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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)

☑ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  | For the quarterly period ended | September 30, 2020 |

or

☐ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  | For the transition period from to

Commission file number 001-35721
DELEK LOGISTICS PARTNERS, LP
(Exact name of registrant as specified in its charter)

Delaware |  | 45-5379027
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
7102 Commerce Way | Brentwood | Tennessee | 37027
(Address of principal executive offices) |  |  | (Zip Code)

(615) 771-6701
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered
Common Units Representing Limited Partnership Interests | DKL | New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☑ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At October 30, 2020, there were 43,433,239 common limited partner units outstanding.

Table of Contents
Delek Logistics Partners, LP
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2020

PART I. FINANCIAL INFORMATION | PART II. OTHER INFORMATION
3 | Item 1. Financial Statements (unaudited) | 53 | Item 1. Legal Proceedings
| 3 | Condensed Consolidated Balance Sheets |  |  |  |
| 4 | Condensed Consolidated Statements of Income and Comprehensive Income | 53 | Item 1A. Risk Factors
| 6 | Condensed Consolidated Statements of Partner's Equity (Deficit) |  |  |  |
| 5 | Condensed Consolidated Statements of Cash Flows | 55 | Item 6. Exhibits
| 7 | Notes to Condensed Consolidated Financial Statements |  |  |  |
|  | 7 | Note 1 - Organization and Basis of Presentation | 56 | Signatures
|  | 9 | Note 2 - Acquisitions |  |  |  |
|  | 10 | Note 3 - Related Party Transactions |  |  |  |
|  | 12 | Note 4 - Revenues |  |  |  |
|  | 14 | Note 5 - Net Income Per Unit |  |  |  |
|  | 15 | Note 6 - Inventory |  |  |  |
|  | 15 | Note 7 - Long-Term Obligations |  |  |  |
|  | 17 | Note 8 - Equity |  |  |  |
|  | 19 | Note 9 - Equity Based Compensation |  |  |  |
|  | 19 | Note 10 - Equity Method Investments |  |  |  |
|  | 20 | Note 11 - Segments |  |  |  |
|  | 22 | Note 12 - Income Taxes |  |  |  |
|  | 22 | Note 13 - Commitments and Contingencies |  |  |  |
|  | 23 | Note 14 - Leases |  |  |  |
|  | 24 | Note 15 - Subsequent Events |  |  |  |
25 | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |  |  |  |
| 37 | Summary Financial and Other Information |  |  |  |
| 39 | Results of Operations |  |  |  |
|  | 39 | Consolidated |  |  |  |
|  | 42 | Pipelines and Transportation |  |  |  |
|  | 45 | Wholesale Marketing and Terminalling |  |  |  |
| 48 | Liquidity and Capital Resources |  |  |  |
52 | Item 3. Quantitative and Qualitative Disclosures about Market Risk |  |  |  |
52 | Item 4. Controls and Procedures |  |  |  |

2 | |

Financial Statements
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except unit and per unit data)

| September 30, 2020 |  | December 31, 2019
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 6,024 |  |  | $ | 5,545 |
Accounts receivable | 17,472 |  |  | 13,204 |
Accounts receivable from related parties | 10,002 |  |  | — |
Inventory | 1,696 |  |  | 12,617 |
Other current assets | 410 |  |  | 2,204 |
Total current assets | 35,604 |  |  | 33,570 |
Property, plant and equipment: |  |  |
Property, plant and equipment | 684,199 |  |  | 461,325 |
Less: accumulated depreciation | (216,698) |  |  | (166,281) |
Property, plant and equipment, net | 467,501 |  |  | 295,044 |
Equity method investments | 255,368 |  |  | 246,984 |
Operating lease right-of-use assets | 18,153 |  |  | 3,745 |
Goodwill | 12,203 |  |  | 12,203 |
Marketing Contract Intangible, net | 125,591 |  |  | 130,999 |
Rights-of-way | 36,178 |  |  | 15,597 |
Other non-current assets | 6,988 |  |  | 6,305 |
Total assets | $ | 957,586 |  |  | $ | 744,447 |
LIABILITIES AND DEFICIT |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 4,740 |  |  | $ | 12,471 |
Accounts payable to related parties | — |  |  | 8,898 |
Interest payable | 6,745 |  |  | 2,572 |
Excise and other taxes payable | 3,433 |  |  | 3,941 |
Current portion of operating lease liabilities | 5,546 |  |  | 1,435 |
Accrued expenses and other current liabilities | 3,482 |  |  | 5,765 |
Total current liabilities | 23,946 |  |  | 35,082 |
Non-current liabilities: |  |  |
Long-term debt | 1,006,145 |  |  | 833,110 |
Asset retirement obligations | 5,908 |  |  | 5,588 |
Deferred tax liabilities | 1,205 |  |  | 215 |
Operating lease liabilities, net of current portion | 12,607 |  |  | 2,310 |
Other non-current liabilities | 19,229 |  |  | 19,261 |
Total non-current liabilities | 1,045,094 |  |  | 860,484 |
Equity (Deficit): |  |  |
Common unitholders - public; 8,687,371 units issued and outstanding at September 30, 2020 (9,131,579 at December 31, 2019) | 164,313 |  |  | 164,436 |
Common unitholders - Delek Holdings; 34,745,868 units issued and outstanding at September 30, 2020 (15,294,046 at December 31, 2019) | (275,767) |  |  | (310,513) |
General partner - no units issued and outstanding at September 30, 2020 (498,482 at December 31, 2019) (1) | — |  |  | (5,042) |
Total deficit | (111,454) |  |  | (151,119) |
Total liabilities and deficit | $ | 957,586 |  |  | $ | 744,447 |

(1) See Note 3 for a description of the IDR Restructuring Transaction.
See accompanying notes to the condensed consolidated financial statements

3 | |

Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(in thousands, except unit and per unit data)

| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net revenues: |  |  |  |  |  |  |
Affiliates (1) | $ | 95,410 |  |  | $ | 66,647 |  |  | $ | 289,739 |  |  | $ | 191,530 |
Third party | 46,858 |  |  | 70,909 |  |  | 133,567 |  |  | 253,852 |
Net revenues | 142,268 |  |  | 137,556 |  |  | 423,306 |  |  | 445,382 |
Cost of sales: |  |  |  |  |  |  |
Cost of materials and other | 60,692 |  |  | 72,594 |  |  | 205,877 |  |  | 262,713 |
Operating expenses (excluding depreciation and amortization presented below) | 13,694 |  |  | 17,490 |  |  | 39,271 |  |  | 49,318 |
Depreciation and amortization | 8,931 |  |  | 6,138 |  |  | 22,957 |  |  | 18,450 |
Total cost of sales | 83,317 |  |  | 96,222 |  |  | 268,105 |  |  | 330,481 |
Operating expenses related to wholesale business (excluding depreciation and amortization presented below) | 536 |  |  | 945 |  |  | 2,152 |  |  | 2,502 |
General and administrative expenses | 6,122 |  |  | 5,280 |  |  | 16,973 |  |  | 15,046 |
Depreciation and amortization | 528 |  |  | 450 |  |  | 1,495 |  |  | 1,351 |
Other operating income, net | — |  |  | (70) |  |  | (107) |  |  | (95) |
Total operating costs and expenses | 90,503 |  |  | 102,827 |  |  | 288,618 |  |  | 349,285 |
Operating income | 51,765 |  |  | 34,729 |  |  | 134,688 |  |  | 96,097 |
Interest expense, net | 10,360 |  |  | 12,509 |  |  | 32,854 |  |  | 35,164 |
Income from equity method investments | (4,860) |  |  | (8,394) |  |  | (16,875) |  |  | (14,860) |
Other expense, net | 105 |  |  | — |  |  | 103 |  |  | 461 |
Total non-operating expenses, net | 5,605 |  |  | 4,115 |  |  | 16,082 |  |  | 20,765 |
Income before income tax expense | 46,160 |  |  | 30,614 |  |  | 118,606 |  |  | 75,332 |
Income tax (benefit) expense | (168) |  |  | 84 |  |  | 67 |  |  | 220 |
Net income attributable to partners | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
Comprehensive income attributable to partners | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
Less: General partner's interest in net income, including incentive distribution rights (2) | — |  |  | 8,895 |  |  | 18,724 |  |  | 24,244 |
Limited partners' interest in net income | $ | 46,328 |  |  | $ | 21,635 |  |  | $ | 99,815 |  |  | $ | 50,868 |
Net income per limited partner unit: |  |  |  |  |  |  |
Common units - basic | $ | 1.26 |  |  | $ | 0.89 |  |  | $ | 3.30 |  |  | $ | 2.08 |
Common units - diluted | $ | 1.26 |  |  | $ | 0.89 |  |  | $ | 3.30 |  |  | $ | 2.08 |
Weighted average limited partner units outstanding: |  |  |  |  |  |  |
Common units - basic | 36,889,761 |  |  | 24,417,285 |  |  | 30,290,051 |  |  | 24,411,308 |
Common units - diluted | 36,894,043 |  |  | 24,420,582 |  |  | 30,292,261 |  |  | 24,417,466 |
Cash distributions per limited partner unit | $ | 0.905 |  |  | $ | 0.880 |  |  | $ | 2.695 |  |  | $ | 2.550 |

(1) See Note 3 for a description of our material affiliate revenue transactions.
(2) See Note 3 for a description of the IDR Restructuring Transaction.
See accompanying notes to the condensed consolidated financial statements

4 | |

Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Statements of Partners' Equity (Deficit) (Unaudited)
(in thousands)

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at June 30, 2020 | $ | 160,870 |  |  | $ | (235,961) |  |  | $ | (3,224) |  |  | $ | (78,315) |
Cash distributions | (7,819) |  |  | (18,671) |  |  | (9,478) |  |  | (35,968) |
Net income attributable to partners | 11,258 |  |  | 35,070 |  |  | — |  |  | 46,328 |
Cash distribution to general partner for conversion of its economic interest and IDR elimination | — |  |  | — |  |  | (45,000) |  |  | (45,000) |
Non-cash conversion of general partner's economic interest and IDR elimination | — |  |  | (57,702) |  |  | 57,702 |  |  | — |
Sponsor contribution of fixed assets | — |  |  | 1,378 |  |  | — |  |  | 1,378 |
Other | 4 |  |  | 119 |  |  | — |  |  | 123 |
Balance at September 30, 2020 | $ | 164,313 |  |  | $ | (275,767) |  |  | $ | — |  |  | $ | (111,454) |

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at June 30, 2019 | 167,254 |  |  | (305,827) |  |  | (5,727) |  |  | (144,300) |
Cash distributions | (7,755) |  |  | (13,000) |  |  | (8,159) |  |  | (28,914) |
Net income attributable to partners | 8,084 |  |  | 13,551 |  |  | 8,895 |  |  | 30,530 |
Other | 67 |  |  | 124 |  |  | 3 |  |  | 194 |
Balance at September 30, 2019 | $ | 167,650 |  |  | $ | (305,152) |  |  | $ | (4,988) |  |  | $ | (142,490) |

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at December 31, 2019 | $ | 164,436 |  |  | $ | (310,513) |  |  | $ | (5,042) |  |  | $ | (151,119) |
Cash distributions (1) | (23,653) |  |  | (46,220) |  |  | (27,635) |  |  | (97,508) |
General partner units issued to maintain 2% interest | — |  |  | — |  |  | 10 |  |  | 10 |
Net income attributable to partners | 28,172 |  |  | 71,642 |  |  | 18,725 |  |  | 118,539 |
Delek Holdings Unit purchases | (4,979) |  |  | 4,979 |  |  | — |  |  | — |
Issuance of units in connection with the Big Spring Gathering Assets Acquisition | — |  |  | 107,323 |  |  | 2,190 |  |  | 109,513 |
Cash distribution to Delek Holdings for Trucking Assets Acquisition | — |  |  | (46,607) |  |  | (951) |  |  | (47,558) |
Cash distribution to general partner for conversion of its economic interest and IDR elimination | — |  |  | — |  |  | (45,000) |  |  | (45,000) |
Non-cash conversion of general partner's economic interest and IDR elimination | — |  |  | (57,702) |  |  | 57,702 |  |  | — |
Sponsor contribution of fixed assets | — |  |  | 1,378 |  |  | — |  |  | 1,378 |
Other | 337 |  |  | (47) |  |  | 1 |  |  | 291 |
Balance at September 30, 2020 | $ | 164,313 |  |  | $ | (275,767) |  |  | $ | — |  |  | (111,454) |

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at December 31, 2018 | $ | 171,023 |  |  | $ | (299,360) |  |  | $ | (6,486) |  |  | $ | (134,823) |
Cash distributions (1) | (22,580) |  |  | (37,929) |  |  | (22,762) |  |  | (83,271) |
General partner units issued to maintain 2% interest | — |  |  | — |  |  | 8 |  |  | 8 |
Net income attributable to partners | 19,027 |  |  | 31,841 |  |  | 24,244 |  |  | 75,112 |
Other | 180 |  |  | 296 |  |  | 8 |  |  | 484 |
Balance at September 30, 2019 | $ | 167,650 |  |  | $ | (305,152) |  |  | $ | (4,988) |  |  | $ | (142,490) |

(1) Cash distributions include a nominal amount related to distribution equivalents on vested phantom units for the nine months ended September 30, 2020 and 2019.
See accompanying notes to the condensed consolidated financial statements

5 | |

Financial Statements
Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

| Nine Months Ended September 30,
| 2020 |  | 2019
Cash flows from operating activities: |  |  |
Net income | $ | 118,539 |  |  | $ | 75,112 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 24,452 |  |  | 19,801 |
Non-cash lease expense | 2,236 |  |  | 2,554 |
Amortization of customer contract intangible assets | 5,408 |  |  | 5,408 |
Amortization of deferred revenue | (1,418) |  |  | (1,248) |
Amortization of deferred financing costs and debt discount | 1,786 |  |  | 2,054 |
Accretion of asset retirement obligations | 320 |  |  | 298 |
Income from equity method investments | (16,875) |  |  | (14,860) |
Dividends from equity method investments | 17,572 |  |  | 9,188 |
Gain on asset disposals | (107) |  |  | (95) |
Deferred income taxes | 990 |  |  | 115 |
Other non-cash adjustments | 292 |  |  | 484 |
Changes in assets and liabilities: |  |  |
Accounts receivable | (4,268) |  |  | 1,588 |
Inventories and other current assets | 12,714 |  |  | (3,290) |
Accounts payable and other current liabilities | (7,638) |  |  | (7,613) |
Accounts receivable/payable to related parties | (19,002) |  |  | (5,016) |
Non-current assets and liabilities, net | (347) |  |  | 2,391 |
Net cash provided by operating activities | 134,654 |  |  | 86,871 |
Cash flows from investing activities: |  |  |
Asset acquisitions from Delek Holdings, net of assumed liabilities | (100,527) |  |  | — |
Purchases of property, plant and equipment | (6,918) |  |  | (4,964) |
Proceeds from sales of property, plant and equipment | 107 |  |  | 144 |
Distributions from equity method investments | 2,723 |  |  | 804 |
Equity method investment contributions | (11,804) |  |  | (137,361) |
Net cash used in investing activities | (116,419) |  |  | (141,377) |
Cash flows from financing activities: |  |  |
Proceeds from issuance of additional units to maintain 2% General Partner interest | 10 |  |  | 8 |
Distributions to general partner | (27,635) |  |  | (22,762) |
Distributions to common unitholders - public | (23,653) |  |  | (22,580) |
Distributions to common unitholders - Delek Holdings | (46,220) |  |  | (37,929) |
Distributions to Delek Holdings unitholders and general partner related to Trucking Assets Acquisition | (47,558) |  |  | — |
Distribution to general partner for conversion of its interest and IDR elimination | (45,000) |  |  | — |
Proceeds from revolving credit facility | 515,900 |  |  | 476,400 |
Payments on revolving credit facility | (343,600) |  |  | (336,800) |
Net cash (used in) provided by financing activities | (17,756) |  |  | 56,337 |
Net increase in cash and cash equivalents | 479 |  |  | 1,831 |
Cash and cash equivalents at the beginning of the period | 5,545 |  |  | 4,522 |
Cash and cash equivalents at the end of the period | $ | 6,024 |  |  | $ | 6,353 |
Supplemental disclosures of cash flow information: |  |  |
Cash paid during the period for: |  |  |
Interest | $ | 26,895 |  |  | $ | 29,003 |
Income taxes | $ | 141 |  |  | $ | 143 |
Non-cash investing activities: |  |  |
(Decrease) increase in accrued capital expenditures | $ | (948) |  |  | $ | 1,274 |
Equity issuance to Delek Holdings unitholders in connection with Big Spring Gathering Assets Acquisition | $ | 109,513 |  |  | $ | — |
Non-cash financing activities: |  |  |
Non-cash lease liability arising from obtaining right of use assets during the period | $ | 16,644 |  |  | $ | 649 |
Non-cash lease liability arising from recognition of right of use assets upon adoption of ASU 2016-02 | — |  |  | $ | 20,202 |
Sponsor contribution of property, plant and equipment | $ | 1,378 |  |  | $ | — |

See accompanying notes to the condensed consolidated financial statements

6 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Organization and Basis of Presentation
As used in this report, the terms "Delek Logistics Partners, LP," the "Partnership," "we," "us," or "our" may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole.
The Partnership is a Delaware limited partnership formed in April 2012 by Delek US Holdings, Inc. ("Delek Holdings") and its subsidiary Delek Logistics GP, LLC, our general partner (our "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% 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"). Refer to Note 3 - Related Party Transactions for further information, Note 5 - Net Income per Unit for more information on how these transactions impact our earnings per unit calculations, and Note 8 - Equity for additional information on the impact to our equity accounts.
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 2 for further information.
In addition, 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 System"), and certain related assets, such transaction the "Big Spring Gathering Assets Acquisition." See Note 2 for further information.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP applied on a consistent basis with those of the annual audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 (our "Annual Report on Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on February 27, 2020 and in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K.
All adjustments necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been included. All intercompany accounts and transactions have been eliminated. Such intercompany transactions do not include those with Delek Holdings or our general partner, which are presented as related parties in these accompanying condensed consolidated financial statements. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year.
Reclassifications
Certain immaterial reclassifications have been made to prior period presentation in order to conform to the current period presentation.
Risks and Uncertainties Arising from the COVID-19 Pandemic
The outbreak of COVID-19 and its development into a pandemic in March 2020 (the "COVID-19 Pandemic") has resulted in significant economic disruption globally, including in the U.S. and specific geographic areas where we operate. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing 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 at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline. As a result, there has also been a decline in the demand for, and thus also the market prices of, crude oil and certain products, particularly refined petroleum products that we receive revenue for the transportation and storage services we provide. In addition, the decline in demand impacted the sales volumes in our wholesale marketing business. There is continued uncertainty about the duration of the COVID-19 Pandemic which caused depressed consumer demand for gasoline and other hydrocarbons during 2020 in the United States. Therefore, downward pressure on commodity prices has remained and could continue for the foreseeable future.
Uncertainties related to the impact of the COVID-19 Pandemic and other events exist that could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown. 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 GAAP, we have considered them in the preparation of our unaudited financial statements as of and for the three and nine months ended September 30, 2020. The application of accounting policies impacted by such considerations include (but are not necessarily limited to) the following:

7 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
•The interim evaluation of indefinite-lived intangibles and goodwill for potential impairment, where indicators exist, as defined by GAAP;
•The interim evaluation of long-lived assets for potential impairment, where indicators exist, as defined by GAAP;
•The interim evaluation of joint ventures for potential impairment, where indicators exist, as defined by GAAP;
•The evaluation of inventory valuation allowances that may be warranted under the lower of cost or net realizable value analysis, pursuant to GAAP;
•The consideration of debt modifications and or covenant requirements, as applicable;
•The evaluation of commitments and contingencies, including changes in concentrations, as applicable;
•The interim evaluation of the risk of credit losses and the determination of our allowance for credit losses, pursuant to GAAP; and
•The interim evaluation of our ability to continue as a going concern.
New Accounting Pronouncements Adopted During 2020
ASU 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the Financial Accounting Standards Board (the "FASB") issued guidance related to disclosure requirements for fair value measurements. The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We adopted this guidance on January 1, 2020 and the adoption did not have a material impact on our business, financial condition or results of operations.
ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance requiring the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. This guidance is effective for interim and annual periods beginning after December 15, 2019. We adopted this guidance on January 1, 2020 using the modified retrospective approach as of the adoption date. The adoption did not have a material impact on the Partnership’s operating results, financial position or disclosures.
ASU 2018-15, Intangible - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued guidance related to customers' accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. This pronouncement aligns the requirements for capitalizing implementation costs in such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Entities can choose to adopt the new guidance prospectively or retrospectively. We adopted this guidance on January 1, 2020 and elected the prospective method. The adoption did not have a material impact on the Partnership's financial condition or results of operations.
Accounting Pronouncements Not Yet Adopted
ASU 2019-12, Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued guidance intended to simplify various aspects related to accounting for income taxes, eliminate certain exceptions within Accounting Standards Codification ("ASC") 740 and clarify certain aspects of the current guidance to promote consistency among reporting entities. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 2020, with early adoption permitted. We expect to adopt this guidance on the effective date and are currently evaluating the impact that adopting this new guidance may have on our business, financial condition and results of operations.
ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
In January 2020, the FASB issued ASU 2020-01 which is intended to clarify interactions between the guidance to account for certain equity securities under Topics 321, 323 and 815, and improve current GAAP by reducing diversity in practice and increasing comparability of accounting. The pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, and early adoption is permitted. We do not expect that the adoption of this ASU on its effective date will have a material impact on our business, financial condition or results of operations.

8 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)
In March 2020, the FASB issued an amendment which is intended to provide temporary optional expedients and exceptions to GAAP guidance on contracts, hedge accounting and other transactions affected by the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank rates. This guidance is effective for all entities any time beginning on March 12, 2020 through December 31, 2022 and may be applied from the beginning of an interim period that includes the issuance date of the ASU. The Partnership is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.
Note 2 - Acquisitions
Trucking Assets Acquisition
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 from Delek Holdings. The total consideration is subject to certain post-closing adjustments and was approximately $48.0 million in cash. We financed this acquisition with a combination of cash on hand and borrowings under the DKL Credit Facility (as defined in Note 7).
The Trucking Assets are recorded in our pipelines and transportation segment and include approximately 150 trucks and trailers, which are primarily leased or owned, respectively.
In connection with the closing of the transaction, Delek Holdings, the Partnership and various of their respective subsidiaries entered into a Transportation Services Agreement (the “Trucking Assets TSA Agreement”). Under the Trucking Assets TSA Agreement, the Partnership will gather, coordinate pickup of, transport and deliver petroleum products for Delek Holdings, as well as provide ancillary services as requested. The transaction and related agreements were approved by the Conflicts Committee of the Partnership's general partner, which is comprised solely of independent directors. See Note 3 for more detailed descriptions of these agreements.
The Trucking Assets Acquisition was considered a transaction between entities under common control. Accordingly, the Trucking Assets were recorded at amounts based on Delek Holdings' historical carrying value as of the acquisition date. The carrying value of the Trucking Assets as of the acquisition date was $13.3 million, consisting of $0.5 million of owned assets and $12.8 million Right of Use asset for leased assets. The Right of Use assets offsets with an equivalent operating lease liability. Prior periods have not been recast as these assets do not constitute a business in accordance with Accounting Standard Update 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). We incurred approximately $0.3 million of acquisition costs related to the Trucking Assets Acquisition.
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. The total consideration was subject to certain post-closing adjustments and was comprised of $100.0 million in cash and 5.0 million common units representing limited partner interest in us. We financed the cash component of this acquisition with borrowings from the DKL Credit Facility.
The Big Spring Gathering Assets are recorded in our pipelines and transportation segment and include:
•Crude oil pipelines;
•Approximately 200 miles of gathering systems;
•Approximately 65 Tank battery connections;
•Terminals (total storage of approximately 650,000 bbls); and
•Applicable rights-of-way.
In connection with the closing of the transaction, Delek Holdings, the Partnership and various of their respective subsidiaries entered into a Throughput and Deficiency Agreement (the “Big Spring T&D Agreement”). Under the Big Spring T&D Agreement, the Partnership will operate and maintain the Big Spring Gathering Assets connecting Delek Holdings' interests in and to certain crude oil with the Partnership's Big Spring, Texas terminal and provide gathering, transportation and other related services with respect to any and all crude produced from shipper’s and certain other producers’ respective interests for delivery at the Big Spring Terminal. The transaction and related agreements were approved by the Conflicts Committee of the Partnership's general partner, which is comprised solely of independent directors. See Note 3 for more detailed descriptions of these agreements.
The Big Spring Gathering Assets Acquisition was considered a transaction between entities under common control. Accordingly, the Big Spring Gathering Assets were recorded at amounts based on Delek Holdings' historical carrying value as of the acquisition date. The carrying value of the Big Spring Gathering Assets as of the acquisition date was $209.5 million. Pursuant to the common control guidance, the 5.0 million units issued (which had a closing market price of $9.10 per unit on the transaction date) were recorded in equity at $109.5 million, representing the net carrying value of the Big Spring Gathering Assets purchased of $209.5 million less the $100.0 million cash

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Notes to Condensed Consolidated Financial Statements (Unaudited)
consideration. Prior periods have not been recast as these assets do not constitute a business in accordance with ASU 2017-01. We incurred approximately $0.7 million of acquisition costs related to the Big Spring Gathering Assets Acquisition.
Note 3 - Related Party Transactions
Commercial Agreements
The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms at the option of Delek Holdings. In November 2017, Delek Holdings opted to renew certain of these agreements for subsequent five-year terms expiring in November 2022. In the case of our marketing agreement with Delek Holdings with respect to the Tyler Refinery, the initial term has been extended through 2026. The current term of certain of our agreements with Delek Holdings were required to be further extended pursuant to the amended and restated DKL Credit Facility (as defined in Note 7), which extensions were effective in the fourth quarter of 2018. The fees under each agreement are payable to us monthly by Delek Holdings or certain third parties to whom Delek Holdings has assigned certain of its rights and are generally subject to increase or decrease on July 1 of each year, by the amount of any change in various inflation-based indices, including the Federal Energy Regulatory Commission ("FERC") oil pipeline index or various iterations of the consumer price index ("CPI") and the producer price index ("PPI"); provided, however, that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement. In most circumstances, if Delek Holdings or the applicable third party assignee fails to meet or exceed the minimum volume or throughput commitment during any calendar quarter, Delek Holdings, and not any third party assignee, will be required to make a quarterly shortfall payment to us equal to the volume of the shortfall multiplied by the applicable fee, subject to certain exceptions as specified in the applicable agreement. Carry-over of any volumes or revenue in excess of such commitment to any subsequent quarter is not permitted.
Under each of these agreements, we are required to maintain the capabilities of our pipelines and terminals, such that Delek Holdings may throughput and/or store, as the case may be, specified volumes of crude oil, intermediate and refined products. To the extent that Delek Holdings is prevented by our failure to maintain such capacities from throughputting or storing such specified volumes for more than 30 days per year, Delek Holdings' minimum throughput commitment will be reduced proportionately and prorated for the portion of the quarter during which the specified throughput capacity was unavailable, and/or the storage fee will be reduced, prorated for the portion of the month during which the specified storage capacity was unavailable. Such reduction would occur even if actual throughput or storage amounts were below the minimum volume commitment levels.
See our Annual Report on Form 10-K for a more complete description of our material commercial agreements and other agreements with Delek Holdings.
Effective May 1, 2020, we entered into the Trucking Assets TSA Agreement with Delek Holdings. Under the Trucking Assets TSA Agreement, we will operate a truck based operation that transports various products throughout Arkansas, Oklahoma and Texas and gather, coordinate the pickup of, transport and deliver such products, as well as provide ancillary services as requested. Pursuant to the Trucking Assets TSA Agreement, Delek Holdings has committed to minimum revenue of $39.0 million per year. The initial term of the Trucking Assets TSA Agreement is 10 years, and thereafter Delek Holdings has the option to extend the Trucking Assets TSA Agreement for two additional two-year terms.
Effective March 31, 2020, we entered into the Big Spring T&D Agreement with Delek Holdings. Under the Big Spring T&D Agreement, we will operate and maintain the Big Spring Gathering Assets connecting Delek Holdings' interests in and to certain crude oil with the Partnership's Big Spring, Texas terminal and provide gathering, transportation and other related services with respect to any and all crude produced from Delek Holdings' and certain other producers’ respective interests for delivery at the Big Spring Terminal. Pursuant to the Big Spring T&D Agreement, Delek Holdings has committed to ship 120,000 bpd on the Big Spring Gathering Assets and 50,000 bpd to a redelivery point in Howard County, Texas (collectively, the Minimum Volume Commitments “MVCs”). Pursuant to the Big Spring T&D Agreement, we also agreed to spend up to $33.8 million over three years to connect additional receipt points and, in connection with such expenditures, the MVCs will increase to provide the Partnership a 12.5% return on the actual costs directly incurred and paid by the Partnership pursuant to the terms set forth in the Big Spring T&D Agreement. The initial term of the Big Spring T&D Agreement is 10 years, and thereafter Delek Holdings has the option to extend the Big Spring T&D Agreement for two additional five-year terms. Following the initial term and any such extensions, the Big Spring T&D Agreement will continue on a year-to-year basis unless terminated by either party upon 90 days’ written notice.
Other Agreements with Delek Holdings
In addition to the commercial agreements described above, the Partnership has entered into the following agreements with Delek Holdings:
Omnibus Agreement

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Notes to Condensed Consolidated Financial Statements (Unaudited)
The Partnership entered into an omnibus agreement with Delek Holdings, Delek Logistics Operating, LLC, Lion Oil Company and certain of the Partnership's and Delek Holdings' other subsidiaries on November 7, 2012, which has been amended from time to time in connection with acquisitions from Delek Holdings (collectively, as amended, the "Omnibus Agreement"). The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $4.1 million to Delek Holdings for its provision of centralized corporate services to the Partnership.
Pursuant to the terms of the Omnibus Agreement, we were reimbursed by Delek Holdings for certain capital expenditures of a nominal amount and $0.6 million during the three and nine months ended September 30, 2020, respectively, and $0.8 million and $2.3 million during the three and nine months ended September 30, 2019, respectively. These amounts are recorded in other long-term liabilities and are amortized to revenue over the life of the underlying revenue agreement corresponding to the asset. Ad ditionally, we are reimbursed or indemnified, as the case may be, for costs incurred in excess of certain amounts related to certain asset failures, pursuant to the terms of the Omnibus Agreeme nt. As of September 30, 2020, we have recorded a nominal receivable from related parties for these matters for which we expect to be reimbursed. These reimbursements are recorded as reductions to operating expense. We were reimbursed a nominal amount and $0.1 million for these matters during the three and nine months ended September 30, 2020, respectively, and $0.3 million and $6.0 million during the three and nine months ended September 30, 2019, respectively.
Other Transactions
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 majority of the gathering system has been constructed, 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 oversight of the project design, procurement and construction of project segments and provides other related services. Pursuant to the terms of the DPG Management Agreement, the Partnership receives a monthly operating services fee and a construction services fee, which includes the Partnership's direct costs of managing the project plus an additional percentage fee of the construction costs of each project segment. The agreement extends through December 2022. Total fees paid to the Partnership were $0.4 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, and $0.8 million and $3.6 million for the three and nine months ended September 30, 2019, respectively, which are recorded in affiliate revenue in our condensed consolidated statements of income. Additionally, the Partnership incurs the costs in connection with the construction of the assets and is subsequently reimbursed by Delek Holdings. Amounts reimbursable by Delek Holdings are recorded in accounts receivable from related parties.
Unregistered Sale of Equity Securities
In connection with the Partnership's issuance of the new units ("Additional Units") under the Big Spring Gathering Assets Acquisition and in accordance with the Partnership's First Amended and Restated Agreement of Limited Partnership, as amended (the"Partnership Agreement"), the Partnership issued general partner units to the general partner in an amount necessary to maintain its 2% general partner interest as defined in the Partnership Agreement. The sale and issuance of the Additional Units and such general partner units in connection with the Big Spring Gathering Assets Acquisition is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
Additionally, in March 2020, Delek Marketing & Supply, LLC ("Delek Marketing") repurchased 451,822 units from an unaffiliated investor pursuant to a Common Unit Purchase Agreement between Delek Marketing and such investor. The purchase price of the units amounted to approximately $5.0 million. As a result of the transaction, Delek Holdings' ownership in our outstanding limited partner units increased to 64.5% from 62.6%. Delek Holdings' ownership in our common limited partner units was further increased to 70.5% as a result of the issuance of 5.0 million Additional Units in connection with the Big Spring Gathering Assets Acquisition described above.
In August 2020, Delek Holdings ownership in our common limited partner units was further increased to approximately 80.0% in connection with the IDR Restructuring Transaction, where the Partnership issued 14.0 million Additional Units to Delek Holdings.
Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Delek Logistics Partners, LP
On March 31, 2020, in connection with the completion of the Big Spring Gathering Assets Acquisition, the Board of the general partner adopted Amendment No. 2 (“Amendment No. 2”) to the Partnership Agreement, effective upon adoption. Amendment No. 2 amended the Partnership Agreement to provide for a waiver of distributions in respect of the Incentive Distribution Rights ("IDRs") for General Partner Additional Units ("GP Additional Units") 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 (the “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 GP Additional Units. The IDRs were eliminated in the IDR Restructuring Transaction on August 13, 2020.
Conversion of GP Economic Interest and Elimination of IDRs

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Notes to Condensed Consolidated Financial Statements (Unaudited)
On August 13, 2020, we closed the transaction contemplated by a definitive exchange agreement with Delek Holdings to eliminate all of the IDRs held by the general partner and convert the 2% general partner economic interest into a non-economic general partner interest, all in exchange for 14.0 million of the Partnership's newly issued common limited partner units and $45.0 million cash. 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. Delek Holdings now owns 100% interest in the general partner and owns approximately 34.7 million common limited partner units, representing approximately 80% of the Partnership's outstanding common limited partner units. To implement the transaction, our Partnership Agreement was amended and restated.
Summary of Transactions
Revenues from affiliates consist primarily of revenues from gathering, transportation, storage, offloading, Renewable Identification Numbers ("RINs"), wholesale marketing and products terminalling services provided primarily to Delek Holdings based on regulated tariff rates or contractually based fees and product sales. Affiliate operating expenses are primarily comprised of amounts we reimburse Delek Holdings, or our general partner, as the case may be, for the services provided to us under the Partnership Agreement. These expenses could also include reimbursement and indemnification amounts from Delek Holdings, as provided under the Omnibus Agreement. Additionally, the Partnership is required to reimburse Delek Holdings for direct or allocated costs and expenses incurred by Delek Holdings on behalf of the Partnership and for charges Delek Holdings incurred for the management and operation of our logistics assets, including an annual fee for various centralized corporate services, which are included in general and administrative expenses. In addition to these transactions, we purchase refined products and bulk biofuels from Delek Holdings, the costs of which are included in cost of materials and other.
A summary of revenue, purchases from affiliates and expense transactions with Delek Holdings and its affiliates are as follows (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenues | $ | 95,410 |  |  | $ | 66,647 |  |  | $ | 289,739 |  |  | $ | 191,530 |
Purchases from Affiliates | $ | 45,186 |  |  | $ | 66,578 |  |  | $ | 155,679 |  |  | $ | 219,225 |
Operating and maintenance expenses | $ | 10,330 |  |  | $ | 18,336 |  |  | $ | 33,397 |  |  | $ | 38,851 |
General and administrative expenses | $ | 3,250 |  |  | $ | 4,317 |  |  | $ | 9,322 |  |  | $ | 7,430 |

Quarterly Cash Distributions
Prior to August 13, 2020, our common and general partner unitholders and the holders of IDRs were entitled to receive quarterly distributions of available cash as determined by the board of directors of our general partner in accordance with the terms and provisions of our Partnership Agreement. Pursuant to the IDR Restructuring Transaction on August 13, 2020, the general partner will no longer receive any cash distributions. In February, May and August 2020, we paid quarterly cash distributions of $30.6 million, $30.9 million and $36.0 million, respectively, of which $22.6 million, $23.2 million and $28.1 million, respectively, were paid to Delek Holdings' limited partner interest and our general partner. In February, May and August 2019, we paid quarterly cash distributions of $26.9 million and $27.4 million and $28.9 million, respectively, of which $19.6 million, $20.0 million and $21.2 million were paid to Delek Holdings and our general partner. On October 27, 2020, our board of directors declared a quarterly cash distribution totaling $39.3 million, based on the available cash as of the date of determination for the end of the third quarter of 2020, payable on November 12, 2020, of which $31.4 million is expected to be paid to Delek Holdings.
Note 4 - Revenues
We generate revenue by charging fees for gathering, transporting, offloading and storing crude oil; for storing intermediate products and feed stocks; for distributing, transporting and storing refined products; for marketing refined products output of Delek Holdings' Tyler and Big Spring refineries; and for wholesale marketing in the West Texas area. A significant portion of our revenue is derived from long-term commercial agreements with Delek Holdings, which provide for annual fee adjustments for increases or decreases in the CPI, PPI or FERC index (refer to Note 3 for a more detailed description of these agreements). In addition to the services we provide to Delek Holdings, we also generate substantial revenue from crude oil, intermediate and refined products transportation services for, and terminalling and marketing services to, third parties primarily in Texas, New Mexico, Tennessee and Arkansas. Certain of these services are provided pursuant to contractual agreements with third parties. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.

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The majority of our commercial agreements with Delek Holdings meet the definition of a lease because: (1) performance of the contracts is dependent on specified property, plant or equipment and (2) it is remote that one or more parties other than Delek Holdings will take more than a minor amount of the output associated with the specified property, plant or equipment. As part of our adoption of ASC 842, Leases ("ASC 842"), we applied the permitted practical expedient to not separate lease and non-lease components under the predominance principle to designated asset classes associated with the provision of logistics services. We have determined that the predominant component of the related agreements currently in effect is the lease component. Therefore, the combined component is accounted for under the applicable lease accounting guidance. Of our $467.5 million net property, plant, and equipment balance as of September 30, 2020, $394.6 million is subject to operating leases under our commercial agreements. These agreements do not include options for the lessee to purchase our leasing equipment, nor do they include any material residual value guarantees or material restrictive covenants.
The following table represents a disaggregation of revenue for each reportable segment for the periods indicated (in thousands):

|  | Three Months Ended September 30, 2020
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 3,035 |  |  | $ | 163 |  |  | $ | 3,198 |
Service Revenue - Affiliate |  | 5,633 |  |  | 8,708 |  |  | 14,341 |
Product Revenue - Third Party |  | — |  |  | 43,660 |  |  | 43,660 |
Product Revenue - Affiliate |  | — |  |  | 5,844 |  |  | 5,844 |
Lease Revenue - Affiliate (1) |  | 62,811 |  |  | 12,414 |  |  | 75,225 |
Total Revenue |  | $ | 71,479 |  |  | $ | 70,789 |  |  | $ | 142,268 |

(1) Net of $1.8 million of amortization expense for the three months ended September 30, 2020, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

|  | Three Months Ended September 30, 2019
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 5,281 |  |  | $ | 221 |  |  | $ | 5,502 |
Service Revenue - Affiliate |  | 2,856 |  |  | 9,578 |  |  | 12,434 |
Product Revenue - Third Party |  | — |  |  | 65,407 |  |  | 65,407 |
Product Revenue - Affiliate |  | — |  |  | 6,505 |  |  | 6,505 |
Lease Revenue - Affiliate (1) |  | 36,448 |  |  | 11,260 |  |  | 47,708 |
Total Revenue |  | $ | 44,585 |  |  | $ | 92,971 |  |  | $ | 137,556 |

(1) Net of $1.8 million of amortization expense for the three months ended September 30, 2019, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

|  | Nine Months Ended September 30, 2020
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 14,587 |  |  | $ | 502 |  |  | $ | 15,089 |
Service Revenue - Affiliate |  | 13,848 |  |  | $ | 24,500 |  |  | 38,348 |
Product Revenue - Third Party |  | — |  |  | 118,478 |  |  | 118,478 |
Product Revenue - Affiliate |  | — |  |  | 64,067 |  |  | 64,067 |
Lease Revenue - Affiliate (1) |  | 154,437 |  |  | 32,887 |  |  | 187,324 |
Total Revenue |  | $ | 182,872 |  |  | $ | 240,434 |  |  | $ | 423,306 |

(1) Net of $5.4 million of amortization expense for the nine months ended September 30, 2020, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

13 | |

|  | Nine Months Ended September 30, 2019
|  | Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Service Revenue - Third Party |  | $ | 16,733 |  |  | $ | 525 |  |  | $ | 17,258 |
Service Revenue - Affiliate |  | 8,171 |  |  | 26,438 |  |  | 34,609 |
Product Revenue - Third Party |  | — |  |  | 236,594 |  |  | 236,594 |
Product Revenue - Affiliate |  | — |  |  | 23,078 |  |  | 23,078 |
Lease Revenue - Affiliate (1) |  | 104,523 |  |  | 29,320 |  |  | 133,843 |
Total Revenue |  | $ | 129,427 |  |  | $ | 315,955 |  |  | $ | 445,382 |

(1) Net of $5.4 million of amortization expense for the nine months ended September 30, 2019, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

As of September 30, 2020, we expect to recognize $1.6 billion in lease revenues related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms. We disclose information about remaining performance obligations that have original expected durations of greater than one year.
Our unfulfilled performance obligations as of September 30, 2020 were as follows (in thousands):

Remainder of 2020 |  | 67,022 |
2021 |  | 267,990 |
2022 |  | 249,850 |
2023 |  | 240,489 |
2024 and thereafter |  | $ | 751,847 |
Total expected revenue on remaining performance obligations |  | $ | 1,577,198 |

Note 5 - Net Income Per Unit
Basic net income per unit applicable to limited partners is computed by dividing limited partners' interest in net income by the weighted-average number of outstanding common units. Prior to August 13, 2020, we had more than one class of participating securities and used the two class method to calculate the net income per unit applicable to the limited partners. The classes of participating units prior to August 13, 2020 consisted of limited partner units, general partner units and IDRs. Pursuant to the IDR Restructuring Transaction, the IDRs were eliminated and the 2% general partner economic interest was converted to a non-economic general partner interest. Effective August 13, 2020, the common limited partner units are the only participating security for cash distributions. Refer to Note 8 - Equity for a discussion of the elimination of the IDRs and conversion of the 2% general partner economic interest effective August 13, 2020.
The two-class method was based on the weighted-average number of common units outstanding during the period. Basic net income per unit applicable to limited partners was computed by dividing limited partners’ interest in net income, after deducting our general partner’s 2% interest and IDRs, by the weighted-average number of outstanding common units. Our net income was allocated to our general partner and limited partners in accordance with their respective partnership percentages after giving effect to priority income allocations for IDRs, which are held by our general partner pursuant to our Partnership Agreement. Earnings in excess of distributions were allocated to our general partner and limited partners based on their respective ownership interests. The IDRs were paid following the close of each quarter.
As discussed in Note 3 - Related Party Transactions, pursuant to Amendment No. 2 to the Partnership Agreement, an agreement was reached for a waiver of distributions in respect of the IDRs for the GP Additional Units associated with the 5.0 million Additional Units issued in connection with the Big Spring Gathering Assets Acquisition for at least two years, through at least the distribution for the quarter ending March 31, 2022. 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 GP 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. Refer to Note 3 for additional details. The IDRs were eliminated in the IDR Restructuring Transaction on August 13, 2020.

14 | |

Diluted net income per unit applicable to common limited partners includes the effects of potentially dilutive units on our common units. As of September 30, 2020, the only potentially dilutive units outstanding consist of unvested phantom units.
Our distributions earned with respect to a given period are declared subsequent to quarter end. Therefore, the table below represents total cash distributions applicable to the period in which the distributions are earned. The expected date of distribution for the distributions earned during the period ended September 30, 2020 is November 12, 2020. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit. The calculation of net income per unit is as follows (dollars in thousands, except units and per unit amounts):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net income attributable to partners | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
Less: General partner's distribution (including IDRs) (1) | — |  |  | 8,892 |  |  | 18,618 |  |  | 24,475 |
Less: Limited partners' distribution | 39,307 |  |  | 21,487 |  |  | 87,536 |  |  | 62,256 |
Earnings in excess (deficit) of distributions | $ | 7,021 |  |  | $ | 151 |  |  | $ | 12,385 |  |  | $ | (11,619) |
General partner's earnings: |  |  |  |  |  |  |
Distributions (including IDRs) (1) | $ | — |  |  | $ | 8,892 |  |  | $ | 18,618 |  |  | $ | 24,475 |
Allocation of earnings in excess (deficit) of distributions | — |  |  | 3 |  |  | 106 |  |  | (231) |
Total general partner's earnings | $ | — |  |  | $ | 8,895 |  |  | $ | 18,724 |  |  | $ | 24,244 |
Limited partners' earnings on common units: |  |  |  |  |  |  |
Distributions | $ | 39,307 |  |  | $ | 21,487 |  |  | $ | 87,536 |  |  | $ | 62,256 |
Allocation of earnings in excess (deficit) of distributions | 7,021 |  |  | 148 |  |  | 12,279 |  |  | (11,388) |
Total limited partners' earnings on common units | $ | 46,328 |  |  | $ | 21,635 |  |  | $ | 99,815 |  |  | $ | 50,868 |
Weighted average limited partner units outstanding: |  |  |  |  |  |  |
Common units - basic | 36,889,761 |  |  | 24,417,285 |  |  | 30,290,051 |  |  | 24,411,308 |
Common units - diluted | 36,894,043 |  |  | 24,420,582 |  |  | 30,292,261 |  |  | 24,417,466 |
Net income per limited partner unit: |  |  |  |  |  |  |
Common units - basic | $ | 1.26 |  |  | $ | 0.89 |  |  | $ | 3.30 |  |  | $ | 2.08 |
Common units - diluted (2) | $ | 1.26 |  |  | $ | 0.89 |  |  | $ | 3.30 |  |  | $ | 2.08 |

(1) Prior to August 13, 2020, general partner distributions (including IDRs) consisted of the 2.0% general partner interest and IDRs, which represented the right of the general partner to receive increasing percentages of quarterly distributions of available cash from operating surplus in excess of 0.43125 per unit per quarter. In connection with the IDR Restructuring Transaction on August 13, 2020, the IDRs were eliminated and the general partner interest became a non-economic general partner interest. See Note 8 for further discussion related to IDRs.
(2) There were no outstanding common units excluded from the diluted earnings per unit calculation for the three and nine months ended September 30, 2020 and 2019.

Note 6 - Inventory
Inventories consisted of $1.7 million and $12.6 million of refined petroleum products as of September 30, 2020 and December 31, 2019, each of which are net of lower of cost or net realizable value reserve of a nominal amount. Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We recognize lower of cost or net realizable value charges as a component of cost of materials and other in the consolidated statements of income and comprehensive income.
Note 7 - Long-Term Obligations
DKL Credit Facility
On September 28, 2018, the Partnership entered into a third amended and restated senior secured revolving credit agreement (hereafter, the "DKL Credit Facility") with Fifth Third Bank ("Fifth Third"), as administrative agent, and a syndicate of lenders with total lender commitments of $850.0 million. The DKL Credit Facility contains a dual currency borrowing tranche that permits draw downs in U.S. or Canadian dollars. The DKL Credit Facility also contains an accordion feature whereby the Partnership can increase the size of the credit facility to an aggregate of $1.0 billion, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent.

15 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
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, 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 non-economic 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. Borrowings denominated in U.S. dollars bear interest at either a U.S. dollar prime rate, plus an applicable margin, or the London Interbank Offered Rate ("LIBOR"), plus an applicable margin, at the election of the borrowers. Borrowings denominated in Canadian dollars bear interest at either a Canadian dollar prime rate, plus an applicable margin, or the Canadian Dealer Offered Rate, plus an applicable margin, at the election of the borrowers.
The applicable margin in each case and the fee payable for any unused revolving commitments vary based upon the Partnership's most recent total leverage ratio calculation delivered to the lenders, as called for and defined under the terms of the DKL Credit Facility. At September 30, 2020, the weighted average interest rate for our borrowings under the facility was approximately 2.69%. Additionally, the DKL Credit Facility requires us to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment. As of September 30, 2020, this fee was 0.40% per year.
As of September 30, 2020, we had $760.7 million of outstanding borrowings under the DKL Credit Facility, with no letters of credit in place. Unused credit commitments under the DKL Credit Facility as of September 30, 2020, were $89.3 million.
6.750% Senior Notes Due 2025
On May 23, 2017, the Partnership and Delek Logistics Finance Corp., a Delaware corporation and a wholly-owned subsidiary of the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), issued $250.0 million in aggregate principal amount of 6.75% senior notes due 2025 (the “2025 Notes”) at a discount. The 2025 Notes are general unsecured senior obligations of the Issuers. The 2025 Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's existing subsidiaries (other than Finance Corp., the "Guarantors") and will be unconditionally guaranteed on the same basis by certain of the Partnership’s future subsidiaries. The 2025 Notes rank equal in right of payme nt with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers. 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. 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.
As of September 30, 2020, we had $250.0 million in outstanding principal amount of the 2025 Notes. As of September 30, 2020, the effective interest rate related to the 2025 Notes was approximately 7.22%.
Outstanding borrowings under the 2025 Notes are net of deferred financing costs and debt discount of $3.5 million and $1.1 million, respectively, as of September 30, 2020, and $4.0 million and $1.3 million, respectively, as of December 31, 2019.

16 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 8 - Equity
We had approximately 8,687,371 common limited partner units held by the public outstanding as of September 30, 2020. Additionally, as of September 30, 2020, Delek Holdings owned an approximately 80.0% interest in us, consisting of 34,745,868 common limited partner units. Effective August 13, 2020, the Partnership closed on the IDR Restructuring Transaction, contemporaneous with this transaction, 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, at fair market value. Delek Holdings now owns 100% of the outstanding ownership interest in our general partner. As part of this transaction, we expensed approximately $1.1 million of transaction costs.
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 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 securities by Delek Holdings.
Equity Activity
The table below summarizes the changes in the number of units outstanding from December 31, 2019 through September 30, 2020.

| Common - Public |  | Common - Delek Holdings |  | General Partner |  | Total
Balance at December 31, 2019 | 9,131,579 |  |  | 15,294,046 |  |  | 498,482 |  |  | 24,924,107 |
General partner units issued to maintain 2% interest | — |  |  | — |  |  | 102,196 |  |  | 102,196 |
Unit-based compensation awards (1) | 7,614 |  |  | — |  |  | — |  |  | 7,614 |
Big Spring Gathering Assets Acquisition equity issuance | — |  |  | 5,000,000 |  |  | — |  |  | 5,000,000 |
Delek Holdings unit purchases from public | (451,822) |  |  | 451,822 |  |  | — |  |  | — |
General Partner units converted to non-economic general partner interest | — |  |  | — |  |  | (600,678) |  |  | (600,678) |
Common limited partner units issued in IDR Restructuring Transaction | — |  |  | 14,000,000 |  |  | — |  |  | 14,000,000 |
Balance at September 30, 2020 | 8,687,371 |  |  | 34,745,868 |  |  | — |  |  | 43,433,239 |

(1) Unit-based compensation awards are presented net of 481 units withheld for taxes as of September 30, 2020.

Issuance of Additional Securities
Our Partnership Agreement authorizes us to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions determined by our general partner without the approval of the unitholders. Costs associated with the issuance of securities are allocated to all unitholders' capital accounts based on their ownership interest at the time of issuance.
Allocations of Net Income
Our Partnership Agreement contains provisions for the allocation of net income and loss to the unitholders. For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Prior to August 13, 2020, normal allocations were made according to percentage interests after giving effect to priority income allocations in an amount equal to incentive cash distributions allocated 100% to our general partner. Effective August 13, 2020, the IDRs were eliminated and the 2% general partner economic interest was converted to a non-economic general partner interest that no longer receives cash distributions.
The following table presents the allocation of the general partner's interest in net income (in thousands, except percentage of ownership interest):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net income attributable to partners | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
Less: General partner's IDRs | — |  |  | (8,453) |  |  | (17,632) |  |  | (23,206) |
Net income available to partners | $ | 46,328 |  |  | $ | 22,077 |  |  | $ | 100,907 |  |  | $ | 51,906 |
General partner's ownership interest | — | % |  | 2.0 | % |  | 2.0 | % |  | 2.0 | %
General partner's allocated interest in net income | $ | — |  |  | $ | 442 |  |  | 1,092 |  |  | $ | 1,038 |
General partner's IDRs | — |  |  | 8,453 |  |  | 17,632 |  |  | 23,206 |
Total general partner's interest in net income | $ | — |  |  | $ | 8,895 |  |  | $ | 18,724 |  |  | $ | 24,244 |

17 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Incentive Distribution Rights ("IDRs")
Effective August 13, 2020, the Partnership closed on the IDR Restructuring Transaction and the general partner no longer receives any cash distributions. Prior to August 13, 2020, our general partner was entitled to 2.0% of all quarterly distributions that we make prior to our liquidation. Our general partner had the right, but not the obligation, to contribute up to a proportionate amount of capital to us to maintain its current general partner interest. Our general partner held IDRs that entitled it to receive increasing percentages, up to a maximum of 48.0%, of the cash we distributed from operating surplus (as defined in our Partnership Agreement) in excess of 0.43125 per unit per quarter. The maximum distribution was 48.0% and did not include any distributions that our general partner or its affiliates may have received on common or general partner units that it owns. As of August 12, 2020, the IDRs held by our general partner were entitled to receive the maximum distribution.
Pursuant to Amendment No. 2 to the Partnership Agreement, prior to the IDR Restructuring Transaction, an agreement was reached for a waiver of 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 (the "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. Refer to Note 3 for additional details.
Cash Distributions
Our Partnership Agreement sets forth the calculation to be used to determine the amount and priority of available cash distributions that our limited partner unitholders will receive. The cash distributions for periods before August 13, 2020 include distributions to the 2% general partner interest which was converted to non-economic general partner interest and IDRs which were permanently eliminated. Our distributions earned with respect to a given period are declared subsequent to quarter end. The table below summarizes the quarterly distributions related to our quarterly financial results:

Quarter Ended |  | Total Quarterly Distribution Per Limited Partner Unit |  | Total Quarterly Distribution Per Limited Partner Unit, Annualized |  | Total Cash Distribution, (in thousands) |  | Date of Distribution |  | Unitholders Record Date
September 30, 2019 |  | $ | 0.880 |  |  | $ | 3.52 |  |  | $ | 30,379 |  |  | November 12, 2019 |  | November 4, 2019
December 31, 2019 |  | $ | 0.885 |  |  | $ | 3.54 |  |  | $ | 30,634 |  |  | February 12, 2020 |  | February 4, 2020
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 (1) |  | November 6, 2020

(1) Expected date of distribution.

The allocations of total quarterly cash distributions made to limited partners for the three and nine months ended September 30, 2020 and 2019 are set forth in the table below. Distributions earned with respect to a given period are declared subsequent to quarter end. Therefore, the table below presents total cash distributions applicable to the period in which the distributions are earned (in thousands, except per unit amounts):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
General partner's distributions: |  |  |  |  |  |  |
General partner's distributions | $ | — |  |  | $ | 439 |  |  | $ | 986 |  |  | $ | 1,269 |
General partner's IDRs | — |  |  | 8,453 |  |  | 17,632 |  |  | 23,206 |
Total general partner's distributions | — |  |  | 8,892 |  |  | 18,618 |  |  | 24,475 |
Limited partners' distributions: |  |  |  |  |  |  |
Common limited partners' distributions | 39,307 |  |  | 21,487 |  |  | 87,536 |  |  | 62,256 |
Total cash distributions | $ | 39,307 |  |  | $ | 30,379 |  |  | $ | 106,154 |  |  | $ | 86,731 |
Cash distributions per limited partner unit | $ | 0.905 |  |  | $ | 0.880 |  |  | $ | 2.695 |  |  | $ | 2.550 |

18 | |

Note 9 - Equity Based Compensation
The Delek Logistics GP, LLC 2012 Long-Term Incentive Plan (the "LTIP") was adopted by the Delek Logistics GP, LLC board of directors in connection with the completion of our initial public offering in November 2012. The LTIP is administered by the Conflicts Committee of the board of directors. Equity-based compensation expense is included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income and is immaterial for the three and nine months ended September 30, 2020 and 2019.
Note 10 - Equity Method Investments
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 River”). Pursuant to the Contribution Agreement, DKL Pipeline contributed $124.7 million, substantially all of which was financed by borrowings under the DKL Credit Facility, to Red River in exchange for a 33% membership interest in Red River and DKL Pipeline’s admission as a member of Red River. In addition, we contributed $0.4 million of startup capital pursuant to the Amended and Restated Limited Liability Company Agreement. During the third quarter of 2020, Red River, which owns a crude oil pipeline running from Cushing, Oklahoma to Longview, Texas, completed a planned expansion project to increase the pipeline capacity and commenced operations on the completed expansion project on October 1, 2020. We contributed $3.5 million related to such expansion project in May 2019. During the nine months ended September 30, 2020, we made additional capital contributions totaling $11.8 million based on capital calls received.
Summarized unaudited financial information for Red River on a 100% basis is shown below (in thousands):

| September 30, 2020 |  | December 31, 2019
Current Assets | $ | 16,738 |  |  | $ | 9,278 |
Non-current Assets | $ | 413,879 |  |  | $ | 381,778 |
Current liabilities | $ | 9,556 |  |  | $ | 8,291 |

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenues | $ | 13,919 |  |  | $ | 19,195 |  |  | $ | 35,888 |  |  | $ | 45,212 |
Gross profit | $ | 8,189 |  |  | $ | 14,469 |  |  | $ | 21,251 |  |  | $ | 28,935 |
Operating income | $ | 8,020 |  |  | $ | 14,318 |  |  | $ | 20,717 |  |  | $ | 21,461 |
Net income | $ | 8,022 |  |  | $ | 14,342 |  |  | $ | 20,768 |  |  | $ | 27,994 |

We have two joint ventures that have constructed separate crude oil pipeline systems and related ancillary assets, which are serving third parties and subsidiaries of Delek Holdings. We own a 50% membership interest in the entity formed with an affiliate of Plains All American Pipeline, L.P. ("CP LLC") to operate one of these pipeline systems (the "Caddo Pipeline") and a 33% membership interest in the entity formed with Rangeland Energy II, LLC ("Rangeland Energy") to operate the other pipeline system (the "Rio Pipeline"). During 2018, Rangeland Energy was acquired by Andeavor and the legal entity in which we have an equity investment became Andeavor Logistics Rio Pipeline LLC ("Andeavor Logistics").
Combined summarized unaudited financial information for these two equity method investees on a 100% basis is shown below (in thousands):

| September 30, 2020 |  | December 31, 2019
Current assets | $ | 20,897 |  |  | $ | 29,476 |
Non-current assets | $ | 256,420 |  |  | $ | 262,300 |
Current liabilities | $ | 2,660 |  |  | $ | 6,391 |

19 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenues | $ | 14,227 |  |  | $ | 14,602 |  |  | $ | 42,412 |  |  | $ | 33,793 |
Gross profit | $ | 9,634 |  |  | $ | 9,965 |  |  | $ | 28,468 |  |  | $ | 20,549 |
Operating income | $ | 9,135 |  |  | $ | 9,428 |  |  | $ | 26,999 |  |  | $ | 19,052 |
Net Income | $ | 9,136 |  |  | $ | 9,458 |  |  | $ | 27,023 |  |  | $ | 19,124 |

The Partnership's investments in these three entities were financed through a combination of cash from operations and borrowings under the DKL Credit Facility. As of September 30, 2020 and December 31, 2019, the Partnership's investment balance in these joint ventures was $255.4 million and $247.0 million, respectively.
We do not consolidate any part of the assets or liabilities or operating results of our equity method investees. Our share of net income or loss of the investees will increase or decrease, as applicable, the carrying value of our investments in unconsolidated affiliates. With respect to our equity method investments, we determined that these entities do not represent variable interest entities and consolidation is not required. We have the ability to exercise significant influence over each of these joint ventures through our participation in the management committees, which make all significant decisions. However, since all significant decisions require the consent of the other investor(s) without regard to economic interest, we have determined that we have joint control and have applied the equity method of accounting. Our investment in these joint ventures is reflected in our pipelines and transportation segment.
Note 11 - Segment Data
We aggregate our operating segments into two reportable segments: (i) pipelines and transportation and (ii) wholesale marketing and terminalling:
•The assets and investments reported in the pipelines and transportation segment provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services to Delek Holdings' refining operations and independent third parties.
•The wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek Holdings' refining operations and independent third parties.
Our operating segments adhere to the accounting policies used for our consolidated financial statements. Our operating segments are managed separately because each segment requires different industry knowledge, technology and marketing strategies. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of its reportable segments based on segment contribution margin. Segment contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization.

20 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
The following is a summary of business segment operating performance as measured by contribution margin for the periods indicated (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Pipelines and Transportation |  |  |  |  |  |  |
Net revenues: |  |  |  |  |  |  |
Affiliate | $ | 68,444 |  |  | $ | 39,304 |  |  | $ | 168,285 |  |  | $ | 112,694 |
Third party | 3,035 |  |  | 5,281 |  |  | 14,587 |  |  | 16,733 |
Total pipelines and transportation | 71,479 |  |  | 44,585 |  |  | 182,872 |  |  | 129,427 |
Cost of materials and other | 14,342 |  |  | 4,947 |  |  | 31,622 |  |  | 17,871 |
Operating expenses (excluding depreciation and amortization) | 10,749 |  |  | 12,547 |  |  | 31,936 |  |  | 36,109 |
Segment contribution margin | $ | 46,388 |  |  | $ | 27,091 |  |  | $ | 119,314 |  |  | $ | 75,447 |
Capital spending | $ | 2,552 |  |  | $ | 3,103 |  |  | $ | 3,424 |  |  | $ | 4,345 |
Wholesale Marketing and Terminalling |  |  |  |  |  |  |
Net revenues: |  |  |  |  |  |  |
Affiliate (1) | $ | 26,966 |  |  | $ | 27,343 |  |  | $ | 121,454 |  |  | $ | 78,836 |
Third party | 43,823 |  |  | 65,628 |  |  | 118,980 |  |  | 237,119 |
Total wholesale marketing and terminalling | 70,789 |  |  | 92,971 |  |  | 240,434 |  |  | 315,955 |
Cost of materials and other | 46,350 |  |  | 67,647 |  |  | 174,255 |  |  | 244,842 |
Operating expenses (excluding depreciation and amortization) | 3,481 |  |  | 5,888 |  |  | 9,487 |  |  | 15,711 |
Segment contribution margin | $ | 20,958 |  |  | $ | 19,436 |  |  | $ | 56,692 |  |  | $ | 55,402 |
Capital spending | $ | 676 |  |  | $ | 889 |  |  | $ | 3,494 |  |  | $ | 1,893 |
Consolidated |  |  |  |  |  |  |
Net revenues: |  |  |  |  |  |  |
Affiliate | $ | 95,410 |  |  | $ | 66,647 |  |  | $ | 289,739 |  |  | $ | 191,530 |
Third party | 46,858 |  |  | 70,909 |  |  | 133,567 |  |  | 253,852 |
Total Consolidated | 142,268 |  |  | 137,556 |  |  | 423,306 |  |  | 445,382 |
Cost of materials and other | 60,692 |  |  | 72,594 |  |  | 205,877 |  |  | 262,713 |
Operating expenses (excluding depreciation and amortization presented below) | 14,230 |  |  | 18,435 |  |  | 41,423 |  |  | 51,820 |
Contribution margin | $ | 67,346 |  |  | $ | 46,527 |  |  | 176,006 |  |  | 130,849 |
General and administrative expenses | 6,122 |  |  | 5,280 |  |  | 16,973 |  |  | 15,046 |
Depreciation and amortization | 9,459 |  |  | 6,588 |  |  | 24,452 |  |  | 19,801 |
Other operating income, net | — |  |  | (70) |  |  | (107) |  |  | (95) |
Operating income | $ | 51,765 |  |  | $ | 34,729 |  |  | $ | 134,688 |  |  | $ | 96,097 |
Capital spending | $ | 3,228 |  |  | $ | 3,992 |  |  | $ | 6,918 |  |  | $ | 6,238 |

(1) Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense pertaining to the Marketing Contract Intangible Acquisition. See Note 3 for additional information.

The following table summarizes the total assets for each segment as of September 30, 2020 and December 31, 2019 (in thousands):

| September 30, 2020 |  | December 31, 2019
Pipelines and transportation | $ | 804,118 |  |  | $ | 537,580 |
Wholesale marketing and terminalling | 153,468 |  |  | 206,867 |
Total assets | $ | 957,586 |  |  | $ | 744,447 |

21 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
Property, plant and equipment and accumulated depreciation as of September 30, 2020 and depreciation expense by reporting segment for the three and nine months ended September 30, 2020 were as follows (in thousands):

| Pipelines and Transportation |  | Wholesale Marketing and Terminalling |  | Consolidated
Property, plant and equipment | $ | 569,320 |  |  | $ | 114,879 |  |  | $ | 684,199 |
Less: accumulated depreciation | (167,079) |  |  | (49,619) |  |  | (216,698) |
Property, plant and equipment, net (1) | $ | 402,241 |  |  | $ | 65,260 |  |  | $ | 467,501 |
Depreciation expense for the three months ended September 30, 2020 | $ | 7,738 |  |  | $ | 1,721 |  |  | $ | 9,459 |
Depreciation expense for the nine months ended September 30, 2020 | $ | 19,364 |  |  | $ | 5,088 |  |  | $ | 24,452 |

(1) Segment assets data as of September 30, 2020 includes $118.2 million adjustment to re-classify property, plant and equipment between Wholesale Marketing and Terminalling segment and Pipelines and Transportation segment to record a correction that was not reflected in the November 4, 2020 Earnings Release. Such amounts are not considered material to the financial statements and had no impact to the consolidated assets, operating income, segment contribution or net income.

In accordance with ASC 360, Property, Plant & Equipment, we evaluate the realizability of property, plant and equipment as events occur that might indicate potential impairment. There were no indicators of impairment of our property, plant and equipment as of September 30, 2020.
Note 12 - Income Taxes
For tax purposes, each partner of the Partnership is required to take into account its share of income, gain, loss and deduction in computing its federal and state income tax liabilities, regardless of whether cash distributions are made to such partner by the Partnership. The taxable income reportable to each partner takes into account differences between the tax basis and fair market value of our assets, financial reporting bases of assets and liabilities, the acquisition price of such partner's units and the taxable income allocation requirements under our Partnership Agreement.
The Partnership is not a taxable entity for federal income tax purposes. While most states do not impose an entity level tax on partnership income, the Partnership is subject to entity level tax in both Tennessee and Texas.
Note 13 - Commitments and Contingencies
Litigation
In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our financial statements. See "Crude Oil and Other Releases" below for discussion of an enforcement action.
Environmental, Health and Safety
We are subject to extensive federal, state and local environmental and safety laws and regulations enforced by various agencies, including the Environmental Protection Agency (the "EPA"), the United States Department of Transportation, the Occupational Safety and Health Administration, as well as numerous state, regional and local environmental, safety and pipeline agencies. These laws and regulations govern the discharge of materials into the environment, waste management practices and pollution prevention measures, as well as the safe operation of our pipelines and the safety of our workers and the public. Numerous permits or other authorizations are required under these laws and regulations for the operation of our terminals, pipelines, saltwells, trucks and related operations, and may be subject to revocation, modification and renewal.
These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters, which could include soil and water contamination, air pollution, personal injury and property damage allegedly caused by substances which we handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which we have assumed responsibility. We believe that our current operations are in substantial compliance with existing environmental and safety requirements. However, there have been and we expect that there will continue to be ongoing discussions about environmental and safety matters between us and federal and state authorities, including notices of violations, citations and other enforcement actions, some of which have resulted or may result in changes to operating procedures and in capital expenditures. While it is often difficult to quantify future environmental or safety

22 | |

Notes to Condensed Consolidated Financial Statements (Unaudited)
related expenditures, we anticipate that continuing capital investments and changes in operating procedures will be required to comply with existing and new requirements, as well as evolving interpretations and more strict enforcement of existing laws and regulations.
Releases of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, or is not a reimbursable event under the Omnibus Agreement, subject us to substantial expenses, including costs to respond to, contain and remediate a release, to comply with applicable laws and regulations and to resolve claims by third parties for personal injury, property damage or natural resources damages.
Crude Oil and Other Releases
We have experienced several crude oil and other releases involving our assets. There were no material releases that occurred during the nine months ended September 30, 2020, and there were five releases that occurred throughout the year 2019. Cleanup operations and site maintenance and remediation efforts on these and other releases are at various stages of completion. The majority of the remediation efforts for these releases are substantially completed or have received regulatory closure. With the exception of the Sulphur Springs release defined below, we expect regulatory closure in 2020 for the release sites that have not yet received it.
Many of the releases have occurred on our system of common carrier pipelines which gather crude in southern Arkansas and northern Louisiana, and which are primarily located within 60 miles of Delek Holdings’ El Dorado refinery ("El Dorado Gathering System"). During the year ended December 31, 2019, we decommissioned certain sections of the El Dorado Gathering System in an effort to improve the safety and integrity of the system. The decommissioning of these sections was completed in August 2019. The project did not have a material effect on our financial results.
Regulatory authorities could require additional remediation based on the results of our remediation efforts. We may incur additional expenses as a result of further scrutiny by regulatory authorities and continued compliance with laws and regulations to which our assets are subject. As of September 30, 2020, we have accrued $0.3 million for remediation and other such matters related to these releases.
On October 3, 2019, a release of diesel fuel involving one of our pipelines occurred near Sulphur Springs, Texas (the "Sulphur Springs Release"). Cleanup operations and site maintenance and remediation on this release have been substantially completed where such costs incurred totaled $7.1 million during 2019. During the three and nine months ended September 30, 2020, we incurred approximately $0.1 million and $0.4 million of additional costs related to final clean-up of this release, respectively. The release is currently in boom maintenance. Ground water monitoring wells were installed in the third quarter of 2020. We expect to conduct quarterly ground water monitoring for at least one year. Additionally, during the third quarter ended September 30, 2020 we conducted creek bed sediment sampling and the results indicated no issues with the groundwater. We filed suit in January 2020 against a third party contractor, seeking damages related to this release. We have not received notification that any legal action with respect to fines and penalties will be pursued by the regulatory agencies.
Expenses incurred for the remediation of these crude oil and other releases are included in operating expenses in our condensed consolidated statements of income and comprehensive income. The majority of our releases have been subsequently reimbursed by Delek Holdings pursuant to the terms of the Omnibus Agreement, with the exception of the Sulphur Springs Release above as it is not covered under the Omnibus Agreement. Reimbursements are recorded as a reduction to operating expense. We do not believe the total costs associated with these events, whether alone or in the aggregate, including any fines or penalties and net of available insurance, indemnification or reimbursement, will have a material adverse effect upon our business, financial condition or results of operations.
During both the three and nine months ended September 30, 2020, we recorded a nominal amount of expenses. Additionally, during the three and nine months ended September 30, 2019, we recorded a nominal amount and $0.3 million of expenses, respectively, which is net of total reimbursable costs of $0.5 million and $4.6 million for the three and nine months ended September 30, 2019, respectively, from Delek Holdings pursuant to the terms of the Omnibus Agreement.
Note 14 - Leases
We lease certain pipeline and transportation equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Our leases do not have any outstanding renewal options. Certain leases also include options to purchase the leased equipment.
Certain of our lease agreements include rates based on equipment usage and others include rate inflationary indices based increases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents additional information related to our operating leases in accordance ASC 842:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2020 |  | 2019 |  | 2020 |  | 2019
Lease Cost |  |  |  |  |  |  |
Operating lease cost | $ | 2,587 |  |  | $ | 1,744 |  |  | $ | 5,113 |  |  | $ | 4,643 |
Short-term lease cost (1) | 382 |  |  | 47 |  |  | 1,459 |  |  | 850 |
Variable lease costs | 829 |  |  | — |  |  | 1,101 |  |  | — |
Total lease cost | $ | 3,798 |  |  | $ | 1,791 |  |  | $ | 7,673 |  |  | $ | 5,493 |
Other Information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities |  |  |  |  |  |  |
Operating cash flows from operating leases | $ | (2,587) |  |  | $ | (1,744) |  |  | $ | (5,113) |  |  | $ | (4,643) |
Leased assets obtained in exchange for new operating lease liabilities | $ | 865 |  |  | $ | 649 |  |  | $ | 16,644 |  |  | $ | 649 |
|  |  |  |  | September 30, 2020 |  |
Weighted-average remaining lease term (years) for operating leases |  |  |  |  | 3.7 |  |
Weighted-average discount rate (2) operating leases |  |  |  |  | 5.7 | % |  |

(1) Includes an immaterial amount of variable lease cost.
(2) Our discount rate is primarily based on our incremental borrowing rate in accordance with ASC 842.

Note 15 - Subsequent Events
Distribution Declaration
On October 27, 2020, our general partner's board of directors declared a quarterly cash distribution of $0.905 per unit, payable on November 12, 2020, to unitholders of record on November 6, 2020.

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Management's Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 27, 2020 (the "Annual Report on Form 10-K"). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. 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 Holdings" refer collectively to Delek US Holdings, Inc. 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% 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 3 of the accompanying condensed consolidated financial statements 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 2 of the accompanying condensed consolidated financial statements 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 2 of the accompanying condensed consolidated financial statements for further information.
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 (@DelekUSLogistics). 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
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the 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. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to:

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Management's Discussion and Analysis
•our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements;
•our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all;
•Delek Holdings' future growth, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution;
•industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity;
•the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures;
•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 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;
•the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof;
•the results of our investments in joint ventures;
•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;
•changes in the availability and cost of capital of debt and equity financing;
•our reliance on information technology systems in our day-to-day operations;
•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;
•actions taken by our customers and competitors;
•the demand for crude oil, refined products and transportation and storage services;
•our ability to successfully implement our business plan;
•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;
•labor relations;
•large customer defaults;
•changes in tax status and regulations;
•the effects of future litigation; and
•other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our 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.
All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

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Management's Discussion and Analysis
Business Overview
The Partnership primarily owns and operates crude oil, intermediate and refined products logistics and marketing assets. We gather, transport, offload and store crude oil and intermediate products and market, distribute, transport and store refined products primarily in select regions of the southeastern United States and Texas for Delek Holdings and third parties. A substantial majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries.
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. Instead, for purposes of such income taxes, each partner of the Partnership is required to take into account its share of items of income, gain, loss and deduction in computing its federal and state income tax liabilities, regardless of whether cash distributions are made to such partner by the Partnership. The taxable income reportable to each partner takes into account differences between the tax basis and the fair market value of our assets and financial reporting bases of assets and liabilities, the acquisition price of the partner's units and the taxable income allocation requirements under the Partnership's Second Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement").
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 nine months to September 30, 2020 in the United States and globally. Therefore, downward pressure on commodity prices has remained and could continue for the foreseeable future.
During the third quarter of 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 have 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 have recently experienced a marked increase in the spread of COVID-19 and many governmental authorities in such areas have 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 three and nine months ended September 30, 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. And 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 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;
•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

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Management's Discussion and Analysis
assets, including goodwill, or have other financial statement impacts that cannot currently be anticipated (see also Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of specific financial statement risks);
•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; and
•The U.S. 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 unaudited condensed consolidated financial statements as of and for the three months ended September 30, 2020, which are included in Item 1. of this Quarterly Report on Form 10-Q.
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 2020;
•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, masks are mandatory and our employees have adopted social distancing; and
•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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in this Form 10-Q. 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 II, Item 1A. of this Quarterly Report on Form 10-Q for further discussion of risks associated with the COVID-19 Pandemic.
Our Reporting Segments and Assets
Our business consists of two reportable segments:
(i) Pipelines and Transportation
The assets and investments in our pipelines and transportation segment consist of pipelines, tanks, offloading facilities, trucks and ancillary assets, which provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas, Big Spring, Texas and the Big Spring Gathering Assets. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment.
(ii) Wholesale Marketing and Terminalling
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

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Management's Discussion and Analysis
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.
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 our accompanying condensed consolidated financial statements for additional information.
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 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
During the third quarter ended September 30, 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. The expansion project commenced operations on October 1, 2020.
Inflation Adjustments
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 adjustments using the FERC indexing increased approximately 2%, the amount of the change in the FERC oil pipeline index. Under certain of our other agreements with Delek Holdings and third parties, the fees adjusted based on the consumer price index increased 1.6%, and the fees adjusted based on producer price index decreased approximately 1.2%.
Trucking Assets Acquisition
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 from Delek Holdings. See Note 2 to our accompanying condensed consolidated financial statements 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 condensed consolidated financial statements for additional information.
IDR Waiver
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 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 reduces 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 condensed consolidated financial statements for additional information.
How We Generate Revenue
The Partnership generates revenue by charging fees to Delek Holdings and third parties for gathering, transporting, offloading and storing crude oil and for marketing, distributing, transporting, throughputting and storing intermediate and refined products. We also wholesale market refined products primarily in the West Texas market. A substantial majority of our contribution margin, which we define as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization, is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years, which gives us a contractual revenue base that we believe enhances the stability of our cash flows. As more fully described below, our commercial agreements with Delek Holdings typically include minimum volume or throughput commitments by Delek Holdings, which we believe will provide a stable revenue stream in the future. The fees charged under our agreements with Delek Holdings and third parties are indexed to inflation-based indices. In addition, the rates charged with respect to our assets that are subject to inflation indexing may increase or decrease, typically on July 1 of each year, by the amount of any change in various inflation-based indices, including FERC, provided that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement.

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Management's Discussion and Analysis
Commercial Agreements with Delek Holdings
The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings, and Delek Holdings commits to provide us with minimum monthly throughput volumes of crude oil, intermediate and refined products. Generally, these agreements include minimum quarterly volume, revenue or throughput commitments and have tariffs or fees indexed to inflation-based indices, provided that the tariffs or fees will not be decreased below the initial amount. See our Annual Report on Form 10-K filed with the SEC on February 27, 2020 for a discussion of our material commercial agreements with Delek Holdings.
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 majority of the gathering system has been constructed, 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 oversight of the project design, procurement and construction of project segments and for providing other related services. See Note 4 to our accompanying condensed consolidated financial statements for additional information on the DPG Management Agreement.
How We Evaluate Our Operations
We use a variety of financial and operating metrics to analyze our segment performance. These metrics are significant factors in assessing our operating results and profitability and include:
(i)volumes (including pipeline throughput and terminal volumes);
(ii)contribution margin per barrel;
(iii)operating and maintenance expenses;
(iv)cost of materials and other; and
(v)EBITDA and distributable cash flow (as such terms are defined below).
Volumes
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. These volumes are primarily affected by the supply of and demand for crude oil, intermediate and refined products in the markets served directly or indirectly by our assets. Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by:
•Delek Holdings' utilization of our assets in excess of its minimum volume commitments;
•our ability to identify and execute acquisitions and organic expansion projects, and capture incremental volume increases from Delek Holdings or third parties;
•our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals;
•our ability to identify and serve new customers in our marketing and trucking operations; and
•our ability to make connections to third-party facilities and pipelines.
Contribution Margin per Barrel
Because we do not allocate general and administrative expenses by segment, we measure the performance of our segments by the amount of contribution margin as generated in operations. Contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization.
For our wholesale marketing and terminalling segment, we also measure gross margin per barrel. Gross margin per barrel reflects the gross margin (net revenues less cost of materials and other) of the wholesale marketing operations divided by the number of barrels of refined products sold during the measurement period. Both contribution margin and gross margin per barrel can be affected by fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and Renewable Identification Numbers ("RINs"). Historically, the profitability of our wholesale marketing operations has been affected by commodity price volatility, (specifically as it relates to changes in the price of refined products between the time we purchase such products from our suppliers and the time we sell the products to our wholesale customers), and the fluctuation in the value of RINs. Commodity price volatility may also impact our wholesale marketing operations when the selling price of refined products does not adjust as quickly as the purchase price. Our wholesale marketing gross margin may also be impacted by fixed price ethanol agreements that we enter into to fix the price we pay for ethanol.

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Management's Discussion and Analysis
Operating and Maintenance Expenses
We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses. Additionally, compliance with federal, state and local laws and regulations relating to the protection of the environment, health and safety may require us to incur additional expenditures. We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow.
Cost of Materials and Other
These costs include:
(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; and
(iv)gains and losses related to our commodity hedging activities.
Financing
The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.905 per unit for the quarter ended September 30, 2020 ($3.62 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. See Note 8 to the accompanying condensed consolidated financial statements for a discussion of historic cash distributions.

31 | |

Management's Discussion and Analysis
Market Trends
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. 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 nine months ended September 30, 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, closed at $39.27 per barrel on June 30, 2020 and at $40.22 per barrel on September 30, 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 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 third quarter ended September 30, 2020, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the second quarter ended June 30, 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
Overall demand for gathering and terminalling services in a particular area is generally driven by crude oil production in the area, which can be impacted by crude oil prices, refining economics and access to alternate delivery and transportation infrastructure. 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 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 and third quarter of 2020.
See the chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2019 and for the three quarterly periods in 2020.

32 | |

Management's Discussion and Analysis
The volatility of refined products prices may impact our margin in the West Texas operations when the selling price of refined products does not adjust as quickly as the purchase price. See the charts below for the range of prices per gallon of gasoline and diesel for each of the quarterly periods in 2019 and for the three quarterly periods in 2020.

Our West Texas operations can benefit from RINs that are generated by ethanol blending activities. As a result, changes in the price of RINs can affect our results of operations. The RINs we generate are sold primarily to Delek Holdings at market prices. We sold approximately $0.8 million and $2.3 million of RINs to Delek Holdings during the three and nine ended September 30, 2020, respectively. Additionally, we sold approximately $0.3 million and $0.9 million of RINs to Delek Holdings during the three and nine ended September 30, 2019, respectively. See below for the high, low and average prices of RINs for each of the quarterly periods in 2019 and in the three quarterly periods in 2020.

33 | |

Management's Discussion and Analysis

All of these factors are subject to change over time. 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.

34 | |

Management's Discussion and Analysis
Contractual Obligations
There have been no material changes to our contractual obligations and commercial commitments during the three and nine months ended September 30, 2020 from those disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult, complex or subjective judgments or estimates. Based on this definition and as further described in our Annual Report on Form 10-K, we believe our critical accounting policies include the following: (i) evaluating impairment for property, plant and equipment and intangibles, and (ii) evaluating potential impairment of goodwill.
Additionally, due to the economic and industry impact of the COVID-19 Pandemic, we also modified the application of certain of our critical accounting policies during and as of the three and nine months ended September 30, 2020 as follows:
Goodwill and Potential Impairment
Our annual goodwill impairment analysis is performed during the fourth quarter of each year. Under ASC 350, Intangibles - Goodwill and Other, goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
We have identified the COVID-19 Pandemic as a significant event during the three months ended September 30, 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, and triggered several identified uncertainties, as discussed in the 'Business Overview' section of Management's Discussion and Analysis. Our assessment was performed based on the events that had occurred through September 30, 2020 and excluded developments that occurred in the subsequent period, including the impact of a resurgence of COVID-19 cases and re-enactment of temporary business closures. In order to determine whether these events, including the developments around such events that had occurred through September 30, 2020 and our assumptions about future periods based on those events and related developments, would more likely than not reduce the fair value of a reporting unit below its carrying amount, we performed certain analyses on the most significant inputs in our 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 to our valuation model, 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. Based on our analyses (which, as noted above, were based on the conditions and events that had occurred as of September 30, 2020), we determined that there is not an indicator that fair value is more likely than not to have declined below carrying value of $12.2 million as of September 30, 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.
Other than as described above, for all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies or estimates since our most recently filed Annual Report on Form 10-K. See Note 1 of the condensed consolidated financial statements in Item 1. Financial Statements, for discussion of updates to our accounting policies.

35 | |

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 GAAP financial information presented in accordance with U.S. GAAP. 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 condensed 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. 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.
EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
•our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;
•the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;
•our ability to incur and service debt and fund capital expenditures; and
•the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA and distributable cash flow have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. For a reconciliation of EBITDA and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP, please refer to "Results of Operations" below.

36 | |

Management's Discussion and Analysis
Results of Operations
A discussion and analysis of the factors contributing to our results of operations is presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
The following table and discussion present a summary of our consolidated results of operations for the three and nine months ended September 30, 2020 and 2019, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.
Statement of Operations Data (in thousands, except unit and per unit amounts)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net revenues: |  |  |  |  |  |  |
Pipelines and transportation | $ | 71,479 |  |  | $ | 44,585 |  |  | $ | 182,872 |  |  | $ | 129,427 |
Wholesale marketing and terminalling | 70,789 |  |  | 92,971 |  |  | 240,434 |  |  | 315,955 |
Total | 142,268 |  |  | 137,556 |  |  | 423,306 |  |  | 445,382 |
Operating costs and expenses: |  |  |  |  |  |  |
Cost of materials and other | 60,692 |  |  | 72,594 |  |  | 205,877 |  |  | 262,713 |
Operating expenses (excluding depreciation and amortization) | 14,230 |  |  | 18,435 |  |  | 41,423 |  |  | 51,820 |
General and administrative expenses | 6,122 |  |  | 5,280 |  |  | 16,973 |  |  | 15,046 |
Depreciation and amortization | 9,459 |  |  | 6,588 |  |  | 24,452 |  |  | 19,801 |
Other operating income, net | — |  |  | (70) |  |  | (107) |  |  | (95) |
Total operating costs and expenses | 90,503 |  |  | 102,827 |  |  | 288,618 |  |  | 349,285 |
Operating income | 51,765 |  |  | 34,729 |  |  | 134,688 |  |  | 96,097 |
Interest expense, net | 10,360 |  |  | 12,509 |  |  | 32,854 |  |  | 35,164 |
Income from equity method investments | (4,860) |  |  | (8,394) |  |  | (16,875) |  |  | (14,860) |
Other (income) expense, net | 105 |  |  | — |  |  | 103 |  |  | 461 |
Total non-operating costs and expenses | 5,605 |  |  | 4,115 |  |  | 16,082 |  |  | 20,765 |
Income before income tax expense | 46,160 |  |  | 30,614 |  |  | 118,606 |  |  | 75,332 |
Income tax (benefit) expense | (168) |  |  | 84 |  |  | 67 |  |  | 220 |
Net income attributable to partners | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
Comprehensive income attributable to partners | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
EBITDA(1) | $ | 67,782 |  |  | $ | 51,514 |  |  | $ | 181,320 |  |  | $ | 135,705 |
Less: General partner's interest in net income, including incentive distribution rights | — |  |  | 8,895 |  |  | 18,724 |  |  | 24,244 |
Limited partners' interest in net income | $ | 46,328 |  |  | $ | 21,635 |  |  | $ | 99,815 |  |  | $ | 50,868 |
Net income per limited partner unit: |  |  |  |  |  |  |
Common units - basic | $ | 1.26 |  |  | $ | 0.89 |  |  | $ | 3.30 |  |  | $ | 2.08 |
Common units - diluted | $ | 1.26 |  |  | $ | 0.89 |  |  | $ | 3.30 |  |  | $ | 2.08 |
Weighted average limited partner units outstanding: |  |  |  |  |  |  |
Common units - basic | 36,889,761 |  |  | 24,417,285 |  |  | 30,290,051 |  |  | 24,411,308 |
Common units - diluted | 36,894,043 |  |  | 24,420,582 |  |  | 30,292,261 |  |  | 24,417,466 |

(1) For a definition of EBITDA, please see "Non-GAAP Measures" above.

37 | |

Management's Discussion and Analysis
Non-GAAP Reconciliations
The following table provides a reconciliation of EBITDA and distributable cash flow to the most directly comparable U.S. GAAP measure, or net income and net cash from operating activities, respectively.
Reconciliation of net income to EBITDA (in thousands)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net income | $ | 46,328 |  |  | $ | 30,530 |  |  | $ | 118,539 |  |  | $ | 75,112 |
Add: |  |  |  |  |  |  |
Income tax (benefit) expense | (168) |  |  | 84 |  |  | 67 |  |  | 220 |
Depreciation and amortization | 9,459 |  |  | 6,588 |  |  | 24,452 |  |  | 19,801 |
Amortization of customer contract intangible assets | 1,803 |  |  | 1,803 |  |  | 5,408 |  |  | 5,408 |
Interest expense, net | 10,360 |  |  | 12,509 |  |  | 32,854 |  |  | 35,164 |
EBITDA (1) | $ | 67,782 |  |  | $ | 51,514 |  |  | $ | 181,320 |  |  | $ | 135,705 |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net cash provided by operating activities | $ | 62,273 |  |  | $ | 35,047 |  |  | $ | 134,654 |  |  | $ | 86,871 |
Changes in assets and liabilities | (2,458) |  |  | 2,451 |  |  | 18,541 |  |  | 11,940 |
Distributions from equity method investments in investing activities | 1,033 |  |  | — |  |  | 2,723 |  |  | 804 |
Non-cash lease expense | (1,596) |  |  | (1,145) |  |  | (2,236) |  |  | (2,554) |
Maintenance and regulatory capital expenditures (2) | (27) |  |  | (3,728) |  |  | (760) |  |  | (5,515) |
Reimbursement from Delek Holdings for capital expenditures (3) | 26 |  |  | 1,223 |  |  | 81 |  |  | 2,607 |
Accretion of asset retirement obligations | (106) |  |  | (100) |  |  | (320) |  |  | (298) |
Deferred income taxes | (47) |  |  | (118) |  |  | (990) |  |  | (115) |
Other operating income, net | — |  |  | 70 |  |  | 107 |  |  | 95 |
Distributable cash flow (1) | $ | 59,098 |  |  | $ | 33,700 |  |  | $ | 151,800 |  |  | $ | 93,835 |

(1) | For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures" above.
(2) | Maintenance and regulatory 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 and regulatory 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.
(3) | For the three and nine month periods ended September 30, 2020 and 2019, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

38 | |

Management's Discussion and Analysis
Consolidated Results of Operations — Comparison of the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019
The table below presents a summary of our consolidated results of operations. The discussion immediately following presents the consolidated results of operations (in thousands):

Consolidated
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net Revenues: |  |  |  |  |  |  |
Affiliates | $ | 95,410 |  |  | $ | 66,647 |  |  | $ | 289,739 |  |  | 191,530 |
Third-Party | 46,858 |  |  | 70,909 |  |  | 133,567 |  |  | 253,852 |
Total Consolidated | 142,268 |  |  | 137,556 |  |  | 423,306 |  |  | 445,382 |
Cost of materials and other | 60,692 |  |  | 72,594 |  |  | 205,877 |  |  | 262,713 |
Operating expenses (excluding depreciation and amortization presented below) | 14,230 |  |  | 18,435 |  |  | 41,423 |  |  | 51,820 |
Contribution margin | 67,346 |  |  | 46,527 |  |  | 176,006 |  |  | 130,849 |
General and administrative expenses | 6,122 |  |  | 5,280 |  |  | 16,973 |  |  | 15,046 |
Depreciation and amortization | 9,459 |  |  | 6,588 |  |  | 24,452 |  |  | 19,801 |
Other operating income, net | — |  |  | (70) |  |  | (107) |  |  | (95) |
Operating income | $ | 51,765 |  |  | $ | 34,729 |  |  | $ | 134,688 |  |  | $ | 96,097 |

Net Revenues
Q3 2020 vs. Q3 2019
Net revenues increased by $4.7 million, or 3.4%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•increased revenues associated with agreements executed in connection with the Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information
Such increases were partially offset by the following:
•decreases in the average sales prices per gallon of gasoline and diesel, partially offset by increases in the average sales volume of diesel in our West Texas marketing operations.
◦the volume of diesel sold increased 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold.
◦the average sales prices per gallon of diesel and gasoline sold decreased $0.76 per gallon and $0.60 per gallon, respectively.
YTD 2020 vs. YTD 2019
Net revenues decreased by $22.1 million, or 5.0%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•decreases in the average sales prices per gallon and volumes of diesel gallon sold, partially offset by increases in the sales volume of gasoline in our West Texas marketing operations:
◦the volume of gasoline sold increased 14.3 million gallons, partially offset by a 9.7 million decrease of diesel gallons sold.
◦the average sales prices per gallon of gasoline and diesel sold decreased $0.51 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. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information.
•increased revenues at our El Dorado Gathering System and Magnolia Pipeline as result of increased throughput during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

39 | |

Management's Discussion and Analysis
Cost of Materials and Other
Q3 2020 vs. Q3 2019
Cost of materials and other decreased by $11.9 million, or 16.4%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•decreases in the average cost per gallon of gasoline and diesel sold partially offset by increases in the volume of diesel sold in our West Texas marketing operations:
◦the volume of diesel sold increased by 1.8 million gallons, partially offset by a 0.1 million increase in gasoline gallons sold.
◦the average cost per gallon of gasoline and diesel sold decreased $0.53 per gallon and $0.74 per gallon, respectively.
YTD 2020 vs. YTD 2019
Cost of materials and other decreased by $56.8 million, or 21.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•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 14.3 million gallons, partially offset by a 9.7 million decrease of diesel gallons sold.
◦the average cost per gallon of gasoline and diesel sold decreased $0.44 per gallon and $0.66 per gallon, respectively.

Operating Expenses
Q3 2020 vs. Q3 2019
Operating expenses decreased by $4.2 million, or 22.8%, in the third quarter of 2020 compared to the third quarter of 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; and
•decrease in utilities and other variable expenses due to lower throughput.
YTD 2020 vs. YTD 2019
Operating expenses decreased by $10.4 million, or 20.1%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 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; and
•decreases in variable expenses such as utilities, maintenance and materials costs due to lower throughput.

General and Administrative Expenses
Q3 2020 vs. Q3 2019
General and administrative expenses increased by $0.8 million, or 15.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•increase in legal and professional consulting fees due to the IDR Simplification transaction partially offset by reduction in expenses related to travel, training and other expenses.
YTD 2020 vs. YTD 2019
General and administrative expenses increased by $1.9 million, or 12.8%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
• increases in allocated employee headcount in various operational groups as the Partnership continues to experience growth; and
•increases in legal and professional consulting fees due to various transactions undertaken by the Partnership.

40 | |

Management's Discussion and Analysis
Depreciation and Amortization
Q3 2020 vs. Q3 2019
Depreciation and amortization increased by $2.9 million, or 43.6%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•addition of assets to our asset base as a result of the Trucking Assets Acquisition and Big Spring Gathering Assets Acquisition.
YTD 2020 vs. YTD 2019
Depreciation and amortization increased by $4.7 million, or 23.5%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 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
Q3 2020 vs. Q3 2019
Interest expense decreased by $2.1 million, or 17.2%, in the third quarter of 2020 compared to the third quarter of 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 Restructuring Transaction.
YTD 2020 vs. YTD 2019
Interest expense decreased by $2.3 million, or 6.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 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 Restructuring Transaction.

Results from Equity Method Investments
Q3 2020 vs. Q3 2019
We recognized income of $4.9 million from equity method investments during the third quarter of 2020 compared to $8.4 million for the third quarter of 2019, a decrease of $3.5 million, or 42.1%. This decrease was primarily driven by the following:
•there were lower volumes at the Red River Pipeline Joint Venture during the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019; and
•there was lower demand by refineries at the Caddo Joint Venture during the quarter ended September 30, 2020 compared to September 30, 2019.
YTD 2020 vs. YTD 2019
During the nine months ended September 30, 2020, we recognized income of $16.9 million from equity method investments, compared to $14.9 million for the nine months ended September 30, 2019, an increase of $2.0 million, or 13.6%. This increase was primarily driven by the following:
•an increase in income from our investments in Andeavor Logistics and CP LLC (as defined in Note 10 of the accompanying condensed consolidated financial statements), which operate the Rio Pipeline and the Caddo Pipeline System, respectively, as a result of increased revenues for both pipeline systems; and
•this increase was partially offset by a decrease in income from the Red River Pipeline Joint Venture due to lower volumes.

41 | |

Management's Discussion and Analysis
Operating Segments
We review operating results in two reportable segments: (i) pipelines and transportation and (ii) wholesale marketing and terminalling. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on the segment contribution margin. Segment reporting is discussed in more detail in Note 11 to our accompanying condensed consolidated financial statements.

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

Pipelines and Transportation Segment
Our pipelines and transportation segment assets provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services to Delek Holdings and third parties. These assets include:
•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
•the East Texas Crude Logistics System
•the Tyler-Big Sandy Pipeline
•the El Dorado Tank Assets and El Dorado Rail Offloading Racks
•the Tyler Tank Assets and Tyler Crude Tank
•the Greenville-Mount Pleasant Pipeline and Greenville Storage Facility
•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
•pipelines and storage assets acquired in the Big Spring Logistic 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 123 tractors and 324 trailers used to haul primarily crude oil and other products for related and third parties.
The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three and nine months ended September 30, 2020 and 2019:

Pipelines and Transportation
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net Revenues:
Affiliates | $ | 68,444 |  |  | $ | 39,304 |  |  | $ | 168,285 |  |  | $ | 112,694 |
Third-Party | 3,035 |  |  | 5,281 |  |  | 14,587 |  |  | 16,733 |
Total Pipelines and Transportation | 71,479 |  |  | 44,585 |  |  | 182,872 |  |  | 129,427 |
Cost of materials and other | 14,342 |  |  | 4,947 |  |  | 31,622 |  |  | 17,871 |
Operating expenses (excluding depreciation and amortization presented below) | 10,749 |  |  | 12,547 |  |  | 31,936 |  |  | 36,109 |
Segment contribution margin | $ | 46,388 |  |  | $ | 27,091 |  |  | $ | 119,314 |  |  | $ | 75,447 |

Throughputs (average bpd)
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
El Dorado Assets: |  |  |  |  |  |  |
Crude pipelines (non-gathered) | 78,244 |  |  | 49,477 |  |  | 76,750 |  |  | 43,446 |
Refined products pipelines to Enterprise Systems | 55,740 |  |  | 43,518 |  |  | 55,315 |  |  | 32,242 |
El Dorado Gathering System | 13,659 |  |  | 21,632 |  |  | 13,520 |  |  | 21,143 |
East Texas Crude Logistics System | 22,591 |  |  | 25,391 |  |  | 15,705 |  |  | 21,045 |
Big Spring Gathering Assets (1) | 90,719 |  |  | — |  |  | 85,845 |  |  | — |
Plains Connection System | 104,314 |  |  | — |  |  | 96,961 |  |  | — |

(1) Throughputs for the Big Spring Gathering Assets are for approximately 180 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

42 | |

Management's Discussion and Analysis
Comparison of the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019
Net Revenues
Q3 2020 vs. Q3 2019
Net revenues for the pipelines and transportation segment increased by $26.9 million, or 60.3%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•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. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information.
YTD 2020 vs. YTD 2019
Net revenues for the pipelines and transportation segment increased by $53.4 million, or 41.3%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•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. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information; and
•increased revenues at our El Dorado Assets and Magnolia Pipeline as result of increased throughput during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

Cost of Materials and Other
Q3 2020 vs. Q3 2019
Cost of materials and other for the pipelines and transportation segment increased $9.4 million, or 189.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expenses proportionate to increase in fees, insurance, supplies and maintenance expenses.
YTD 2020 vs. YTD 2019
Cost of materials and other for the pipelines and transportation segment increased by $13.8 million, or 76.9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•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
Q3 2020 vs. Q3 2019
Operating expenses for the pipelines and transportation segment decreased by $1.8 million, or 14.3%, in the third quarter of 2020 compared to the third quarter of 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; and
•decrease in utilities and other variable expenses due to lower throughputs.
YTD 2020 vs. YTD 2019
Operating expenses for the pipelines and transportation segment decreased $4.2 million, or 11.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 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; and
•decrease in utilities and other variable expenses due to lower throughputs.

43 | |

Management's Discussion and Analysis
Contribution Margin
Q3 2020 vs. Q3 2019
Contribution margin for the pipelines and transportation segment increased by $19.3 million, or 71.2%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition; and
•decreases in operating expenses.
YTD 2020 vs. YTD 2019
Contribution margin for the pipelines and transportation segment increased by $43.9 million, or 58.1%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•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; and
•decreases in operating expenses.

44 | |

Management's Discussion and Analysis
Wholesale Marketing and Terminalling Segment
We use our wholesale marketing and terminalling assets to generate revenue by providing wholesale marketing and terminalling services to Delek Holdings' refining operations and to independent third parties.
The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three and nine months ended September 30, 2020 and 2019:

Wholesale Marketing and Terminalling
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net Revenues: |  |  |  |  |  |  |
Affiliates | $ | 26,966 |  |  | $ | 27,343 |  |  | $ | 121,454 |  |  | $ | 78,836 |
Third-Party | 43,823 |  |  | 65,628 |  |  | 118,980 |  |  | 237,119 |
Total Wholesale Marketing and Terminalling | 70,789 |  |  | 92,971 |  |  | 240,434 |  |  | 315,955 |
Cost of materials and other | 46,350 |  |  | 67,647 |  |  | 174,255 |  |  | 244,842 |
Operating expenses (excluding depreciation and amortization presented below) | 3,481 |  |  | 5,888 |  |  | 9,487 |  |  | 15,711 |
Segment contribution margin | $ | 20,958 |  |  | $ | 19,436 |  |  | $ | 56,692 |  |  | $ | 55,402 |

Operating Information
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
East Texas - Tyler Refinery sales volumes (average bpd) (1) | 73,417 |  |  | 83,953 |  |  | 70,376 |  |  | 74,607 |
Big Spring marketing throughputs (average bpd) | 78,659 |  |  | 80,203 |  |  | 73,701 |  |  | 83,608 |
West Texas marketing throughputs (average bpd) | 9,948 |  |  | 9,535 |  |  | 11,718 |  |  | 11,446 |
West Texas gross margin per barrel | $ | 3.42 |  |  | $ | 4.82 |  |  | $ | 2.37 |  |  | $ | 4.83 |
Terminalling throughputs (average bpd) (2) | 160,843 |  |  | 170,727 |  |  | 145,240 |  |  | 160,621 |

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

Comparison of the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019
Net Revenues
Q3 2020 vs. Q3 2019
Net revenues for the wholesale marketing and terminalling segment decreased by $22.2 million, or 23.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•decreases in the average sales prices per gallon of gasoline and diesel sold partially offset by increases in the volumes sold in our West Texas marketing operations.
◦the volume of diesel sold increased by 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold; and
◦the average sales prices per gallon of gasoline and diesel sold decreased $0.60 per gallon and $0.76 per gallon, respectively.
YTD 2020 vs. YTD 2019
Net revenues for the wholesale marketing and terminalling segment decreased by $75.5 million, or 23.9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•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 gasoline sold in our West Texas marketing operations.
◦the volume of gasoline sold increased 14.3 million gallons partially offset by decrease of 9.7 million gallons in diesel sold; and
◦the average sales prices per gallon of gasoline and diesel sold decreased $0.51 per gallon and $0.71 per gallon, respectively.

45 | |

Management's Discussion and Analysis
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.

Cost of Materials and Other
Q3 2020 vs. Q3 2019
Cost of materials and other for our wholesale marketing and terminalling segment decreased by $21.3 million, or 31.5%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•decreases in the average cost per gallon of gasoline and diesel sold, partially offset by increases in the volumes sold in our West Texas marketing operations.
◦the volume of diesel sold increased 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold; and
◦the average cost per gallon of gasoline and diesel sold decreased $0.53 per gallon and $0.74 per gallon, respectively.
YTD 2020 vs. YTD 2019
Cost of materials and other for our wholesale marketing and terminalling segment decreased by $70.6 million, or 28.8%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•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 14.3 million gallons partially offset by decrease of 9.7 million gallons in diesel sold; and

46 | |

Management's Discussion and Analysis
◦the average cost per gallon of gasoline and diesel sold decreased $0.44 per gallon and $0.66 per gallon, respectively.
The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our West Texas operations for the three and nine months ended September 30, 2020 and 2019. Refer to the Refined Products Volume chart above for a summary of volumes impacting our West Texas operations.

Operating Expenses
Q3 2020 vs. Q3 2019
Operating expenses decreased by $2.4 million, or 40.9%, in the in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:
•lower operating costs associated with allocated contract services pertaining to certain of our assets; and
•decreases in variable expenses such as utilities, maintenance and material costs.
YTD 2020 vs. YTD 2019
Operating expenses decreased by $6.2 million, or 39.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:
•lower operating costs associated with allocated contract services pertaining to certain of our assets; and
•decreases in variable expenses such as utilities, maintenance and materials costs.

Contribution Margin
Q3 2020 vs. Q3 2019
Contribution margin for the wholesale marketing and terminalling segment increased by $1.5 million, or 7.8%, in the third quarter of 2020 compared to the third quarter of 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 offset by;
•decreases in revenue due to decreases in average price per gallon of diesel and gasoline as described above.
YTD 2020 vs. YTD 2019
The increase of $1.3 million, or 2.3%, in contribution margin for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was due to decreases in cost of materials and other netted off with decreases in revenue as described above.

47 | |

Management's Discussion and Analysis
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:

(i) cash generated from operations; | (iii) potential issuance of additional equity; and
(ii) borrowings under our revolving credit facility; | (iv) potential issuance of additional debt securities.

At September 30, 2020 our total liquidity amounted to $95.3 million comprised of $89.3 million in unused credit commitments under the DKL Credit Facility and $6.0 million in cash and cash equivalents. 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. 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 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. 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.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the 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 2020, 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 September 30, 2020. After considering the current and potential effect of the 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 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness.
Cash Distributions
On October 27, 2020, we announced that the board of directors had declared a distribution of $0.905 per common unit (the "Distribution"), which equates to $39.3 million per quarter, based on the number of common units outstanding as of November 6, 2020. The Distribution is expected to be paid on November 12, 2020 to common unitholders of record on November 6, 2020 and represents a 2.8% increase over the third quarter 2019 distribution. We have set a range for distribution growth guidance of $0.005 - $0.015 per unit each quarter for 2020. This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term. 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.
The table below summarizes the quarterly distributions related to our 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
September 30, 2019 |  | $ | 0.880 |  |  | $ | 3.52 |  |  | $ | 30,379 |  |  | November 12, 2019 |  | November 4, 2019
December 31, 2019 |  | $ | 0.885 |  |  | $ | 3.54 |  |  | $ | 30,634 |  |  | February 12, 2020 |  | February 4, 2020
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 (1) |  | November 6, 2020

(1)Expected date of distribution.

48 | |

Management's Discussion and Analysis

Cash Flows
The following table sets forth a summary of our consolidated cash flows for the nine months ended September 30, 2020 and 2019 (in thousands):

| Nine Months Ended September 30,
| 2020 |  | 2019
Net cash provided by operating activities | $ | 134,654 |  |  | $ | 86,871 |
Net cash used in investing activities | (116,419) |  |  | (141,377) |
Net cash (used in) provided by financing activities | (17,756) |  |  | 56,337 |
Net increase in cash and cash equivalents | $ | 479 |  |  | $ | 1,831 |

Operating Activities
Net cash provided by operating activities was $134.7 million for the nine months ended September 30, 2020, compared to $86.9 million for the nine months ended September 30, 2019, resulting in a $47.8 million increase in net cash provided by operating activities. The cash receipts from customer activities decreased by $28.1 million and cash payments to suppliers and for allocations from Delek Holdings for salaries decreased by $65.4 million. In addition, cash dividends received from equity method investments increased by $8.4 million and cash paid for debt interest decreased by $2.1 million.
Investing Activities
Net cash used in investing activities decreased by $25.0 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 partially offset by the acquisition of the Big Spring Gathering Assets and Trucking Assets during the nine months ended September 30, 2020. We disbursed $11.8 million in additional contributions to our equity method investments during the nine months ended September 30, 2020 compared to $137.4 million during the nine months ended September 30, 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 and GP 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 nine months ended September 30, 2019. In addition there were additions to property, plant and equipment amounting to $6.9 million and distributions from equity method investments amounting $2.7 million during the nine months ended September 30, 2020 compared to additions to property, plant and equipment amounting to $5.0 million and distributions from equity method investments amounting to $0.8 million during the nine months ended September 30, 2019.
Financing Activities
Net cash provided by financing activities decreased $74.1 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease in cash provided by financing activities 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 and GP unitholders pursuant to the asset acquisitions under common control guidance and $45 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 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 $172.3 million under the revolving credit facility during the nine months ended September 30, 2020, compared to net proceeds of $139.6 million under the revolving credit facility during the nine months ended September 30, 2019. In addition, we paid quarterly cash distributions totaling $97.5 million during the nine months ended September 30, 2020, compared to quarterly cash distributions totaling $83.3 million during the nine months ended September 30, 2019.
The sources of cash during the nine months ended September 30, 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 (a wholly owned subsidiary of Delek US Holdings, Inc.).

49 | |

Management's Discussion and Analysis
Debt Overview
As of September 30, 2020, we had total indebtedness of $1,006.1 million comprised of $760.7 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $245.4 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount. Deferred financing costs and original issue discount on the 2025 Notes amounted to $3.5 million and $1.1 million, respectively. The increase of $173.0 million in our long-term debt balance compared to the balance at December 31, 2019 resulted from the borrowings under the DKL Credit Facility during the nine months ended September 30, 2020 to finance 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 September 30, 2020, our total indebtedness consisted of:
•An aggregate principal amount of $760.7 million under the Delek Logistics Credit Facility ("revolving credit facility"), due on September 28, 2023, with average borrowing rate of 2.69%.
•An aggregate principal amount of $245.4 million, under the Delek Logistics Notes (6.75% senior notes), due in 2025, with effective interest rate of 7.22%.
We believe we were in compliance with the covenants in all our debt facilities as of September 30, 2020. See Note 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness.
Agreements Governing Certain Indebtedness of Delek Holdings
Although we are not contractually bound by and are not liable for Delek Holdings' debt under its credit arrangements, we are indirectly affected by certain prohibitions and limitations contained therein. Specifically, certain of Delek Holdings' credit arrangements require that Delek Holdings meet certain minimum covenant levels for (i) consolidated shareholders’ equity and (ii) a ratio of consolidated shareholders' equity to adjusted total assets. Delek Holdings, due to its majority ownership and control of our general partner, has the ability to prevent us from taking actions that would cause Delek Holdings to violate these and any other covenants in its credit arrangements or otherwise be in default under any of its credit arrangements. As a result we cannot assure you that such covenants will not impact our ability to use the full capacity under our revolving credit facility in the future. Delek Holdings' level of indebtedness, the terms of its borrowings and any future credit ratings could adversely affect our ability to grow our business, our ability to make cash distributions to our unitholders and our credit profile. Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness, financial performance and credit ratings.
Equity Units Overview
On August 13, 2020, we closed the IDR Restruction Transaction. To effect this transaction, our partnership agreement was amended and updated. See Note 3 to our accompanying condensed 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 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.
On March 31, 2020, we issued 5.0 million 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 3 to our accompanying condensed consolidated financial statements for additional details.

50 | |

Management's Discussion and Analysis
Capital Spending
A key component of our long-term strategy is our capital expenditure program. The following table summarizes our actual capital expenditures for the nine months ended September 30, 2020 and planned capital expenditures for the full year 2020 by segment and by major category (in thousands):

| Full Year 2020 Forecast |  | Nine Months Ended September 30, 2020
Pipelines and Transportation
Regulatory (2) | $ | 918 |  |  | $ | 318 |
Maintenance (1) (2) | 1,531 |  |  | 149 |
Discretionary projects (2) (5) | 11,124 |  |  | 2,957 |
Pipelines and transportation segment total | $ | 13,573 |  |  | $ | 3,424 |
Wholesale Marketing and Terminalling
Regulatory (3) | $ | 1,311 |  |  | $ | 1,085 |
Maintenance (1) (3) | 758 |  |  | 395 |
Discretionary (3) | 5,409 |  |  | 2,014 |
Wholesale marketing and terminalling segment total | $ | 7,478 |  |  | $ | 3,494 |
Total capital spending (4) | $ | 21,051 |  |  | $ | 6,918 |

(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, tanks 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 3 to our accompanying condensed consolidated financial statements).
(2)The majority of the $0.9 million and $11.1 million budgeted for maintenance and discretionary projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and pipelines and developments to the Big Spring Gathering Assets, respectively. Effective March 31, 2020 and May 1, 2020, the pipelines and transportation segments includes the Big Spring Gathering Assets acquired in the Big Spring Gathering Assets Acquisition and Trucking Assets acquired in the Trucking Assets Acquisition, respectively. See Note 2 to our accompanying condensed consolidated financial statements for further information.
(3)The majority of the $0.8 million and $5.4 million budgeted for maintenance and discretionary projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and and improvements to certain of our terminalling facilities and developments on the Big Spring Refinery to Magellan Pipeline, respectively.
(4)Capital spending excludes transaction costs capitalized in the amount of $0.3 million and $0.7 million that relate to the Trucking Assets Acquisition and the Big Spring Gathering Assets Acquisition, respectively.
(5) Excludes rights-of-way spending of a nominal amount.

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. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections. Projects that are not essential to maintaining the current operations have been suspended and are expected to resume in 2021. We continue to evaluate the adverse effects of the COVID-19 Pandemic, and may further revise our forecast as a result of changing circumstances.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.

51 | |

Management's Discussion and Analysis
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Impact of Changing Prices
Our revenues and cash flows, as well as estimates of future cash flows, are sensitive to changes in commodity prices. Shifts in the cost of crude oil, the prices of refined products and the cost of ethanol can generate changes in the operating margin in our wholesale marketing and terminalling segment.
Interest Rate Risk
Debt that we incur under the DKL Credit Facility bears interest at floating rates and will expose us to interest rate risk. The annualized impact of a hypothetical one percent change in interest rates on our floating rate debt outstanding as of September 30, 2020 would be to change interest expense by approximately $7.6 million.
LIBOR Transition
LIBOR is a commonly used indicative measure of the average interest rate at which major global banks could borrow from one another. The United Kingdom's Financial Conduct Authority, which regulates LIBOR, has publicly announced that it intends to discontinue the reporting of LIBOR rates after 2021. Certain of our agreements use LIBOR as a "benchmark" or "reference rate" for various terms. Some agreements contain an existing LIBOR alternative. Where there is not an alternative, we expect to replace the LIBOR benchmark with an alternative reference rate. While we do not expect the transition to an alternative rate to have a significant impact on our business or operations, it is possible that the move away from LIBOR could materially impact our borrowing costs on our variable rate indebtedness.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we are required to disclose in reports we file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is accumulated and appropriately communicated to management. We carried out an evaluation required by Rule 13a-15(b) of the Exchange Act, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures at the end of the reporting period. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the reporting period.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Although most of our corporate employees have shifted to a remote working environment due to the COVID-19 Pandemic, we have not experienced a material impact to our internal control over financial reporting. We are continually monitoring and assessing the COVID-19 Pandemic to minimize the impact on the design and operating effectiveness of our internal controls.

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Legal Proceedings and Risk Factors
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including, environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our business, financial condition or results of operations. See Note 13 to our accompanying condensed consolidated financial statements, which is incorporated by reference in this Item 1, for additional information.
ITEM 1A. RISK FACTORS
There were no material changes during the third quarter of 2020 to the risk factors identified in the Partnership’s fiscal 2019 Annual Report on Form 10-K, except as noted below.
The ongoing COVID-19 Pandemic and certain developments in the global oil markets have had, and may continue to have, an adverse impact on our business, our future results of operations and our overall financial performance.
The COVID-19 Pandemic could materially adversely affect our business and operations during 2020 and possibly beyond. In early 2020, global health care systems and economies began to experience strain from the spread of the COVID-19 coronavirus. As the virus spread, global economic activity began to slow and future economic activity was forecast to slow with a resulting forecast of a decline in oil and gas demand. The global COVID-19 Pandemic has resulted in a dramatic reduction in airline flights and has reduced the number of cars on the road. Governmental actions in response to the COVID-19 Pandemic have resulted in significant business and economic disruptions in the markets we serve, including business closures, supply chain disruptions, travel restrictions, stay-at-home orders, and limitations on the availability and effectiveness of the workforce. These impacts have negatively impacted and will likely continue to negatively impact worldwide economic and commercial activity, financial markets, and demand for and prices of oil and gas products for the foreseeable future. These impacts may also precipitate a prolonged economic slowdown and recession.
In response to the decline in demand, OPEC participating countries have agreed to adjust downwards their overall production of crude oil through April 30, 2022, with the agreement to be reassessed in December 2020. However, uncertainty about the duration of the COVID-19 Pandemic and its effect on economic activity has continued to place downward pressure on commodity prices.
Global economic growth drives demand for energy from all sources, including fossil fuels. Should the U.S. and global economies experience weakness, demand for energy may decline. Similarly, should growth in global energy production outstrip demand, excess supplies may arise. Declines in demand and excess supplies may result in accompanying declines in commodity prices and deterioration of our financial position along with our ability to operate profitably and our ability to obtain financing to support operations. With respect to our business, we have experienced periodic declines in demand thought to be associated with slowing economic growth in certain markets, including the effects of the COVID-19 Pandemic, coupled with new oil and gas supplies coming on line and other circumstances beyond our control that resulted in oil and gas supply exceeding global demand which, in turn, resulted in steep declines in prices of oil and natural gas. There can be no assurance as to how long the current price decline will persist or that a recurrence of price weakness will not arise in the future.
The COVID-19 Pandemic has resulted in modifications to our business practices, including limiting employee and contractor presence at certain work locations, limiting travel, and reducing capital expenditures for 2020. We may take further actions as required by government authorities or that we determine are in the best interests of our employees, contractors, customers, suppliers and communities. However, there is no assurance that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to successfully execute our business operations could be adversely impacted. In addition, while we have had no COVID-related impairments to date, the continued effects of the COVID-19 Pandemic could result in impairments of long-lived or indefinite-lived assets, including goodwill, at some point in the future. Such impairment charges could be material. Also, our relationship with Delek Holdings subjects us to the risk that the COVID-19 Pandemic may impact the financial condition, financial results or cash flows of Delek Holdings, may adversely affect us and our business and, therefore, our ability to sustain or increase cash distributions to our unitholders.
The full impact of the ongoing COVID-19 Pandemic is unknown and is rapidly evolving. It is difficult to predict how significant the impact of the COVID-19 Pandemic, including any responses to it, will be on the United States and global economies and our business or for how long disruptions are likely to continue. The extent of such impact will depend on future developments and factors outside of our control, including new information which may emerge concerning the severity or duration of the COVID-19 Pandemic and the evolving governmental and private sector actions to contain the pandemic or treat its health, economic, and other impacts.

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The ultimate extent of the impact of the volatile conditions in the oil and gas industry on our business, financial condition, results of operation and liquidity will also depend largely on future developments, including the extent and duration of any price reductions, any additional decisions by OPEC and the lack of resolution of disputes between the members of OPEC+.
To the extent the COVID-19 Pandemic and the developments in the global oil markets adversely affects our or Delek Holdings' business, financial condition, results of operation and liquidity, they may also impact our ability to sustain or increase quarterly distributions to our common unitholders or have the effect of heightening many of the other risks described in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in this Quarterly Report on Form 10-Q, as those risk factors are amended or supplemented by subsequent Quarterly Reports on Form 10-Q and other reports and documents we file with the SEC after the date hereof.
Our general partner and its affiliates, including Delek Holdings, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our other common unitholders.
Delek Holdings controls our general partner and appoints all of the officers and directors of our general partner. In addition, all of the officers and three of the directors of our general partner are also officers and/or directors of Delek Holdings. Although our general partner has a contractual obligation to manage us in a manner that is beneficial to us and our unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner that is beneficial to Delek Holdings. Conflicts of interest will arise from time to time between Delek Holdings and our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of Delek Holdings over our interests and the interests of our unitholders. These conflicts include the following situations, among others:
•Our Partnership Agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limits our general partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty.
•Neither our Partnership Agreement nor any other agreement requires Delek Holdings to pursue a business strategy that favors us or utilizes our assets, including whether to increase or decrease refinery production, whether to shut down or reconfigure a refinery or what markets to pursue or grow. The directors and officers of Delek Holdings have a fiduciary duty to make these decisions in the best interests of the stockholders of Delek Holdings, which may be contrary to our interests. Delek Holdings may choose to shift the focus of its investment and growth to areas not served by our assets.
•Delek Holdings, as our primary customer, has an economic incentive to cause us not to seek higher service fees, even if such higher fees could be obtained in arm’s-length, third-party transactions. Furthermore, under many of our commercial agreements with them, Delek Holdings' consent is required before we may enter into an agreement with any third party with respect to certain of our assets, including those that serve the El Dorado, Tyler and Big Spring Refineries, and Delek Holdings has an incentive to cause us not to pursue such third-party contracts in certain circumstances.
•Our general partner is allowed to take into account the interests of parties other than us, such as Delek Holdings, in resolving conflicts of interest.
•All of the officers and three of the directors of our general partner are also officers and/or directors of Delek Holdings and owe fiduciary duties to Delek Holdings. These officers will also devote significant time to the business of Delek Holdings and will be compensated by Delek Holdings accordingly.
•Delek Holdings may be constrained by the terms of its debt instruments from taking actions, or refraining from taking actions, that may be in our best interests.
•Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.
•Disputes may arise under our commercial agreements with Delek Holdings.
•Our general partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership units and the creation, reduction or increase of cash reserves, each of which can affect the amount of cash available for distribution to our unitholders.
•Our general partner determines the amount and timing of any capital expenditures and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion or investment capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash that is distributed to our unitholders.
•Our general partner determines which costs incurred by it are reimbursable by us.

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•Our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution to the common units held by Delek Holdings who controls the general partner.
•Our Partnership Agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf.
•Our general partner intends to limit its liability regarding our contractual and other obligations.
•If at any time our general partner and its affiliates together own 85% or more of our outstanding common units, then our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates. This 85% threshold will automatically decrease to 80% if at any time our general partner and its affiliates together own less than 77% of our outstanding common units.
•Our general partner controls the enforcement of the obligations that it and its affiliates owe to us, including Delek Holdings’ obligations under the Omnibus Agreement and its commercial agreements with us.
•Our general partner decides whether to retain separate counsel, accountants or other advisers to perform services for us.
ITEM 6. EXHIBITS

Exhibit No. |  | Description
3.1 |  |  | Second Amended and Restated Agreement of Limited Partnership of Delek Logistics Partners, LP, dated August 13, 2020 (incorporated by reference to Exhibit 3.1 of the Partnership’s Form 8-K filed on August 14, 2020).
3.2 |  |  | Fourth Amended and Restated Limited Liability Company Agreement of Delek Logistics GP, LLC, dated August 13, 2020 (incorporated by reference to Exhibit 3.2 of the Partnership’s Form 8-K filed on August 14, 2020).
10.1 |  |  | First Amendment to Third Amended and Restated Credit Agreement, dated as of August 12, 2020, by and among Delek Logistics Partners, LP and each other borrower referenced therein, as borrowers, Fifth Third Bank, National Association, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Partnership’s Form 8-K filed on August 14, 2020).
10.2 |  |  | Exchange Agreement, dated as of August 13, 2020, by and between Delek Logistics Partners, LP and Delek Logistics GP, LLC (incorporated by reference to Exhibit 10.2 of the Partnership’s Form 8-K filed on August 14, 2020).
31.1 | # |  | Certification of Delek Logistics GP, LLC's Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 | # |  | Certification of Delek Logistics GP, LLC's Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended.
32.1 | ## |  | Certification of Delek Logistics GP, LLC's Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | ## |  | Certification of Delek Logistics GP, LLC's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 |  |  | The following materials from Delek Logistics Partners, LP's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (Unaudited), (ii) Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 (Unaudited), (iii) Condensed Consolidated Statement of Partners' Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited), and (v) Notes to Condensed Consolidated Financial Statements (Unaudited).
104 |  |  | The cover page from Delek Logistics Partners, LP's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, has been formatted in Inline XBRL.

# |  | Filed herewith
## |  | Furnished herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Delek Logistics Partners, LP
By: | Delek Logistics GP, LLC
| Its General Partner
By: | /s/ Ezra Uzi Yemin
| Ezra Uzi Yemin
| Chairman and Chief Executive Officer (Principal Executive Officer)
By: | /s/ Reuven Spiegel
| Reuven Spiegel
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Dated: November 6, 2020

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