April 25, 2018, we made an offer to exchange the 2025 Notes and the related guarantees that were validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradeable, as required under the terms of the original indenture.

Management's Discussion and Analysis

At any time prior to May 15, 2020, the Issuers may redeem up to 35% of the aggregate principal amount of the 2025 Notes with the net cash proceeds of one or more equity offerings by the Partnership at a redemption price of 106.750% of the redeemed principal amount, plus accrued and unpaid interest, if any, subject to certain conditions and limitations.

Additionally, the Issuers may redeem all or part of the 2025 Notes prior to May 15, 2020 at a redemption price equal to the principal amount, plus accrued and unpaid interest, if any, plus a "make whole" premium, subject to certain conditions and limitations.

Beginning on May 15, 2020, th e Issuers may, subject to certain conditions and limitations, redeem all or part of the 2025 Notes at a redemption price of 105.063% of the redeemed principal for the twelve-month period beginning on May 15, 2020, 103.375% of the redeemed principal for the twelve-month period beginning on May 15, 2021, 101.688% of the redeemed principal for the twelve-month period beginning on May 15, 2022 and 100.00% of the redeemed principal beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if any.

In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time and subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the 2025 Notes from holders at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

The Exchange Offer expired on May 23, 2018 .

Except for the elimination of any transfer restrictions, the terms of the exchange notes that were issued as a result of the Exchange Offer (also referred to as the "2025 Notes") are substantially identical to the terms of the original 2025 Notes.

The terms of the exchange notes that were issued in May 2018 as a result of the exchange (also referred to as the "2025 Notes") are substantially identical to the terms of the original 2025 Notes.

We believe we were in compliance with the covenants in all debt facilities as of December 31, 2020.

See Note 11 to our accompanying consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a complete discussion of our third-party indebtedness.

See Note 11 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a complete discussion of our third-party indebtedness.

Agreements Governing Certain Indebtedness of Delek Holdings

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Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness and financial performance and credit ratings.”

Equity Units Overview

On August 13, 2020, we closed the IDR Restructuring Transaction.

To effect this transaction, our Partnership Agreement was amended and updated.

See Note 4 to our accompanying consolidated financial statements for additional details.

In August 2020, we filed a shelf registration statement, which subsequently became effective, with the U.S.

Securities and Exchange Commission for the proposed re-sale or disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units.

We will not sell any securities under this shelf registration statement and we will not receive any proceeds from the sale of the securities by Delek Holdings.

On March 31, 2020, we issued 5.0 million common limited partner units to Delek Holdings as part of the consideration for the Big Spring Gathering Assets Acquisition.

In connection with the issuance of these units and in accordance with the Partnership Agreement, we issued additional general partner units in an amount necessary to maintain the 2% general partner interest as defined in the Partnership Agreement.

Contemporaneous with the above issuance, the Board of the general partner waived distributions in respect of the IDRs associated with the 5.0 million Additional Units for at least two years, through at least the distribution for the quarter ending March 31, 2022 ("IDR Waiver").

The IDR Waiver essentially reduced the distribution made to the holders of the IDRs during this period, as the holders would not receive a share of the distribution made on the Additional Units.

An additional waiver letter was signed that waived all of the distributions for the first quarter of 2020 on the Additional Units with respect to base distributions and the IDRs.

The IDR Restructuring Transaction on August 13, 2020, permanently eliminated all of the IDRs.

See Note 4 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional details.

Management's Discussion and Analysis

Capital Spending

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The following table summarizes our actual capital expenditures for the year ended December 31, 2020 and planned capital expenditures for the full year 2021 by segment and by major category (in thousands):

Full Year 2020 Forecast

Year Ended December 31, 2019

Full Year 2021 Forecast Year Ended December 31, 2020

Pipelines and Transportation

Regulatory (2)

$ 5,404 $ 626

Maintenance (1)

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Wholesale Marketing and Terminalling

Regulatory (3)

$ 3,589 $ 1,317

Maintenance (1) (3)

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(1) Maintenance capital expenditures represent cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity.

Examples of maintenance capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines and terminals, to maintain equipment reliability, integrity and

Management's Discussion and Analysis

safety and to address environmental laws and regulations.

Examples of maintenance capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations.

Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements).

(2) The $8.0 million budgeted for regulatory projects in the pipelines and transportation segment is expected to be spent on certain of our pipelines to maintain their operational integrity and to replace a tank at Delek Holdings' Tyler refinery.

The majority of the $7.7 million for maintenance projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and asset integrity improvements on certain of our pipeline facilities.

(2) The $5.4 million budgeted for regulatory projects in the pipelines and transportation segment is expected to be spent on certain of our pipelines to maintain their operational integrity.

The majority of the $6.9 million for discretionary projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and development of our DPG assets.

These expenditures have historically been and will continue to be financed through cash generated from operations.

(3) The majority of the $4.8 million and $1.7 million budgeted for discretionary and maintenance projects in the wholesale marketing and terminalling segment relates to a design and construction of a refined product pipeline to connect the Big Spring Refinery to the existing third-party pipeline and scheduled maintenance on our terminalling tanks and racks at certain of our terminals, respectively.

(3) The majority of the $3.6 million and $2.2 million budgeted for regulatory and maintenance projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and improvements on our terminalling tanks and racks at certain of our terminals.

These expenditures have historically been and will continue to be financed through cash generated from operations.

(4) There is no spending budgeted for discretionary projects in the wholesale marketing and terminalling segment due to the fact that the budget is focused on pursuing projects that are higher priority in the regulatory and maintenance category.

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.

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Information regarding our known contractual obligations of the types described below, as of December 31, 2020, is set forth in the following table (in thousands):

<1 Year 1-3 Years 3-5 Years >5 Years Total

Long term debt and notes payable

$ — $ 746,600 $ 250,000 $ — $ 996,600

35,355 65,952 25,313 — 126,620

Finance Lease Obligation 2,060 3,487 — — 5,547

Operating lease commitments (2)

(1) Includes expected interest payments on debt outstanding under the DKL Credit Facility in place at December 31, 2019 and on the 2025 Notes.

7,989 16,213 9,299 1,736 35,237

Total $ 45,404 $ 832,252 $ 284,612 $ 1,736 $ 1,164,004

(1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2025 Notes at December 31, 2020.

Floating interest rate debt is calculated using rates in effect on December 31, 2020.

(2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2020.

Management's Discussion and Analysis

We also have other non-current liabilities pertaining to environmental liabilities and asset retirement obligations.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis