Holly Energy Partners, L.P.
HOLLY ENERGY PARTNERS LP (Form: 10-Q, Received: 05/06/2015 12:42:57)


                    
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ______________________________________________________________________________________
FORM 10-Q
  ______________________________________________________________________________________

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
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: 1-32225
   ______________________________________________________________________________________
HOLLY ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
  ______________________________________________________________________________________
Delaware
 
20-0833098
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2828 N. Harwood, Suite 1300
Dallas, Texas
 
75201
(Address of principal executive offices)
 
 (Zip code)
(214) 871-3555
(Registrant’s telephone number, including area code) ________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________________
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   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes   ¨    No   ý
The number of the registrant’s outstanding common units at April 30, 2015 was 58,657,048.


Table of Contents ril 19,

HOLLY ENERGY PARTNERS, L.P.
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 

- 2 -

Table of Contents ril 19,


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, those under “Results of Operations” and “Liquidity and Capital Resources” in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are based on our beliefs and assumptions and those of our general partner using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. Although we and our general partner believe that such expectations reflected in such forward-looking statements are reasonable, neither we nor our general partner can give assurance that our expectations will prove to be correct. All statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. Certain factors could cause actual results to differ materially from results anticipated in the forward-looking statements. These factors include, but are not limited to:
risks and uncertainties with respect to the actual quantities of petroleum products and crude oil shipped on our pipelines and/or terminalled, stored or throughput in our terminals;
the economic viability of HollyFrontier Corporation, Alon USA, Inc. and our other customers;
the demand for refined petroleum products in markets we serve;
our ability to purchase and integrate future acquired operations;
our ability to complete previously announced or contemplated acquisitions;
the availability and cost of additional debt and equity financing;
the possibility of reductions in production or shutdowns at refineries utilizing our pipeline and terminal facilities;
the effects of current and future government regulations and policies;
our operational efficiency in carrying out routine operations and capital construction projects;
the possibility of terrorist attacks and the consequences of any such attacks;
general economic conditions; and
other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including without limitation, the forward-looking statements that are referred to above. When considering forward-looking statements, you should keep in mind the known material risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2014 , in “Risk Factors” and in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


- 3 -

Table of Contents ril 19,

PART I. FINANCIAL INFORMATION


Item 1.
Financial Statements

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS  
(in thousands, except unit data)
 
 
March 31, 2015
 
December 31, 2014
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
5,802

 
$
2,830

Accounts receivable:
 
 
 
 
Trade
 
11,837

 
6,737

Affiliates
 
28,018

 
33,392

 
 
39,855

 
40,129

Prepaid and other current assets
 
4,389

 
4,383

Total current assets
 
50,046

 
47,342

 
 
 
 
 
Properties and equipment, net
 
1,003,988

 
980,479

Transportation agreements, net
 
78,967

 
80,703

Goodwill
 
256,498

 
256,498

Investment in SLC Pipeline
 
24,462

 
24,478

Other assets
 
10,638

 
12,055

Total assets
 
$
1,424,599

 
$
1,401,555

 
 
 
 
 
LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable:
 
 
 
 
Trade
 
$
12,689

 
$
12,642

Affiliates
 
15,803

 
5,239

 
 
28,492

 
17,881

 
 
 
 
 
Accrued interest
 
1,804

 
6,615

Deferred revenue
 
7,819

 
12,432

Accrued property taxes
 
2,745

 
2,703

Other current liabilities
 
4,402

 
4,571

Total current liabilities
 
45,262

 
44,202

 
 
 
 
 
Long-term debt
 
890,742

 
867,579

Other long-term liabilities
 
22,093

 
18,145

Deferred revenue
 
30,649

 
29,392

 
 
 
 
 
Class B unit
 
28,534

 
26,793

 
 
 
 
 
Equity:
 
 
 
 
Partners’ equity:
 
 
 
 
Common unitholders (58,657,048 units issued and outstanding
    at March 31, 2015 and December 31, 2014)
 
460,405

 
468,813

General partner interest (2% interest)
 
(148,410
)
 
(148,405
)
Accumulated other comprehensive loss
 
(795
)
 
(46
)
Total partners’ equity
 
311,200

 
320,362

Noncontrolling interest
 
96,119

 
95,082

Total equity
 
407,319

 
415,444

Total liabilities and equity
 
$
1,424,599

 
$
1,401,555


See accompanying notes.

- 4 -

Table of Contents ril 19,

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per unit data)

 
 
Three Months Ended March 31,
 
 
2015
 
2014
Revenues:
 
 
 
 
Affiliates
 
$
72,255

 
$
71,832

Third parties
 
17,501

 
15,172

 
 
89,756

 
87,004

Operating costs and expenses:
 
 
 
 
Operations (exclusive of depreciation and amortization)
 
27,966

 
22,812

Depreciation and amortization
 
14,694

 
15,588

General and administrative
 
3,290

 
3,151

 
 
45,950

 
41,551

Operating income
 
43,806

 
45,453

 
 
 
 
 
Other income (expense):
 
 
 
 
Equity in earnings of SLC Pipeline
 
734

 
522

Interest expense
 
(8,768
)
 
(10,454
)
Interest income
 

 
3

Loss on early extinguishment of debt
 

 
(7,677
)
Other income
 
159

 
8

 
 
(7,875
)
 
(17,598
)
Income before income taxes
 
35,931

 
27,855

State income tax expense
 
(101
)
 
(75
)
Net income
 
35,830

 
27,780

Allocation of net income attributable to noncontrolling interests
 
(4,027
)
 
(3,637
)
Net income attributable to Holly Energy Partners
 
31,803

 
24,143

General partner interest in net income, including incentive distributions
 
(9,810
)
 
(8,001
)
Limited partners’ interest in net income
 
$
21,993

 
$
16,142

Limited partners’ per unit interest in earnings—basic and diluted
 
$
0.37

 
$
0.27

Weighted average limited partners’ units outstanding
 
58,657

 
58,657


See accompanying notes.


- 5 -


HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)

 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net income
 
$
35,830

 
$
27,780

Other comprehensive income:
 
 
 
 
Change in fair value of cash flow hedging instruments
 
(1,280
)
 
(443
)
Reclassification adjustment to net income on partial settlement of cash flow hedge
 
531

 
538

Other comprehensive income (loss)
 
(749
)
 
95

Comprehensive income before noncontrolling interest
 
35,081

 
27,875

Allocation of comprehensive income to noncontrolling interests
 
(4,027
)
 
(3,637
)
Comprehensive income attributable to Holly Energy Partners
 
$
31,054

 
$
24,238


See accompanying notes.


- 6 -

Table of Contents ril 19,

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Cash flows from operating activities
 
 
 
 
Net income
 
$
35,830

 
$
27,780

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
14,694

 
15,588

Gain on sale of assets
 
(159
)
 

Amortization of deferred charges
 
436

 
511

Amortization of restricted and performance units
 
896

 
820

Loss on early extinguishment of debt
 

 
7,677

(Increase) decrease in operating assets:
 
 
 
 
Accounts receivable—trade
 
(5,065
)
 
(302
)
Accounts receivable—affiliates
 
5,804

 
615

Prepaid and other current assets
 
39

 
374

Increase (decrease) in operating liabilities:
 
 
 
 
Accounts payable—trade
 
1,748

 
2,568

Accounts payable—affiliates
 
10,564

 
(3,894
)
Accrued interest
 
(4,811
)
 
(8,463
)
Deferred revenue
 
(3,355
)
 
(4,857
)
Accrued property taxes
 
42

 
725

Other current liabilities
 
57

 
304

Other, net
 
4,171

 
(430
)
Net cash provided by operating activities
 
60,891

 
39,016

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Additions to properties and equipment
 
(11,291
)
 
(20,604
)
Purchase of El Dorado crude tanks
 
(27,500
)
 

Proceeds from sale of assets
 
218

 

Distributions in excess of equity in earnings of SLC Pipeline
 
16

 
40

Net cash used for investing activities
 
(38,557
)
 
(20,564
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Borrowings under credit agreement
 
153,500

 
421,300

Repayments of credit agreement borrowings
 
(130,500
)
 
(246,600
)
Redemption of senior notes
 

 
(156,188
)
Distributions to HEP unitholders
 
(40,865
)
 
(37,342
)
Distributions to noncontrolling interest
 
(1,250
)
 
(750
)
Purchase of units for incentive grants
 
(247
)
 
(336
)
Other
 

 
(9
)
Net cash used by financing activities
 
(19,362
)
 
(19,925
)
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
Increase (decrease) for the period
 
2,972

 
(1,473
)
Beginning of period
 
2,830

 
6,352

End of period
 
$
5,802

 
$
4,879

     

See accompanying notes.

- 7 -

Table of Contents ril 19,

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
(In thousands)
 
 
 
Common
Units
 
General
Partner
Interest
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling Interest
 
Total Equity
 
 
 
Balance December 31, 2014
 
$
468,813

 
$
(148,405
)
 
$
(46
)
 
$
95,082

 
$
415,444

Distributions to HEP unitholders
 
(31,084
)
 
(9,781
)
 

 

 
(40,865
)
Distributions to noncontrolling interest
 

 

 

 
(1,250
)
 
(1,250
)
Purchase of units for incentive grants
 
(247
)
 

 

 

 
(247
)
Amortization of restricted and performance units
 
896

 

 

 

 
896

Class B unit accretion
 
(1,706
)
 
(34
)
 

 

 
(1,740
)
Net income
 
23,733

 
9,810

 

 
2,287

 
35,830

Other comprehensive loss
 

 

 
(749
)
 

 
(749
)
Balance March 31, 2015
 
$
460,405

 
$
(148,410
)
 
$
(795
)
 
$
96,119

 
$
407,319



See accompanying notes.



- 8 -

Table of Contents ril 19,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1:
Description of Business and Presentation of Financial Statements

Holly Energy Partners, L.P. (“HEP”), together with its consolidated subsidiaries, is a publicly held master limited partnership which is 39% owned (including the 2% general partner interest) by HollyFrontier Corporation (“HFC”) and its subsidiaries. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements, the words “we,” “our,” “ours” and “us” refer to HEP unless the context otherwise indicates.

We operate in one reportable segment which represents the aggregation of our petroleum product and crude pipelines business and terminals, tankage and loading rack facilities operation.

We own and operate petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities that support HFC’s refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain regions of the United States and Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), which owns a 427 -mile, 12 -inch refined products pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV Pipeline”), product terminals near Cedar City, Utah and Las Vegas, Nevada and related assets, and a 25% interest in SLC Pipeline LLC, which owns a 95 -mile intrastate crude oil pipeline system (the “SLC Pipeline”) that serves refineries in the Salt Lake City, Utah area.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, and providing other services at our storage tanks and terminals. We do not take ownership of products that we transport, terminal or store, and therefore, we are not exposed directly to changes in commodity prices.

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Form 10-K for the year ended December 31, 2014 . Results of operations for interim periods are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2015 .

New Accounting Pronouncements

Revenue Recognition
In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has a proposed effective date of January 1, 2018. We are evaluating the impact of this standard.

Debt Issuance Costs
In April 2015, an accounting standard update was issued requiring debt issuance costs to be presented as a direct deduction from the carrying amount of the debt liability. The amount of deferred debt issuance costs reported in Long-term assets was $4.1 million and $4.4 million as of March 31, 2015 and December 31, 2014, respectively. This standard will become effective beginning with our 2016 reporting year.


Note 2:
Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt and interest rate swaps. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. Debt consists of outstanding principal under our revolving credit agreement (which approximates fair value as interest rates are reset frequently at current interest rates) and our fixed interest rate senior notes.

Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability) including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:

- 9 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


(Level 1) Quoted prices in active markets for identical assets or liabilities.
(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.
(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.

The carrying amounts and estimated fair values of our senior notes and interest rate swaps were as follows:
 
 
 
 
March 31, 2015
 
December 31, 2014
Financial Instrument
 
Fair Value Input Level
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
 
 
 
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Level 2
 
$
147

 
$
147

 
$
1,019

 
$
1,019

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
6.5% Senior notes
 
Level 2
 
$
296,742

 
$
295,500

 
$
296,579

 
$
291,000

Interest rate swaps
 
Level 2
 
942

 
942

 
1,065

 
1,065

 
 
 
 
$
297,684

 
$
296,442

 
$
297,644

 
$
292,065


Level 2 Financial Instruments
Our senior notes and interest rate swaps are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. The fair value of our interest rate swaps is based on the net present value of expected future cash flows related to both variable and fixed-rate legs of the swap agreement. This measurement is computed using the forward London Interbank Offered Rate (“LIBOR”) yield curve, a market-based observable input.

See Note 6 for additional information on these instruments.


Note 3:
Properties and Equipment  

The carrying amounts of our properties and equipment are as follows:
 
 
March 31,
2015
 
December 31,
2014
 
 
(In thousands)
Pipelines, terminals and tankage
 
$
1,169,685

 
$
1,137,157

Land and right of way
 
64,497

 
64,458

Construction in progress
 
59,701

 
56,228

Other
 
22,501

 
22,636

 
 
1,316,384

 
1,280,479

Less accumulated depreciation
 
312,396

 
300,000

 
 
$
1,003,988

 
$
980,479


On March 6, 2015, we completed the acquisition of an existing crude tank farm adjacent to HFC's El Dorado Refinery from an unrelated third-party for $27.5 million in cash. We recorded the assets acquired and liabilities assumed at their fair values at the date of acquisition based on preliminary valuations. Substantially all of the purchase price was allocated to properties and equipment. No goodwill was recorded. We expect to finalize the purchase price allocation during the second quarter of 2015. HFC is the main customer of this crude tank farm.


- 10 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


We capitalized $0.3 million and $0.4 million in interest attributable to construction projects during the three months ended March 31, 2015 and 2014 , respectively.

Depreciation expense was $12.8 million and $13.7 million for the three months ended March 31, 2015 and 2014 , respectively.


Note 4:
Transportation Agreements

Our transportation agreements represent a portion of the total purchase price of certain assets acquired from Alon in 2005 and from HFC in 2008 . The Alon agreement is being amortized over 30 years ending 2035 (the initial 15 -year term of the agreement plus an expected 15 -year extension period), and the HFC agreement is being amortized over 15 years ending 2023 (the term of the HFC agreement).

The carrying amounts of our transportation agreements are as follows:
 
 
March 31,
2015
 
December 31,
2014
 
 
(In thousands)
Alon transportation agreement
 
$
59,933

 
$
59,933

HFC transportation agreement
 
74,231

 
74,231

 
 
134,164

 
134,164

Less accumulated amortization
 
55,197

 
53,461

 
 
$
78,967

 
$
80,703


We have additional transportation agreements with HFC resulting from historical transactions consisting of pipeline, terminal and tankage assets contributed to us or acquired from HFC. These transactions occurred while we were a consolidated variable interest entity of HFC; therefore, our basis in these agreements is zero and does not reflect a step-up in basis to fair value.


Note 5:
Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C., an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC. These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $1.4 million and $1.7 million for the three months ended March 31, 2015 and 2014 , respectively.

We have an incentive plan (“Long-Term Incentive Plan”) for employees and non-employee directors who perform services for us. The Long-Term Incentive Plan consists of four components: restricted or phantom units, performance units, unit options and unit appreciation rights.

As of March 31, 2015 , we have three types of incentive-based awards which are described below. The compensation cost charged against income was $0.8 million for each of the three months ended March 31, 2015 and 2014 . We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of March 31, 2015 , 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,537,167 have not yet been granted, assuming no forfeitures of the unvested units and full achievement of goals for the performance units already granted.

Restricted and Phantom Units
Under our Long-Term Incentive Plan, we grant restricted units to non-employee directors and selected employees who perform services for us, with most awards vesting over a period of one to three years. Although full ownership of the units does not transfer to the recipients until the units vest, the recipients have distribution and voting rights on these units from the date of grant.

In addition, we grant phantom units to certain employees, which vest over a period of one year. Vested units are paid in common units. Full ownership of the units does not transfer to the recipient until the units vest, and the recipients do not have voting or distribution rights on these units until they vest.

- 11 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



The fair value of each restricted unit and phantom unit award is measured at the market price as of the date of grant and is amortized over the vesting period.

A summary of restricted and phantom unit activity and changes during the three months ended March 31, 2015 , is presented below:
Restricted and Phantom Units
 
Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2015 (nonvested)
 
126,077

 
$
33.43

Vesting and transfer of common units to recipients
 
(2,462
)
 
33.57

Outstanding at March 31, 2015 (nonvested)
 
123,615

 
$
33.42


As of March 31, 2015 , there was $2.3 million of total unrecognized compensation expense related to nonvested restricted unit and phantom unit grants, which is expected to be recognized over a weighted-average period of 1.3 years.

Performance Units
Under our Long-Term Incentive Plan, we grant performance units to selected executives who perform services for us. Performance units granted are payable based upon the growth in our distributable cash flow per common unit over the performance period, and vest over a period of three years. As of March 31, 2015 , estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 140% .

No performance units were granted during the three months ended March 31, 2015 . Performance units granted in 2014 vest over a three-year performance period ending December 31, 2017. These performance units granted are payable in HEP common units. The number of units actually earned will be based on the growth of our distributable cash flow per common unit over the performance period, and can range from 50% to 150% of the target number of performance units granted. Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the common units from the date of grant.

A summary of performance unit activity and changes during the three months ended March 31, 2015 , is presented below:
Performance Units
 
Units
Outstanding at January 1, 2015 (nonvested)
 
71,245

Vesting and transfer of common units to recipients
 
(11,436
)
Outstanding at March 31, 2015 (nonvested)
 
59,809


The grant-date fair value of performance units vested and transferred to recipients during the three months ended March 31, 2015 , was $0.4 million . Based on the weighted average fair value of performance units outstanding at March 31, 2015 , of $2.2 million , there was $0.9 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.4 years.


Note 6:
Debt

Credit Agreement
At March 31, 2015, we had a $650 million senior secured revolving credit facility (the “Credit Agreement”) expiring in November 2018. On April 28, 2015, the Credit Agreement was amended, increasing the size of the credit facility from $650 million to $850 million . The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit. The Credit Agreement expires in November 2018.

Our obligations under the Credit Agreement are collateralized by substantially all of our assets. Indebtedness under the Credit Agreement is recourse to HEP Logistics Holdings, L.P. (“HEP Logistics”), our general partner, and is guaranteed by our material wholly-owned subsidiaries. Any recourse to HEP Logistics would be limited to the extent of its assets, which other than its

- 12 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


investment in us, are not significant. We may prepay all loans at any time without penalty, except for payment of certain breakage and related costs.

The Credit Agreement imposes certain requirements on us with which we are currently in compliance, including: a prohibition against distribution to unitholders if, before or after the distribution, a potential default or an event of default as defined in the agreement would occur; limitations on our ability to incur debt, make loans, acquire other companies, change the nature of our business, enter into a merger or consolidation, or sell assets; and covenants that require maintenance of a specified EBITDA to interest expense ratio, total debt to EBITDA ratio and senior debt to EBITDA ratio. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of the debt and exercise other rights and remedies.

Senior Notes
We have $300 million in aggregate principal amount outstanding of 6.5% senior notes (the "6.5% Senior Notes") maturing March 2020. The 6.5% Senior Notes are unsecured and impose certain restrictive covenants, with which we are currently in compliance, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. At any time when the 6.5% Senior Notes are rated investment grade by both Moody’s and Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6.5% Senior Notes.

In March 2014, we redeemed the $150 million aggregate principal amount of 8.25% Senior Notes maturing March 2018 at a redemption cost of $156.2 million , at which time we recognized a $7.7 million early extinguishment loss consisting of a $6.2 million debt redemption premium and unamortized discount and financing costs of $1.5 million . We funded the redemption with borrowings under our Credit Agreement.

Indebtedness under the 6.5% Senior Notes involves recourse to HEP Logistics, our general partner, and is guaranteed by our material, wholly-owned subsidiaries. However, any recourse to HEP Logistics would be limited to the extent of its assets, which other than its investment in us, are not significant.

Long-term Debt
The carrying amounts of our long-term debt are as follows:
 
 
March 31,
2015
 
December 31,
2014
 
 
(In thousands)
Credit Agreement
 
$
594,000

 
$
571,000

6.5% Senior Notes
 
 
 
 
Principal
 
300,000

 
300,000

Unamortized discount
 
(3,258
)
 
(3,421
)
 
 
296,742

 
296,579

 
 
 
 
 
Total long-term debt
 
$
890,742

 
$
867,579


Interest Rate Risk Management
We use interest rate swaps (derivative instruments) to manage our exposure to interest rate risk.

As of March 31, 2015 , we have three interest rate swaps that hedge our exposure to the cash flow risk caused by the effects of LIBOR changes on $305 million of Credit Agreement advances. Our first interest rate swap effectively converts $155 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of March 31, 2015 , which equaled an effective interest rate of 2.99% . This swap contract matures in February 2016. We have two additional interest rate swaps with identical terms which effectively convert $150 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.74% plus an applicable margin of 2.00% as of March 31, 2015 , which equaled an effective interest rate of 2.74% . Both of these swap contracts mature in July 2017.

We have designated these interest rate swaps as cash flow hedges. Based on our assessment of effectiveness using the change in variable cash flows method, we have determined that these interest rate swaps are effective in offsetting the variability in interest payments on $305 million of our variable rate debt resulting from changes in LIBOR. Under hedge accounting, we adjust our

- 13 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


cash flow hedges on a quarterly basis to their fair values with the offsetting fair value adjustments to accumulated other comprehensive income (loss). Also on a quarterly basis, we measure hedge effectiveness by comparing the present value of the cumulative change in the expected future interest to be paid or received on the variable leg of our swaps against the expected future interest payments on $305 million of our variable rate debt. Any ineffectiveness is recorded directly to interest expense. As of March 31, 2015 , we had no ineffectiveness on our cash flow hedges.

At March 31, 2015 , we have accumulated other comprehensive loss of $0.8 million that relates to our current cash flow hedging instruments. Approximately $0.9 million will be transferred from accumulated other comprehensive income into interest expense as interest is paid on the underlying swap agreement over the next twelve-month period, assuming interest rates remain unchanged.

Additional information on our interest rate swaps is as follows:
Derivative Instrument
 
Balance Sheet Location
 
Fair Value
 
Location of Offsetting Balance
 
Offsetting
Amount
 
 
(In thousands)
March 31, 2015
 
 
 
 
 
 
 
 
Interest rate swaps designated as cash flow hedging instrument:
 
 
 
 
 
 
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)
 
Other long-term   liabilities
 
$
(942
)
 
Accumulated other
    comprehensive loss
 
$
(942
)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)
 
Other long-term   assets
 
147

 
Accumulated other
    comprehensive income
 
147

 
 
 
 
$
(795
)
 
 
 
$
(795
)
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
Interest rate swaps designated as cash flow hedging instrument:
 
 
 
 
 
 
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)
 
Other long-term   liabilities
 
$
(1,065
)
 
Accumulated other
    comprehensive loss
 
$
(1,065
)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)
 
Other long-term   assets
 
1,019

 
Accumulated other
    comprehensive income
 
1,019

 
 
 
 
$
(46
)
 
 
 
$
(46
)

Interest Expense and Other Debt Information
Interest expense consists of the following components:
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands)
Interest on outstanding debt:
 
 
 
 
Credit Agreement, net of interest on interest rate swaps
 
$
3,657

 
$
2,698

6.5% Senior Notes
 
4,875

 
4,875

8.25% Senior Notes
 

 
2,544

Amortization of discount and deferred debt issuance costs
 
436

 
511

Commitment fees
 
77

 
202

Total interest incurred
 
9,045

 
10,830

Less capitalized interest
 
277

 
376

Net interest expense
 
$
8,768

 
$
10,454

Cash paid for interest
 
$
13,400

 
$
18,782



Note 7:
Significant Customers

All revenues are domestic revenues, of which 90% are currently generated from our two largest customers: HFC and Alon. The vast majority of our revenues are derived from activities conducted in the southwest United States.

The following table presents the percentage of total revenues generated by each of these customers:

- 14 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


 
 
Three Months Ended March 31,
 
 
2015
 
2014
HFC
 
81
%
 
83
%
Alon
 
9
%
 
10
%


Note 8:
Related Party Transactions

We serve HFC's refineries under long-term pipeline and terminal, tankage and throughput agreements expiring from 2019 to 2026. Under these agreements, HFC agrees to transport, store and throughput volumes of refined product and crude oil on our pipelines and terminal, tankage and loading rack facilities that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual tariff rate adjustments on July 1st each year based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index. As of March 31, 2015 , these agreements with HFC will result in minimum annual payments to us of $231.6 million .

If HFC fails to meet its minimum volume commitments under the agreements in any quarter, it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter. Under certain of these agreements, a shortfall payment may be applied as a credit in the following four quarters after its minimum obligations are met.

Under certain provisions of an omnibus agreement we have with HFC (the “Omnibus Agreement”), we pay HFC an annual administrative fee (currently $2.4 million ) for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:
Revenues received from HFC were $72.3 million and $71.8 million for the three months ended March 31, 2015 and 2014 , respectively.
HFC charged us general and administrative services under the Omnibus Agreement of $0.6 million for each of the three months ended March 31, 2015 and 2014 .
We reimbursed HFC for costs of employees supporting our operations of $8.8 million and $9.2 million for the three months ended March 31, 2015 and 2014 , respectively.
HFC reimbursed us $2.6 million and $4.5 million for the three months ended March 31, 2015 and 2014 , respectively, for certain reimbursable costs and capital projects.
We distributed $21.6 million and $19.2 million for the three months ended March 31, 2015 and 2014 , respectively, to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions.
Accounts receivable from HFC were $28.0 million and $33.4 million at March 31, 2015 , and December 31, 2014 , respectively.
Accounts payable to HFC were $15.8 million and $5.2 million at March 31, 2015 , and December 31, 2014 , respectively.
Revenues for the three months ended March 31, 2015 and 2014 , include $5.6 million and $7.4 million , respectively, of shortfall payments billed in 2014 and 2013, as HFC did not exceed its minimum volume commitment in any of the subsequent four quarters. Deferred revenue in the consolidated balance sheets at March 31, 2015 , and December 31, 2014 , includes $3.7 million and $7.3 million , respectively, relating to certain shortfall billings. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $3.7 million deferred at March 31, 2015 .



- 15 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


Note 9:
Partners’ Equity

As of March 31, 2015 , HFC held 22,380,030 of our common units and the 2% general partner interest, which together constituted a 39% ownership interest in us.

Allocations of Net Income
Net income attributable to HEP is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner includes incentive distributions that are declared subsequent to quarter end. After the amount of incentive distributions is allocated to the general partner, the remaining net income attributable to HEP is allocated to the partners based on their weighted-average ownership percentage during the period.

The following table presents the allocation of the general partner interest in net income for the periods presented below:  
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands)
General partner interest in net income
 
$
449

 
$
329

General partner incentive distribution
 
9,361

 
7,672

Total general partner interest in net income
 
$
9,810

 
$
8,001


Cash Distributions
Our general partner, HEP Logistics, is entitled to incentive distributions if the amount we distribute with respect to any quarter exceeds specified target levels.

On April 23, 2015 , we announced our cash distribution for the first quarter of 2015 of $0.5375 per unit. The distribution is payable on all common and general partner units and will be paid May 15, 2015 , to all unitholders of record on May 6, 2015 .

The following table presents the allocation of our regular quarterly cash distributions to the general and limited partners for the periods in which they apply. Our distributions are declared subsequent to quarter end; therefore, the amounts presented do not reflect distributions paid during the periods presented below.
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands, except per unit data)
General partner interest in distribution
 
$
860

 
$
790

General partner incentive distribution
 
9,361

 
7,672

Total general partner distribution
 
10,221

 
8,462

Limited partner distribution
 
31,528

 
29,768

Total regular quarterly cash distribution
 
$
41,749

 
$
38,230

Cash distribution per unit applicable to limited partners
 
$
0.5375

 
$
0.5075


As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to HEP because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in our partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to HEP. Additionally, if the asset contributions and acquisitions from HFC had occurred while we were not a consolidated variable interest entity of HFC, our acquisition cost, in excess of HFC’s historical basis in the transferred assets would have been recorded in our financial statements at the time of acquisition, as increases to our properties and equipment and intangible assets instead of decreases to our partners’ equity.



- 16 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued


Note 10:
Environmental

We expensed $4.2 million for environmental remediation obligations for the three months ended March 31, 2015 , and incurred a credit of $0.2 million due to the revision of an accrual for the three months ended March 31, 2014 . During the three months ended March 31, 2015 , we increased certain environmental cost accruals to reflect revisions to the cost estimates and the time frame for which the related environmental remediation and monitoring activities are expected to occur. The accrued environmental liability reflected in our consolidated balance sheets was $9.0 million and $5.2 million at March 31, 2015 and December 31, 2014 , respectively, of which $6.9 million and $2.8 million , respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.


Note 11:
Contingencies

We are a party to various legal and regulatory proceedings, none of which we believe will have a material adverse impact on our financial condition, results of operation or cash flows.


Note 12:
Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries (“Guarantor Subsidiaries”). These guarantees are full and unconditional, subject to certain customary release provisions. These circumstances include (i) when a Guarantor Subsidiary is sold or sells all or substantially all of its assets, (ii) when a Guarantor Subsidiary is declared “unrestricted” for covenant purposes, (iii) when a Guarantor Subsidiary's guarantee of other indebtedness is terminated or released and (iv) when the requirements for legal defeasance or covenant defeasance or to discharge the Senior Notes have been satisfied.

The following financial information presents condensed consolidating balance sheets, statements of comprehensive income, and statements of cash flows of the Parent, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.


- 17 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Balance Sheet
March 31, 2015
 
Parent
 
Guarantor
Restricted Subsidiaries
 
Non-Guarantor Non-Restricted Subsidiaries
 
Eliminations
 
Consolidated
 
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2

 
$
2,780

 
$
3,020

 
$

 
$
5,802

Accounts receivable
 

 
35,528

 
4,537

 
(210
)
 
39,855

Prepaid and other current assets
 
211

 
2,982

 
1,196

 

 
4,389

Total current assets
 
213

 
41,290

 
8,753

 
(210
)
 
50,046

 
 
 
 
 
 
 
 
 
 
 
Properties and equipment, net
 

 
624,149

 
379,839

 

 
1,003,988

Investment in subsidiaries
 
608,299

 
288,355

 

 
(896,654
)
 

Transportation agreements, net
 

 
78,967

 

 

 
78,967

Goodwill
 

 
256,498

 

 

 
256,498

Investment in SLC Pipeline
 

 
24,462

 

 

 
24,462

Other assets
 
1,315

 
9,323

 

 

 
10,638

Total assets
 
$
609,827

 
$
1,323,044

 
$
388,592

 
$
(896,864
)
 
$
1,424,599

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
$
27,600

 
$
1,102

 
$
(210
)
 
$
28,492

Accrued interest
 
1,625

 
179

 

 

 
1,804

Deferred revenue
 

 
6,132

 
1,687

 

 
7,819

Accrued property taxes
 

 
1,586

 
1,159

 

 
2,745

Other current liabilities
 
97

 
4,297

 
8

 

 
4,402

Total current liabilities
 
1,722

 
39,794

 
3,956

 
(210
)
 
45,262


 
 
 
 
 
 
 
 
 
 
Long-term debt
 
296,742

 
594,000

 

 

 
890,742

Other long-term liabilities
 
163

 
21,768

 
162

 

 
22,093

Deferred revenue
 

 
30,649

 

 

 
30,649

Class B unit
 

 
28,534

 

 

 
28,534

Equity - partners
 
311,200

 
608,299

 
384,474

 
(992,773
)
 
311,200

Equity - noncontrolling interest
 

 

 

 
96,119

 
96,119

Total liabilities and partners’ equity
 
$
609,827

 
$
1,323,044

 
$
388,592

 
$
(896,864
)
 
$
1,424,599



- 18 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Balance Sheet
December 31, 2014
 
Parent
 
Guarantor
Restricted Subsidiaries
 
Non-Guarantor Non-Restricted Subsidiaries
 
Eliminations
 
Consolidated
 
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2

 
$
2,828

 
$

 
$

 
$
2,830

Accounts receivable
 

 
34,274

 
6,044

 
(189
)
 
40,129

Prepaid and other current assets
 
212

 
2,856

 
1,315

 

 
4,383

Total current assets
 
214

 
39,958

 
7,359

 
(189
)
 
47,342

 
 
 
 
 
 
 
 
 
 
 
Properties and equipment, net
 

 
596,988

 
383,491

 

 
980,479

Investment in subsidiaries
 
622,100

 
285,247

 

 
(907,347
)
 

Transportation agreements, net
 

 
80,703

 

 

 
80,703

Goodwill
 

 
256,498

 

 

 
256,498

Investment in SLC Pipeline
 

 
24,478

 

 

 
24,478

Other assets
 
1,319

 
10,736

 

 

 
12,055

Total assets
 
$
623,633

 
$
1,294,608

 
$
390,850

 
$
(907,536
)
 
$
1,401,555

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
$
15,495

 
$
2,575

 
$
(189
)
 
$
17,881

Accrued interest
 
6,500

 
115

 

 

 
6,615

Deferred revenue
 

 
5,672

 
6,760

 

 
12,432

Accrued property taxes
 

 
1,902

 
801

 

 
2,703

Other current liabilities
 
45

 
4,408

 
118

 

 
4,571

Total current liabilities
 
6,545

 
27,592

 
10,254

 
(189
)
 
44,202

 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
296,579

 
571,000

 

 

 
867,579

Other long-term liabilities
 
147

 
17,731

 
267

 

 
18,145

Deferred revenue
 

 
29,392

 

 

 
29,392

Class B unit
 

 
26,793

 

 

 
26,793

Equity - partners
 
320,362

 
622,100

 
380,329

 
(1,002,429
)
 
320,362

Equity - noncontrolling interest
 

 

 

 
95,082

 
95,082

Total liabilities and partners’ equity
 
$
623,633

 
$
1,294,608

 
$
390,850

 
$
(907,536
)
 
$
1,401,555




- 19 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended March 31, 2015
 
Parent
 
Guarantor Restricted
Subsidiaries
 
Non-Guarantor Non-restricted Subsidiaries
 
Eliminations
 
Consolidated
 
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
Affiliates
 
$

 
$
63,056

 
$
9,224

 
$
(25
)
 
$
72,255

Third parties
 

 
11,387

 
6,114

 

 
17,501

 
 

 
74,443

 
15,338

 
(25
)
 
89,756

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
Operations (exclusive of depreciation and amortization)
 

 
25,531

 
2,460

 
(25
)
 
27,966

Depreciation and amortization
 


 
10,962

 
3,732

 

 
14,694

General and administrative
 
1,063

 
2,227

 

 

 
3,290

 
 
1,063

 
38,720

 
6,192

 
(25
)
 
45,950

Operating income (loss)
 
(1,063
)
 
35,723

 
9,146

 

 
43,806

Equity in earnings (loss) of subsidiaries
 
37,933

 
6,860

 

 
(44,793
)
 

Equity in earnings of SLC Pipeline
 

 
734

 

 

 
734

Interest expense
 
(5,067
)
 
(3,701
)
 

 

 
(8,768
)
Other income
 

 
159

 

 

 
159

 
 
32,866

 
4,052

 

 
(44,793
)
 
(7,875
)
Income (loss) before income taxes
 
31,803

 
39,775

 
9,146

 
(44,793
)
 
35,931

State income tax expense
 

 
(101
)
 

 

 
(101
)
Net income (loss)
 
31,803

 
39,674

 
9,146

 
(44,793
)
 
35,830

Allocation of net income attributable to noncontrolling interests
 

 

 

 
(4,027
)
 
(4,027
)
Net income (loss) attributable to Holly Energy Partners
 
31,803

 
39,674

 
9,146

 
(48,820
)
 
31,803

Other comprehensive income (loss)
 
(749
)
 
(749
)
 

 
749

 
(749
)
Comprehensive income (loss)
 
$
31,054

 
$
38,925

 
$
9,146

 
$
(48,071
)
 
$
31,054



- 20 -


HOLLY ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended March 31, 2014
 
Parent
 
Guarantor
Restricted Subsidiaries
 
Non-Guarantor Non-Restricted Subsidiaries
 
Eliminations
 
Consolidated
 
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
Affiliates
 
$

 
$
61,615

 
$
10,524

 
$
(307
)
 
$
71,832

Third parties
 

 
11,081

 
4,091

 

 
15,172

 
 

 
72,696

 
14,615

 
(307
)
 
87,004

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
Operations (exclusive of depreciation and amortization)
 

 
20,151

 
2,968

 
(307
)
 
22,812

Depreciation and amortization
 

 
11,993

 
3,595

 

 
15,588

General and administrative
 
1,058

 
2,093

 

 

 
3,151

 
 
1,058

 
34,237

 
6,563

 
(307
)
 
41,551

Operating income (loss)
 
(1,058
)
 
38,459

 
8,052

 

 
45,453

Equity in earnings (loss) of subsidiaries
 
40,564

 
6,039

 

 
(46,603
)
 

Equity in earnings of SLC Pipeline
 

 
522

 

 

 
522

Interest expense
 
(7,686
)
 
(2,768
)
 

 

 
(10,454
)
Interest income
 

 
3

 

 

 
3

Loss on early extinguishment of debt
 
(7,677
)
 

 

 

 
(7,677
)
Other income
 

 
8

 

 

 
8

 
 
25,201

 
3,804

 

 
(46,603
)
 
(17,598
)
Income (loss) before income taxes
 
24,143

 
42,263

 
8,052

 
(46,603
)
 
27,855

State income tax expense
 

 
(75
)
 

 

 
(75
)
Net income (loss)
 
24,143

 
42,188

 
8,052

 
(46,603
)
 
27,780

Allocation of net income attributable to noncontrolling interests