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Holly Energy Partners, L.P. Reports Fourth Quarter Results

02/22/2022
  • Reported net income attributable to HEP of $45.6 million or $0.43 per unit
  • Announced quarterly distribution of $0.35 per unit
  • Reported EBITDA of $70.8 million and Adjusted EBITDA of $79.7 million

DALLAS--(BUSINESS WIRE)-- Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE: HEP) today reported financial results for the fourth quarter of 2021. Net income attributable to HEP for the fourth quarter was $45.6 million ($0.43 per basic and diluted limited partner unit) compared to $51.3 million ($0.49 per basic and diluted limited partner unit) for the fourth quarter of 2020.

Distributable cash flow was $63.1 million for the quarter, a decrease of $6.9 million, or 9.9%, compared to the fourth quarter of 2020. HEP declared a quarterly cash distribution of $0.35 on January 21, 2022.

The decrease in net income attributable to HEP was mainly due to lower volumes on our pipeline systems, lower on-going revenues from our Cheyenne assets as a result of the conversion of HollyFrontier Corporation's (“HollyFrontier”) Cheyenne refinery to renewable diesel production and higher operating expenses, partially offset by lower interest expense and higher equity in earnings of equity method investments.

Commenting on our 2021 fourth quarter results, Michael Jennings, Chief Executive Officer, stated, "HEP delivered another quarter of strong operational performance and solid financial results despite the planned turnaround and unplanned maintenance at HollyFrontier’s Navajo refinery. We ended the year with a distributable cash flow coverage ratio of 1.8x and continued our deleveraging strategy, bringing HEP’s leverage ratio to 3.9x."

"Looking forward, we expect to hold the quarterly distribution constant at $0.35 per unit during 2022, and we remain committed to our distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and maintaining distributable cash flow coverage of 1.3x or greater with the goal of reducing leverage to 3.0-3.5x."

Impact of COVID-19 on Our Business

Our business depends in large part on the demand for the various petroleum products we transport, terminal and store in the markets we serve. The impact of the COVID-19 pandemic on the global macroeconomy created diminished demand, as well as a lack of forward visibility, for refined products and crude oil transportation, and for the terminalling and storage services that we provide. Since the declines in demand at the beginning of the COVID-19 pandemic, we began to see improvement in demand for these products and services beginning late in the second quarter of 2020 that continued through the fourth quarter of 2021, with aggregate volumes approaching pre-pandemic levels. We expect our customers will continue to adjust refinery production levels commensurate with market demand and ultimately expect demand to return to pre-COVID-19 levels. For additional details of the impact of COVID-19 on our business, please see our Form 10-K for the year ended December 31, 2021.

Fourth Quarter 2021 Revenue Highlights

Revenues for the quarter were $118.5 million, a decrease of $9.0 million compared to the fourth quarter of 2020. The decrease was mainly due to lower on-going revenues from our Cheyenne assets as a result of the conversion of the HollyFrontier Cheyenne refinery to renewable diesel production, lower volumes on our product pipelines servicing HollyFrontier's Navajo refinery due to the planned turnaround as well as unplanned maintenance activities at the refinery following the turnaround during the fourth quarter of 2021, and recording certain tariffs and fees as interest income under sales-type lease accounting that were recorded as revenue in the fourth quarter of 2020.

  • Revenues from our refined product pipelines were $22.7 million, a decrease of $5.9 million, on shipments averaging 135.2 thousand barrels per day ("mbpd") compared to 155.8 mbpd for the fourth quarter of 2020. The revenue and volume decreases were mainly due to lower volumes on our product pipelines servicing HollyFrontier's Navajo refinery due to the planned turnaround as well as unplanned maintenance activities at the refinery following the turnaround during the fourth quarter of 2021.
  • Revenues from our intermediate pipelines were $7.5 million, consistent with the fourth quarter of 2020. Shipments averaged 105.5 mbpd compared to 134.8 mbpd for the fourth quarter of 2020. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HollyFrontier's Navajo refinery while revenue remained constant mainly due to contractual minimum volume guarantees.
  • Revenues from our crude pipelines were $30.7 million, a decrease of $1.3 million, on shipments averaging 455.0 mbpd compared to 410.4 mbpd for the fourth quarter of 2020. The increase in volumes was mainly attributable to our Cushing Connect Pipeline in Oklahoma which went into service at the end of the third quarter of 2021. Revenues did not increase in proportion to volumes due to recognizing most of the Cushing Connect Pipeline tariffs as interest income under sales-type lease accounting.
  • Revenues from terminal, tankage and loading rack fees were $33.9 million, a decrease of $5.0 million compared to the fourth quarter of 2020. Refined products and crude oil terminalled in the facilities averaged 460.4 mbpd compared to 440.7 mbpd for the fourth quarter of 2020. The increase in volumes was mainly the result of higher throughputs at HollyFrontier's El Dorado refinery. Revenues decreased mainly due to lower on-going revenues on our Cheyenne assets as a result of the conversion of the HollyFrontier Cheyenne refinery to renewable diesel production and recording certain tariffs and fees as interest income under sales-type lease accounting that were recorded as revenue in the fourth quarter of 2020.
  • Revenues from refinery processing units were $23.7 million, an increase of $3.2 million compared to the fourth quarter of 2020, and throughputs averaged 68.8 mbpd compared to 63.9 mbpd for the fourth quarter of 2020. The increase in volumes was mainly due to increased throughput for both our Woods Cross and El Dorado processing units. Revenues increased mainly due to higher recovery of natural gas costs.

Year Ended December 31, 2021 Revenue Highlights

Revenues for the year ended December 31, 2021, were $494.5 million, a decrease of $3.4 million compared to the year ended December 31, 2020. The decrease was mainly attributable to lower on-going revenues from our Cheyenne assets as a result of the conversion of the HollyFrontier Cheyenne refinery to renewable diesel production, lower volumes on our product pipelines servicing HollyFrontier's Navajo refinery and Delek's Big Spring refinery, and recording certain tariffs and fees as interest income under sales-type lease accounting that were recorded as revenue for the year ended December 31, 2020, partially offset by higher revenues from our crude pipeline systems in Wyoming and Utah and our Woods Cross and El Dorado refinery processing units mainly due to higher recovery of natural gas costs.

  • Revenues from our refined product pipelines were $107.4 million, a decrease of $9.5 million, on shipments averaging 158.1 mbpd compared to 161.5 mbpd for the year ended December 31, 2020. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HollyFrontier's Navajo refinery and Delek's Big Spring refinery.
  • Revenues from our intermediate pipelines were $30.1 million, an increase of $0.1 million compared to the year ended December 31, 2020. Shipments averaged 125.2 mbpd compared to 137.1 mbpd for the year ended December 31, 2020. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HollyFrontier's Tulsa and Navajo refineries while revenue remained relatively constant mainly due to contractual minimum volume guarantees.
  • Revenues from our crude pipelines were $125.6 million, an increase of $6.7 million compared to the year ended December 31, 2020. Shipments averaged 408.6 mbpd compared to 387.7 mbpd for the year ended December 31, 2020. The increases were mainly attributable to increased volumes on our crude pipeline systems in Wyoming and Utah partially offset by lower volumes on our pipeline systems servicing HollyFrontier's Navajo refinery. Volumes also increased due to the addition of volumes on our Cushing Connect Pipeline in Oklahoma, which went into service at the end of the third quarter of 2021.
  • Revenues from terminal, tankage and loading rack fees were $142.3 million, a decrease of $9.4 million compared to the year ended December 31, 2020. Refined products and crude oil terminalled in the facilities averaged 442.9 mbpd compared to 442.2 mbpd for the year ended December 31, 2020. Revenues decreased mainly due to lower on-going revenues on our Cheyenne assets as a result of the conversion of the HollyFrontier Cheyenne refinery to renewable diesel production and recording certain tariffs and fees as interest income under sales-type lease accounting that were recorded as revenue in the year ended December 31, 2020.
  • Revenues from refinery processing units were $89.1 million, an increase of $8.8 million compared to the year ended December 31, 2020. Throughputs averaged 69.6 mbpd compared to 61.4 mbpd for the year ended December 31, 2020. The increase in volumes was mainly due to increased throughput for both our Woods Cross and El Dorado processing units. Revenues increased mainly due to higher recovery of natural gas costs as well as higher throughputs.

Operating Costs and Expenses Highlights

Operating costs and expenses were $69.2 million and $288.0 million for the three months and year ended December 31, 2021, respectively, representing an increase of $4.4 million and a decrease of $4.9 million from the three months and year ended December 31, 2020, respectively. The fourth quarter increase was mainly due to an increase in employee costs, maintenance and expense projects and natural gas costs, partially offset by lower depreciation. The decrease for the year ended December 31, 2021 was mainly due to the higher goodwill impairment charge related to our Cheyenne reporting unit in 2020 than recorded in 2021, partially offset by higher employee costs, maintenance costs, pipeline rental costs and natural gas costs.

Interest expense was $13.2 million and $53.8 million for the three months and year ended December 31, 2021, respectively, representing decreases of $0.6 million and $5.6 million over the same periods of 2020. The decreases were mainly due to lower average borrowings outstanding under our senior secured revolving credit facility.

We have scheduled a webcast conference call today at 4:00 PM Eastern Time to discuss financial results. This webcast may be accessed at:

https://events.q4inc.com/attendee/223318006

An audio archive of this webcast will be available using the above noted link through March 8, 2022.

About Holly Energy Partners, L.P.

Holly Energy Partners, L.P. (“HEP” or the “Partnership”), headquartered in Dallas, Texas, provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including subsidiaries of HollyFrontier Corporation. The Partnership, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Texas, New Mexico, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas, as well as refinery processing units in Utah and Kansas.

HollyFrontier Corporation (“HollyFrontier”), headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier owns and operates refineries located in Kansas, Oklahoma, New Mexico, Washington and Utah and markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier produces base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and exports products to more than 80 countries. HollyFrontier also owns a 57% limited partner interest and a non-economic general partner interest in HEP.

The statements in this press release relating to matters that are not historical facts are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “strategy,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. 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. Our forward-looking statements are subject to a variety of risks, uncertainties and assumptions. 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 any assurances that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to:

  • HollyFrontier’s and the Partnership’s ability to successfully close the pending acquisition of Sinclair Oil Corporation and Sinclair Transportation Company (collectively, “Sinclair”, and such transactions, the “Sinclair Transactions”), or once closed, integrate the operations of Sinclair with its existing operations and fully realize the expected synergies of the Sinclair Transactions or on the expected timeline;
  • the satisfaction or waivers of the conditions precedent to the proposed Sinclair Transactions, including without limitation, regulatory approvals (including clearance by antitrust authorities necessary to complete the Sinclair Transactions on the terms and timeline desired);
  • risks relating to the value of HEP’s limited partner common units to be issued at the closing of the Sinclair Transactions from sales in anticipation of closing and from sales by the Sinclair holders following the closing of the Sinclair Transactions;
  • the cost and potential for delay in closing as a result of litigation against us or HollyFrontier challenging the Sinclair Transactions;
  • the demand for and supply of crude oil and refined products, including uncertainty regarding the effects of the continuing COVID-19 pandemic on future demand and increasing societal expectations that companies address climate change;
  • 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 and refinery processing units;
  • the economic viability of HollyFrontier, our other customers and our joint ventures’ other customers, including any refusal or inability of our or our joint ventures’ customers or counterparties to perform their obligations under their contracts;
  • the demand for refined petroleum products in the 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 temporary or permanent reductions in production or shutdowns at refineries utilizing our pipelines, terminal facilities and refinery processing units, due to reasons such as infection in the workforce, in response to reductions in demand or lower gross margins due to the economic impact of the COVID-19 pandemic, and any potential asset impairments resulting from such actions;
  • the effects of current and future government regulations and policies, including the effects of current and future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;
  • delay by government authorities in issuing permits necessary for our business or our capital projects;
  • our and our joint venture partners' ability to complete and maintain operational efficiency in carrying out routine operations and capital construction projects;
  • the possibility of terrorist or cyberattacks and the consequences of any such attacks;
  • general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
  • the impact of recent or proposed changes in the tax laws and regulations that affect master limited partnerships; and
  • other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings.

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.

RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow and Volumes
The following tables present income, distributable cash flow and volume information for the three months and the years ended December 31, 2021 and 2020.

 

Three Months Ended December 31,

 

Change from

 

2021

 

2020

 

2020

 

(In thousands, except per unit data)

Revenues

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

$

12,831

 

 

$

18,568

 

 

$

(5,737

)

Affiliates – intermediate pipelines

 

7,537

 

 

 

7,537

 

 

 

 

Affiliates – crude pipelines

 

19,527

 

 

 

20,103

 

 

 

(576

)

 

 

39,895

 

 

 

46,208

 

 

 

(6,313

)

Third parties – refined product pipelines

 

9,876

 

 

 

10,011

 

 

 

(135

)

Third parties – crude pipelines

 

11,159

 

 

 

11,898

 

 

 

(739

)

 

 

60,930

 

 

 

68,117

 

 

 

(7,187

)

Terminals, tanks and loading racks:

 

 

 

 

 

Affiliates

 

29,080

 

 

 

35,156

 

 

 

(6,076

)

Third parties

 

4,801

 

 

 

3,721

 

 

 

1,080

 

 

 

33,881

 

 

 

38,877

 

 

 

(4,996

)

 

 

 

 

 

 

Affiliates - refinery processing units

 

23,682

 

 

 

20,462

 

 

 

3,220

 

 

 

 

 

 

 

Total revenues

 

118,493

 

 

 

127,456

 

 

 

(8,963

)

Operating costs and expenses

 

 

 

 

 

Operations

 

44,298

 

 

 

37,971

 

 

 

6,327

 

Depreciation and amortization

 

21,906

 

 

 

24,376

 

 

 

(2,470

)

General and administrative

 

2,973

 

 

 

2,419

 

 

 

554

 

 

 

69,177

 

 

 

64,766

 

 

 

4,411

 

Operating income

 

49,316

 

 

 

62,690

 

 

 

(13,374

)

 

 

 

 

 

 

Equity in earnings of equity method investments

 

3,557

 

 

 

1,462

 

 

 

2,095

 

Interest expense, including amortization

 

(13,223

)

 

 

(13,775

)

 

 

552

 

Interest income

 

9,928

 

 

 

2,787

 

 

 

7,141

 

Gain on sale of assets and other

 

185

 

 

 

251

 

 

 

(66

)

 

 

447

 

 

 

(9,275

)

 

 

9,722

 

Income before income taxes

 

49,763

 

 

 

53,415

 

 

 

(3,652

)

State income tax benefit (expense)

 

28

 

 

 

(58

)

 

 

86

 

Net income

 

49,791

 

 

 

53,357

 

 

 

(3,566

)

Allocation of net income attributable to noncontrolling interests

 

(4,147

)

 

 

(2,018

)

 

 

(2,129

)

Net income attributable to Holly Energy Partners

$

45,644

 

 

$

51,339

 

 

$

(5,695

)

Limited partners’ earnings per unit – basic and diluted

$

0.43

 

 

$

0.49

 

 

$

(0.06

)

Weighted average limited partners’ units outstanding

 

105,440

 

 

 

105,440

 

 

 

 

EBITDA (1)

$

70,817

 

 

$

86,761

 

 

$

(15,944

)

Adjusted EBITDA (1)

$

79,737

 

 

$

88,269

 

 

$

(8,532

)

Distributable cash flow (2)

$

63,097

 

 

$

69,999

 

 

$

(6,902

)

Volumes (bpd)

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

81,272

 

113,400

 

(32,128

)

Affiliates – intermediate pipelines

105,499

 

134,780

 

(29,281

)

Affiliates – crude pipelines

334,103

 

279,695

 

54,408

 

 

520,874

 

527,875

 

(7,001

)

Third parties – refined product pipelines

53,958

 

42,414

 

11,544

 

Third parties – crude pipelines

120,902

 

130,752

 

(9,850

)

 

695,734

 

701,041

 

(5,307

)

Terminals and loading racks:

 

 

 

 

 

Affiliates

407,261

 

394,289

 

12,972

 

Third parties

53,091

 

46,393

 

6,698

 

 

460,352

 

440,682

 

19,670

 

 

 

 

 

 

 

Affiliates – refinery processing units

68,810

 

63,927

 

4,883

 

 

 

 

 

 

 

Total for pipelines, terminals and refinery processing unit assets (bpd)

1,224,896

 

1,205,650

 

19,246

 

 

Years Ended December 31,

 

Change from

 

2021

 

2020

 

2020

 

(In thousands, except per unit data)

Revenues

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

$

69,351

 

 

$

73,571

 

 

$

(4,220

)

Affiliates – intermediate pipelines

 

30,101

 

 

 

30,023

 

 

 

78

 

Affiliates – crude pipelines

 

77,768

 

 

 

80,026

 

 

 

(2,258

)

 

 

177,220

 

 

 

183,620

 

 

 

(6,400

)

Third parties – refined product pipelines

 

38,064

 

 

 

43,371

 

 

 

(5,307

)

Third parties – crude pipelines

 

47,826

 

 

 

38,843

 

 

 

8,983

 

 

 

263,110

 

 

 

265,834

 

 

 

(2,724

)

Terminals, tanks and loading racks:

 

 

 

 

 

Affiliates

 

124,511

 

 

 

135,867

 

 

 

(11,356

)

Third parties

 

17,756

 

 

 

15,825

 

 

 

1,931

 

 

 

142,267

 

 

 

151,692

 

 

 

(9,425

)

 

 

 

 

 

 

Affiliates - refinery processing units

 

89,118

 

 

 

80,322

 

 

 

8,796

 

 

 

 

 

 

 

Total revenues

 

494,495

 

 

 

497,848

 

 

 

(3,353

)

Operating costs and expenses

 

 

 

 

 

Operations

 

170,524

 

 

 

147,692

 

 

 

22,832

 

Depreciation and amortization

 

93,800

 

 

 

99,578

 

 

 

(5,778

)

General and administrative

 

12,637

 

 

 

9,989

 

 

 

2,648

 

Goodwill impairment

 

11,034

 

 

 

35,653

 

 

 

(24,619

)

 

 

287,995

 

 

 

292,912

 

 

 

(4,917

)

Operating income

 

206,500

 

 

 

204,936

 

 

 

1,564

 

 

 

 

 

 

 

Equity in earnings of equity method investments

 

12,432

 

 

 

6,647

 

 

 

5,785

 

Interest expense, including amortization

 

(53,818

)

 

 

(59,424

)

 

 

5,606

 

Interest income

 

29,925

 

 

 

10,621

 

 

 

19,304

 

Loss on early extinguishment of debt

 

 

 

 

(25,915

)

 

 

25,915

 

Gain on sales-type leases

 

24,677

 

 

 

33,834

 

 

 

(9,157

)

Gain on sale of assets and other

 

6,179

 

 

 

8,691

 

 

 

(2,512

)

 

 

19,395

 

 

 

(25,546

)

 

 

44,941

 

Income before income taxes

 

225,895

 

 

 

179,390

 

 

 

46,505

 

State income tax expense

 

(32

)

 

 

(167

)

 

 

135

 

Net income

 

225,863

 

 

 

179,223

 

 

 

46,640

 

Allocation of net income attributable to noncontrolling interests

 

(10,917

)

 

 

(8,740

)

 

 

(2,177

)

Net income attributable to Holly Energy Partners

$

214,946

 

 

$

170,483

 

 

$

44,463

 

Limited partners’ earnings per unit—basic and diluted

$

2.03

 

 

$

1.61

 

 

$

0.42

 

Weighted average limited partners’ units outstanding

 

105,440

 

 

 

105,440

 

 

 

 

EBITDA (1)

$

332,671

 

 

$

319,031

 

 

$

13,640

 

Adjusted EBITDA (1)

$

339,203

 

 

$

345,978

 

 

$

(6,775

)

Distributable cash flow (2)

$

269,805

 

 

$

283,057

 

 

$

(13,252

)

 

 

 

 

 

 

Volumes (bpd)

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

 

108,767

 

 

 

115,827

 

 

 

(7,060

)

Affiliates – intermediate pipelines

 

125,225

 

 

 

137,053

 

 

 

(11,828

)

Affiliates – crude pipelines

 

279,514

 

 

 

277,025

 

 

 

2,489

 

 

 

513,506

 

 

 

529,905

 

 

 

(16,399

)

Third parties – refined product pipelines

 

49,356

 

 

 

45,685

 

 

 

3,671

 

Third parties – crude pipelines

 

129,084

 

 

 

110,691

 

 

 

18,393

 

 

 

691,946

 

 

 

686,281

 

 

 

5,665

 

Terminals and loading racks:

 

 

 

 

 

Affiliates

 

391,698

 

 

 

393,300

 

 

 

(1,602

)

Third parties

 

51,184

 

 

 

48,909

 

 

 

2,275

 

 

 

442,882

 

 

 

442,209

 

 

 

673

 

 

 

 

 

 

 

Affiliates – refinery processing units

 

69,628

 

 

 

61,416

 

 

 

8,212

 

 

 

 

 

 

 

Total for pipelines, terminals and refinery processing unit assets (bpd)

 

1,204,456

 

 

 

1,189,906

 

 

 

14,550

 

(1)

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (i) loss on early extinguishment of debt, (ii) goodwill impairment, (iii) tariffs and fees not included in revenues due to impacts from lease accounting for certain tariffs and fees minus (iv) gain on sales-type leases, (v) gain on significant asset sales, (vi) HEP's pro-rata share of gain on business interruption insurance settlement and (vii) pipeline lease payments not included in operating costs and expenses. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. These pipeline tariffs were previously recorded as revenues prior to the renewal of the throughput agreement, which triggered sales-type lease accounting. Similarly, certain pipeline lease payments were previously recorded as operating costs and expenses, but the underlying lease was reclassified from an operating lease to a financing lease, and these payments are now recorded as interest expense and reductions in the lease liability. EBITDA and Adjusted EBITDA are not calculations based upon generally accepted accounting principles ("GAAP"). However, the amounts included in the EBITDA and Adjusted EBITDA calculations are derived from amounts included in our consolidated financial statements. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income attributable to Holly Energy Partners or operating income, as indications of our operating performance or as alternatives to operating cash flow as a measure of liquidity. EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA are presented here because they are widely used financial indicators used by investors and analysts to measure performance. EBITDA and Adjusted EBITDA are also used by our management for internal analysis and as a basis for compliance with financial covenants.

Set forth below is our calculation of EBITDA and Adjusted EBITDA.

 

 

Three Months Ended

December 31,

 

Years Ended

December 31,

 

 

2021

 

2020

 

2021

 

2020

 

 

(In thousands)

Net income attributable to Holly Energy Partners

 

$

45,644

 

 

$

51,339

 

 

$

214,946

 

 

$

170,483

 

Add (subtract):

 

 

 

 

 

 

 

 

Interest expense

 

 

13,223

 

 

 

13,775

 

 

 

53,818

 

 

 

59,424

 

Interest income

 

 

(9,928

)

 

 

(2,787

)

 

 

(29,925

)

 

 

(10,621

)

State income tax (benefit) expense

 

 

(28

)

 

 

58

 

 

 

32

 

 

 

167

 

Depreciation and amortization

 

 

21,906

 

 

 

24,376

 

 

 

93,800

 

 

 

99,578

 

EBITDA

 

$

70,817

 

 

$

86,761

 

 

$

332,671

 

 

$

319,031

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

25,915

 

Gain on sales-type leases

 

 

 

 

 

 

 

 

(24,677

)

 

 

(33,834

)

Gain on significant asset sales

 

 

 

 

 

 

 

 

(5,263

)

 

 

 

Goodwill impairment

 

 

 

 

 

 

 

 

11,034

 

 

 

35,653

 

HEP's pro-rata share of gain on business interruption insurance settlement

 

 

 

 

 

 

 

 

 

 

 

(6,079

)

Tariffs and fees not included in revenues

 

 

10,526

 

 

 

3,114

 

 

 

31,863

 

 

 

11,717

 

Lease payments not included in operating costs

 

 

(1,606

)

 

 

(1,606

)

 

 

(6,425

)

 

 

(6,425

)

Adjusted EBITDA

 

$

79,737

 

 

$

88,269

 

 

$

339,203

 

 

$

345,978

 

(2)

Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts presented in our consolidated financial statements, with the general exception of maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income attributable to Holly Energy Partners or operating income, as an indication of our operating performance, or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It is also used by management for internal analysis and our performance units. We believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating.

Set forth below is our calculation of distributable cash flow.

 

 

Three Months Ended
December 31,

 

Years Ended
December 31,

 

 

2021

 

2020

 

2021

 

2020

 

 

(In thousands)

Net income attributable to Holly Energy Partners

 

$

45,644

 

 

$

51,339

 

 

$

214,946

 

 

$

170,483

 

Add (subtract):

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21,906

 

 

 

24,376

 

 

 

93,800

 

 

 

99,578

 

Amortization of discount and deferred debt charges

 

 

765

 

 

 

840

 

 

 

3,757

 

 

 

3,319

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

25,915

 

Revenue recognized (greater) less than customer billings

 

 

3,656

 

 

 

(44

)

 

 

3,355

 

 

 

(743

)

Maintenance capital expenditures(3)

 

 

(6,459

)

 

 

(3,451

)

 

 

(15,293

)

 

 

(8,643

)

Decrease in environmental liability

 

 

(697

)

 

 

(1,206

)

 

 

(661

)

 

 

(1,020

)

Decrease in reimbursable deferred revenue

 

 

(2,987

)

 

 

(3,113

)

 

 

(13,494

)

 

 

(12,175

)

Gain on sales-type lease

 

 

 

 

 

 

 

 

(24,677

)

 

 

(33,834

)

Gain on significant asset sales

 

 

 

 

 

 

 

 

(5,263

)

 

 

 

Goodwill impairment

 

 

 

 

 

 

 

 

11,034

 

 

 

35,653

 

Other

 

 

1,269

 

 

 

1,258

 

 

 

2,301

 

 

 

4,524

 

Distributable cash flow

 

$

63,097

 

 

$

69,999

 

 

$

269,805

 

 

$

283,057

 

(3)

Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, safety and to address environmental regulations.

Set forth below is certain balance sheet data.

 

 

December 31,

 

 

2021

 

2020

 

 

(In thousands)

Balance Sheet Data

 

 

 

 

Cash and cash equivalents

 

$

14,381

 

$

21,990

Working capital

 

$

17,461

 

$

14,247

Total assets

 

$

2,165,867

 

$

2,167,565

Long-term debt

 

$

1,333,049

 

$

1,405,603

Partners' equity

 

$

443,017

 

$

379,292

 

John Harrison, Senior Vice President,
Chief Financial Officer and Treasurer
Craig Biery, Vice President, Investor Relations
Holly Energy Partners, L.P.
214/954-6511

Source: Holly Energy Partners, L.P.

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