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 June 30, ~~2020~~2021



☐			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 1-3876

~~_________________________________________________________________~~

HOLLYFRONTIER ~~CORPORATION~~CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		75-1056913
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2828 N. Harwood, Suite 1300
Dallas, Texas		75201
~~Texas~~	~~75201~~
(Address of principal executive offices)	(Zip Code)

(~~214~~) (214) 871-3555

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)



Securities registered pursuant to 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.01 par value	HFC	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 (§232.405 of this chapter) 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 ☒

~~162,015,416~~162,490,166 shares of Common Stock, par value $.01 per share, were outstanding on July ~~31, 2020.~~

30, 2021.

Table of Content

HOLLYFRONTIER CORPORATION

INDEX


		Page

Forward-Looking Statements		3

Definitions		5

PART I. FINANCIAL INFORMATION

		~~Page~~

~~Forward-Looking Statements~~	3

~~Definitions~~	5

~~PART I. FINANCIAL INFORMATION~~

Item 1. Financial Statements

Consolidated Balance Sheets
June 30, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020		6

Consolidated Statements of ~~Income~~Operations (Unaudited)
Three and Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020		7

Consolidated Statements of Comprehensive Income (Unaudited)
Three and Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020		8

Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020		9

Consolidated Statements of Equity (Unaudited)
Three and Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020		10

Notes to Consolidated Financial Statements (Unaudited)		12

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		3438

Item 3. Quantitative and Qualitative Disclosures About Market Risk		5557

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles		5557

Item 4. Controls and Procedures		5759

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		5860

Item 1A. Risk Factors		6062

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		6165

Item 6. Exhibits		6166

~~Index to Exhibits~~	62

Signatures		6367

Table of Content

FORWARD-LOOKING STATEMENTS

References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. This document contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.

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,” “Liquidity and Capital Resources” and “Risk Management” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those in Part II, Item 1 “Legal Proceedings” 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 management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. ~~All~~Unless specifically noted, 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. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you 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:

•our ability to successfully close the pending Puget Sound refinery transaction, or, once closed, integrate the operation of the Puget Sound refinery with our existing operations;

•(i) our ability to successfully close the Sinclair acquisition, which requires receipt of approval from our stockholders and certain regulatory approvals (including clearance by antitrust authorities); (ii) disruption the Sinclair acquisition may cause to customers, vendors, business partners and our ongoing business; (iii) once closed, our ability to integrate the operations of Sinclair with our existing operations and fully realize the expected synergies of the Sinclair acquisition on the expected timeline; and (iv) legal proceedings that may be instituted against us or HEP following the announcement of the Sinclair acquisition.

•the extraordinary market environment and effects of the COVID-19 pandemic, including ~~the continuation of~~ a ~~material~~significant decline in demand for refined petroleum products in markets that we serve;

•risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in our markets;

•the spread between market prices for refined products and market prices for crude oil;

•the possibility of constraints on the transportation of refined products or lubricant and specialty products;

•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;

•the effects of current and/or future governmental and environmental regulations and policies, including the effects of current and/or future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

•the availability and cost of our financing;

•the effectiveness of our capital investments and marketing strategies;

•our efficiency in carrying out and consummating construction projects, including our ability to complete announced capital projects, such as the conversion of the Cheyenne Refinery to a renewable diesel facility and the construction of the Artesia renewable diesel unit and pretreatment unit, on time and within ~~budget;~~capital guidance;

•our ability to timely obtain or maintain permits, including those necessary for operations or capital projects,

•our ability to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any existing or future acquired operations;

•the possibility of terrorist or cyberattacks and the consequences of any such attacks;

Table of Content

•general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;

~~further~~•continued deterioration in gross margins or a prolonged economic slowdown due to the COVID-19 pandemic which could result in an impairment of goodwill ~~and /~~ and/or additional long-lived asset impairments; and

•other financial, operational and legal risks and uncertainties detailed from time to time in our SEC 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. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth under the heading “Risk Factors” included in Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and in this Quarterly Report on Form 10-Q, and in conjunction

~~Table of Content~~

with the discussion in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the ~~heading~~headings “Outlook” and “Liquidity and Capital ~~Resources” and Part II, Item 1A, “Risk Factors.~~Resources.” 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.

Table of Content

DEFINITIONS

Within this report, the following terms have these specific meanings:

“BPD” means the number of barrels per calendar day of crude oil or petroleum products.

“BPSD” means the number of barrels per stream day (barrels of capacity in a 24 hour period) of crude oil or petroleum products.

“Base oil” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis that is used in producing lubricant products such as lubricating greases, motor oil and metal processing fluids.

“Black wax crude oil” is a low sulfur, low gravity crude oil produced in the Uintah Basin in Eastern Utah that has certain characteristics that require specific facilities to transport, store and refine into transportation fuels.

“Cracking” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules.

“Crude oil distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the desired products.

“FCC,” or fluid catalytic cracking, means a refinery process that breaks down large complex hydrocarbon molecules into smaller more useful ones using a circulating bed of catalyst at relatively high temperatures.

“LPG” means liquid petroleum gases.

“Lubricant” or “lube” means a solvent neutral paraffinic product used in commercial heavy duty engine oils, passenger car oils and specialty products for industrial applications such as heat transfer, metalworking, rubber and other general process oil.

“MMBTU” means one million British thermal units.

“Rack back” represents the portion of our Lubricants and Specialty Products business operations that entails the processing of feedstocks into base oils.

“Rack forward” represents the portion of our Lubricants and Specialty Products business operations that entails the processing of base oils into finished lubricants and the packaging, distribution and sale to customers.

“Refinery gross margin” means the difference between average net sales price and average cost per barrel sold. This does not include the associated depreciation and amortization costs.

“Renewable diesel” means a diesel fuel derived from vegetable oils or animal fats that is produced through various processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the presence of a catalyst.

“RINs” means renewable identification numbers and refers to serial numbers assigned to credits generated from renewable fuel production under the Environmental Protection Agency’s Renewable Fuel Standard (“RFS”) regulations, which require blending renewable fuels into the nation’s fuel supply. In lieu of blending, refiners may purchase these transferable credits in order to comply with the regulations.

“Sour crude oil” means crude oil containing quantities of sulfur greater than 0.4 percent by weight, while “sweet crude oil” means crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight.

“Vacuum distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products.

“White oil” is an extremely pure, highly-refined petroleum product that has a wide variety of applications ranging from pharmaceutical to cosmetic products.

“WTI” means West Texas Intermediate and is a grade of crude oil used as a common benchmark in oil pricing. WTI is a sweet crude oil and has a relatively low density.

Table of Content

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOLLYFRONTIER CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

June 30,
2020 December 31, 2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (HEP: $18,913 and $13,287, respectively)
$ 902,509
$ 885,162

Accounts receivable: Product and transportation (HEP: $14,929 and $18,732, respectively)
540,818
834,771
Crude oil resales 52,567
44,914
593,385
879,685
Inventories: Crude oil and refined products 977,851
1,282,789
Materials, supplies and other (HEP: $935 and $833, respectively)
195,850
191,413
1,173,701
1,474,202
Income taxes receivable 77,729
5,478
Prepayments and other (HEP: $6,970 and $6,795, respectively)
56,210
61,662
Total current assets 2,803,534
3,306,189

Properties, plants and equipment, at cost (HEP: $2,053,174 and $2,047,674, respectively)
7,052,866
7,237,297
Less accumulated depreciation (HEP: $(584,651) and $(552,786), respectively)
(2,567,686 ) (2,414,585 )
4,485,180
4,822,712
Operating lease right-of-use assets (HEP: $3,377 and $2,652, respectively)
390,497
467,109

Other assets: Turnaround costs 359,203
521,278
Goodwill (HEP: $312,873 and $312,873, respectively)
2,373,912
2,373,907
Intangibles and other (HEP: $350,056 and $319,569, respectively)
651,494
673,646
3,384,609
3,568,831
Total assets $ 11,063,820
$ 12,164,841

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $14,888 and $18,050, respectively)
$ 870,695
$ 1,215,555
Income taxes payable 18,759
27,965
Operating lease liabilities (HEP: $3,766 and $3,608, respectively)
102,336
104,415
Accrued liabilities (HEP: $30,886 and $30,418, respectively)
341,252
337,993
Total current liabilities 1,333,042
1,685,928

Long-term debt (HEP: $1,486,648 and $1,462,031, respectively)
2,480,746
2,455,640
Noncurrent operating lease liabilities (HEP: $70,167 and $72,000, respectively)
318,955
364,420
Deferred income taxes (HEP: $432 and $424, respectively)
765,572
889,270
Other long-term liabilities (HEP: $58,351 and $59,021, respectively)
250,994
260,157

Equity:
HollyFrontier stockholders’ equity:
Preferred stock, $1.00 par value – 5,000,000 shares authorized; none issued —
—
Common stock $.01 par value – 320,000,000 shares authorized; 256,042,554 shares issued as of June 30, 2020 and December 31, 2019 2,560
2,560
Additional capital 4,215,894
4,204,547
Retained earnings 4,148,390
4,744,120
Accumulated other comprehensive income 2,225
14,774
Common stock held in treasury, at cost – 94,144,334 and 94,196,029 shares as of June 30, 2020 and December 31, 2019, respectively (2,986,487 ) (2,987,808 )
Total HollyFrontier stockholders’ equity 5,382,582
5,978,193
Noncontrolling interest 531,929
531,233
Total equity 5,914,511
6,509,426
Total liabilities and equity $ 11,063,820
$ 12,164,841


	June 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (HEP:$19,561 and $21,990, respectively)	$	1,398,280	$	1,368,318

Accounts receivable: Product and transportation (HEP: $14,749 and $14,543, respectively)	803,858		590,526
Crude oil resales	122,579		39,510
	926,437		630,036
Inventories: Crude oil and refined products	1,522,907		989,296
Materials, supplies and other (HEP: $1,041 and $895, respectively)	177,698		184,180
	1,700,605		1,173,476
Income taxes receivable	69,862		91,348
Prepayments and other (HEP: $4,286 and $8,591, respectively)	49,266		47,583
Total current assets	4,144,450		3,310,761

Properties, plants and equipment, at cost (HEP: $2,160,681 and $2,119,295, respectively)	7,633,297		7,299,517
Less accumulated depreciation (HEP: $(674,298) and $(644,149), respectively)	(2,873,658)		(2,726,378)
	4,759,639		4,573,139
Operating lease right-of-use assets (HEP: $70,922 and $72,480, respectively)	404,009		350,548

Other assets: Turnaround costs	303,707		314,816
Goodwill (HEP: $312,873 and $312,873, respectively)	2,293,544		2,293,935
Intangibles and other (HEP: $221,309 and $224,430, respectively)	654,684		663,665
	3,251,935		3,272,416
Total assets	$	12,560,033	$	11,506,864

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $25,773 and $28,565, respectively)	$	1,480,820	$	1,000,959
Income taxes payable	6,146		1,801
Operating lease liabilities (HEP: $3,815 and $3,827, respectively)	104,768		97,937
Accrued liabilities (HEP: $19,570 and $29,518, respectively)	421,037		274,459
Total current liabilities	2,012,771		1,375,156

Long-term debt (HEP: $1,362,570 and $1,405,603, respectively)	3,100,969		3,142,718
Noncurrent operating lease liabilities (HEP: $67,481 and $68,454, respectively)	327,838		285,785
Deferred income taxes (HEP: $451 and $449, respectively)	805,734		713,703
Other long-term liabilities (HEP: $45,755 and $55,105, respectively)	272,477		267,299

Equity:
HollyFrontier stockholders’ equity:
Preferred stock, $1.00 par value – 5,000,000 shares authorized; NaN issued	0		0
Common stock $.01 par value – 320,000,000 shares authorized; 256,046,051 shares issued as of June 30, 2021 and December 31, 2020	2,560		2,560
Additional capital	4,225,032		4,207,672
Retained earnings	4,172,560		3,913,179
Accumulated other comprehensive income	9,653		13,462
Common stock held in treasury, at cost – 93,562,308 and 93,632,391 shares as of June 30, 2021 and December 31, 2020, respectively	(2,966,430)		(2,968,512)
Total HollyFrontier stockholders’ equity	5,443,375		5,168,361
Noncontrolling interest	596,869		553,842
Total equity	6,040,244		5,722,203
Total liabilities and equity	$	12,560,033	$	11,506,864

Parenthetical amounts represent asset and liability balances attributable to Holly Energy Partners, L.P. (“HEP”) as of June 30, ~~2020~~2021 and December 31, ~~2019~~.2020. HEP is a variable interest entity.

See accompanying notes.

Table of Content

HOLLYFRONTIER CORPORATION

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(Unaudited)

(In thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

Sales and other revenues	$	4,577,123	$	2,062,930	$	8,081,416	$	5,463,475
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)	3,825,729		1,576,996		6,786,034		4,270,722
Lower of cost or market inventory valuation adjustment	(118,825)		(269,904)		(318,862)		290,560
	3,706,904		1,307,092		6,467,172		4,561,282
Operating expenses (exclusive of depreciation and amortization)	334,191		303,359		734,100		631,704
Selling, general and administrative expenses (exclusive of depreciation and amortization)	77,754		75,369		159,729		163,106
Depreciation and amortization	124,042		130,178		248,121		270,753
Long-lived asset impairment	0		436,908		0		436,908
Total operating costs and expenses	4,242,891		2,252,906		7,609,122		6,063,753
Income (loss) from operations	334,232		(189,976)		472,294		(600,278)
Other income (expense):
Earnings of equity method investments	3,423		2,156		5,186		3,870
Interest income	1,029		1,506		2,060		5,579
Interest expense	(28,942)		(32,695)		(67,328)		(55,334)

Gain on tariff settlement	0		0		51,500		0
Gain on sales-type leases	0		33,834		0		33,834
Loss on early extinguishment of debt	0		0		0		(25,915)
Gain (loss) on foreign currency transactions	583		2,285		(734)		(1,948)
Other, net	7,927		1,572		9,817		3,422
	(15,980)		8,658		501		(36,492)
Income (loss) before income taxes	318,252		(181,318)		472,795		(636,770)
Income tax expense (benefit):
Current	(9,175)		(65,607)		1,990		(77,047)
Deferred	132,660		34,696		93,188		(116,030)
	123,485		(30,911)		95,178		(193,077)
Net income (loss)	194,767		(150,407)		377,617		(443,693)
Less net income attributable to noncontrolling interest	25,917		26,270		60,550		37,607
Net income (loss) attributable to HollyFrontier stockholders	$	168,850	$	(176,677)	$	317,067	$	(481,300)
Earnings (loss) per share:
Basic	$	1.03	$	(1.09)	$	1.92	$	(2.97)
Diluted	$	1.03	$	(1.09)	$	1.92	$	(2.97)
Average number of common shares outstanding:
Basic	162,523		161,889		162,501		161,882
Diluted	162,523		161,889		162,501		161,882

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019

Sales and other revenues $ 2,062,930
$ 4,782,615
$ 5,463,475
$ 8,679,862
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 1,576,996
3,704,884
4,270,722
6,904,089
Lower of cost or market inventory valuation adjustment (269,904 ) 47,801
290,560
(184,545 )
1,307,092
3,752,685
4,561,282
6,719,544
Operating expenses (exclusive of depreciation and amortization) 303,359
333,252
631,704
664,844
Selling, general and administrative expenses (exclusive of depreciation and amortization) 75,369
85,317
163,106
173,351
Depreciation and amortization 130,178
126,908
270,753
248,329
Long-lived asset and goodwill impairments 436,908
152,712
436,908
152,712
Total operating costs and expenses 2,252,906
4,450,874
6,063,753
7,958,780
Income (loss) from operations (189,976 ) 331,741
(600,278 ) 721,082
Other income (expense):
Earnings of equity method investments 2,156
1,783
3,870
3,883
Interest income 1,506
4,588
5,579
10,963
Interest expense (32,695 ) (34,264 ) (55,334 ) (70,911 )
Gain on sales-type leases 33,834
—
33,834
—
Loss on early extinguishment of debt —
—
(25,915 ) —
Gain (loss) on foreign currency transactions 2,285
2,213
(1,948 ) 4,478
Other, net 1,572
92
3,422
649
8,658
(25,588 ) (36,492 ) (50,938 )
Income (loss) before income taxes (181,318 ) 306,153
(636,770 ) 670,144
Income tax expense (benefit):
Current (65,607 ) 63,364
(77,047 ) 118,648
Deferred 34,696
25,972
(116,030 ) 58,193
(30,911 ) 89,336
(193,077 ) 176,841
Net income (loss) (150,407 ) 216,817
(443,693 ) 493,303
Less net income attributable to noncontrolling interest 26,270
19,902
37,607
43,333
Net income (loss) attributable to HollyFrontier stockholders $ (176,677 ) $ 196,915
$ (481,300 ) $ 449,970
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic $ (1.09 ) $ 1.16
$ (2.97 ) $ 2.64
Diluted $ (1.09 ) $ 1.15
$ (2.97 ) $ 2.62
Average number of common shares outstanding:
Basic 161,889
169,356
161,882
170,100
Diluted 161,889
170,547
161,882
171,264

See accompanying notes.

Table of Content

HOLLYFRONTIER CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

Net income (loss)	$	194,767	$	(150,407)	$	377,617	$	(443,693)
Other comprehensive income (loss):
Foreign currency translation adjustment	2,088		11,710		(3,775)		(9,876)
Hedging instruments:
Change in fair value of cash flow hedging instruments	475		1,513		(18,042)		(5,235)
Reclassification adjustments to net income (loss) on settlement of cash flow hedging instruments	4,949		5,401		18,824		(1,175)
Net unrealized gain (loss) on hedging instruments	5,424		6,914		782		(6,410)
Pension and other post-retirement benefit obligations:
Actuarial loss on pension plans	0		0		0		(45)
Pension plans gain reclassified to net income	(104)		0		(205)		0
Actuarial gain on post-retirement healthcare plans	0		0		0		3
Post-retirement healthcare plans gain reclassified to net income	(837)		0		(1,675)		0
Retirement restoration plan loss reclassified to net income	9		0		18		0
Net change in pension and other post-retirement benefit obligations	(932)		0		(1,862)		(42)
Other comprehensive income (loss) before income taxes	6,580		18,624		(4,855)		(16,328)
Income tax expense (benefit)	1,585		4,250		(1,046)		(3,779)
Other comprehensive income (loss)	4,995		14,374		(3,809)		(12,549)
Total comprehensive income (loss)	199,762		(136,033)		373,808		(456,242)
Less noncontrolling interest in comprehensive income	25,917		26,270		60,550		37,607
Comprehensive income (loss) attributable to HollyFrontier stockholders	$	173,845	$	(162,303)	$	313,258	$	(493,849)

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019

Net income (loss) $ (150,407 ) $ 216,817
$ (443,693 ) $ 493,303
Other comprehensive income (loss):
Foreign currency translation adjustment 11,710
9,160
(9,876 ) 13,523
Hedging instruments:
Change in fair value of cash flow hedging instruments 1,513
(693 ) (5,235 ) 14,897
Reclassification adjustments to net income (loss) on settlement of cash flow hedging instruments 5,401
(5,321 ) (1,175 ) (6,963 )
Net unrealized gain (loss) on hedging instruments 6,914
(6,014 ) (6,410 ) 7,934
Pension and other post-retirement benefit obligations:
Actuarial gain (loss) on pension plans —
72
(45 ) —
Actuarial gain on post-retirement healthcare plans —
2
3
—
Net change in pension and other post-retirement benefit obligations —
74
(42 ) —
Other comprehensive income (loss) before income taxes 18,624
3,220
(16,328 ) 21,457
Income tax expense (benefit) 4,250
416
(3,779 ) 4,878
Other comprehensive income (loss) 14,374
2,804
(12,549 ) 16,579
Total comprehensive income (loss) (136,033 ) 219,621
(456,242 ) 509,882
Less noncontrolling interest in comprehensive income 26,270
19,902
37,607
43,333
Comprehensive income (loss) attributable to HollyFrontier stockholders $ (162,303 ) $ 199,719
$ (493,849 ) $ 466,549

See accompanying notes.

Table of Content

HOLLYFRONTIER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	377,617	$	(443,693)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	248,121		270,753
Long-lived asset impairment	0		436,908
Lower of cost or market inventory valuation adjustment	(318,862)		290,560
Earnings of equity method investments, inclusive of distributions	0		(1,298)
Loss on early extinguishment of debt	0		25,915
Gain on sales-type leases	0		(33,834)
Gain on sale of assets	(5,423)		(357)
Deferred income taxes	93,188		(116,030)
Equity-based compensation expense	21,142		14,289
Change in fair value – derivative instruments	(3,531)		(9,377)
(Increase) decrease in current assets:
Accounts receivable	(292,901)		281,011
Inventories	(204,708)		(764)
Income taxes receivable	21,314		(72,382)
Prepayments and other	(200)		9,704
Increase (decrease) in current liabilities:
Accounts payable	467,203		(314,892)
Income taxes payable	4,097		(9,268)
Accrued liabilities	154,224		3,340
Turnaround expenditures	(51,926)		(49,248)
Other, net	(19,274)		27,965
Net cash provided by operating activities	490,081		309,302

Cash flows from investing activities:
Additions to properties, plants and equipment	(275,125)		(98,996)
Additions to properties, plants and equipment – HEP	(57,716)		(30,740)
Proceeds from sale of assets	7,422		0
Investment in equity company - HEP	0		(2,400)
Distributions from equity method investments in excess of equity earnings	3,107		470
Net cash used for investing activities	(322,312)		(131,666)

Cash flows from financing activities:
Borrowings under credit agreements	141,000		168,000
Repayments under credit agreements	(184,500)		(138,500)

Proceeds from issuance of senior notes - HEP	0		500,000
Redemption of senior notes - HEP	0		(522,500)
Purchase of treasury stock	(491)		(1,243)
Dividends	(57,663)		(114,430)
Distributions to noncontrolling interests	(38,188)		(51,008)
Contributions from noncontrolling interests	17,593		13,263

Payments on finance leases	(1,296)		(843)
Deferred financing costs	(14,500)		(8,714)
Other, net	(433)		456
Net cash used for financing activities	(138,478)		(155,519)

Effect of exchange rate on cash flow	671		(4,770)

Cash and cash equivalents:
Increase for the period	29,962		17,347
Beginning of period	1,368,318		885,162
End of period	$	1,398,280	$	902,509

Supplemental disclosure of cash flow information:
Cash (paid) received during the period for:
Interest	$	(68,328)	$	(64,003)
Income taxes, net	$	22,996	$	(4,738)
Increase in accrued and unpaid capital expenditures	$	7,544	$	4,588

Six Months Ended June 30,
2020 2019
Cash flows from operating activities:
Net income (loss) $ (443,693 ) $ 493,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 270,753
248,329
Long-lived asset and goodwill impairments 436,908
152,712
Lower of cost or market inventory valuation adjustment 290,560
(184,545 )
Earnings of equity method investments, inclusive of distributions (1,298 ) —
Loss on early extinguishment of debt 25,915
—
Gain on sales-type leases (33,834 ) —
(Gain) loss on sale of assets (357 ) 73
Deferred income taxes (116,030 ) 58,193
Equity-based compensation expense 14,289
21,562
Change in fair value – derivative instruments (9,377 ) 31,454
(Increase) decrease in current assets:
Accounts receivable 281,011
(72,300 )
Inventories (764 ) (6,708 )
Income taxes receivable (72,382 ) (26,835 )
Prepayments and other 9,704
14,020
Increase (decrease) in current liabilities:
Accounts payable (314,892 ) 292,893
Income taxes payable (9,268 ) 7,826
Accrued liabilities 3,340
38,003
Turnaround expenditures (49,248 ) (110,273 )
Other, net 27,965
11,843
Net cash provided by operating activities 309,302
969,550

Cash flows from investing activities:
Additions to properties, plants and equipment (98,996 ) (102,717 )
Additions to properties, plants and equipment – HEP (30,740 ) (17,752 )
Purchase of Sonneborn, net of cash acquired —
(662,665 )
Investment in equity company - HEP (2,400 ) —
Other, net 470
825
Net cash used for investing activities (131,666 ) (782,309 )

Cash flows from financing activities:
Borrowings under credit agreements 168,000
175,000
Repayments under credit agreements (138,500 ) (156,500 )
Proceeds from issuance of senior notes - HEP 500,000
—
Redemption of senior notes - HEP (522,500 ) —
Purchase of treasury stock (1,243 ) (266,996 )
Dividends (114,430 ) (113,508 )
Distributions to noncontrolling interests (51,008 ) (66,703 )
Contributions from noncontrolling interests 13,263
—
Payments on finance leases (843 ) (783 )
Deferred financing costs (8,714 ) —
Other, net 456
(374 )
Net cash used for financing activities (155,519 ) (429,864 )

Effect of exchange rate on cash flow (4,770 ) 2,515

Cash and cash equivalents:
Increase (decrease) for the period 17,347
(240,108 )
Beginning of period 885,162
1,154,752
End of period $ 902,509
$ 914,644

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ (64,003 ) $ (67,620 )
Income taxes, net $ (4,738 ) $ (138,587 )

See accompanying notes.

HOLLYFRONTIER CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands except per share data)

HollyFrontier Stockholders' Equity
Common Stock Additional Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interest Total
Equity

Balance at December 31, 2019 $ 2,560
$ 4,204,547
$ 4,744,120
$ 14,774
$ (2,987,808 ) $ 531,233
$ 6,509,426
Net income (loss) —
—
(304,623 ) —
—
11,337
(293,286 )
Dividends ($0.35 declared per common share) —
—
(57,248 ) —
—
—
(57,248 )
Distributions to noncontrolling interest holders —
—
—
—
—
(33,918 ) (33,918 )
Other comprehensive loss, net of tax —
—
—
(26,923 ) —
—
(26,923 )
Issuance of common stock under incentive compensation plans, net of forfeitures —
(2,037 ) —
—
2,037
—
—
Equity-based compensation —
5,824
—
—
—
506
6,330
Purchase of treasury stock —
—
—
—
(1,062 ) —
(1,062 )
Purchase of HEP units for restricted grants —
—
—
—
—
(145 ) (145 )
Contributions from noncontrolling interests —
—
—
—
—
7,304
7,304
Balance at March 31, 2020 $ 2,560
$ 4,208,334
$ 4,382,249
$ (12,149 ) $ (2,986,833 ) $ 516,317
$ 6,110,478
Net income (loss) —
—
(176,677 ) —
—
26,270
(150,407 )
Dividends ($0.35 declared per common share) —
—
(57,182 ) —
—
—
(57,182 )
Distributions to noncontrolling interest holders —
—
—
—
—
(17,090 ) (17,090 )
Other comprehensive income, net of tax —
—
—
14,374
—
—
14,374
Issuance of common stock under incentive compensation plans, net of forfeitures —
(527 ) —
—
527
—
—
Equity-based compensation —
7,484
—
—
—
475
7,959
Purchase of treasury stock —
—
—
—
(181 ) —
(181 )
Purchase of HEP units for restricted grants —
—
—
—
—
(2 ) (2 )
Contributions from noncontrolling interests —
—
—
—
—
5,959
5,959
Reclamation of stockholder short-swing profit —
603
—
—
—
—
603
Balance at June 30, 2020 $ 2,560
$ 4,215,894
$ 4,148,390
$ 2,225
$ (2,986,487 ) $ 531,929
$ 5,914,511


	HollyFrontier Stockholders' Equity
	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Equity

Balance at December 31, 2020	$	2,560	$	4,207,672	$	3,913,179	$	13,462	$	(2,968,512)	$	553,842	$	5,722,203
Net income	—		—		148,217		—		—		34,633		182,850
Dividends ($0.35 declared per common share)	—		—		(57,663)		—		—		—		(57,663)
Distributions to noncontrolling interest holders	—		—		—		—		—		(19,977)		(19,977)
Other comprehensive loss, net of tax	—		—		—		(8,804)		—		—		(8,804)
Issuance of common stock under incentive compensation plans	—		56		—		—		(56)		—		—
Equity-based compensation	—		9,088		—		—		—		682		9,770
Purchase of treasury stock	—		—		—		—		(12)		—		(12)
Purchase of HEP units for restricted grants	—		—		—		—		—		(68)		(68)
Contributions from noncontrolling interests	—		—		—		—		—		9,747		9,747
Balance at March 31, 2021	$	2,560	$	4,216,816	$	4,003,733	$	4,658	$	(2,968,580)	$	578,859	$	5,838,046
Net income	—		—		168,850		—		—		25,917		194,767

Distributions to noncontrolling interest holders	—		—		—		—		—		(18,211)		(18,211)
Other comprehensive income, net of tax	—		—		—		4,995		—		—		4,995
Issuance of common stock under incentive compensation plans	—		(2,629)		—		—		2,629		—		—
Equity-based compensation	—		10,845		—		—		—		527		11,372
Purchase of treasury stock	—		—		—		—		(479)		—		(479)
Purchase of HEP units for restricted grants	—		—		—		—		—		(2)		(2)
Contributions from noncontrolling interests	—		—		—		—		—		9,779		9,779
Other	—		—		(23)		—		—		—		(23)
Balance at June 30, 2021	$	2,560	$	4,225,032	$	4,172,560	$	9,653	$	(2,966,430)	$	596,869	$	6,040,244

HollyFrontier Stockholders' Equity
Common Stock Additional Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total
Equity

Balance at December 31, 2018 $ 2,560
$ 4,196,125
$ 4,196,902
$ 13,623
$ (2,490,639 ) $ 540,488
$ 6,459,059
Net income —
—
253,055
—
—
23,431
276,486
Dividends ($0.33 declared per common share) —
—
(56,849 ) —
—
—
(56,849 )
Distributions to noncontrolling interest holders —
—
—
—
—
(33,673 ) (33,673 )
Other comprehensive income, net of tax —
—
—
13,775
—
—
13,775
Issuance of common stock under incentive compensation plans, net of forfeitures —
3
—
—
(3 ) —
—
Equity-based compensation —
8,713
—
—
—
661
9,374
Purchase of treasury stock —
—
—
—
(73,225 ) —
(73,225 )
Purchase of HEP units for restricted grants —
—
—
—
—
(373 ) (373 )
Balance at March 31, 2019 $ 2,560
$ 4,204,841
$ 4,393,108
$ 27,398
$ (2,563,867 ) $ 530,534
$ 6,594,574
Net income —
—
196,915
—
—
19,902
216,817
Dividends ($0.33 declared per common share) —
—
(56,659 ) —
—
—
(56,659 )
Distributions to noncontrolling interest holders —
—
—
—
—
(33,030 ) (33,030 )
Other comprehensive income, net of tax —
—
—
2,804
—
—
2,804
Equity attributable to HEP common unit issuances, net of tax —
—
—
—
—
(140 ) (140 )
Issuance of common stock under incentive compensation plans, net of forfeitures —
(138 ) —
—
138
—
—
Equity-based compensation —
11,602
—
—
—
586
12,188
Purchase of treasury stock —
—
—
—
(205,555 ) —
(205,555 )
Balance at June 30, 2019 $ 2,560
$ 4,216,305
$ 4,533,364
$ 30,202
$ (2,769,284 ) $ 517,852
$ 6,530,999


	HollyFrontier Stockholders' Equity
	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Equity

Balance at December 31, 2019	$	2,560	$	4,204,547	$	4,744,120	$	14,774	$	(2,987,808)	$	531,233	$	6,509,426
Net income (loss)	—		—		(304,623)		—		—		11,337		(293,286)
Dividends ($0.35 declared per common share)	—		—		(57,248)		—		—		—		(57,248)
Distributions to noncontrolling interest holders	—		—		—		—		—		(33,918)		(33,918)
Other comprehensive loss, net of tax	—		—		—		(26,923)		—		—		(26,923)
Issuance of common stock under incentive compensation plans	—		(2,037)		—		—		2,037		—		—
Equity-based compensation	—		5,824		—		—		—		506		6,330
Purchase of treasury stock	—		—		—		—		(1,062)		—		(1,062)
Purchase of HEP units for restricted grants	—		—		—		—		—		(145)		(145)
Contributions from noncontrolling interests	—		—		—		—		—		7,304		7,304
Balance at March 31, 2020	$	2,560	$	4,208,334	$	4,382,249	$	(12,149)	$	(2,986,833)	$	516,317	$	6,110,478
Net income (loss)	—		—		(176,677)		—		—		26,270		(150,407)
Dividends ($0.35 declared per common share)	—		—		(57,182)		—		—		—		(57,182)
Distributions to noncontrolling interest holders	—		—		—		—		—		(17,090)		(17,090)
Other comprehensive income, net of tax	—		—		—		14,374		—		—		14,374
Issuance of common stock under incentive compensation plans	—		(527)		—		—		527		—		—
Equity-based compensation	—		7,484		—		—		—		475		7,959
Purchase of treasury stock	—		—		—		—		(181)		—		(181)
Purchase of HEP units for restricted grants	—		—		—		—		—		(2)		(2)
Contributions from noncontrolling interests	—		—		—		—		—		5,959		5,959
Other	—		603		—		—		—		—		603
Balance at June 30, 2020	$	2,560	$	4,215,894	$	4,148,390	$	2,225	$	(2,986,487)	$	531,929	$	5,914,511

See accompanying notes.

~~Table of Content~~11

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


~~NOTE 1:~~	~~Description of Business and Presentation of Financial Statements~~

NOTE 1:Description of Business and Presentation of Financial Statements

References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In these financial statements, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person, with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. These financial statements contain certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.

We are an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and ~~other~~ specialty ~~products.~~and modified asphalt. We own and operate petroleum refineries that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. In addition, we produce base oils and other specialized lubricants in the United States, Canada and the Netherlands, with retail and wholesale marketing of our products through a global sales network with locations in Canada, the United States, Europe, China and Latin America.

As of June 30, ~~2020~~2021, we:

•owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”), ~~we:~~2 refinery facilities located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), a refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”) and a refinery in Woods Cross, Utah (the “Woods Cross Refinery”);

•owned a facility in Cheyenne, Wyoming, which operated as a petroleum refinery until early August 2020, at which time its assets began to be converted to renewable diesel production (the “Cheyenne Refinery”);

•

~~owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”),~~ 2 refinery facilities located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), a refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”), a refinery located in Cheyenne, Wyoming (the “Cheyenne Refinery”) and a refinery in Woods Cross, Utah (the “Woods Cross Refinery”);

owned and operated Petro-Canada Lubricants Inc. (“PCLI”) located in Mississauga, Ontario, which produces base oils and other specialized lubricant products;

•owned and operated ~~Sonneborn (as defined below) with~~ manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which produce specialty lubricant products for our Sonneborn business, such as white oils, petrolatums and waxes;

•owned and operated Red Giant Oil Company LLC (“Red Giant Oil”), which supplies locomotive engine oil and has storage and distribution facilities in Iowa ~~Kansas, Utah~~ and Wyoming, along with a blending and packaging facility in Texas;

•owned and operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”), which operates various asphalt terminals in Arizona, New Mexico and Oklahoma; and

•owned a 57% limited partner interest and a non-economic general partner interest in HEP, a variable interest entity (“VIE”). HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States.

On May 4, 2021, HollyFrontier Puget Sound Refining LLC, a wholly-owned subsidiary of HollyFrontier Corporation, entered into a sale and purchase agreement with Equilon Enterprises LLC d/b/a Shell Oil Products US (“Shell”) to acquire Shell’s refinery and related assets, including the on-site cogeneration facility and related logistics assets (the “Puget Sound Refinery”), for a base cash purchase price of $350 million plus hydrocarbon inventory to be valued at closing with an estimated current value in the range of $150 million to $180 million (the “Puget Sound Acquisition”). The Puget Sound Refinery is strategically located on approximately 850 acres in Anacortes, Washington, approximately 80 miles north of Seattle and 90 miles south of Vancouver. The 149,000 barrel per day facility is a large, high quality and complex refinery with catalytic cracking and delayed coking units and is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes. In addition to refining assets and an on-site cogeneration facility, the transaction includes a deep-water marine dock, a light product loading rack, a rail terminal, and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity. The Puget Sound Acquisition is expected to close in the fourth quarter of 2021, subject to customary closing conditions. We expect to fund the Puget Sound Acquisition with a one-year suspension of our regular quarterly dividend and cash on hand.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

During the first quarter of 2021, we initiated a restructuring within our Lubricants and Specialty Products segment. As a result of this restructuring, we recorded $7.8 million in employee severance costs for the six months ended June 1,30, 2021, which were recognized primarily as selling, general and administrative expenses in our Lubricants and Specialty Products segment.

In the third quarter of 2020, we ~~announced plans to~~ permanently ~~cease~~ceased petroleum refining operations at our Cheyenne Refinery and ~~to convert~~subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. ~~We subsequently began winding down~~In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, on August 3, 2020. This decision was primarily based on a positive outlook on the market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne Refinery would be challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and compressed crude differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating and maintenance costs forecasted for our Cheyenne Refinery and the anticipated loss of the Environmental Protection Agency’s (“EPA”) small refinery exemption. Approximately 200 employees at our Cheyenne Refinery are expected to be impacted by this decision.

~~During the second quarter of 2020,~~ we ~~recorded a long-lived asset impairment of $232.2~~recognized $8.1 million and ~~accelerated depreciation of $2.2~~$16.3 million, ~~related to~~in decommissioning expense and $0.2 million and $0.7 million, in employee severance costs for the three and six months ended June 30, 2021, respectively, which were recognized in operating expenses in our ~~Cheyenne Refinery asset groups. We expect to record additional non-cash charges of $3.7 million for accelerated depreciation in the third quarter of 2020. Additionally, during~~Corporate and Other segment.

During the second quarter of 2020, we recorded $1.1 million in employee severance costs related to the conversion of our Cheyenne Refinery. ~~Also, during the second quarter of 2020, we recorded a reserve of $6.2 million against our repair and maintenance supplies inventory.~~ These severance costs ~~and the inventory reserve charge~~ were recognized in operating expenses and were reported in our Refining segment. Also, during the second quarter of 2020, we recorded a long-lived asset impairment charge of $232.2 million related to our Cheyenne Refinery asset group.

During the second quarter of 2020, we initiated and completed a corporate restructuring. As a result of this restructuring, we recorded $3.7 million in employee severance costs, which were recognized primarily as operating expenses in our Refining segment and selling, general and administrative expenses in our Corporate and Other segment.

On November 12, 2018, we entered into an equity purchase agreement to acquire 100% of the issued and outstanding capital stock of Sonneborn US Holdings Inc. and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively, “Sonneborn”). The acquisition closed on February 1, 2019. Aggregate consideration totaled $701.6 million and consisted of $662.7 million in cash paid at acquisition, net of cash acquired. Sonneborn is a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

This transaction was accounted for as a business combination using the acquisition method of accounting, with the purchase price allocated to the fair value of the acquired Sonneborn assets and liabilities as of the February 1, 2019 acquisition date, with the excess purchase price recorded as goodwill assigned to our Lubricants and Specialty Products segment. This goodwill is not deductible for income tax purposes. Fair values are as follows: cash and cash equivalents $38.9 million, current assets $139.4 million, properties, plants and equipment $168.2 million, goodwill $282.3 million, intangibles and other noncurrent assets $231.5 million, current liabilities $47.9 million and deferred income tax and other long-term liabilities $110.8 million.

We incurred $0.6 million and $3.6 million for the three months ended June 30, 2020 and 2019, respectively, and $1.9 million and $16.2 million for the six months ended June 30, 2020 and 2019, respectively, in incremental direct integration and regulatory costs that principally relate to legal, advisory and other professional fees and are presented as selling, general and administrative expenses.

We have prepared these consolidated financial statements without audit. In management’s opinion, these consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our consolidated financial position as of June 30, ~~2020~~,2021, the consolidated results of operations, comprehensive income and statements of equity for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 and consolidated cash flows for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 in accordance with the rules and regulations of the SEC. Although certain notes and other information required by generally accepted accounting principles in the United States (“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 Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 that has been filed with the SEC.

Our results of operations for the six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results of operations to be realized for the year ending December 31, ~~2020~~.2021.

Accounts Receivable: Our accounts receivable consist of amounts due from customers that are primarily companies in the petroleum industry. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances collateral, such as letters of credit or guarantees, is required. We reserve for ~~doubtful accounts~~expected credit losses based on our historical loss experience as well as expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for ~~doubtful accounts~~expected credit losses when an account is deemed uncollectible. Our allowance for ~~doubtful accounts~~expected credit losses was $4.3 million at June 30, 2021 and $3.4 million at ~~June 30, 2020~~ ~~and $4.5 million at~~ December 31, ~~2019~~.2020.

Inventories: Inventories related to our refining operations are stated at the lower of cost, using the last-in, first-out (“LIFO”) method for crude oil and unfinished and finished refined products, or market. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.

Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or net realizable value.

Inventories consisting of process chemicals, materials and maintenance supplies and renewable identification numbers (“RINs”) are stated at the lower of weighted-average cost or net realizable value.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Leases: At inception, we determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our payment obligation under the leasing arrangement. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our leases do not contain an implicit rate. Our IBR represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable.

Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties, plants and equipment and accrued liabilities and other long-term liabilities on our consolidated balance sheet.

Our lease term includes an option to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on our balance sheet. For certain equipment leases, we apply a portfolio approach for the operating lease ROU assets and liabilities. Also, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net present value of lease payment obligations. In addition, HEP, as a lessor, does not separate the non-lease (service) component in contracts in which the lease component is the dominant component. HEP treats these combined components as ~~an operating~~a lease.

Goodwill and Long-lived Assets: As of June 30, ~~2020,~~2021, our goodwill balance was ~~$2.4~~$2.3 billion, with goodwill assigned to our Refining, Lubricants and Specialty Products and HEP segments of $1,733.5 million, ~~$327.6~~$247.2 million and $312.9 million, respectively. See Note 1514 for additional information on our segments. The carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our Lubricants and Specialty Products segment. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently 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. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the ~~fair value~~carrying amount of the reporting unit is greater than its ~~carrying amount,~~fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value.

For purposes of long-lived asset impairment evaluation, we have grouped our long-lived assets as follows: (i) our refinery asset groups, which include certain HEP logistics assets, (ii) our Lubricants and Specialty Products asset groups and (iii) our HEP asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups represent the lowest level for which independent cash flows can be identified. Our long-lived assets are evaluated for impairment by identifying whether indicators of impairment exist and if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss measured, if any, is equal to the amount by which the asset group’s carrying value exceeds its fair value.

~~Indicators of goodwill and long-lived asset impairment~~

Due to the recent economic slowdown caused by the COVID-19 pandemic, we determined that indicators of potential goodwill impairment for our Refining and Lubricants and Specialty Products reporting units were present. In addition, we determined that these indicators were also evidence of potential long-lived asset impairments. These indicators included reductions in the prices of our finished goods and raw materials and the related decrease in our gross margins, as well as the recent decline in our common share price which has resulted in a decrease in our market capitalization. Additionally, our recent announcement of the conversion of our Cheyenne Refinery to renewable diesel production was also considered a triggering event requiring assessment of potential impairments to the carrying value of our Cheyenne Refinery asset group. During the second quarter of 2020, we ~~performed interim goodwill and long-lived asset impairment testing as of May 31, 2020.~~

~~Long-lived asset impairment testing~~

~~As a result of our long-lived asset impairment testing, we determined that the carrying value of the long-lived assets of our Cheyenne Refinery and PCLI asset groups were not recoverable, and thus~~ recorded long-lived asset impairment charges of $232.2 million and $204.7 million ~~respectively, in the second quarter of 2020. Our testing did not result in any other impairment of long-lived assets.~~

~~The estimated fair values of the~~related to our Cheyenne Refinery and PCLI asset groups, were determined using a combination of the income and cost approaches. The income approach was based on management’s best estimates of the expected future cash flows over the remaining useful life of the asset group. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and economic obsolescence. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 4 for further discussion of Level 3 inputs.respectively.

~~Goodwill impairment testing~~

The estimated fair values of our Refining and Lubricants and Specialty Products reporting units were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 4 for further discussion of Level 3 inputs.

A reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and / or additional long-lived assets impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition. Our annual goodwill impairment testing is performed on July 1.

During the second quarter of 2019, we recorded a goodwill impairment charge of $152.7 million to fully impair the goodwill of the PCLI reporting unit included in our Lubricants and Specialty Products segment.

Revenue Recognition: Revenue on refined product and excess crude oil sales are recognized when delivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported as cost of products sold.

Our lubricants and specialty products business has sales agreements with marketers and distributors that provide certain rights of return or provisions for the repurchase of products previously sold to them. Under these agreements, revenues and cost of revenues are deferred until the products have been sold to end customers. Our lubricants and specialty products business also has agreements that create an obligation to deliver products at a future date for which consideration has already been received and recorded as deferred revenue. This revenue is recognized when the products are delivered to the customer.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

HEP recognizes revenues as products are shipped through its pipelines and terminals and as other services are rendered. Additionally, HEP has certain throughput agreements that specify minimum volume requirements, whereby HEP bills a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no future performance obligations, HEP recognizes these deficiency payments as revenue. In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. HEP recognizes the service portion of these deficiency payments as revenue when HEP does not expect it will be required to satisfy these performance obligations in the future based on the pattern of rights exercised by the customer. Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the date of invoice.

Foreign Currency Translation: Assets and liabilities recorded in foreign currencies are translated into U.S. dollars using exchange rates in effect as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the period presented. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income.

~~In connection with our PCLI acquisition, we issued~~We have intercompany notes that were issued to ~~initially~~ fund certain of our foreign businesses. Remeasurement adjustments resulting from the conversion of ~~such~~ intercompany financing amounts to functional currencies are recorded as gains and losses as a component of other income (expense) in the ~~income statement.~~consolidated statements of operations. Such adjustments are not recorded to the Lubricants and Specialty Products segment operations, but to Corporate and Other. See Note 1514 for additional information on our segments.

Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate changes on deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.

Potential interest and penalties related to income tax matters are recognized in income tax expense. We believe we have appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

For the six months ended June 30, ~~2020,~~2021, we recorded income tax expense of $95.2 million compared to an income tax benefit of $193.1 ~~million compared to income tax expense of $176.8~~ million for the six months ended June 30, ~~2019. This decrease~~ 2020. This increase was due principally to ~~a pre-tax loss~~pre-tax income during the six months ended June 30, ~~2020~~2021 compared to pre-tax ~~earnings~~loss in the same period of ~~2019.~~2020. Our effective tax rates were 20.1% and 30.3% ~~and 26.4%~~ for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The year-over-year ~~increase~~decrease in the ~~effective~~effective tax rate is due principally to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the six months ended June 30, 2021 was primarily due to the tax effects of income attributable to noncontrolling interests.

Inventory Repurchase Obligations: We periodically enter into same-party sell / buy transactions, whereby we sell certain refined product inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations. Such sell / buy transactions are accounted for as inventory repurchase obligations under which proceeds received under the initial sell is recognized as an inventory repurchase obligation that is subsequently reversed when the inventory is repurchased. For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we received proceeds of ~~$20.4~~$23.0 million and ~~$12.6~~$20.4 million, respectively, and subsequently repaid ~~$21.7~~$24.2 million and ~~$12.9~~$21.7 million, respectively, under these sell / buy transactions.

~~Accounting Pronouncements - Recently Adopted~~

~~Income Tax Accounting~~

HOLLYFRONTIER CORPORATION

In December 2019, Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes,” was issued which eliminates some exceptions to the general approach in ASC Topic 740 “Income Taxes” and also provides clarification of other aspects of ASC 740. We adopted this standard effective January 1, 2020 on a prospective basis, and recognized an income tax benefit for the six months ended June 30, 2020 based upon the application of our estimated annual effective tax rate to our pre-tax loss.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

~~Credit Losses Measurement~~

In June 2016, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” was issued requiring measurement of all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We adopted this standard effective January 1, 2020, at which time our review of historic and expected credit losses resulted in a decrease of $3.2 million in our reserve for doubtful accounts. Based upon our assessment of the potential impact of current and forecasted conditions, we increased our reserve for doubtful accounts by $2.1 million during the six months ended June 30, 2020. Assumptions about the potential effects of the COVID-19 pandemic on our estimate of expected credit losses are inherently subjective and difficult to forecast. However, we believe that our current estimate of allowance for doubtful accounts to be reasonable based upon current information and forecasts.


~~NOTE 2:~~	~~Holly Energy Partners~~

NOTE 2:Holly Energy Partners

HEP is a publicly held master limited partnership that owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining and marketing operations, as well as other third-party refineries, in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. Additionally, as of June 30, ~~2020,~~2021, HEP owned a 75% interest in UNEV Pipeline, LLC (“UNEV”), the owner of a pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV Pipeline”) and associated product terminals, and a 50% ownership interest in each of Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”); Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the “Cheyenne Pipeline”) and Cushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a ~~to-be-constructed~~ pipeline under construction that will run from Cushing, Oklahoma to our Tulsa Refineries.

At June 30, ~~2020~~,2021, we owned a 57% limited partner interest and a non-economic general partner interest in HEP. As the general partner of HEP, we have the sole ability to direct the activities that most significantly impact HEP’s financial performance, and therefore as HEP's primary beneficiary, we consolidate HEP.

HEP ~~has~~ 2 ~~primary customers (including us) and~~ generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by charging fees for terminalling refined products and other hydrocarbons, and by storing and providing other services at its storage tanks and terminals. Under our long-term transportation agreements with HEP (discussed further below), we accounted for ~~81%~~79% of HEP’s total revenues for the six months ended June 30, ~~2020~~.2021. We do not provide financial or equity support through any liquidity arrangements and / or debt guarantees to HEP.

HEP has outstanding debt under a senior secured revolving credit agreement and its senior notes. HEP’s creditors have no recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries. See Note 9 for a description of HEP’s debt obligations.

HEP has risk associated with its operations. If a major customer of HEP were to terminate its contracts or fail to meet desired shipping or throughput levels for an extended period of time, revenue would be reduced and HEP could suffer substantial losses to the extent that a new customer is not found. In the event that HEP incurs a loss, our operating results will reflect HEP’s loss, net of intercompany eliminations, to the extent of our ownership interest in HEP at that point in time.

Cushing Connect Joint Venture

In October 2019, HEP Cushing LLC (“HEP Cushing”), a wholly-owned subsidiary of HEP, and Plains Marketing, L.P. (“PMLP”), a wholly-owned subsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing Connect, for (i) the development, construction, ownership and ~~construction~~operation of a new 160,000 barrel per day common carrier crude oil pipeline (the “Cushing Connect Pipeline”) that will connect the Cushing, Oklahoma crude oil hub to our Tulsa Refineries and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “Cushing Connect Terminal”). The Cushing Connect Terminal was fully in service beginning in April 2020, and the Cushing Connect Pipeline is expected to be placed in service during the ~~first~~third quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Connect assets.

Cushing Connect will contract with an affiliate of HEP to manage the construction and operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in Cushing Connect will be shared ~~proportionately~~equally among the ~~partners, and~~partners. However, HEP is solely responsible for any Cushing Connect Pipeline constructions costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately ~~$65.0~~$70 million to $75 million.

Cushing Connect and its two subsidiaries, Cushing Connect Pipeline and Cushing Connect Terminal, are each VIE’s because they do not have sufficient equity at risk to finance their activities without additional financial support. HEP is the primary beneficiary of two of these entities as HEP is constructing and will operate the Cushing Connect Pipeline, and HEP has more ability to direct the activities that most significantly impact the financial performance of Cushing Connect and Cushing Connect Pipeline. Therefore, HEP consolidates these two entities. HEP is not the primary beneficiary of Cushing Connect Terminal, which HEP accounts for using the equity method of accounting.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Transportation Agreements

HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling agreements expiring ~~from 2021~~from 2022 through 2036. ~~Under~~Under these agreements, we pay HEP fees to transport, store and process throughput volumes of refined products, crude oil and feedstocks on HEP’s pipeline, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to HEP including UNEV (a consolidated subsidiary of HEP). Under these agreements, the agreed upon tariff rates are subject to annual tariff rate adjustments on July 1 at a rate based upon the percentage change in Producer Price Index or Federal Energy Regulatory Commission index. As of July 1, ~~2020,~~2021, these agreements ~~result in~~require minimum annualized payments to ~~HEP~~HEP of ~~$351.1~~$339.8 million.

Our transactions with HEP and fees paid under our transportation agreements with HEP and UNEV are eliminated and have no impact on our consolidated financial statements.

Lessor Accounting

Our consolidated statements of ~~income~~operations reflect lease revenue recognized by HEP for contracts with third parties in which HEP is the lessor.

Lease income recognized was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease revenues	$	3,731	$	5,442	$	8,178	$	13,732

Gain on sales-type leases	$	0	$	33,834	$	0	$	33,834
Sales-type lease interest income	$	637	$	642	$	1,276	$	642
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	$	520	$	286	$	857	$	286

One of HEP’s throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed during the three months ended June 30, 2020. Certain components of this agreement met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, HEP recognized a gain on sales-type leases totaling $33.8 million during the three months ended June 30, 2020. This sales-type lease transaction, including the related gain, was a non-cash transaction.

~~Lease income recognized was as follows:~~

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Operating lease revenues $ 5,442
$ 8,267
$ 13,732
$ 16,466
Gain on sales-type leases $ 33,834
$ —
$ 33,834
$ —
Sales-type lease interest income $ 642
$ —
$ 642
$ —
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable $ 286
$ —
$ 286
$ —
NOTE 3:Revenues

~~HEP Common Unit Continuous Offering Program~~

In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the six months ended June 30, 2020, HEP did not issue any common units under this program. As of June 30, 2020, HEP has issued 2,413,153 common units under this program, providing $82.3 million in gross proceeds.


~~NOTE 3:~~	~~Revenues~~

Substantially all revenue-generating activities relate to sales of refined product and excess crude oil inventories sold at market prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to HEP logistics services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling agreements with third parties.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Disaggregated revenues were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Revenues by type
Refined product revenues
Transportation fuels (1)	$	3,323,897	$	1,385,246	$	5,795,668	$	3,863,593
Specialty lubricant products (2)	605,939		340,284		1,086,620		811,237
Asphalt, fuel oil and other products (3)	221,743		145,298		380,329		346,641
Total refined product revenues	4,151,579		1,870,828		7,262,617		5,021,471
Excess crude oil revenues (4)	389,275		163,394		745,575		363,173
Transportation and logistic services	27,092		19,244		52,350		45,670
Other revenues (5)	9,177		9,464		20,874		33,161
Total sales and other revenues	$	4,577,123	$	2,062,930	$	8,081,416	$	5,463,475


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Refined product revenues by market
United States
Mid-Continent	$	2,334,226	$	867,660	$	4,002,439	$	2,400,584
Southwest	941,451		436,073		1,709,514		1,170,248
Rocky Mountains	373,252		274,973		611,055		743,752
Northeast	199,955		110,909		372,253		270,733
Canada	213,338		120,870		395,284		303,523
Europe, Asia and Latin America	89,357		60,343		172,072		132,631

Total refined product revenues	$	4,151,579	$	1,870,828	$	7,262,617	$	5,021,471

(1)Transportation fuels consist of gasoline, diesel and jet fuel.

(2)Specialty lubricant products consist of base oil, waxes, finished lubricants and other specialty fluids.

(3)Asphalt, fuel oil and other products revenue include revenues attributable to our Refining and Lubricants and Specialty Products segments of $165.9 million and $55.8 million, respectively, for the three months ended June 30, 2021, $283.2 million and $97.1 million, respectively, for the six months ended June 30, 2021, $131.9 million and $13.4 million, respectively, for the three months ended June 30, 2020, $280.7 million and $65.9 million respectively, for the six months ended June 30, 2020.

(4)Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of our refineries.

(5)Other revenues are principally attributable to our Refining segment.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Revenues by type
Refined product revenues
Transportation fuels⁽¹⁾
$ 1,385,246
$ 3,633,966
$ 3,863,593
$ 6,441,407
Specialty lubricant products ⁽²⁾
340,284
507,183
811,237
951,525
Asphalt, fuel oil and other products ⁽³⁾
145,298
248,861
346,641
467,718
Total refined product revenues 1,870,828
4,390,010
5,021,471
7,860,650
Excess crude oil revenues ⁽⁴⁾
163,394
350,683
363,173
733,313
Transportation and logistic services 19,244
28,382
45,670
59,520
Other revenues ⁽⁵⁾
9,464
13,540
33,161
26,379
Total sales and other revenues $ 2,062,930
$ 4,782,615
$ 5,463,475
$ 8,679,862

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Refined product revenues by market
United States
Mid-Continent $ 867,660
$ 2,361,969
$ 2,400,584
$ 4,092,474
Southwest 436,073
1,008,806
1,170,248
1,858,955
Rocky Mountains 274,973
613,063
743,752
1,128,398
Northeast 110,909
148,116
270,733
276,007
Canada 120,870
174,772
303,523
352,127
Europe, Asia and Latin America 60,343
83,284
132,631
152,689
Total refined product revenues $ 1,870,828
$ 4,390,010
$ 5,021,471
$ 7,860,650


~~(1)~~	~~Transportation fuels consist of gasoline, diesel and jet fuel.~~


~~(2)~~	~~Specialty lubricant products consist of base oil, waxes, finished lubricants and other specialty fluids.~~

~~(3)~~

Asphalt, fuel oil and other products revenue include revenues attributable to our Refining and Lubricants and Specialty Products segments of $131.9 million and $13.4 million, respectively, for the three months ended June 30, 2020, $280.7 million and $65.9 million, respectively for the six months ended June 30, 2020, $210.7 million and $38.2 million, respectively, for the three months ended June 30, 2019, and $380.6 million and $87.2 million, respectively, for the six months ended June 30, 2019.


~~(4)~~	~~Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of our refineries.~~


~~(5)~~	~~Other revenues are principally attributable to our Refining segment.~~

Our consolidated balance sheet reflects contract liabilities related to unearned revenues attributable to future service obligations under HEP’s third-party transportation agreements and production agreements from ~~the acquisition of~~our Sonneborn ~~on February 1, 2019.~~operations. The following table presents changes to our contract liabilities during the six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Six Months Ended June 30,
2020 2019
(In thousands)
Balance at January 1 $ 4,652
$ 132
Sonneborn acquisition —
6,463
Increase 16,115
10,813
Recognized as revenue (14,980 ) (12,906 )
Balance at June 30 $ 5,787
$ 4,502


	Six Months Ended June 30,
		2021		2020
		(In thousands)
Balance at January 1		$	6,738	$	4,652
Increase		15,314		16,115
Recognized as revenue		(14,686)		(14,980)
Balance at June 30		$	7,366	$	5,787

As of June 30, ~~2020,~~2021, we have long-term contracts with customers that specify minimum volumes of gasoline, diesel, lubricants and specialty products to be sold ratably at market prices ~~through 2024.~~through 2025. Such volumes are typically nominated in the month preceding delivery and delivered ratably throughout the following month. Future prices are subject to market fluctuations and therefore, we have elected the exemption to exclude variable consideration under these contracts under Accounting Standards Codification 606-10-50-14A. Aggregate minimum volumes expected to be sold (future performance obligations) under our long-term product sales contracts with customers are as follows:

Remainder of 2020 2021 2022 Thereafter Total
(In thousands)
Refined product sales volumes (barrels) 10,398
15,958
12,799
24,465
63,620


	Remainder of 2021	2022	2023	Thereafter	Total
	(In thousands)
Refined product sales volumes (barrels)	9,528	14,272	12,795	11,698	48,293

Additionally, HEP has long-term contracts with third-party customers that specify minimum volumes of product to be transported through its pipelines and terminals that result in fixed-minimum annual revenues ~~through~~through 2025. Annual minimum revenues attributable to HEP’s third-party contracts as of June 30, ~~2020~~2021 are presented below:

Remainder of 2020 2021 2022 Thereafter Total
(In thousands)
HEP contractual minimum revenues $ 13,164
$ 21,942
$ 10,954
$ 20,293
$ 66,353


	Remainder of 2021		2022		2023		Thereafter		Total
	(In thousands)
HEP contractual minimum revenues	$	10,422	$	11,005	$	8,922	$	11,414	$	41,763


~~NOTE 4:~~	~~Fair Value Measurements~~

NOTE 4:Fair Value Measurements

Our financial instruments measured at fair value on a recurring basis consist of derivative instruments and RINs credit obligations.

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:

•(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.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

The carrying amounts of derivative instruments and RINs credit obligations at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


			Fair Value by Input Level
	Carrying Amount		Level 1		Level 2		Level 3
	(In thousands)
June 30, 2021
Assets:

Commodity price swaps	$	892	$	0	$	892	$	0
Commodity forward contracts	671		0		671		0

Total assets	$	1,563	$	0	$	1,563	$	0

Liabilities:
NYMEX futures contracts	$	2,352	$	2,352	$	0	$	0

Commodity forward contracts	1,112		0		1,112		0
Foreign currency forward contracts	19,059		0		19,059		0
RINs credit obligations (1)	131,052		0		131,052		0
Total liabilities	$	153,575	$	2,352	$	151,223	$	0


			Fair Value by Input Level
	Carrying Amount		Level 1		Level 2		Level 3
	(In thousands)
June 30, 2020

December 31, 2020									December 31, 2020
Assets:									Assets:
Commodity price swaps	$	3,561	$	—	$	3,561	$	—

Commodity forward contracts	4,219		—		4,219		—		Commodity forward contracts	$	275	$	0	$	275	$	0
Foreign currency forward contracts	7,361		—		7,361		—
Total assets	$	15,141	$	—	$	15,141	$	—	Total assets	$	275	$	0	$	275	$	0

Liabilities:									Liabilities:
NYMEX futures contracts	$	6,987	$	6,987	$	—	$	—	NYMEX futures contracts	$	418	$	418	$	0	$	0
Commodity price swaps	395		—		395		—		Commodity price swaps	359		0		359		0
Commodity forward contracts	6,156		—		6,156		—		Commodity forward contracts	196		0		196		0
RINs credit obligations ⁽¹⁾	5,349		—		5,349		—
Foreign currency forward contracts									Foreign currency forward contracts	23,005		0		23,005		0
Total liabilities	$	18,887	$	6,987	$	11,900	$	—	Total liabilities	$	23,978	$	418	$	23,560	$	0

Fair Value by Input Level
Carrying Amount Level 1 Level 2 Level 3
(In thousands)
December 31, 2019
Assets:
Commodity price swaps $ 13,455
$ —
$ 13,455
$ —
Commodity forward contracts 4,133
—
4,133
$ —
Total assets $ 17,588
$ —
$ 17,588
$ —

Liabilities:
NYMEX futures contracts $ 2,578
$ 2,578
$ —
$ —
Commodity price swaps 1,230
—
1,230
—
Commodity forward contracts 3,685
—
3,685
—
Foreign currency forward contracts 6,722
—
6,722
—
Total liabilities $ 14,215
$ 2,578
$ 11,637
$ —

(1) Represent obligations for RINs credits for which we did not have sufficient quantities at June 30, ~~2020~~2021 to satisfy our ~~EPA~~Environmental Protection Agency (“EPA”) regulatory blending requirements.

Level 1 Instruments

Our NYMEX futures contracts are exchange traded and are measured and recorded at fair value using quoted market prices, a Level 1 input.

Level 2 Instruments

Derivative instruments consisting of foreign currency forward contracts, commodity price swaps and forward sales and purchase contracts are measured and recorded at fair value using Level 2 inputs. The fair value of the commodity price swap contracts is based on the net present value of expected future cash flows related to both variable and fixed rate legs of the respective swap agreements. The measurements are computed using market-based observable input and quoted forward commodity prices with respect to our commodity price swaps. The fair value of the forward sales and purchase contracts are computed using quoted forward commodity prices. RINs credit obligations are valued based on current market RINs prices. The fair value of foreign currency forward contracts are based on values provided by a third party, which were derived using market quotes for similar type instruments, a Level 2 input.

~~Nonrecurring Fair Value Measurements~~

During the three months ended June 30, 2020, we recognized long-lived asset impairment charges based on fair value measurements utilized during our goodwill and long-lived asset impairment testing (see Note 1). The fair value measurements were based on a combination of valuation methods including discounted cash flows, the guideline public company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 inputs.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended June 30, 2020, HEP recognized a gain on sales-type leases (see Note 2). The estimated fair value of the underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end of the lease term were used in determining the net investment in leases and related recognized gain on sales-type leases. The asset valuation estimates included Level 3 inputs based on a replacement cost valuation method.(Unaudited) Continued


~~NOTE 5:~~	~~Earnings Per Share~~

NOTE 5:Earnings Per Share

Basic earnings per share is calculated as net income (loss) attributable to HollyFrontier stockholders, adjusted for participating securities’ share in earnings divided by the average number of shares of common stock outstanding. Diluted earnings per share ~~assumes, when dilutive,~~includes the ~~issuance of the net~~ incremental shares resulting from ~~restricted stock units and performance share units.~~certain share-based awards. The following is a reconciliation of the denominators of the basic and diluted per share computations for net income (loss) attributable to HollyFrontier stockholders:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands, except per share data)
Net income (loss) attributable to HollyFrontier stockholders	$	168,850	$	(176,677)	$	317,067	$	(481,300)
Participating securities’ share in earnings (1)	2,223		0		4,271		0
Net income (loss) attributable to common shares	$	166,627	$	(176,677)	$	312,796	$	(481,300)
Average number of shares of common stock outstanding	162,523		161,889		162,501		161,882

Average number of shares of common stock outstanding assuming dilution	162,523		161,889		162,501		161,882
Basic earnings (loss) per share	$	1.03	$	(1.09)	$	1.92	$	(2.97)
Diluted earnings (loss) per share	$	1.03	$	(1.09)	$	1.92	$	(2.97)

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands, except per share data)
Net income (loss) attributable to HollyFrontier stockholders $ (176,677 ) $ 196,915
$ (481,300 ) $ 449,970
Participating securities’ (restricted stock) share in earnings —
283
—
647
Net income (loss) attributable to common shares $ (176,677 ) $ 196,632
$ (481,300 ) $ 449,323
Average number of shares of common stock outstanding 161,889
169,356
161,882
170,100
Effect of dilutive variable restricted stock units andperformance share units ⁽¹⁾
—
1,191
—
1,164
Average number of shares of common stock outstanding assuming dilution 161,889
170,547
161,882
171,264
Basic earnings (loss) per share $ (1.09 ) $ 1.16
$ (2.97 ) $ 2.64
Diluted earnings (loss) per share $ (1.09 ) $ 1.15
$ (2.97 ) $ 2.62
⁽¹⁾ Excludes anti-dilutive restricted and performance share units of:
590
160
585
131

(1) Unvested restricted stock unit awards and unvested performance share units represent participating securities because they participate in nonforfeitable dividends or distributions with the common stockholders of HollyFrontier. Participating earnings represent the distributed and undistributed earnings of HollyFrontier attributable to the participating securities. Unvested restricted stock unit awards and performance share units do not participate in undistributed net losses as they are not contractually obligated to do so.


~~NOTE 6:~~	~~Stock-Based Compensation~~

NOTE 6:Stock-Based Compensation

We have a principal share-based compensation plan (the “2020 Long-Term Incentive Plan”), which allows us to grant new equity awards ~~until February 12, 2030. We also~~to certain officers, non-employee directors and other key employees of HollyFrontier. The restricted stock unit awards generally vest over a period of one to three years. Upon vesting, restrictions on the restricted stock units lapse at which time they convert to common shares or cash. The performance share units generally vest over a period of three years and are payable in stock or cash upon meeting certain financial and performance criteria. The number of shares ultimately issued or cash paid for the performance share units can range from 0 to 200% of target award amounts. The holders of unvested restricted stock units and performance share units have ~~a long-term incentive compensation plan which expires pursuant~~the right to ~~its terms on December 31, 2020 and will continue to govern outstanding equity awards granted thereunder; however, as of February 12, 2020, no new awards are being granted under this plan.~~ receive dividends.

The compensation cost ~~charged against income~~ for these plans was ~~$8.1~~$11.9 million and ~~$11.9~~$8.1 million for the three months ended June 30, 2021 and 2020, respectively, and $22.8 million and $12.9 million, for the ~~three~~six ~~months ended~~ ~~June 30, 2020~~ ~~and 2019, respectively, and $12.9 million and $20.8 million for the six~~ months ended June 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting is to expense the costs ratably over the vesting periods.~~

Additionally, HEP maintains a share-based compensation plan for Holly Logistic Services, L.L.C.’s non-employee directors and certain executives and employees. Compensation cost attributable to HEP’s share-based compensation plan was ~~$0.5~~$0.5 million and ~~$0.6~~$0.5 million for the three months ended June 30, 2021 and 2020, respectively, and $1.2 million and $1.0 million, for the ~~three~~six months ended June 30, ~~2020~~2021 and ~~2019, respectively,~~2020, respectively.

In July 2021, we adopted a stock compensation deferral plan which allows non-employee directors to defer settlement of vested stock granted under our share-based compensation plan. This plan is effective October 1, 2021.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

A summary of restricted stock unit and ~~$1.0 million and $1.2 million for~~performance share unit activity during the six months ended June 30, ~~2020 and 2019, respectively.~~

~~Restricted Stock Units~~

Under our long-term incentive plan, we grant certain officers and other key employees restricted stock unit awards, which are payable in stock or cash and generally vest over a period of three years. Certain restricted stock unit award recipients have the right to receive dividends, however, restricted stock units do not have any other rights of absolute ownership. Upon vesting, restrictions on the restricted stock units lapse at which time they convert to common shares or cash. In addition, we grant non-employee directors restricted stock unit awards, which typically vest over a period of one year and are payable in stock. The fair value of each restricted stock unit award is measured based on the grant date market price of our common shares and is amortized over the respective vesting period. We account for forfeitures on an estimated basis.

~~A summary of restricted stock unit activity during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~2021 is presented below:


	Restricted Stock Units		Performance Share Units

Outstanding at January 1, 2021	2,057,045		635,204
Granted (1)	9,983		0
Vested	(89,381)		(3,565)
Forfeited	(132,284)		(26,192)

Outstanding at June 30, 2021	1,845,363		605,447

(1) Weighted average grant date fair value per unit	$	34.98	$	0

Restricted Stock Units Grants Weighted Average Grant Date Fair Value Aggregate Intrinsic Value ($000)

Outstanding at January 1, 2020 1,101,781
$ 53.30

Granted 62,776
35.58

Vested (79,956 ) 44.30

Forfeited (59,494 ) 53.41

Converted from performance share units 19,450
38.13

Outstanding at June 30, 2020 1,044,557
52.48
$ 30,501

~~For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020, restricted stock units vested having a grant date fair value of $3.5 million. As of~~ ~~June 30, 2020~~, there was $23.2 million of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted-average period of 1.2 years.

~~Performance Share Units~~

Under our long-term incentive plan, we grant certain officers and other key employees performance share units, which are payable in stock or cash upon meeting certain criteria over the service period, and generally vest over a period of three years. Under the terms of our performance share unit grants, awards are subject to “financial performance” and “market performance” criteria. Financial performance is based on our financial performance compared to a peer group of independent refining companies, while market performance is based on the relative standing of total shareholder return achieved by HollyFrontier compared to peer group companies. The number of shares ultimately issued or cash paid under these awards can range from 0 to ~~200%~~ of target award amounts. Holders of performance share units have the right to receive dividend equivalents and other distributions with respect to such performance share units based on the target level of payout.

~~A summary of performance share unit activity and changes during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~ ~~is presented below:~~



~~Performance Share Units~~	~~Grants~~

~~Outstanding at January 1, 2020~~	~~375,588~~
~~Vested~~	~~(12,129~~	)
~~Forfeited~~	~~(18,766~~	)
~~Converted to restricted stock units~~	~~(19,450~~	)
~~Outstanding at June 30, 2020~~	~~325,243~~

For the six months June 30, 2020, we issued 7,889 shares of common stock, representing a 100% payout on vested performance share units having a grant date fair value of $0.5 million. As of June 30, 2020, there was $8.3 million of total unrecognized compensation cost related to non-vested performance share units having a grant date fair value of $58.07 per unit. That cost is expected to be recognized over a weighted-average period of 1.6 years.


~~NOTE 7:~~	~~Inventories~~

NOTE 7:Inventories

Inventories consist of the following components:


	June 30, 2020			December 31, 2019				June 30, 2021		December 31, 2020
	(In thousands)							(In thousands)
Crude oil	$	537,863		$	489,169		Crude oil	$	511,056	$	451,967
Other raw materials and unfinished products⁽¹⁾	301,956			394,045			Other raw materials and unfinished products(1)	342,791		260,495
Finished products⁽²⁾	668,955			639,938			Finished products(2)	669,060		595,696
Lower of cost or market reserve	(530,923		)	(240,363		)	Lower of cost or market reserve	0		(318,862)
Process chemicals⁽³⁾	33,677			36,786			Process chemicals(3)	43,021		35,006
Repair and maintenance supplies and other ⁽⁴⁾	162,173			154,627			Repair and maintenance supplies and other (4)	134,677		149,174
Total inventory	$	1,173,701		$	1,474,202		Total inventory	$	1,700,605	$	1,173,476


~~(1)~~	~~Other raw materials and unfinished products include feedstocks and blendstocks, other than crude.~~


~~(2)~~	~~Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and residual fuels.~~


~~(3)~~	~~Process chemicals include additives and other chemicals.~~


~~(4)~~	~~Includes RINs.~~

(1)Other raw materials and unfinished products include feedstocks and blendstocks, other than crude.

(2)Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and residual fuels.

(3)Process chemicals include additives and other chemicals.

(4)Includes RINs.

Our inventories that are valued at the lower of LIFO cost or market ~~reflect~~reflected a valuation reserve of ~~$530.9 million and $240.4~~$318.9 million at ~~June 30, 2020 and~~ December 31, ~~2019, respectively.~~2020. The December 31, ~~2019~~2020 market reserve of ~~$240.4~~$318.9 million was reversed during the six months ended June 30, 2021 due to the sale of inventory quantities that gave rise to the ~~2019~~2020 reserve. ~~A new market reserve of $530.9 million was established as of June 30, 2020 based on market conditions and prices at that time.~~ The effect of the change in lower of cost or market reserve wasa decrease to cost of products sold totaling $118.8 million and $318.9 million for the three and six months ended June 30, 2021, respectively, and a decrease to cost of products sold totaling $269.9 million for the three months ended June 30, 2020, and an increase ~~to cost~~ of ~~products sold totaling $47.8 million for the three months ended June 30, 2019, respectively, and an increase to cost of products sold totaling~~ $290.6 million for the six months ended June 30, ~~2020 and a decrease to cost of products sold totaling $184.5 million for the six months ended June 30, 2019, respectively.~~2020.

At June 30, ~~2020,~~2021, the LIFO value of inventory ~~net of the lower of cost or market reserve,~~ was equal to ~~current costs.~~cost.

In connection with our announcement of the conversion of our Cheyenne Refinery to renewable diesel production, we recorded a reserve of $6.2 million against our repair and maintenance supplies inventory. This charge was recorded in operating expenses in the second quarter of 2020.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


~~NOTE 8:~~	~~Environmental~~

(Unaudited) Continued

NOTE 8:Environmental

Environmental costs are charged to operating expenses if they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. We have ongoing investigations of environmental matters at various locations and routinely assess our recorded environmental obligations, if any, with respect to such matters. Liabilities are recorded when site restoration and environmental remediation, cleanup and other obligations are either known or considered probable and can be reasonably estimated. Such estimates are undiscounted and require judgment with respect to costs, time frame and extent of required remedial and cleanup activities and are subject to periodic adjustments based on currently available information. Recoveries of environmental costs through insurance, indemnification arrangements or other sources are included in other assets to the extent such recoveries are considered probable.

We incurred expense of ~~$0.4~~$1.9 million and ~~$2.3~~$0.4 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and $2.0 million ~~and $3.7 million~~ for both the six months ended June 30, ~~2020~~2021 and ~~2019, respectively,~~2020, for environmental remediation obligations. The accrued environmental liability reflected in our consolidated balance sheets was ~~$115.6~~$113.8 million and ~~$117.7~~$115.0 million at June 30, ~~2020~~2021 and December 31, ~~2019~~,2020, respectively, of which ~~$94.1~~$94.8 million and ~~$95.6~~$94.0 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 (up to 30 years for certain projects). Estimated liabilities could increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably estimated.


~~NOTE 9:~~	~~Debt~~

NOTE 9:Debt

HollyFrontier Credit Agreement

~~We have~~On April 30, 2021, we amended our $1.35 billion senior unsecured revolving credit facility ~~maturing in February 2022~~to extend the maturity date to April 30, 2026 (the “HollyFrontier Credit Agreement”). The HollyFrontier Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. At June 30, ~~2020~~,2021, we were in compliance with all covenants, had no0 outstanding borrowings and had outstanding letters of credit totaling ~~$4.9~~$2.3 million under the HollyFrontier Credit Agreement.

Indebtedness under the HollyFrontier Credit Agreement bears interest, at our option, at either (a) the alternate base rate (as defined in the HollyFrontier Credit Agreement) plus an applicable margin of (ranging from 0.25% to 1.125%), (b) the LIBO Rate (as defined in the HollyFrontier Credit Agreement) plus an applicable margin (ranging from 1.25% to 2.125%) or (c) the CDOR Rate (as defined in the HollyFrontier Credit Agreement) plus an applicable margin (ranging from 1.25% to 2.125%) for Canadian dollar denominated borrowings.

HEP Credit Agreement

On April 30, 2021, HEP ~~has a~~amended its $1.4 billion senior secured revolving credit facility ~~maturing in~~decreasing the commitments under the facility to $1.2 billion and extending the maturity to July ~~2022~~27, 2025 (the “HEP Credit Agreement”) ~~and~~. The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and ~~has~~continues to provide for an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a ~~$300 million accordion.~~maximum amount of $1.7 billion. During the six months ended June 30, ~~2020,~~2021, HEP received advances totaling ~~$168.0~~$141.0 million and repaid ~~$138.5~~$184.5 million under the HEP Credit Agreement. At June 30, ~~2020,~~2021, HEP was in compliance with all of its covenants, had outstanding borrowings of ~~$995.0~~$870.0 million and no0 outstanding letters of credit under the HEP Credit Agreement.

Prior to the Investment Grade Date (as defined in the HEP Credit Agreement), indebtedness under the HEP Credit Agreement bears interest, at HEP’s option, at either (a) the alternate base rate (as defined in the HEP Credit Agreement) plus an applicable margin or (b) the Eurodollar Rate (as defined in the HEP Credit Agreement) plus an applicable margin. In each case, the applicable margin is based upon HEP’s Total Leverage Ratio (as defined in the HEP Credit Agreement). The weighted average interest rate in effect under the HEP Credit Agreement on HEP’s borrowings was 2.20% for June 30, 2021.

HEP’s obligations under the HEP Credit Agreement are collateralized by substantially all of HEP’s assets and are guaranteed by HEP’s material wholly-owned subsidiaries. Any recourse to the general partner would be limited to the extent of HEP Logistics Holdings, L.P.’s assets, which other than its investment in HEP are not significant. HEP’s creditors have no recourse to our other assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

HollyFrontier Senior Notes

~~Our~~At June 30, 2021, our senior notes consisted of the following:

•$350.0 million in aggregate principal amount of 2.625% senior notes maturing October 2023 (the “2.625% Senior Notes”);

•$1.0 billion in aggregate principal amount of 5.875% senior notes ~~($1 billion~~maturing April 2026 (the “5.875% Senior Notes”); and

•$400.0 million in aggregate principal amount of 4.500% senior notes maturing ~~April 2026)~~October 2030 (the “4.500% Senior Notes”).

These senior notes (collectively, the “HollyFrontier Senior Notes”) are unsecured and unsubordinated obligations ~~of ours~~ and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.

HollyFrontier Financing Arrangements

~~In December 2018, certain~~Certain of our wholly-owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for ~~total cash received of $32.5 million.~~cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature on February 1, ~~2021.~~2022. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity. These financing arrangements are recorded at a Level 2 fair value totaling ~~$35.0~~$41.7 million and ~~$40.0~~$43.9 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and are included in “Accrued liabilities” in our consolidated balance sheets. See Note 4 for additional information on Level 2 inputs.

HEP Senior Notes

OnIn February 4, 2020, HEP closed a private placement of ~~$500~~$500.0 million in aggregate principal amount of 5.0% HEP senior unsecured notes maturing February 2028 (the “HEP Senior Notes”). OnSubsequently, in February 5, 2020, HEP redeemed its existing ~~$500~~$500.0 million aggregate principal amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million. HEP recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized discount and financing costs of $3.4 ~~million. HEP funded~~million during the ~~$522.5 million redemption with proceeds from the issuance of its 5.0% senior notes and borrowings under the HEP Credit Agreement.~~three months ended March 31, 2020.

The HEP Senior Notes are unsecured and impose certain restrictive covenants, including limitations on HEP’s ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. HEP was in compliance with the restrictive covenants for the HEP Senior Notes as of June 30, ~~2020.~~2021. At any time when the HEP Senior Notes are rated investment grade by either Moody’s or Standard & Poor’s and no default or event of default exists, HEP will not be subject to many of the foregoing covenants. Additionally, HEP has certain redemption rights at varying premiums over face value under the HEP Senior Notes.

Indebtedness under the HEP Senior Notes is guaranteed by HEP’s wholly-owned subsidiaries. HEP’s creditors have no recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

The carrying amounts of long-term debt are as follows:


	June 30, 2021		December 31, 2020
	(In thousands)
HollyFrontier
2.625% Senior Notes	$	350,000	$	350,000
5.875% Senior Notes	1,000,000		1,000,000
4.500% Senior Notes	400,000		400,000
	1,750,000		1,750,000

Unamortized discount and debt issuance costs	(11,601)		(12,885)

Total HollyFrontier long-term debt	1,738,399		1,737,115

HEP Credit Agreement	870,000		913,500

HEP 5.000% Senior Notes
Principal	500,000		500,000
Unamortized discount and debt issuance costs	(7,430)		(7,897)

Total HEP long-term debt	1,362,570		1,405,603

Total long-term debt	$	3,100,969	$	3,142,718

June 30,
2020 December 31,
2019
(In thousands)
HollyFrontier 5.875% Senior Notes
Principal $ 1,000,000
$ 1,000,000
Unamortized discount and debt issuance costs (5,902 ) (6,391 )
994,098
993,609

HEP Credit Agreement 995,000
965,500

HEP 5.0% Senior Notes
Principal 500,000
—
Unamortized discount and debt issuance costs (8,352 ) —
491,648
—

HEP 6.0% Senior Notes
Principal —
500,000
Unamortized discount and debt issuance costs —
(3,469 )
—
496,531

Total HEP long-term debt 1,486,648
1,462,031

Total long-term debt $ 2,480,746
$ 2,455,640

The fair values of the senior notes are as follows:


	June 30, 2021		December 31, 2020
	(In thousands)

HollyFrontier Senior Notes	$	1,948,756	$	1,903,867

HEP Senior Notes	$	512,245	$	506,540

June 30,
2020 December 31,
2019
(In thousands)

HollyFrontier senior notes $ 1,105,120
$ 1,127,610

HEP senior notes $ 477,835
$ 522,045

These fair values are based on a Level 2 input. See Note 4 for additional information on Level 2 inputs.

We capitalized interest attributable to construction projects of ~~$0.8~~$2.8 million and ~~$0.5~~$0.8 million for the three months ended June 30, 2021 and 2020, respectively, and ~~2019, respectively,~~$4.7 million and $1.4 million, ~~and $1.1 million~~ for the six months ended June 30, ~~2020~~2021 and ~~2019~~,2020, respectively.

NOTE 10: Derivative Instruments and Hedging Activities

Commodity Price Risk Management

Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs.

Foreign Currency Risk Management

We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward and foreign exchange swap contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Accounting Hedges

We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural ~~gas and~~gas. We also periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude ~~oil. We also periodically have~~oil and forward sales contracts that lock in the prices of future sales of crude oil and refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature.

The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments and maturities of hedging instruments under hedge accounting:


	Net Unrealized Gain (Loss) Recognized in OCI				Gain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging Instruments	Three Months Ended June 30,				Income Statement Location	Three Months Ended June 30,
	2021		2020			2021		2020
	(In thousands)
Commodity contracts	$	5,424	$	6,914	Sales and other revenues	$	(5,052)	$	(5,403)
					Cost of products sold	0		459
					Operating expenses	103		(457)
Total	$	5,424	$	6,914		$	(4,949)	$	(5,401)

Net Unrealized Gain (Loss) Recognized in OCI Gain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging Instruments Three Months Ended
June 30, Income Statement Location Three Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Commodity contracts $ 6,914
$ (6,014 ) Sales and other revenues $ (5,403 ) $ —
Cost of products sold 459
5,674
Operating expenses (457 ) (353 )
Total $ 6,914
$ (6,014 ) $ (5,401 ) $ 5,321



Derivatives Designated as Cash Flow Hedging Instruments	Six Months Ended June 30,				Income Statement Location	Six Months Ended June 30,
	2021		2020			2021		2020
	(In thousands)
Commodity contracts	$	782	$	(6,410)	Sales and other revenues	$	(18,771)	$	49
					Cost of products sold	0		2,289
					Operating expenses	(53)		(1,163)
Total	$	782	$	(6,410)		$	(18,824)	$	1,175

We have commodity contracts including ~~contracts to lock in basis spread differentials on forecasted purchases of crude oil,~~ NYMEX futures contracts to lock in prices on forecasted purchases and sales of inventory and forward purchase and sell contracts, as well as periodically have contracts to lock in basis spread differentials on forecasted purchases of crude oil, that serve as economic hedges (derivatives used for risk management, but not designated as accounting hedges). We also have forward currency contracts to fix the rate of foreign currency. In addition, our catalyst financing arrangements discussed in Note 9 could require repayment under certain conditions based on the future pricing of platinum, which is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to ~~income.~~earnings.

The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:

Gain (Loss) Recognized in Earnings
Derivatives Not Designated as Hedging Instruments Income Statement Location Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Commodity contracts Cost of products sold $ (7,180 ) $ 338
$ 17,909
$ (7,079 )
Interest expense (5,100 ) 741
4,712
(1,275 )
Foreign currency contracts Gain (loss) on foreign currency transactions (14,315 ) (7,090 ) 19,160
(14,696 )
Total $ (26,595 ) $ (6,011 ) $ 41,781
$ (23,050 )

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

As of June 30, ~~2020,~~2021, we have the following notional contract volumes related to outstanding derivative instruments:


		Notional Contract Volumes by Year of Maturity
	Total Outstanding Notional	2021	2022	Unit of Measure
Derivatives Designated as Hedging Instruments
Natural gas price swaps - long	900,000	900,000	0	MMBTU


Forward crude oil contracts - short	90,000	90,000	0	Barrels

Derivatives Not Designated as Hedging Instruments
NYMEX futures (WTI) - short	665,000	665,000	0	Barrels


Forward gasoline and diesel contracts - long	365,000	365,000	0	Barrels



Foreign currency forward contracts	434,968,532	210,609,988	224,358,544	U.S. dollar
Forward commodity contracts (platinum)	38,723	0	38,723	Troy ounces

Notional Contract Volumes by Year of Maturity
Total Outstanding Notional 2020 2021 Unit of Measure
Derivatives Designated as Hedging Instruments
Natural gas price swaps - long 2,700,000
900,000
1,800,000
MMBTU
Crude oil price swaps (basis spread) - long 2,392,000
2,392,000
—
Barrels
Forward diesel contracts - short 200,000
200,000
—
Barrels

Derivatives Not Designated as Hedging Instruments
NYMEX futures (WTI) - short 890,000
890,000
—
Barrels
Crude oil price swaps (basis spread) - long 736,000
736,000
—
Barrels
Forward gasoline and diesel contracts - long 464,000
464,000
—
Barrels
Foreign currency forward contracts 422,074,120
214,491,576
207,582,544
U.S. dollar
Forward commodity contracts (platinum) 40,867
—
40,867
Troy ounces

The following table presents the fair value and balance sheet locations of our outstanding derivative instruments. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position in our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Derivatives in Net Asset Position Derivatives in Net Liability Position
Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet
(In thousands)
June 30, 2020
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts $ 1,800
$ (1,194 ) $ 606
$ 395
$ —
$ 395
Commodity forward contracts —
—
—
2,134
—
2,134
$ 1,800
$ (1,194 ) $ 606
$ 2,529
$ —
$ 2,529

Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts $ —
$ —
$ —
$ 6,987
$ —
$ 6,987
Commodity price swap contracts 2,955
—
2,955
—
—
—
Commodity forward contracts 4,219
—
4,219
4,022
—
4,022
Foreign currency forward contracts 9,765
(2,404 ) 7,361
—
—
—
$ 16,939
$ (2,404 ) $ 14,535
$ 11,009
$ —
$ 11,009

Total net balance $ 15,141
$ 13,538

Balance sheet classification: Prepayment and other $ 15,141
Accrued liabilities $ 13,143
Other long-term liabilities 395
$ 15,141
$ 13,538


	Derivatives in Net Asset Position						Derivatives in Net Liability Position
	Gross Assets		Gross Liabilities Offset in Balance Sheet		Net Assets Recognized in Balance Sheet		Gross Liabilities		Gross Assets Offset in Balance Sheet		Net Liabilities Recognized in Balance Sheet
			(In thousands)


















December 31, 2020
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts	$	0	$	0	$	0	$	359	$	0	$	359
	$	0	$	0	$	0	$	359	$	0	$	359

Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts	$	0	$	0	$	0	$	418	$	0	$	418

Commodity forward contracts	275		0		275		196		0		196
Foreign currency forward contracts	0		0		0		23,005		0		23,005
	$	275	$	0	$	275	$	23,619	$	0	$	23,619

Total net balance					$	275					$	23,978

Balance sheet classification:	Prepayment and other				$	275	Accrued liabilities				$	23,978

At June 30, ~~2020~~,2021, we had a pre-tax net unrealized ~~loss~~gain of ~~$1.9~~$0.4 million classified in accumulated other comprehensive income that relates to all accounting hedges having contractual maturities through ~~2021. Assuming~~2021, which, assuming commodity prices remain unchanged, ~~an unrealized loss of $1.5 million~~ will be effectively transferred from accumulated other comprehensive income into the statement of ~~income~~operations as the hedging instruments contractually mature over the next twelve-month period.

In November 2019, our Board of Directors approved a $1.0 billion share repurchase program, which replaced all existing share repurchase programs, authorizing us to repurchase common stock in the open market or through privately negotiated transactions. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory and other relevant considerations. This program may be discontinued at any time by the Board of Directors. As of June 30, ~~2020,~~2021, we had not repurchased common stock under this stock repurchase program. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs.

During the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we withheld ~~29,587~~14,063 and ~~2,484,~~29,587, respectively, shares of our common stock from certain employees. These withholdings were made under the terms of restricted stock unit and performance share unit agreements upon vesting, at which time, we concurrently made cash payments to fund payroll and income taxes on behalf of officers and employees who elected to have shares withheld from vested amounts to pay such taxes.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

NOTE 12:Other Comprehensive Income

The components and allocated tax effects of other comprehensive income are as follows:

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Before-Tax
Tax Expense
(Benefit)
After-Tax
(In thousands)
Three Months Ended June 30, 2020
Net change in foreign currency translation adjustment $ 11,710
$ 2,488
$ 9,222
Net unrealized gain on hedging instruments 6,914
1,762
5,152
Other comprehensive income attributable to HollyFrontier stockholders $ 18,624
$ 4,250
$ 14,374

Three Months Ended June 30, 2019
Net change in foreign currency translation adjustment $ 9,160
$ 1,950
$ 7,210
Net unrealized loss on hedging instruments (6,014 ) (1,534 ) (4,480 )
Net change in pension and other post-retirement benefit obligations 74
—
74
Other comprehensive income attributable to HollyFrontier stockholders $ 3,220
$ 416
$ 2,804

Six Months Ended June 30, 2020
Net change in foreign currency translation adjustment $ (9,876 ) $ (2,139 ) $ (7,737 )
Net unrealized loss on hedging instruments (6,410 ) (1,636 ) (4,774 )
Net change in pension and other post-retirement benefit obligations (42 ) (4 ) (38 )
Other comprehensive loss attributable to HollyFrontier stockholders $ (16,328 ) $ (3,779 ) $ (12,549 )

Six Months Ended June 30, 2019
Net change in foreign currency translation adjustment $ 13,523
$ 2,855
$ 10,668
Net unrealized gain on hedging instruments 7,934
2,023
5,911
Other comprehensive income attributable to HollyFrontier stockholders $ 21,457
$ 4,878
$ 16,579

The following table presents the ~~income statement~~statements of operations line item effects for reclassifications out of accumulated other comprehensive income (“AOCI”):

AOCI Component Gain (Loss) Reclassified From AOCI Income Statement Line Item
Three Months Ended June 30,
2020 2019
(In thousands)
Hedging instruments:
Commodity price swaps $ (5,403 ) $ —
Sales and other revenues
459
5,674
Cost of products sold
(457 ) (353 ) Operating expenses
(5,401 ) 5,321

(1,377 ) 1,357
Income tax expense (benefit)
Total reclassifications for the period $ (4,024 ) $ 3,964
Net of tax

Six Months Ended June 30,
2020 2019
Hedging instruments:
Commodity price swaps $ 49
$ (1,799 ) Sales and other revenues
2,289
9,295
Cost of products sold
(1,163 ) (533 ) Operating expenses
1,175
6,963

300
1,776
Income tax expense
Total reclassifications for the period $ 875
$ 5,187
Net of tax

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued


AOCI Component	Gain (Loss) Reclassified From AOCI				Statement of Operations Line Item
	Six Months Ended June 30,
	2021		2020
	(In thousands)
Hedging instruments:
Commodity price swaps	$	(18,771)	$	49	Sales and other revenues
	0		2,289		Cost of products sold
	(53)		(1,163)		Operating expenses
	(18,824)		1,175
	(4,744)		300		Income tax expense (benefit)
	(14,080)		875		Net of tax

Other post-retirement benefit obligations:
Pension obligations	205		0		Other, net
	52		0		Income tax expense
	153		0		Net of tax

Post-retirement healthcare obligations	1,675		0		Other, net
	422		0		Income tax expense
	1,253		0		Net of tax

Retirement restoration plan	(18)		0		Other, net
	(5)		0		Income tax benefit
	(13)		0		Net of tax

Total reclassifications for the period	$	(12,687)	$	875

Accumulated other comprehensive income ~~(loss)~~ in the equity section of our consolidated balance sheets includes:

PCLI has union and non-union pension plans which are closed to new entrants. In addition, Sonneborn employees in the Netherlands have a defined benefit pension plan which was frozen and all plan participants became inactive in 2016. Our net periodic pension expense consisted of the following components:

~~The expected long-term annual rates of return on plan assets are 5.75% and 1.50% for the PCLI and Sonneborn plans, respectively. These rates were used in measuring 2020 net periodic benefit costs.~~NOTE 13:Contingencies

We have post-retirement healthcare and other benefits that are available to certain of our employees who satisfy certain age and service requirements. The net periodic benefit credit of our post-retirement healthcare and other benefits plans consisted of the following components

~~The components, other than service cost, of our net periodic pension expense and net periodic post-retirement credit are recorded in Other, net in our consolidated statements of income.~~

We are a party to various litigation and legal proceedings which we believe, based on advice of counsel, will not either individually or in the aggregate have a materially adverse effect on our financial condition, results of operations or cash flows.

We filed a business interruption claim with our insurance carriers related to a fire at our Woods Cross Refinery that occurred in the first quarter 2018. As of June 30, 2020, we have collected interim payments totaling $56.0 million, but have not reached a final agreement regarding the amounts owed to us pursuant to our business interruption coverage. We have accounted for this claim as a gain contingency and accordingly, we have deferred revenue recognition for the interim payments received until such time that uncertainties regarding the amounts owed to us have been resolved.

During 2017, 2018 and 2019, the EPA granted the Cheyenne Refinery and Woods Cross Refinery each a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2016, 2017 and 2018, respectively, calendar years. As a result, the Cheyenne Refinery’s and Woods Cross Refinery’s gasoline and diesel production are not subject to the Renewable Volume Obligation for the respective years. Upon each exemption granted, we increased our inventory of RINs and reduced our cost of products sold.

~~In 2019, various~~

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Various subsidiaries of HollyFrontier ~~moved to intervene~~are currently intervenors in ~~four~~two lawsuits brought by renewable fuel interest groups against the EPA in federal courts alleging violations of the RFS under the Clean Air Act and challenging the EPA’s handling of small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery exemptions because we believe the EPA correctly applied applicable law to the matters at issue. The first lawsuit is before the U.S. Court of Appeals for the Tenth Circuit. The matter is fully briefed and remains pending before that court. The second lawsuit is before the U.S. Court of Appeals for the DC Circuit. Briefing of the issues before the court commenced on December 7, 2020; however, in light of the Supreme Court’s decision to review HollyFrontier’s petition for certiorari of the Tenth Circuit ~~dismissed one of these four lawsuits on November 12, 2019 for lack of jurisdiction.~~January 24, 2020 decision, this case was stayed pending a decision from the Supreme Court. The stay has not been lifted to date. On January 24, 2020, in a separate matter before the ~~U.S. Court of Appeals for~~Tenth Circuit, the Tenth Circuit vacated the small refinery exemptions granted to two of our refineries for 2016 and remanded the case to the EPA for further proceedings. On ~~March 24,~~April 15, 2020, the Tenth Circuit issued its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for ~~Rehearing~~a Writ of Certiorari with the U.S. Supreme Court seeking review of ~~Appeals for~~the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted HollyFrontier's petition. The oral argument occurred on April 27, 2021. The U.S. Supreme Court issued its opinion in this matter on June 25, 2021 and reversed the Tenth Circuit. On ~~April 7, 2020,~~July 27, 2021, the Tenth Circuit ~~denied our request~~recalled the mandate it issued to ~~reconsider its decision, and~~the EPA on April 15, 2020 and vacated its January 24, 2020 judgment. On July 29, 2021, the Tenth Circuit ~~entered~~issued an order and judgment confirming that it recalled its mandate ~~remanding the matter back~~and vacated its previous judgment in this case. The Tenth Circuit also issued a new mandate returning jurisdiction to the EPA. ~~It is not clear at this time what steps~~In December 2020, various subsidiaries of HollyFrontier also filed a petition for review in the ~~EPA will take with respect to our 2016~~DC Circuit challenging the EPA's denial of small refinery ~~exemptions,~~exemption petitions for years prior to 2016. The petition was consolidated with petitions from eight other refining companies challenging the same decision. In light of the Supreme Court's decision to hear HollyFrontier's appeal of the Tenth Circuit decision, this case was stayed pending a decision from the Supreme Court. Following the Supreme Court’s decision, HollyFrontier’s subsidiaries filed a motion on July 26, 2021 to dismiss their petition. The DC Circuit granted this motion and wedismissed the case on July 28, 2021. We are unable to estimate the costs we may incur, if any, at this time. It is ~~also not clear~~too early to assess how the ~~case~~U.S. Supreme Court decision will impact future small refinery ~~exemptions. It is too early to assess~~exemptions or whether the remaining ~~two~~ cases are expected to have any impact on us.

We have been party to multiple proceedings before the Federal Energy Regulatory Commission (“FERC”) challenging the rates charged by SFPP, L.P. (“SFPP”) on its East Line pipeline facilities from El Paso, Texas to Phoenix, Arizona. In March 2018, FERC ruled that SFPP, as a master limited partnership, was prohibited from including an allowance for investor income taxes in the cost of service underlying its East Line rates. We reached a negotiated settlement with SFPP that provides for a payment to us of $51.5 million. FERC approved the settlement on December 31, 2020 subject to a rehearing period that resulted in a settlement effective date of February 2, 2021. Under the terms of the settlement agreement, SFPP made the $51.5 million payment to us on February 10, 2021. As of December 31, 2020, we had no enforceable right to collect any of the settlement. Accordingly, recognition of a gain occurred when the uncertainties were resolved on February 2, 2021, and we recorded as Gain on tariff settlement in our consolidated statements of operations for the six months ended June 30, 2021.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

NOTE 14:Segment Information

Our operations are organized into 3 reportable segments, Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and

The Refining segment represents the operations of the El Dorado, Tulsa, Navajo ~~Cheyenne~~ and Woods Cross Refineries and HFC Asphalt (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma. The Refining segment also included the operations of the Cheyenne Refinery through the third quarter of 2020, at which time it permanently ceased petroleum refining operations.

The Lubricants and Specialty Products segment involves PCLI’s production operations, located in Mississauga, Ontario, that includes lubricant products such as base oils, white oils, specialty products and finished lubricants, and the operations of our ~~Petro- Canada~~Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa Refineries that are marketed throughout North America and are distributed in Central and South America and Red Giant Oil, one of the largest suppliers of locomotive engine oil in North America. Also, ~~effective with our acquisition that closed February 1, 2019,~~ the Lubricants and Specialty Products segment includes Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

The HEP segment includes all of the operations of HEP, which owns and operates logistics and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. ~~As of June 30, 2020, the~~The HEP segment also includes a 75% ownership interest in UNEV (a consolidated subsidiary of HEP) and 50% ownership interests in each of the Osage Pipeline, the Cheyenne Pipeline and Cushing Connect. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP’s periodic public filings.

The accounting policies for our segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020, except that our Refining segment excludes intercompany ROU assets and liabilities for operating leases.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

and Eliminations (1)

Long-lived asset impairment (2)

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

and Eliminations (1)

Long-lived asset impairment (2)

(1) For the three and the six months ended June 30, 2021, Corporate and Other includes $11.3 million and $24.1 million, respectively, of operating expenses and $113.8 million and $184.0 million, respectively, of capital expenditures related to the construction of our renewable diesel units.

(2) The results of our HEP reportable segment for the three and six months ended June 30, 2020 include a long-lived asset impairment charge attributed to HEP’s logistics assets at our Cheyenne Refinery.

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

NOTE 15:Subsequent Event

On August 2, 2021, HollyFrontier, Hippo Parent Corporation, a wholly owned subsidiary of HollyFrontier (“New Parent”), Hippo Merger Sub, Inc., a wholly owned subsidiary of New Parent (“Parent Merger Sub”), The Sinclair Companies (“Sinclair”), and Hippo Holding LLC, a wholly owned subsidiary of Sinclair (the “Target Company”), entered into a Business Combination Agreement (the “Business Combination Agreement”). Pursuant to the Business Combination Agreement, HollyFrontier will acquire the Target Company by effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby HollyFrontier will merge with and into Parent Merger Sub, with HollyFrontier surviving such merger as a direct wholly owned subsidiary of New Parent (the “HFC Merger”) and (b) immediately following the HFC Merger, a contribution whereby Sinclair will contribute all of the equity interests of the Target Company to New Parent in exchange for shares of New Parent, resulting in the Target Company becoming a direct wholly owned subsidiary of New Parent (the “Sinclair Oil Acquisition” and together with the HFC Merger, the “HFC Transactions”).

Under the terms of the Business Combination Agreement, at the effective time of the HFC Merger, (a) each share of common stock of HollyFrontier, par value $0.01 per share, will be automatically converted into 1 share of common stock of New Parent, par value $0.01 per share (“New Parent Common Stock”) and (b) immediately thereafter, Sinclair will contribute the equity interests in the Target Company to New Parent in exchange for 60,230,036 shares of New Parent Common Stock, subject to adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions (as defined below), HollyFrontier agrees to divest certain Woods Cross Refinery assets and the sales price for such assets does not exceed a threshold provided in the Business Combination Agreement.

On a pro forma basis following the closing, Sinclair is expected to own 26.75% of the outstanding common stock of New Parent, and HollyFrontier’s current stockholders are expected to hold in the aggregate 73.25% of the outstanding common stock of New Parent, based on HollyFrontier’s outstanding shares of common stock as of July 30, 2021.

Consummation of the HFC Transactions is subject to satisfaction or waiver of certain customary conditions, including, among others, receipt of approval for the issuance of New Parent common stock from HollyFrontier’s stockholders; the satisfaction of certain required regulatory consents and approvals,including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act; and the consummation of the HEP Transactions (as defined below), which will occur immediately prior to the HFC Transactions (the HEP Transactions, together with the HFC Transactions, the “Sinclair Transactions”).

The Business Combination Agreement automatically terminates if the HEP Transactions are terminated and contains other customary termination rights. In the event that certain events occur under specified circumstances outlined in the Business Combination Agreement, HollyFrontier could be required to pay Sinclair a termination fee equal to $200 million or $35 million as reimbursement for expenses.

Upon closing of the Sinclair Transactions, HollyFrontier’s existing senior management team will operate the combined company. Under the definitive agreements, Sinclair will be granted the right to nominate two directors to the New Parent Board of Directors at the closing. The Sinclair stockholders have also agreed to certain customary lock up, voting and standstill restrictions, as well as customary registration rights, for the New Parent Common Stock to be issued to the stockholders of Sinclair. The new company will be headquartered in Dallas, Texas, with combined business offices in Salt Lake City, Utah. Following the consummation of the HFC Merger, New Parent will assume HollyFrontier’s listing on the New York Stock Exchange and will be renamed “HF Sinclair Corporation”.

On August 2, 2021, HEP, Sinclair, and Sinclair Transportation Company, a wholly owned subsidiary of Sinclair (“STC”), entered into a Contribution Agreement (the “Contribution Agreement”) pursuant to which the Partnership will acquire all of the outstanding shares of STC in exchange for 21 million newly issued common limited partner units of HEP and cash consideration equal to $325 million (the “HEP Transactions”).

HOLLYFRONTIER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

The cash consideration for the HEP Transactions is subject to customary adjustments at closing for working capital of STC. The number of HEP common limited partner units to be issued to Sinclair at closing is subject to downward adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HEP agrees to divest a portion of its equity interest in UNEV Pipeline LLC and the sales price for such interests does not exceed the threshold provided in the Contribution Agreement.

The Contribution Agreement contains customary representations, warranties and covenants of HEP, Sinclair, and STC. The HEP Transactions are expected to close in mid-2022, subject to the satisfaction or waiver of certain customary conditions, including, among others, the receipt of certain required regulatory consents and approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and the consummation of the HFC Transactions.

The Contribution Agreement automatically terminates if the HFC Transactions are terminated and contains other customary termination rights, including a termination right for each of the Partnership and Sinclair if, under certain circumstances, the closing does not occur by May 2, 2022 (the “Outside Date”), except that the Outside Date can be extended by either party by up to 2 90 day periods to obtain any required antitrust clearance.

Upon closing of the HEP Transactions, HEP’s existing senior management team will continue to operate HEP. Under the definitive agreements, Sinclair will be granted the right to nominate 1 director to the HEP Board of Directors at the closing. The Sinclair stockholders have also agreed to certain customary lock up restrictions and registration rights for the HEP common limited partner units to be issued to the stockholders of Sinclair. HEP will continue to operate under the name Holly Energy Partners, L.P.

On August 2, 2021, in connection with the Sinclair Transactions, HEP and HollyFrontier entered into a Letter Agreement (“Letter Agreement”) pursuant to which, among other things, HEP and HollyFrontier agreed, upon the consummation of the Sinclair Transactions, to enter into amendments to certain of the agreements by and among HEP and HollyFrontier, including the master throughput agreement, to include within the scope of such agreements the assets to be acquired by HEP pursuant to the Contribution Agreement.

In addition, the Letter Agreement provides that if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HollyFrontier enters into a definitive agreement to divest its Woods Cross Refinery, then HEP would sell certain assets located at, or relating to, the Woods Cross Refinery to HollyFrontier in exchange for cash consideration equal to $232.5 million plus the certain accounts receivable of HEP in respect of such assets, with such sale to be effective immediately prior to the closing of the sale of the Woods Cross Refinery by HollyFrontier. The Letter Agreement also provides that HEP’s right to future revenues from HollyFrontier in respect of such Woods Cross Refinery assets will terminate at the closing of such sale.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Item 2 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of Part I of this Quarterly Report on Form 10-Q. In this document, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier Corporation (“HollyFrontier”) and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. This document contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.

We are ~~principally~~ an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modified asphalt. ~~As of June 30, 2020, we owned~~We own and ~~operated~~operate refineries located in El Dorado, Kansas (the “El Dorado Refinery”), Tulsa, Oklahoma (the “Tulsa Refineries”), which comprise two production facilities, the Tulsa West and East facilities, Artesia, New Mexico, which operates in conjunction with crude, vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo ~~Refinery”), Cheyenne, Wyoming (the “Cheyenne~~ Refinery”) and Woods Cross, Utah (the “Woods Cross Refinery”). We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, we produce base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. We also own a 57% limited partner interest and a non-economic general partner interest in HEP, a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries.

On ~~June 1,~~August 2, 2021, HollyFrontier, Hippo Parent Corporation, a wholly owned subsidiary of HollyFrontier (“New Parent”), Hippo Merger Sub, Inc., a wholly owned subsidiary of New Parent (“Parent Merger Sub”), The Sinclair Companies (“Sinclair”), and Hippo Holding LLC, a wholly owned subsidiary of Sinclair (the “Target Company”), entered into a Business Combination Agreement (the “Business Combination Agreement”). Pursuant to the Business Combination Agreement, HollyFrontier will acquire the Target Company by effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby HollyFrontier will merge with and into Parent Merger Sub, with HollyFrontier surviving such merger as a direct wholly owned subsidiary of New Parent (the “HFC Merger”) and (b) immediately following the HFC Merger, a contribution whereby Sinclair will contribute all of the equity interests of the Target Company to New Parent in exchange for shares of New Parent, resulting in the Target Company becoming a direct wholly owned subsidiary of New Parent (the “Sinclair Oil Acquisition” and together with the HFC Merger, the “HFC Transactions”).

Under the terms of the Business Combination Agreement, (a) each share of common stock of HollyFrontier, par value $0.01 per share, will be automatically converted into one share of common stock of New Parent, par value $0.01 per share (“New Parent Common Stock”) and (b) Sinclair will contribute the equity interests in the Target Company to New Parent in exchange for 60,230,036 shares of New Parent Common Stock, subject to adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions (as defined below), HollyFrontier agrees to divest certain Woods Cross Refinery assets and the sales price for such assets does not exceed a threshold provided in the Business Combination Agreement.

Additionally, on August 2, 2021, HEP, Sinclair, and Sinclair Transportation Company, a wholly owned subsidiary of Sinclair (“STC”), entered into a Contribution Agreement (the “Contribution Agreement”) pursuant to which HEP will acquire all of the outstanding shares of STC in exchange for 21 million newly issued common limited partner units of HEP and cash consideration equal to $325 million (the “HEP Transactions”, and together with the HFC Transactions, the “Sinclair Transactions”), subject to downward adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HEP agrees to divest a portion of its equity interest in UNEV Pipeline LLC and the sales price for such interests does not exceed the threshold provided in the Contribution Agreement.

The Sinclair Transactions are expected to close in mid-2022, subject to customary closing conditions and regulatory clearance, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and the receipt of required approvals of HFC’s stockholders. In addition, the HFC Transactions and the HEP Transactions are cross-conditioned on each other. See Note 15 of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information.

On April 27, 2021, our wholly-owned subsidiary, 7037619 Canada Inc, entered into a contract for sale of property in Mississuaga, Canada for base consideration of Canadian $125 million, and we expect the transaction to close in the third quarter of 2021.

In the third quarter of 2020, we ~~announced plans to~~ permanently ~~cease~~ceased petroleum refining operations at our facility in Cheyenne, ~~Refinery~~Wyoming (the “Cheyenne Refinery”) and ~~to convert~~subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. ~~This decision was primarily based on a positive outlook on~~In connection with the ~~market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne Refinery would be challenged due to lower gross margins resulting from the economic impact~~cessation of the COVID-19 pandemic and compressed crude differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating and maintenance costs forecasted for our Cheyenne Refinery and the anticipated loss of the Environmental Protection Agency’s (“EPA”) small refinery exemption. Approximately 200 employees at our Cheyenne Refinery are expected to be impacted by this decision. We began winding downpetroleum refining operations at our Cheyenne Refinery, on August 3, 2020, and subsequently began conversion of certain units for renewable diesel production. The renewable diesel units are expected to be completed in the first quarter of 2022 with an expected capital budget between $125-$175 million.

~~During the second quarter of 2020,~~ we ~~recorded a long-lived asset impairment of $232.2~~recognized $8.1 million and ~~accelerated depreciation of $2.2~~$16.3 million, ~~related to our Cheyenne Refinery asset groups. We expect to record additional non-cash charges of $3.7~~in decommissioning expense and $0.2 million ~~for accelerated depreciation in the third quarter of 2020.~~

~~Additionally, during the second quarter of 2020, we recorded $1.1~~and $0.7 million, in employee severance costs ~~related to~~for the ~~conversion of our Cheyenne Refinery. Also, during the second quarter of 2020, we recorded a reserve of $6.2 million against our repair~~three and ~~maintenance supplies inventory. These severance costs and the inventory reserve charge~~six months ended June 30, 2021, respectively, which were recognized in operating expenses and were reported in the Refining segment. Over the next twelve months, we anticipate pre-tax costs of approximately $45 million for decommissioning assets and $5-$7 million for severance obligations and proceeds of $50-$70 million from the liquidation of working capital. In addition, we may potentially incur further charges related to revisions in our ~~estimates of asset retirement obligations for our Cheyenne Refinery.~~Corporate and Other segment.

During the ~~second~~first quarter of ~~2020,~~2021, we initiated a restructuring within our Lubricants and ~~completed a corporate restructuring,~~Specialty Products segment, which is expected to save approximately ~~$30~~$15 million per year of ongoing cash expenses. ~~As a result of this restructuring, we~~We recorded ~~$3.7~~$7.8 million in employee severance costs for the six months ended June 30, 2021, which were recognized primarily as ~~operating expenses in our Refining segment and~~ selling, general and administrative expenses in our ~~Corporate~~Lubricants and ~~Other~~Specialty Products segment.

On November 12, 2018, we entered into an equity purchase agreement to acquire 100% of the issued and outstanding capital stock of Sonneborn US Holdings Inc. and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively, “Sonneborn”). The acquisition closed on February 1, 2019. Cash consideration paid was $662.7 million. Sonneborn is a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

For the three months ended June 30, ~~2020,~~2021, net ~~loss~~income attributable to HollyFrontier stockholders was ~~$(176.7)~~$168.9 million compared to net ~~income~~loss of ~~$196.9~~$176.7 million for the three months ended June 30, ~~2019.~~2020. For the six months ended June 30, ~~2020,~~2021, net ~~loss~~income attributable to HollyFrontier stockholders was ~~$(481.3)~~$317.1 million compared to net ~~income~~loss of ~~$450.0~~$481.3 million for the six months ended June 30, ~~2019.~~2020. Included in our financial results for the second quarter of ~~2020 were non-cash items consisting of $436.9 million long-lived asset impairment charges related to our Cheyenne Refinery and PCLI, offset by~~2021 was an inventory reserve adjustment that resulted in a benefit of ~~$269.9~~$118.8 million. ~~Second quarter earnings reflect weak demand for refined products, lubricants and transportation services across the industry, with overall gross~~Gross refining margin per produced barrel sold ~~decreasing 57%~~in our Refining segment increased 45% for the three months ended June 30, ~~2020~~2021 over the same period of ~~2019.~~2020. Included in the three months ended June 30, ~~2019, was a goodwill~~2020 were long-lived asset impairment ~~charge~~charges of ~~$152.7~~$436.9 million related to our Cheyenne Refinery and Petro-Canada Lubricants ~~and Specialty Products segment.~~Inc. (“PCLI”).

Pursuant to the 2007 Energy Independence and Security Act, the ~~EPA~~Environmental Protection Agency (“EPA”) promulgated the Renewable Fuel Standard (“RFS”) regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as renewable identification numbers (“RINs”), in lieu of such blending. Compliance with RFS regulations significantly increases our cost of products sold, with RINs costs totaling ~~$32.5~~$175.0 million for the three months ended June 30, ~~2020.~~2021. At June 30, 2021, our open RINs credit obligations were $131.1 million. We will continue to monitor and adjust our RINs position commensurate with our production levels, market conditions and RFS regulations.

Impact of COVID-19 on Our Business

The COVID-19 pandemic caused a decline in U.S. and global economic activity starting in the first quarter of 2020. This decrease reduced both volumes and unit margins across our businesses, resulting in lower gross margins and earnings. ~~Over the course of the second quarter,~~Global demand for transportation fuels ~~and lubricants stabilized and showed incremental improvement~~has continued to improve beginning late in the ~~quarter.~~second quarter of 2020, but remains below pre-pandemic levels. In response to this ~~level of~~ demand ~~during the second quarter of 2020,~~and margin environment, as well as both planned and unplanned maintenance, we operated our Refining segment refineries at an average crude charge of ~~349,580 BPD.~~416,350 BPD during the second quarter of 2021.

~~The stabilization~~In our Lubricants and Specialty Products segment, the Rack Back portion saw a combination of strong demand ~~drove~~as well as limited supply due to a ~~broad increase~~number of factors driving strong margins and earnings across the segment. In the Rack Forward portion, despite strong sales volumes and price increases, the rapid rise in base oil prices through the quarter compressed margins in the second quarter of 2021.

Continued increases in commodity prices ~~resulting~~resulted in market values for our inventories held at June 30, ~~2020~~2021 above the costs of these inventories using the last-in, first-out (“LIFO”) method and in a lower of cost or market valuation gain of ~~$269.9~~$118.8 million for the three months ended June 30, ~~2020. Additionally, this stabilization of demand and commodity prices resulted in a smaller than expected use of working capital during the quarter.~~2021.

As a result of these conditions, we have reduced our 2020 expected total consolidated capital expenditures by approximately 15%, to a range of $525 million to $625 million. Additionally, during the second quarter, we completed a corporate restructuring program expected to save approximately $30 million per year in ongoing cash expenses.

~~HollyFrontier’s~~Our standalone (excluding HEP) liquidity was ~~over $2.2~~approximately $2.7 billion at June 30, ~~2020,~~2021, consisting of a cash ~~balance~~and cash equivalents of ~~$883.6 million~~ $1.4 billion and an undrawn $1.35 billion credit facility maturing in ~~2022. HollyFrontier’s earliest~~2026. Our standalone (excluding HEP) principal amount of long-term debt ~~maturity is $1.0~~was $1.75 billion as of June 30, 2021, which consists of $350.0 million in 2.625% senior notes due in ~~2026.~~2023, $1.0 billion of 5.875% senior notes due in 2026 and $400.0 million in 4.500% senior notes due in 2030.

The impact of the COVID-19 pandemic on the global macroeconomy ~~has~~ created an unprecedented reduction in demand, as well as a lack of forward visibility, for many of the transportation fuels, lubricants and specialty products and the associated transportation and terminal services we provide. Other factors expected to impact crude oil supply include production levels implemented by OPEC members, other large oil producers such as Russia and domestic and Canadian oil producers. While we have seen a recent stabilizationSince the declines in demand ~~and commodity and expect a strong recovery~~at the beginning of ~~demand for all of these essential products in the long-run, there remains little visibility on the timing for or extent of this recovery in the near term.~~

~~In response to~~ 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 second quarter of 2021, and with the ~~health and safety~~increasing availability of vaccines, we believe there is a path to a fulsome recovery in demand in 2021.

With increasing vaccination rates, most of our employees ~~as a top priority,~~have returned to work at our locations, and we ~~have continued several initiatives, including limiting onsite staff at all of our facilities~~continue to ~~essential operational personnel only, using a work from home policy~~follow Centers for ~~certain employees~~Disease Control and ~~restricting travel unless approved by senior leadership.~~local government guidance. We will continue to monitor developments in the COVID-19 ~~developments~~pandemic and the dynamic environment it has created to properly address these policies going forward.

Within our Refining segment, for the third quarter ~~2020,~~of 2021, we expect to run between ~~340,000-370,000~~380,000-400,000 barrels per day of crude ~~oil based on market demand for transportation fuels. Currently, the primary determinants of demand are the various government orders and guidance restricting or discouraging most forms of travel.~~oil. We expect to adjust refinery production levels commensurate with market ~~demand.~~demand and planned maintenance.

InWithin our Lubricants and Specialty Products segment, for the full year 2021, we ~~have withdrawn 2020 guidance for~~expect to earn between $180 million to $220 million in income from operations and $230 million to $270 million of EBITDA in the Rack Forward ~~business. Within our industrial and passenger car-related end markets, demand saw improvement over the course~~portion of the second quarter as compared to the depressed levels we saw at the end of the first quarter of 2020, while in our personal care end markets, demand continues to run slightly below historical levels. We expect industrial demand to continue to rebound with the broader economy.segment. Within the Rack Back portion, for the third quarter of 2021, we expect base oil ~~demand~~margins to ~~rebound with~~fall from spot market levels, but remain higher than the ~~reopening of its primary transportation-related end markets.~~past three years. Similar to our Refining segment, we ~~intend~~expect to ~~match~~adjust production tolevels commensurate with market demand.

At HEP, we ~~have seen an improvement in~~expect to see demand for transportation and terminal services ~~during~~grow with underlying demand for transportation fuels and crude oil. In 2021, HEP expects to hold the ~~second quarter of 2020 as compared to the first quarter of 2020, and we expect that trend to continue. HEP maintained its~~ quarterly distribution toconstant at $0.35 per unit, ~~representative of a new~~or $1.40 on an annualized basis. HEP remains committed to its distribution ~~policy~~strategy focused on funding all capital expenditures and distributions within operating cash flow and improving distributable cash flow coverage to 1.3x or greater ~~and~~with the goal of reducing leverage to 3.0-3.5x.

During the third quarter of 2020, we ~~announced plans~~increased our liquidity by $750.0 million with the issuance of $350.0 million in 2.625% senior notes due in 2023 and $400.0 million in 4.500% senior notes due in 2030. This additional liquidity may be used for general corporate purposes and is expected to ~~further expand~~support the planned growth of our renewables business ~~through~~and the ~~construction~~unexpected economic impact of a pre-treatment unit located at the Navajo Refinery’s Artesia facility and conversion of the Cheyenne Refinery to renewable diesel production. Including this decision, we maintained the range of our 2020 consolidated capital budget at $525 million to $625 million. Additionally, we implemented a corporate restructuring program expected to save approximately $30 million of annual expenses. We continue to evaluate additional ways to reduce cash costs including operating, sales, general and administrative spending reductionsCOVID-19, as ~~well as incremental capital spending reductions.~~needed. We do not intend to repurchase common stock under our $1.0 billion share repurchase program until ~~commodity prices and~~ demand for our products normalize. In addition, we announced the Puget Sound Acquisition, which is expected to close in the fourth quarter of 2021, subject to customary closing conditions. We expect to fund the Puget Sound Acquisition with a one-year suspension of our regular quarterly dividend and cash on hand. Our Board of Directors approved the one-year suspension of the regular quarterly dividend effective with the dividend to be declared for the first quarter of 2021 and is expected to resume the dividend after such time.

On March 27, 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), an approximately $2 trillion stimulus package that ~~includes~~included various provisions intended to provide relief to individuals and businesses in the form of tax changes, loans and grants, among others. At this time, we have not sought relief in the form of loans or grants from the CARES Act; however, we have benefited from certain tax deferrals in the CARES Act and may benefit from other tax provisions if we meet the requirements to do so.

The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the ~~pandemic;~~pandemic, the effects of any new variant strains of the underlying virus, additional actions by businesses and governments in response to the 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,~~it, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 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 “Item 1A - Risk Factors” for other potential impacts of COVID-19 on our business.~~

A more detailed discussion of our financial and operating results for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 is presented in the following sections.

RESULTS OF OPERATIONS

Three Months Ended June 30, Change from 2019
2020 2019 Change Percent
(In thousands, except per share data)
Sales and other revenues $ 2,062,930
$ 4,782,615
$ (2,719,685 ) (57 )%
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 1,576,996
3,704,884
(2,127,888 ) (57 )
Lower of cost or market inventory valuation adjustment (269,904 ) 47,801
(317,705 ) (665 )
1,307,092
3,752,685
(2,445,593 ) (65 )
Operating expenses (exclusive of depreciation and amortization) 303,359
333,252
(29,893 ) (9 )
Selling, general and administrative expenses (exclusive of depreciation and amortization) 75,369
85,317
(9,948 ) (12 )
Depreciation and amortization 130,178
126,908
3,270
3
Long-lived asset and goodwill impairments 436,908
152,712
284,196
186
Total operating costs and expenses 2,252,906
4,450,874
(2,197,968 ) (49 )
Income (loss) from operations (189,976 ) 331,741
(521,717 ) (157 )
Other income (expense):
Earnings of equity method investments 2,156
1,783
373
21
Interest income 1,506
4,588
(3,082 ) (67 )
Interest expense (32,695 ) (34,264 ) 1,569
(5 )
Gain on sales-type leases 33,834
—
33,834
—
Gain on foreign currency transactions 2,285
2,213
72
3
Other, net 1,572
92
1,480
1,609
8,658
(25,588 ) 34,246
(134 )
Income (loss) before income taxes (181,318 ) 306,153
(487,471 ) (159 )
Income tax expense (benefit) (30,911 ) 89,336
(120,247 ) (135 )
Net income (loss) (150,407 ) 216,817
(367,224 ) (169 )
Less net income attributable to noncontrolling interest 26,270
19,902
6,368
32
Net income (loss) attributable to HollyFrontier stockholders $ (176,677 ) $ 196,915
$ (373,592 ) (190 )%
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic $ (1.09 ) $ 1.16
$ (2.25 ) (194 )%
Diluted $ (1.09 ) $ 1.15
$ (2.24 ) (195 )%
Cash dividends declared per common share $ 0.35
$ 0.33
$ 0.02
6 %
Average number of common shares outstanding:
Basic 161,889
169,356
(7,467 ) (4 )%
Diluted 161,889
170,547
(8,658 ) (5 )%


	Six Months Ended June 30,				Change from 2020
	2021		2020		Change		Percent
	(In thousands, except per share data)
Sales and other revenues	$	8,081,416	$	5,463,475	2,617,941		48	%
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)	6,786,034		4,270,722		2,515,312		59
Lower of cost or market inventory valuation adjustment	(318,862)		290,560		(609,422)		(210)
	6,467,172		4,561,282		1,905,890		42
Operating expenses (exclusive of depreciation and amortization)	734,100		631,704		102,396		16
Selling, general and administrative expenses (exclusive of depreciation and amortization)	159,729		163,106		(3,377)		(2)
Depreciation and amortization	248,121		270,753		(22,632)		(8)
Long-lived asset impairment	—		436,908		(436,908)		(100)
Total operating costs and expenses	7,609,122		6,063,753		1,545,369		25
Income (loss) from operations	472,294		(600,278)		1,072,572		(179)

Other income (expense):
Earnings of equity method investments	5,186		3,870		1,316		34
Interest income	2,060		5,579		(3,519)		(63)
Interest expense	(67,328)		(55,334)		(11,994)		22

Gain on tariff settlement	51,500		—		51,500		—
Gain on sales-type leases	—		33,834		(33,834)		(100)
Loss on early extinguishment of debt	—		(25,915)		25,915		(100)
Loss on foreign currency transactions	(734)		(1,948)		1,214		(62)
Other, net	9,817		3,422		6,395		187
	501		(36,492)		36,993		(101)
Income (loss) before income taxes	472,795		(636,770)		1,109,565		(174)
Income tax expense (benefit)	95,178		(193,077)		288,255		(149)
Net income (loss)	377,617		(443,693)		821,310		(185)
Less net income attributable to noncontrolling interest	60,550		37,607		22,943		61
Net income (loss) attributable to HollyFrontier stockholders	$	317,067	$	(481,300)	$	798,367	(166)	%

Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic	$	1.92	$	(2.97)	$	4.89	(165)	%
Diluted	$	1.92	$	(2.97)	$	4.89	(165)	%
Cash dividends declared per common share	$	0.35	$	0.70	$	(0.35)	(50)	%
Average number of common shares outstanding:
Basic	162,501		161,882		619		—	%
Diluted	162,501		161,882		619		—	%

Other Financial Data

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(In thousands)
Net cash provided by operating activities $ 119,204
$ 752,734
$ 309,302
$ 969,550
Net cash used for investing activities $ (45,572 ) $ (55,584 ) $ (131,666 ) $ (782,309 )
Net cash used for financing activities $ (84,062 ) $ (279,736 ) $ (155,519 ) $ (429,864 )
Capital expenditures $ 45,987
$ 56,734
$ 129,736
$ 120,469
EBITDA ⁽¹⁾
$ (46,221 ) $ 442,835
$ (353,869 ) $ 935,088

Segment Operating Data

Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. See Note 1514 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments.

Refining Segment Operating Data

Our refinery operations include the El Dorado, Tulsa, Navajo ~~Cheyenne~~ and Woods Cross Refineries. The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations. The cost of products and refinery gross and net operating margins do not include the non-cash effects of ~~long-lived asset impairment charges,~~ lower of cost or market inventory valuation adjustments, ~~and~~ depreciation and ~~amortization.~~amortization and long-lived asset impairments. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.

In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region continues to be comprised of the El Dorado and Tulsa Refineries, and the new West region is comprised of the Navajo and Woods Cross Refineries. Refining segment operating data for the three and six months ended June 30, 2020 have been retrospectively adjusted to reflect the revised regional groupings.

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) ⁽¹⁾
206,950
264,290
229,670
238,890
Refinery throughput (BPD) ⁽²⁾
220,010
278,710
245,470
254,520
Sales of produced refined products (BPD) ⁽³⁾
216,280
273,010
237,760
245,450
Refinery utilization ⁽⁴⁾
79.6 % 101.7 % 88.3 % 91.9 %

Average per produced barrel ⁽⁵⁾

Refinery gross margin $ 6.31
$ 17.17
$ 8.07
$ 14.51
Refinery operating expenses ⁽⁶⁾
5.68
5.02
5.47
5.74
Net operating margin $ 0.63
$ 12.15
$ 2.60
$ 8.77

Refinery operating expenses per throughput barrel ⁽⁷⁾
$ 5.58
$ 4.92
$ 5.30
$ 5.54

Feedstocks:
Sweet crude oil 61 % 57 % 56 % 54 %
Sour crude oil 16 % 22 % 19 % 23 %
Heavy sour crude oil 17 % 16 % 19 % 17 %
Other feedstocks and blends 6 % 5 % 6 % 6 %
Total 100 % 100 % 100 % 100 %

Table of Content


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1)	278,380			206,950			247,500			229,670
Refinery throughput (BPD) (2)	293,050			220,010			257,030			245,470
Sales of produced refined products (BPD) (3)	287,680			216,280			249,400			237,760
Refinery utilization (4)	107.1		%	79.6		%	95.2		%	88.3		%

Average per produced barrel (5)
Refinery gross margin	$	10.82		$	6.31		$	8.99		$	8.07
Refinery operating expenses (6)	5.27			5.68			7.22			5.47
Net operating margin	$	5.55		$	0.63		$	1.77		$	2.60

Refinery operating expenses per throughput barrel (7)	$	5.18		$	5.58		$	6.89		$	5.30

Feedstocks:
Sweet crude oil	64		%	61		%	62		%	56		%
Sour crude oil	14		%	16		%	14		%	19		%
Heavy sour crude oil	17		%	17		%	19		%	19		%
Other feedstocks and blends	5		%	6		%	5		%	6		%
Total	100		%	100		%	100		%	100		%












Sales of produced refined products:
Gasolines	51	%	54	%	51	%	53	%
Diesel fuels	34	%	36	%	34	%	33	%
Jet fuels	4	%	1	%	5	%	4	%
Fuel oil	1	%	1	%	1	%	1	%
Asphalt	2	%	3	%	2	%	3	%
Base oils	4	%	3	%	4	%	4	%
LPG and other	4	%	2	%	3	%	2	%
Total	100	%	100	%	100	%	100	%




West Region (Navajo and Woods Cross Refineries)
Crude charge (BPD) (1)	137,970			105,120			134,940			122,690
Refinery throughput (BPD) (2)	151,680			117,840			148,160			136,090
Sales of produced refined products (BPD) (3)	156,260			132,610			150,290			141,610
Refinery utilization (4)	95.2		%	72.5		%	93.1		%	84.6		%

Average per produced barrel (5)
Refinery gross margin	$	13.35		$	10.96		$	11.88		$	12.41
Refinery operating expenses (6)	6.57			7.26			7.29			7.07
Net operating margin	$	6.78		$	3.70		$	4.59		$	5.34

Refinery operating expenses per throughput barrel (7)	$	6.77		$	7.62		$	7.40		$	7.36

Feedstocks:
Sweet crude oil	22		%	32		%	23		%	29		%
Sour crude oil	59		%	48		%	59		%	50		%
Black wax crude oil	10		%	9		%	9		%	11		%
Other feedstocks and blends	9		%	11		%	9		%	10		%
Total	100		%	100		%	100		%	100		%

Sales of produced refined products:
Gasolines	52		%	55		%	53		%	56		%
Diesel fuels	37		%	34		%	37		%	35		%
Fuel oil	3		%	2		%	3		%	2		%
Asphalt	5		%	6		%	4		%	4		%
LPG and other	3		%	3		%	3		%	3		%
Total	100		%	100		%	100		%	100		%

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Mid-Continent Region (El Dorado and Tulsa Refineries)
Sales of produced refined products:
Gasolines 54 % 51 % 53 % 52 %
Diesel fuels 36 % 34 % 33 % 31 %
Jet fuels 1 % 6 % 4 % 7 %
Fuel oil 1 % 1 % 1 % 1 %
Asphalt 3 % 2 % 3 % 3 %
Base oils 3 % 4 % 4 % 4 %
LPG and other 2 % 2 % 2 % 2 %
Total 100 % 100 % 100 % 100 %

Southwest Region (Navajo Refinery)
Crude charge (BPD) ⁽¹⁾
79,460
109,080
93,130
107,560
Refinery throughput (BPD) ⁽²⁾
89,470
119,480
103,460
117,860
Sales of produced refined products (BPD) ⁽³⁾
101,880
122,090
107,740
122,730
Refinery utilization ⁽⁴⁾
79.5 % 109.1 % 93.1 % 107.6 %

Average per produced barrel ⁽⁵⁾

Refinery gross margin $ 11.08
$ 23.45
$ 11.89
$ 19.70
Refinery operating expenses ⁽⁶⁾
5.12
4.53
5.20
4.73
Net operating margin $ 5.96
$ 18.92
$ 6.69
$ 14.97

Refinery operating expenses per throughput barrel ⁽⁷⁾
$ 5.83
$ 4.63
$ 5.42
$ 4.93

Feedstocks:
Sweet crude oil 25 % 24 % 24 % 20 %
Sour crude oil 64 % 67 % 66 % 71 %
Other feedstocks and blends 11 % 9 % 10 % 9 %
Total 100 % 100 % 100 % 100 %

Sales of produced refined products:
Gasolines 53 % 48 % 54 % 51 %
Diesel fuels 34 % 40 % 36 % 38 %
Fuel oil 2 % 4 % 2 % 3 %
Asphalt 8 % 6 % 5 % 5 %
LPG and other 3 % 2 % 3 % 3 %
Total 100 % 100 % 100 % 100 %

Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) ⁽¹⁾
63,170
79,660
70,170
80,440
Refinery throughput (BPD) ⁽²⁾
68,020
86,700
75,610
87,080
Sales of produced refined products (BPD) ⁽³⁾
64,750
74,000
72,100
78,000
Refinery utilization ⁽⁴⁾
65.1 % 82.1 % 72.3 % 82.9 %

Average per produced barrel ⁽⁵⁾

Refinery gross margin $ 11.41
$ 22.48
$ 13.54
$ 17.07
Refinery operating expenses ⁽⁶⁾
13.60
11.53
12.17
11.11
Net operating margin $ (2.19 ) $ 10.95
$ 1.37
$ 5.96

Refinery operating expenses per throughput barrel ⁽⁷⁾
$ 12.95
$ 9.84
$ 11.61
$ 9.95

Table of Content


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Consolidated
Crude charge (BPD) (1)	416,350			312,070			382,440			352,360
Refinery throughput (BPD) (2)	444,730			337,850			405,190			381,560
Sales of produced refined products (BPD) (3)	443,940			348,890			399,690			379,370
Refinery utilization (4)	102.8		%	77.1		%	94.4		%	87.0		%

Average per produced barrel (5)
Refinery gross margin	$	11.71		$	8.08		$	10.07		$	9.69
Refinery operating expenses (6)	5.73			6.28			7.25			6.07
Net operating margin	$	5.98		$	1.80		$	2.82		$	3.62

Refinery operating expenses per throughput barrel (7)	$	5.72		$	6.48		$	7.07		$	6.03

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Feedstocks:
Sweet crude oil 37 % 34 % 36 % 35 %
Heavy sour crude oil 41 % 35 % 38 % 35 %
Black wax crude oil 15 % 23 % 19 % 22 %
Other feedstocks and blends 7 % 8 % 7 % 8 %
Total 100 % 100 % 100 % 100 %

Sales of produced refined products:
Gasolines 54 % 50 % 55 % 52 %
Diesel fuels 35 % 37 % 33 % 35 %
Fuel oil 2 % 4 % 3 % 4 %
Asphalt 6 % 6 % 6 % 6 %
LPG and other 3 % 3 % 3 % 3 %
Total 100 % 100 % 100 % 100 %

Consolidated
Crude charge (BPD) ⁽¹⁾
349,580
453,030
392,970
426,890
Refinery throughput (BPD) ⁽²⁾
377,500
484,890
424,540
459,460
Sales of produced refined products (BPD) ⁽³⁾
382,910
469,100
417,600
446,190
Refinery utilization ⁽⁴⁾
76.5 % 99.1 % 86.0 % 93.4 %

Average per produced barrel ⁽⁵⁾

Refinery gross margin $ 8.44
$ 19.64
$ 10.00
$ 16.39
Refinery operating expenses ⁽⁶⁾
6.87
5.92
6.56
6.40
Net operating margin $ 1.57
$ 13.72
$ 3.44
$ 9.99

Refinery operating expenses per throughput barrel ⁽⁷⁾
$ 6.97
$ 5.73
$ 6.45
$ 6.22

Feedstocks:
Sweet crude oil 48 % 44 % 45 % 42 %
Sour crude oil 25 % 29 % 27 % 31 %
Heavy sour crude oil 17 % 16 % 17 % 16 %
Black wax crude oil 3 % 4 % 4 % 4 %
Other feedstocks and blends 7 % 7 % 7 % 7 %
Total 100 % 100 % 100 % 100 %


Feedstocks:									Feedstocks:
Sweet crude oil									Sweet crude oil	50	%	51	%	48	%	46	%
Sour crude oil									Sour crude oil	30	%	27	%	30	%	30	%
Heavy sour crude oil									Heavy sour crude oil	11	%	11	%	12	%	12	%
Black wax crude oil									Black wax crude oil	3	%	3	%	3	%	4	%
Other feedstocks and blends									Other feedstocks and blends	6	%	8	%	7	%	8	%
Total									Total	100	%	100	%	100	%	100	%

Sales of produced refined products:									Sales of produced refined products:
Gasolines	54	%	50	%	53	%	52	%	Gasolines	51	%	54	%	52	%	54	%
Diesel fuels	35	%	36	%	34	%	34	%	Diesel fuels	35	%	35	%	35	%	34	%
Jet fuels	1	%	4	%	3	%	4	%	Jet fuels	3	%	1	%	3	%	3	%
Fuel oil	1	%	2	%	1	%	2	%	Fuel oil	1	%	1	%	1	%	1	%
Asphalt	4	%	4	%	4	%	4	%	Asphalt	3	%	4	%	3	%	3	%
Base oils	2	%	2	%	2	%	2	%	Base oils	3	%	2	%	3	%	2	%
LPG and other	3	%	2	%	3	%	2	%	LPG and other	4	%	3	%	3	%	3	%
Total	100	%	100	%	100	%	100	%	Total	100	%	100	%	100	%	100	%


~~(1)~~	~~Crude charge represents the barrels per day of crude oil processed at our refineries.~~


~~(2)~~	~~Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.~~


~~(3)~~	~~Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include volumes~~

(1)Crude charge represents the barrels per day of crude oil processed at our refineries.

(2)Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.

(3)Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold.


~~(4)~~	~~Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 457,000 BPSD.~~

~~(5)~~

(4)Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 405,000 BPSD.

(5)Represents average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 ~~of Part I of this Form 10-Q.~~

~~Table~~ of ~~Content~~Part I of this Form 10-Q.


~~(6)~~	~~Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes~~

(6)Represents total refining segment operating expenses, exclusive of depreciation and amortization and Cheyenne Refinery operating expenses, divided by sales volumes of refined products produced at our refineries.


~~(7)~~	~~Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.~~

(7)Represents total refining segment operating expenses, exclusive of depreciation and amortization and Cheyenne Refinery operating expenses, divided by refinery throughput.

Table of Content

Lubricants and Specialty Products Operating Data

The following table sets forth information about our lubricants and specialty products operations. For the six months ended June 30, 2019, our lubricants and specialty products operating results reflect the operations of our Sonneborn business for the period February 1, 2019 (date of acquisition) through June 30, 2019.

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Lubricants and Specialty Products
Throughput (BPD) 16,370
16,990
19,060
18,390
Sales of produced refined products (BPD) 26,990
34,660
31,900
34,050

Sales of produced refined products:
Finished products 56 % 52 % 51 % 50 %
Base oils 19 % 32 % 23 % 29 %
Other 25 % 16 % 26 % 21 %
Total 100 % 100 % 100 % 100 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Lubricants and Specialty Products
Throughput (BPD)	19,310		16,370		19,860		19,060
Sales of produced refined products (BPD)	36,670		26,990		34,630		31,900

Sales of produced refined products:
Finished products	51	%	56	%	52	%	51	%
Base oils	29	%	19	%	27	%	23	%
Other	20	%	25	%	21	%	26	%
Total	100	%	100	%	100	%	100	%

Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below.


														Rack Back (1)		Rack Forward (2)		Eliminations (3)		Total Lubricants and Specialty Products
	Rack Back ⁽¹⁾			Rack Forward ⁽²⁾			Eliminations ⁽³⁾			Total Lubricants and Specialty Products				(In thousands)
Three months ended June 30, 2021													Three months ended June 30, 2021
Sales and other revenues													Sales and other revenues	$	254,485	$	629,211	$	(214,507)	$	669,189
Cost of products sold													Cost of products sold	$	163,280	$	542,445	$	(214,507)	$	491,218
Operating expenses													Operating expenses	$	29,106	$	32,204	$	—	$	61,310
Selling, general and administrative expenses													Selling, general and administrative expenses	$	5,914	$	31,669	$	—	$	37,583
Depreciation and amortization													Depreciation and amortization	$	6,230	$	12,922	$	—	$	19,152

Income from operations													Income from operations	$	49,955	$	9,971	$	—	$	59,926
	(In thousands)
Three months ended June 30, 2020													Three months ended June 30, 2020
Sales and other revenues	$	85,857		$	343,927		$	(72,497	)	$	357,287		Sales and other revenues	$	85,857	$	343,927	$	(72,497)	$	357,287
Cost of products sold	$	67,210		$	263,634		$	(72,497	)	$	258,347		Cost of products sold	$	67,210	$	263,634	$	(72,497)	$	258,347
Operating expenses	$	21,034		$	26,806		$	—		$	47,840		Operating expenses	$	21,034	$	26,806	$	—	$	47,840
Selling, general and administrative expenses	$	5,617		$	30,302		$	—		$	35,919		Selling, general and administrative expenses	$	5,617	$	30,302	$	—	$	35,919
Depreciation and amortization	$	5,877		$	13,902		$	—		$	19,779		Depreciation and amortization	$	5,877	$	13,902	$	—	$	19,779
Long-lived asset impairment	$	167,017		$	37,691		$	—		$	204,708		Long-lived asset impairment	$	167,017	$	37,691	$	—	$	204,708
Income (loss) from operations	$	(180,898	)	$	(28,408	)	$	—		$	(209,306	)

Three months ended June 30, 2019
Sales and other revenues	$	133,225		$	507,183		$	(95,062	)	$	545,346
Cost of products sold	$	131,725		$	378,690		$	(95,062	)	$	415,353
Operating expenses	$	30,585		$	28,537		$	—		$	59,122
Selling, general and administrative expenses	$	6,366		$	35,721		$	—		$	42,087
Depreciation and amortization	$	11,075		$	11,945		$	—		$	23,020
Goodwill impairment ⁽⁴⁾	$	152,712		$	—		$	—		$	152,712
Income (loss) from operations	$	(199,238	)	$	52,290		$	—		$	(146,948	)
Loss from operations													Loss from operations	$	(180,898)	$	(28,408)	$	—	$	(209,306)

Rack Forward ⁽²⁾

Eliminations ⁽³⁾

Goodwill impairment ⁽⁴⁾




Six months ended June 30, 2021
Sales and other revenues	$	427,927	$	1,112,457	$	(346,632)	$	1,193,752
Cost of products sold	$	295,812	$	873,561	$	(346,632)	$	822,741
Operating expenses	$	57,727	$	64,336	$	—	$	122,063
Selling, general and administrative expenses	$	12,653	$	70,483	$	—	$	83,136
Depreciation and amortization	$	13,535	$	25,738	$	—	$	39,273

Income from operations	$	48,200	$	78,339	$	—	$	126,539

Six months ended June 30, 2020
Sales and other revenues	$	250,686	$	817,984	$	(184,780)	$	883,890
Cost of products sold	$	247,810	$	586,697	$	(184,780)	$	649,727
Operating expenses	$	44,303	$	57,668	$	—	$	101,971
Selling, general and administrative expenses	$	10,980	$	73,901	$	—	$	84,881
Depreciation and amortization	$	16,744	$	25,084	$	—	$	41,828
Long-lived asset impairment	$	167,017	$	37,691	$	—	$	204,708
Income (loss) from operations	$	(236,168)	$	36,943	$	—	$	(199,225)

~~(4) During the three months ended June 30, 2019, a goodwill impairment charge~~

Table of $152.7 million was recorded in the PCLI reporting unit within the Lubricants and Specialty Products segment. We separately allocated this goodwill impairment charge for purposes of management’s discussion and analysis presentation of Rack Back and Rack Forward results entirely to Rack Back.Content

Results of Operations – Three Months Ended June 30, ~~2020~~2021 Compared to Three Months Ended June 30, ~~2019~~2020

Summary

Net ~~loss~~income attributable to HollyFrontier stockholders for the three months ended June 30, ~~2020~~2021 was ~~$(176.7)~~$168.9 million ($~~(1.09)~~1.03 per basic and diluted share), a ~~$373.6~~$345.5 million ~~decrease compared to~~increase from a net ~~income~~loss of ~~$196.9~~$176.7 million ($~~1.16~~(1.09) per basic and ~~$1.15 per~~ diluted share) for the three months ended June 30, ~~2019. Net~~2020. The increase in net income ~~decreased~~was principally due ~~principally~~ to long-lived asset impairment charges of $436.9 million ~~lower gross refining margins and lower refining segment sales volumes. For~~for the three months ended June 30, 2020, partially offset by lower of cost or market inventory reserve adjustments that increased pre-tax earnings by ~~$269.9 million compared to a decrease to pre-tax earnings of $47.8~~$118.8 million for the three months ended June 30, ~~2019.~~2021 as compared to $269.9 million for the three months ended June 30, 2020. Refinery gross margins for the three months ended June 30, ~~2020 decreased~~2021 increased to ~~$8.44~~$11.71 per produced barrel sold from ~~$19.64~~$8.08 for the three months ended June 30, ~~2019. The three months ended June 30, 2019 included a goodwill impairment charge of $152.7 million.~~2020.

Sales and Other Revenues

Sales and other revenues ~~decreased 57%~~increased 122% from ~~$4,782.6 million for the three months ended June 30, 2019 to~~ $2,062.9 million for the three months ended June 30, 2020 to $4,577.1 million for the three months ended June 30, 2021 due to ~~a year-over-year decrease~~the increase in ~~second quarter~~ sales prices and ~~lower~~higher refined product sales volumes. Sales and other revenues for the three months ended June 30, 2021 and 2020 included $27.1 million and ~~2019 included~~ $19.2 million, ~~and $28.4 million,~~ respectively, inof HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. Additionally, sales and other revenues included ~~$353.6~~$662.8 million and ~~$545.3~~$353.6 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~Table of Content~~

Cost of Products Sold

Total cost of products sold ~~decreased 65%~~increased 184% from ~~$3,752.7 million for the three months ended June 30, 2019 to~~ $1,307.1 million for the three months ended June 30, 2020 to $3,706.9 million for the three months ended June 30, 2021 principally due ~~principally~~ to ~~lower~~higher crude oil costs and ~~lower~~higher refined product ~~sales~~ volumes. ~~Additionally, during~~During the second quarter of ~~2020,~~2021, we recognized a lower of cost or market inventory valuation adjustment benefit of ~~$269.9~~$118.8 million compared to a ~~charge~~benefit of ~~$47.8~~$269.9 million for the same period ~~of 2019, resulting~~ in ~~a new $530.9 million inventory lower of cost or market reserve at June 30,~~ 2020. ~~The lower of cost or market reserve at June 30, 2020 is based on market conditions and prices at that time.~~

Gross Refinery Margins

Gross refinery margin per produced barrel sold ~~decreased 57%~~increased 45% from ~~$19.64~~$8.08 for the three months ended June 30, ~~2019~~2020 to ~~$8.44~~$11.71 for the three months ended June 30, ~~2020. This~~2021. The increase was due to the effects of ~~a decrease~~an increase in the average per barrel sold sales price during the current year quarter, partially offset by ~~decreased~~increased crude oil and feedstock prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sale prices of products sold and cost of products purchased.

Operating Expenses

Operating expenses, exclusive of depreciation and amortization, ~~decreased 9%~~increased 10% from ~~$333.3 million for the three months ended June 30, 2019 to~~ $303.4 million for the three months ended June 30, 2020 ~~due principally~~ to ~~lower repair and maintenance costs~~$334.2 million for the three months ended June 30, ~~2020 compared~~2021 primarily due to ~~prior period. Prior year period operating expenses included higher~~an increase in repair and maintenance costs ~~related~~and the increase in natural gas prices and natural gas utilization compared to ~~a February 2019 fire in an FCC unit at our El Dorado Refinery.~~the three months ended June 30, 2020. Lower natural gas prices and utilization during 2020 were primarily the result of the COVID-19 pandemic.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~decreased 12% from $85.3~~of $77.8 million for the three months ended June 30, ~~2019 to $75.4~~2021 were consistent with the same period in the prior year.

Depreciation and Amortization Expenses

Depreciation and amortization decreased 5% from $130.2 million for the three months ended June 30, 2020 ~~due principally~~ to lower incentive compensation costs and employee-related travels expenses. We incurred $0.6 million and $3.6 million in direct acquisition and integration costs of our Sonneborn business during the three months ended June 30, 2020 and 2019, respectively.

~~Depreciation and Amortization Expenses~~

~~Depreciation and amortization increased 3% from $126.9~~$124.0 million for the three months ended June 30, ~~2019~~2021. This decrease was primarily due to ~~$130.2 million for the three months ended June 30, 2020. This increase was due principally to depreciation and amortization attributable to capitalized improvement projects and~~lower capitalized refinery turnaround costs ~~partially offset by~~during 2020 and lower depreciation expense resulting from the assets impaired ~~assets~~ in the ~~current quarter.~~second quarter of 2020.

Long-lived Asset ~~and Goodwill Impairments~~Impairment

During the three months ended June 30, 2020, we recorded long-lived asset impairment charges of $232.2 million ~~that~~ related to our Cheyenne Refinery and $204.7 million ~~related to PCLI. During the three months ended June 30, 2019, we recorded a goodwill impairment charge of $152.7 million that~~ related to PCLI. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information on these impairments.

Table of Content

Interest ~~Income~~Expense

Interest ~~income for the three months ended June 30, 2020~~expense was ~~$1.5 million compared to $4.6~~$28.9 million for the three months ended June 30, ~~2019.~~2021 compared to $32.7 million for the three months ended June 30, 2020. This decrease was primarily due to ~~lower interest rates on cash investments~~net gains related to our catalyst financing arrangement during ~~the current year quarter.~~

~~Interest Expense~~

~~Interest expense was~~ ~~$32.7 million~~ ~~for~~ the three months ended June 30, ~~2020~~2021 as compared to net losses during the same period in the prior year~~$34.3 million~~, ~~for the three months ended~~ ~~June 30, 2019. This decrease was primarily due to lower market interest rates on HEP’s credit facility and HEP’s refinancing of its 6.0% senior notes due 2024,~~ partially offset by ~~an unrealized loss~~interest expense on ~~the mark-to-market change of the fair value of the embedded derivative~~our senior notes issued in ~~our catalyst financing arrangements during the current year quarter.~~ September 2020.

For the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, interest expense ~~included~~attributable to our HEP segment was $13.9 million and $12.1 million, ~~and $19.2 million, respectively, in interest costs attributable to HEP operations.~~respectively.

Gain on Sales-type Leases

During the second quarter of 2020, HEP and Delek US Holdings, Inc. renewed the original throughput agreement on specific HEP assets. Portions of the new throughput agreement meet the definition of sales-type leases, which resulted in an accounting gain of ~~$33.8~~$33.8 million upon the initial recognition of the sales-type lease during the three months ended June 30, 2020.

~~Table of Content~~

Gain on Foreign Currency Transactions

Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes were net gains of ~~$2.3~~$0.6 million and ~~$2.2~~$2.3 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, gain on foreign currency transactions included a loss of ~~$14.3~~$6.1 million and ~~$7.1~~$14.3 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Other, Net

For the three months ended June 30, 2021, HEP recorded a $5.3 million gain related to the sale of certain pipeline assets.

Income Taxes

For the three months ended June 30, ~~2020,~~2021, we recorded an income tax ~~benefit~~expense of ~~$30.9~~$123.5 million compared to ~~income tax expense~~a benefit of ~~$89.3~~$30.9 million for the three months ended June 30, ~~2019.~~2020. This ~~decrease~~increase was principally due ~~principally~~ to a pre-tax ~~loss~~income during the three months ended June 30, ~~2020~~2021 compared to a pre-tax ~~earnings~~loss in the same period of ~~2019.~~2020. Our effective tax rates were ~~17.0%~~38.8% and ~~29.2%~~17.0% for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~year-over-year decrease~~increase in the effective tax rate is principally due ~~principally~~ to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes.

The difference in the U.S. federal statutory rate and the effective tax rate for the three months ended June 30, 2021 was primarily due to the reversal of benefits recorded in the previous quarter due to increased income, partially offset by benefits recorded on state tax rate decreases enacted in the current quarter.

Results of Operations – Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 ~~Compared to~~ ~~Six~~ ~~Months Ended~~ ~~June 30, 2019~~

Summary

Net ~~loss~~income attributable to HollyFrontier stockholders for the six months ended June 30, ~~2020~~2021 was ~~$(481.3)~~$317.1 million (~~$(2.97)~~ ($1.92 per basic and diluted share), a ~~$931.3~~$798.4 million ~~decrease~~ increase compared to a net ~~income~~loss of ~~$450.0~~$481.3 million ($~~2.64~~(2.97) per basic and ~~$2.62 per~~ diluted share) for the six months ended June 30, ~~2019.~~2020. Net income ~~decreased~~increased principally due ~~principally~~ to ~~long-lived asset impairment charges of $436.9 million, lower gross refining margins and lower refining segment sales volumes. For the six months ended June 30, 2020,~~ lower of cost or market inventory reserve adjustments ~~decreased~~that increased pre-tax earnings by ~~$290.6 million compared to an increase to pre-tax earnings of $184.5~~$318.9 million for the six months ended June 30, ~~2019.~~2021 and decreased pre-tax earnings by $290.6 million for the six months ended June 30, 2020. In addition, we recorded long-lived asset impairment charges of $436.9 million for the six months ended June 30, 2020. The increase in net income for the six months ended June 30, 2021 was partially offset by the impact of winter storm Uri, which increased natural gas costs by approximately $65 million across our refining system. Refinery gross margins for the six months ended June 30, ~~2020 decreased~~2021 increased to ~~$10.00~~$10.07 per barrel sold from ~~$16.39~~$9.69 for the six months ended June 30, ~~2019. The six months ended June 30, 2019 included a goodwill impairment charge of $152.7 million.~~2020.

Sales and Other Revenues

Sales and other revenues ~~decreased 37%~~increased 48% from ~~$8,679.9 million for the six months ended June 30, 2019 to~~ $5,463.5 million for the six months ended June 30, 2020 to $8,081.4 million for the six months ended June 30, 2021 due to a year-over-year ~~decrease~~increase in sales prices and ~~lower~~higher refined product sales volumes. Sales and other revenues for the six months ended June 30, 2021 and 2020 ~~and 2019~~ include ~~$45.7~~$52.4 million and ~~$59.5~~$45.7 million, respectively, in HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. Additionally, sales and other revenues included ~~$877.1~~$1,184.8 million and ~~$1,038.7~~$877.1 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Table of Content

Cost of Products Sold

Total cost of products sold ~~decreased 32%~~increased 42% from ~~$6,719.5 million for the six months ended June 30, 2019 to~~ $4,561.3 million for the six months ended June 30, 2020 to $6,467.2 million for the six months ended June 30, 2021 principally due ~~principally~~ to ~~lower~~the increase in crude oil ~~costs~~ and ~~lower~~feedstock prices and refined product sales volumes. ~~Additionally, we~~We recognized a lower of cost or market inventory valuation ~~charge~~benefit of ~~$290.6~~$318.9 million for the six months ended June 30, ~~2020~~2021 compared to a ~~benefit~~charge of ~~$184.5~~$290.6 million for the same period of ~~2019,~~2020, resulting in ~~a new $530.9 million~~no lower of cost or market reserve at June 30, ~~2020. The lower of cost or market reserve at June 30, 2020 is based on market conditions and prices at that time.~~2021.

Gross Refinery Margins

Gross refinery margin per barrel sold ~~decreased 39%~~increased 4% from ~~$16.39~~$9.69 for the six months ended June 30, ~~2019~~2020 to ~~$10.00~~$10.07 for the six months ended June 30, ~~2020. This was~~2021 principally due to the ~~effects of a decrease~~increase in the average per barrel sold sales ~~price during the current year-to-date period,~~prices, partially offset by ~~decreased~~the increase in crude oil and feedstock prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sales prices of products sold and cost of products purchased.

Operating Expenses

Operating expenses, exclusive of depreciation and amortization, ~~decreased 5%~~increased 16% from ~~$664.8~~$631.7 million for ~~the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019~~ to ~~$631.7 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~ due principally to lower repair and maintenance costs compared to prior period. Prior year period operating expenses included higher repair and maintenance costs related to a February 2019 fire in an FCC unit at our El Dorado Refinery.

~~Table of Content~~

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative expenses decreased 6% from~~ ~~$173.4 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019~~ to ~~$163.1 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~ due principally to lower incentive compensation costs and employee travel-related expenses. We incurred $1.9 million and $16.2 million in direct acquisition and integration costs of our Sonneborn business during the six months ended June 30, 2020 to $734.1 million for the six months ended June 30, 2021 primarily due to the increase in natural gas prices and ~~2019, respectively.~~natural gas utilization and higher planned and unplanned repair and maintenance costs compared to the six months ended June 30, 2020. The increase in natural gas prices was due in part to winter storm Uri during the first quarter of 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses of $159.7 million for the six months ended June 30, 2021 were consistent with the same period in the prior year.

Depreciation and Amortization Expenses

Depreciation and amortization ~~increased 9%~~decreased 8% from ~~$248.3 million for the six months ended June 30, 2019 to~~ $270.8 million for the six months ended June 30, ~~2020.~~2020 to $248.1 million for the six months ended June 30, 2021. This ~~increase~~decrease was principally due ~~principally~~ to ~~depreciation and amortization attributable to capitalized improvement projects and~~lower capitalized refinery turnaround costs ~~partially offset by~~during 2020 and lower depreciation expense resulting from the assets impaired ~~assets~~ in the ~~current period.~~second quarter of 2020.

Long-lived Asset ~~and Goodwill Impairments~~Impairment

During the six months ended June 30, 2020, we recorded long-lived asset impairment charges of $232.2 million that related to our Cheyenne Refinery and $204.7 million related to PCLI. ~~During the six months ended June 30, 2019, we recorded a goodwill impairment charge of $152.7 million that related to PCLI.~~ See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information on these impairments.

Interest ~~Income~~Expense

Interest ~~income for the six months ended June 30, 2020~~expense was ~~$5.6 million compared to $11.0~~$67.3 million for the six months ended June 30, ~~2019. This decrease was primarily due~~2021 compared to ~~lower average cash balances and lower interest rates on cash investments.~~

~~Interest Expense~~

~~Interest expense was~~ $55.3 million for the six months ended June 30, 2020. This increase was primarily due to interest expense on our senior notes issued in September 2020 ~~compared~~and net losses related to ~~$70.9 million for~~our catalyst financing arrangements during the six months ended June 30, ~~2019. This decrease~~2021 as compared to net gains during the six months ended June 30, 2020. The increase was ~~primarily due to~~partially offset by lower weighted average balance and lower market interest rates on HEP’s credit facility and HEP’s refinancing of its 6.0% senior notes due 2024. Additionally, we recorded an unrealized gain on the mark-to-market change in the fair value of the embedded derivative in our catalyst financing arrangements of $4.7 million forduring the six months ended June 30, ~~2020 compared to an unrealized loss of $1.3 million for the same period in 2019.~~ 2021.

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, interest expense ~~included~~attributable to our HEP Segment was $27.2 million and $28.2 million, respectively.

Gain on Tariff Settlement

For the six months ended June 30, 2021, we recorded a gain of $51.5 million upon the settlement of a tariff rate case. See Note 13 “Contingencies” in the Notes to Consolidated Financial Statements for additional information on this case and ~~$38.3 million, respectively, in interest costs attributable to HEP operations.~~settlement.

Gain on Sales-type Leases

During the second quarter of 2020, HEP and Delek US Holdings, Inc. renewed the original throughput agreement on specific HEP assets. Portions of the new throughput agreement meet the definition of sales-type leases, which resulted in an accounting gain of $33.8 million upon the initial recognition of the sales-type lease during the six months ended June 30, 2020.

Loss on Early Extinguishment of Debt

For the six months ended June 30, 2020, HEP recorded a $25.9 million loss on the redemption of its $500 million aggregate principal amount of 6%6.0% senior notes maturing August 2024 ~~at a redemption cost of~~for $522.5 million.

~~Gain (Loss)~~

Table of Content

Loss on Foreign Currency Transactions

Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes were ~~a loss~~net losses of $0.7 million and $1.9 million for the six months ended June 30, 2021 and 2020, ~~compared to a net gain of $4.5 million for the six months ended June 30, 2019.~~respectively. For the six months ended June 30, ~~2020~~2021 and ~~2019, gain /~~2020, loss on foreign currency transactions included a ~~gain~~net loss of ~~$19.2~~$12.8 million and a ~~loss~~gain of ~~$14.7~~$19.2 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

~~Income Taxes~~Other, Net

For the six months ended June 30, ~~2020,~~2021, HEP recorded a $5.3 million gain related to the sale of certain pipeline assets.

Income Taxes

For the six months ended June 30, 2021, we recorded an income tax expense of $95.2 million compared to a benefit of $193.1 million ~~compared~~for the six months ended June 30, 2020. This change to income tax expense ~~of $176.8 million for the~~ ~~six~~ ~~months ended June 30, 2019. This decrease~~in 2021 from income tax benefit in 2020 was principally due ~~principally~~ to a pre-tax ~~loss~~income during the six months ended June 30, ~~2020~~2021 as compared to a pre-tax ~~earnings in the same period of 2019.~~loss during 2020. Our effective tax rates were ~~30.3%~~20.1% and ~~26.4%~~30.3% for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The year-over-year ~~increase~~decrease in the effective tax rate is principally due ~~principally~~ to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the six months ended June 30, 2021 was primarily due to the tax effects of income attributable to noncontrolling interests.

~~Table of Content~~

LIQUIDITY AND CAPITAL RESOURCES

HollyFrontier Credit Agreement

~~We have a~~On April 30, 2021, we amended our $1.35 billion senior unsecured revolving credit facility ~~maturing in February 2022~~to extend the maturity date to April 30, 2026 (the “HollyFrontier Credit Agreement”). The HollyFrontier Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. At June 30, ~~2020~~,2021, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling ~~$4.9~~$2.3 million under the HollyFrontier Credit Agreement.

HollyFrontier Financing Arrangements

HEP Credit Agreement

On April 30, 2021, HEP ~~has a~~amended its $1.4 billion senior secured revolving credit facility ~~maturing in~~decreasing the commitments under the facility to $1.2 billion and extending the maturity to July ~~2022~~27, 2025 (the “HEP Credit Agreement”) ~~and~~. The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and ~~has~~continues to provide for an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a ~~$300 million accordion.~~maximum amount of $1.7 billion. During the six months ended June 30, ~~2020,~~2021, HEP received advances totaling ~~$168.0~~$141.0 million and repaid ~~$138.5~~$184.5 million under the HEP Credit Agreement. At June 30, ~~2020,~~2021, HEP was in compliance with all of its covenants, had outstanding borrowings of ~~$995.0~~$870.0 million and no outstanding letters of credit under the HEP Credit Agreement.

~~HEP Senior Notes~~

On February 4, 2020, HEP closed a private placement of $500 million in aggregate principal amount of 5.0% HEP senior unsecured notes maturing February 2028. On February 5, 2020, HEP redeemed its existing $500 million aggregate principal amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million. HEP recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized discount and financing costs of $3.4 million. HEP funded the $522.5 million redemption with proceeds from the issuance of its 5.0% senior notes and borrowings under the HEP Credit Agreement.

See Note 9 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments.

~~HEP Common Unit Continuous Offering Program~~

In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the six months ended June 30, 2020, HEP did not issue any common units under this program. As of June 30, 2020, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

Liquidity

We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. In addition, ~~subject to our current cash conservation strategies as discussed above in “Outlook,”~~ components of our growth strategy include the expansion of existing units at our facilities and selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow. ~~We also expect to use cash for payment of cash dividends, which are at~~In connection with the ~~discretion of~~the Puget Sound Acquisition, our Board of Directors ~~and, once commodity prices and demand for products normalize,~~approved a one-year suspension of the regular quarterly dividend effective with the dividend to be declared for the ~~repurchases~~first quarter of ~~our common stock under our share repurchase program.~~2021 and is expected to resume the dividend after such time.

Table of Content

Our standalone (excluding HEP) liquidity was ~~over $2.2~~approximately $2.7 billion at June 30, ~~2020,~~2021, consisting of cash and cash equivalents ~~totaling $883.6 million~~of $1.4 billion and an ~~undrawn~~undrawn $1.35 billion credit ~~facility maturing in 2022. Our earliest standalone (excluding HEP) debt maturity is $1.0 billion of senior notes in 2026.~~facility.

We consider all highly-liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. ~~Cash equivalents are stated at cost, which approximates market value.~~ These primarily consist of investments in conservative, highly-rated instruments issued by financial institutions, government and corporate entities with strong credit standings and money market funds. Cash equivalents are stated at cost, which approximates market value.

~~Table of Content~~

Cash ~~and~~Flows – Operating Activities

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Net cash ~~equivalents increased $17.3~~flows provided by operating activities were $490.1 million for the six months ended June 30, ~~2020. Net cash provided by operating activities of $309.3 million exceeded net cash used by investing and financing activities of $131.7 million, and $155.5 million, respectively.~~

~~Cash Flows – Operating Activities~~

~~Six Months Ended June 30, 2020 Compared~~2021 compared to ~~Six Months Ended June 30, 2019~~

~~Net cash flows provided by operating activities were~~ $309.3 million for the six months ended June 30, 2020, ~~compared~~an increase of $180.8 million. The increase in operating cash flows was primarily due to ~~$969.6~~the increase in gross refinery margins and $51.5 million received upon settlement of a tariff rate case, partially offset by higher operating expenses.

Changes in working capital increased operating cash flows by $149.0 million and decreased operating cash flows by $103.3 million, for the six months ended June 30, ~~2019, a decrease of $660.2 million. Net loss for the six months ended June 30,~~2021 and 2020, of $(443.7) million, was a decrease of $937.0 million compared to net income of $493.3 million for the six months ended June 30, 2019. Non-cash adjustments to net income consisting of depreciation and amortization, long-lived asset and goodwill impairments, lower of cost or market inventory valuation adjustment, earnings of equity method investments, inclusive of distributions, loss on early extinguishment of debt, gain on sales-type leases, gain / loss on sale of assets, deferred income taxes, equity-based compensation expense and fair value changes to derivative instruments totaled $877.5 million for the six months ended June 30, 2020 compared to $327.8 million for the same period in 2019. Adjusted for non-cash items, changesrespectively. Changes in working capital ~~decreased operating cash flows by $103.3 million and increased operating cash flows by $246.9 million,~~items adjust for the ~~six months ended June 30, 2020~~timing of receipts and ~~2019, respectively. Additionally, for the six months ended June 30, 2020, turnaround expenditures decreased to $49.2 million from~~ ~~$110.3 million~~ ~~from the same period~~payments of ~~2019~~.actual cash.

Cash Flows – Investing Activities and Planned Capital Expenditures

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 ~~Compared to~~ ~~Six~~ ~~Months Ended~~ ~~June 30, 2019~~

Net cash flows used for investing activities were ~~$131.7~~$322.3 million for the six ~~months ended~~ ~~June 30, 2020~~ ~~compared to~~ ~~$782.3 million~~ ~~for the~~ ~~six~~ months ended June 30, ~~2019, a decrease~~2021 compared to $131.7 million for the six months ended June 30, 2020, an increase of ~~$650.6~~$190.6 million. Cash expenditures for properties, plants and equipment for the first six months of ~~2020~~2021 increased toto $332.8 million from $129.7 ~~million from $120.5~~ million for the same period in ~~2019. These~~2020, primarily due to expenditures related to our renewable diesel units that are expected to be completed in early 2022. Cash expenditures for properties, plants and equipment include HEP capital expenditures of ~~$30.7~~$57.7 million and ~~$17.8~~$30.7 million for the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2020, ~~and~~ ~~2019, respectively. Additionally,~~ HEP also invested $2.4 million in the Cushing Connect Pipeline & Terminal LLC joint venture. ~~Prior year investing activities reflected a net cash outflow of $662.7 million upon the acquisition of Sonneborn.~~

~~Planned Capital Expenditures~~

HollyFrontier Corporation

Each year our Board of Directors approves our annual capital budget which includes specific projects that management is authorized to undertake. Additionally, when conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. Refinery turnaround spending is amortized over the useful life of the turnaround.

The refining industry is capital intensive and requires on-going investments to sustain our refining operations. This includes replacement of, or rebuilding, refinery units and components that extend the useful life. We also invest in projects that improve operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety compliance and include initiatives as a result of federal and state mandates.

Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and / or yields of associated refining processes.

Table of Content

HEP

Each year the Holly Logistic Services, L.L.C. board of directors approves HEP’s annual capital budget, which specifies capital projects that HEP management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, special projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project. Therefore, HEP’s planned capital expenditures for a given year consist of expenditures approved for capital projects included in its current year capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. ~~HEP expects the majority of the expansion capital budget in 2020 to be invested in the Cushing Connect joint venture.~~ In addition, HEP may spend funds periodically to perform capital upgrades or additions to its assets where a customer reimburses HEP for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.

Due to the COVID-19 pandemic and resulting decline in U.S. and global economic activities, we have reduced our 2020 expected total consolidated capital expenditures by approximately 15% from our approved annual capital budget. Expected capital and turnaround cash spending for ~~2020~~2021 is as follows:


	Expected Cash Spending Range
	(In millions)
HollyFrontier Capital Expenditures
Refining	$	190.0	$	220.0
Renewables	625.0		675.0
Lubricants and Specialty Products	40.0		50.0
Turnarounds and catalyst	320.0		350.0
Total HollyFrontier	1,175.0		1,295.0

HEP
Maintenance	17.0		21.0
Expansion and joint venture investment	38.0		42.0
Refining unit turnarounds	5.0		8.0
Total HEP	60.0		71.0
Total	$	1,235.0	$	1,366.0

Expected Cash Spending Range
(In millions)
HollyFrontier Capital Expenditures
Refining $ 202.0
$ 221.0
Renewable Diesel Unit 150.0
180.0
Lubricants and Specialty Products 30.0
45.0
Turnarounds and catalyst 85.0
110.0
Total HollyFrontier 467.0
556.0

HEP
Maintenance 8.0
12.0
Expansion and joint venture investment 45.0
50.0
Refining unit turnarounds 5.0
7.0
Total HEP 58.0
69.0
Total $ 525.0
$ 625.0

Cash Flows – Financing Activities

Six Months Ended June 30, ~~2020~~2021 Compared to Six Months Ended June 30, ~~2019~~2020

For the six months ended June 30, 2021, our net cash flows used for financing activities were $138.5 million. During the six months ended June 30, 2021, we paid $57.7 million in dividends and $7.9 million of deferred financing costs in connection with the amendment of the HollyFrontier Credit Agreement in April 2021. During the six months ended June 30, 2021, HEP had net repayments of $43.5 million under the HEP Credit Agreement and paid $6.6 million of deferred financing costs in connection with the amendment of the HEP Credit Agreement in April 2021. In addition, HEP paid distributions of $38.2 million to noncontrolling interests and received contributions from noncontrolling interests of $17.6 million.

~~Net~~

For the six months ended June 30, 2020, our net cash flows used for financing activities were $155.5 ~~million for the~~ ~~six~~ ~~months ended June 30, 2020 compared to $429.9 million for the~~ ~~six~~ ~~months ended June 30, 2019, a decrease of $274.3~~ million. During the six months ended June 30, 2020, we ~~purchased $1.2 million of treasury stock and~~ paid $114.4 million in dividends. ~~Also during this period,~~ HEP received $168.0 million and repaid $138.5 million under the HEP Credit Agreement, paid $522.5 million upon the redemption of HEP’s 6.0% senior notes and received $491.3 million in net proceeds from the issuance of HEP 5.0% senior ~~notes,~~notes. In addition, HEP paid distributions of $51.0 million to noncontrolling interests and received contributions from noncontrolling interests of $13.3 million. ~~During the~~

~~six~~ ~~months ended June 30, 2019, we purchased $267.0 million~~Table of treasury stock and paid $113.5 million in dividends. Also during this period, HEP received $175.0 million and repaid $156.5 million under the HEP Credit Agreement and paid distributions of $66.7 million to noncontrolling interests.Content

Contractual Obligations and Commitments

HollyFrontier Corporation

In April 2021, we renewed a contract for terminal and storage services with a third party for an additional 15-year term. The agreement provides for storage capacity of 200,000 barrels per month for a total commitment of $9.4 million over the 15 year term. In addition, the agreement provides a throughput volume commitment of 225,000 barrels per day of crude oil for a total commitment of $92.4 million over the 15-year term. We also had certain lease renewals that increased our lease liabilities on our consolidated balance sheets during the six months ended June 30, 2021. There were no other significant changes to our long-term contractual obligations during the six months ended June 30, ~~2020.~~2021.

HEP

~~In February 2020, HEP issued $500 million in aggregate principal amount of 5.0% HEP senior notes maturing February 2028 and redeemed its existing $500 million 6.0% senior notes maturing August 2024.~~

During the six months ended June 30, ~~2020,~~2021, HEP had ~~net borrowings~~net repayments of ~~$29.5~~$43.5 million resulting in ~~$995.0~~$870.0 million of outstanding borrowings under the HEP Credit Agreement at June 30, ~~2020.~~2021.

~~Table of Content~~

There were no other significant changes to HEP’s long-term contractual obligations during this period.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~.2020. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include the use of the last-in, first-out (“LIFO”) method of valuing certain inventories, assessing the possible impairment of certain long-lived assets and goodwill, and assessing contingent liabilities for probable losses.

Inventory Valuation: Inventories related to our refining operations are stated at the lower of cost, using the LIFO method for crude oil and unfinished and finished refined products, or market. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.

At June 30, ~~2020, our~~2021, the LIFO value of inventory was equal to cost. Future decreases in overall inventory values could result in an establishment of a lower of cost or market inventory valuation reserve ~~was $530.9 million. This amount, or a portion thereof, is subject to reversal as a reduction~~and additional charges to cost of products ~~sold in subsequent periods as inventories giving rise to the reserve are sold, and a new reserve is established.~~sold.

Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-average cost or net realizable value. Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the FIFO method, or net realizable value.

Table of Content

Goodwill and Long-lived Assets: As of June 30, ~~2020,~~2021, our goodwill balance was ~~$2.4~~$2.3 billion, with goodwill assigned to our Refining, Lubricants and Specialty Products and HEP segments of $1,733.5 million, ~~$327.6~~$247.2 million and $312.9 million, respectively. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently 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. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the ~~fair~~carrying value of the reporting unit is greater than its ~~carrying amount,~~fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of reporting unit over the related fair value.

~~Table of Content~~

~~Goodwill~~We continually monitor and ~~long-lived asset impairments~~

~~Due to the recent economic slowdown caused by the COVID-19 pandemic, we determined that~~evaluate various factors for potential indicators of potential goodwill impairment for our Refining and Lubricants and Specialty Products reporting units were present. In addition, we determined that these indicators were also evidence of potential long-lived asset impairments. These indicators included reductions in the prices of our finished goods and raw materials and the related decrease in our gross margins, as well as the recent decline in our common share price which has resulted in a decrease in our market capitalization. Additionally, our recent announcement of the conversion of our Cheyenne Refinery to renewable diesel production was also considered a triggering event requiring assessment of potential impairments to the carrying value of our Cheyenne Refinery asset group. During the second quarter of 2020, we performed interim goodwill and long-lived asset ~~impairment testing as of May 31, 2020.~~

In performing our impairment tests of goodwill and long-lived assets we developed cash flow forecasts for each of our reporting units and asset groups. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted financial information. The cash flow forecasts include significant assumptions such as planned utilization, end-user demand, selling prices, gross margins, operating costs and capital expenditures. Another key assumption applied to these forecasts to determine the fair value of a reporting unit or an asset group is the discount rate. The discount rate is intended to reflect the weighted average cost of capital for a market participant and the risks associated with the realization of the estimated future cash flows. Assumptions about the effects of the COVID-19 pandemic on future demand and market conditions are inherently subjective and difficult to forecast. Our fair value estimates are based on projected cash flows, which we believe to be reasonable.

As a result of our long-lived asset impairment testing, we determined that the carrying value of the long-lived assets of our Cheyenne Refinery and PCLI asset groups were not recoverable, and thus recorded long-lived asset impairment charges of $232.2 million and $204.7 million, respectively, in the second quarter of 2020. Our testing did not result in any other impairment of long-lived assets.

Our interim goodwill impairment testing indicated that the fair values of our Refining and Lubricants and Specialty Products reporting units were in excess of their respective carrying amounts ranging from 9% to 283%; therefore, there was no impairment of goodwill at our Refining and Lubricants and Specialty Products reporting units. Increasing the discount rate by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have changed the results of our goodwill impairment testing.

impairment. A reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and / or ~~additional~~ long-lived asset impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition. ~~Our annual goodwill impairment testing is performed on July 1.~~

Contingencies

We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

RISK MANAGEMENT

We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit.

Commodity Price Risk Management

Foreign Currency Risk Management

Table of Content

As of June 30, ~~2020,~~2021, we have the following notional contract volumes related to all outstanding derivative instruments used to mitigate commodity price and foreign currency risk:


		Notional Contract Volumes by Year of Maturity
Derivative Instrument	Total Outstanding Notional	2021	2022	Unit of Measure

Natural gas price swaps - long	900,000	900,000	—	MMBTU


NYMEX futures (WTI) - short	665,000	665,000	—	Barrels
Forward gasoline and diesel contracts - long	365,000	365,000	—	Barrels

Forward crude oil contracts -short	90,000	90,000	—	Barrels



Foreign currency forward contracts	434,968,532	210,609,988	224,358,544	U.S. dollar
Forward commodity contracts (platinum) (1)	38,723	—	38,723	Troy ounces

Notional Contract Volumes by Year of Maturity
Derivative Instrument Total Outstanding Notional 2020 2021 Unit of Measure

Natural gas price swaps - long 2,700,000
900,000
1,800,000
MMBTU
Crude oil price swaps (basis spread) - long 3,128,000
3,128,000
—
Barrels
NYMEX futures (WTI) - short 890,000
890,000
—
Barrels
Forward gasoline and diesel contracts - long 464,000
464,000
—
Barrels
Forward diesel contracts - short 200,000
200,000
—
Barrels
Foreign currency forward contracts 422,074,120
214,491,576
207,582,544
U.S. dollar
Forward commodity contracts (platinum) ⁽¹⁾
40,867
—
40,867
Troy ounces

(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 9 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing arrangements.

The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity ~~positions~~ hedged under our derivative contracts:


	Estimated Change in Fair Value at June 30,
Commodity-based Derivative Contracts	2021		2020
	(In thousands)
Hypothetical 10% change in underlying commodity prices	$	4,512	$	2,826

Estimated Change in Fair Value at June 30
Commodity-based Derivative Contracts 2020 2019
(In thousands)
Hypothetical 10% change in underlying commodity prices $ 2,826
$ 2,902

Interest Rate Risk Management

The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates as discussed below.

For the fixed rate HollyFrontier Senior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of June 30, ~~2020~~2021 is presented below:


	Outstanding Principal		Estimated Fair Value		Estimated Change in Fair Value
	(In thousands)
HollyFrontier Senior Notes	$	1,750,000	$	1,948,756	$	23,904

HEP Senior Notes	$	500,000	$	512,245	$	13,211

Outstanding
Principal

Estimated
Fair Value

Estimated
Change in
Fair Value
(In thousands)
HollyFrontier Senior Notes $ 1,000,000
$ 1,105,120
$ 20,828
HEP Senior Notes $ 500,000
$ 477,835
$ 17,322

For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At June 30, ~~2020~~,2021, outstanding borrowings under the HEP Credit Agreement were ~~$995.0 million~~.$870.0 million. A hypothetical 10% change in interest rates applicable to the HEP Credit Agreement would not materially affect cash flows.

Our operations are subject to hazards of petroleum processing operations, including but not limited to fire, explosion, cyberattacks and weather-related perils. We maintain various insurance coverages, including property damage, business interruption and cyber insurance, subject to certain ~~deductibles.~~deductibles and insurance policy terms and conditions. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures.

Financial information is reviewed on the counterparties in order to review and monitor their financial stability and assess their ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their commitments.

Table of Content

We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals.

~~Table of Content~~


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 3.Quantitative and Qualitative Disclosures About Market Risk

See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under generally accepted accounting principles in financial statements.

Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants.

Set forth below is our calculation of EBITDA.


														Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019				2021		2020		2021		2020
	(In thousands)													(In thousands)
Net income (loss) attributable to HollyFrontier stockholders	$	(176,677	)	$	196,915		$	(481,300	)	$	449,970		Net income (loss) attributable to HollyFrontier stockholders	$	168,850	$	(176,677)	$	317,067	$	(481,300)
Add interest expense	32,695			34,264			55,334			70,911			Add interest expense	28,942		32,695		67,328		55,334
Subtract interest income	(1,506		)	(4,588		)	(5,579		)	(10,963		)	Subtract interest income	(1,029)		(1,506)		(2,060)		(5,579)
Add income tax expense (benefit)	(30,911		)	89,336			(193,077		)	176,841
Add (subtract) income tax expense (benefit)													Add (subtract) income tax expense (benefit)	123,485		(30,911)		95,178		(193,077)
Add depreciation and amortization	130,178			126,908			270,753			248,329			Add depreciation and amortization	124,042		130,178		248,121		270,753
EBITDA	$	(46,221	)	$	442,835		$	(353,869	)	$	935,088		EBITDA	$	444,290	$	(46,221)	$	725,634	$	(353,869)

Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements.

Refinery gross margin and net operating margin are non-GAAP performance measures that are used by our management and others to compare our refining performance to that of other companies in our industry. We believe these margin measures are helpful to investors in evaluating our refining performance on a relative and absolute basis. Refinery gross margin per produced barrel sold is total refining segment revenues less total refining segment cost of products sold, exclusive of lower of cost or market inventory valuation adjustments, divided by sales volumes of produced refined products sold. Net operating margin per barrel sold is the difference between refinery gross margin and refinery operating expenses per produced barrel sold. These two margins do not include the non-cash effects of ~~long-lived asset impairment charges,~~ lower of cost or market inventory valuation adjustments, or depreciation and ~~amortization.~~amortization or long-lived asset impairment charges. Each of these component performance measures can be reconciled directly to our consolidated statements of ~~income.~~operations. Other companies in our industry may not calculate these performance measures in the same manner.

Below are reconciliations to our consolidated statements of ~~income~~operations for refinery net operating and gross margin and operating expenses, in each case averaged per produced barrel sold. Due to rounding of reported numbers, some amounts may not calculate exactly.

Table of Content

Reconciliation of average refining segment net operating margin per produced barrel sold to refinery gross margin to total sales

and other revenues


	Three Months Ended June 30,				Six Months Ended June 30,

	2021		2020		2021		2020
	(Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per produced barrel sold	$	5.98	$	1.80	$	2.82	$	3.62
Add average refinery operating expenses per produced barrel sold	5.73		6.28		7.25		6.07
Refinery gross margin per produced barrel sold	11.71		8.08		10.07		9.69
Times produced barrels sold (BPD)	443,940		348,890		399,690		379,370
Times number of days in period	91		91		181		182
Refining gross margin	473,067		256,532		728,503		669,049
Add (subtract) rounding	73		(115)		189		12
West and Mid-Continent regions gross margin	473,140		256,417		728,692		669,061
Add West and Mid-Continent regions cost of products sold	3,619,319		1,335,427		6,381,262		3,622,535
Add Cheyenne Refinery sales and other revenues	—		135,660		—		370,774
Refining segment sales and other revenues	4,092,459		1,727,504		7,109,954		4,662,370
Add lubricants and specialty products segment sales and other revenues	669,189		357,287		1,193,752		883,890
Add HEP segment sales and other revenues	126,234		114,807		253,418		242,661
Subtract corporate, other and eliminations	(310,759)		(136,668)		(475,708)		(325,446)
Sales and other revenues	$	4,577,123	$	2,062,930	$	8,081,416	$	5,463,475

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per produced barrel sold $ 1.57
$ 13.72
$ 3.44
$ 9.99
Add average refinery operating expenses per produced barrel sold 6.87
5.92
6.56
6.40
Refinery gross margin per produced barrel sold 8.44
19.64

10.00
16.39
Times produced barrels sold (BPD) 382,910
469,100
417,600
446,190
Times number of days in period 91
91
182
181
Refining segment gross margin 294,090
838,394

760,032
1,323,663
Add (subtract) rounding (23 ) 34
150
(365 )
Total refining segment gross margin 294,067
838,428

760,182
1,323,298
Add refining segment cost of products sold 1,433,437
3,458,832
3,902,188
6,421,372
Refining segment sales and other revenues 1,727,504
4,297,260
4,662,370
7,744,670
Add lubricants and specialty products segment sales and other revenues 357,287
545,346
883,890
1,038,680
Add HEP segment sales and other revenues 114,807
130,751
242,661
265,248
Subtract corporate, other and eliminations (136,668 ) (190,742 ) (325,446 ) (368,736 )
Sales and other revenues $ 2,062,930
$ 4,782,615
$ 5,463,475
$ 8,679,862

Reconciliation of average refining segment operating expenses per produced barrel sold to total operating expenses


	Three Months Ended June 30,				Six Months Ended June 30,

	2021		2020		2021		2020
	(Dollars in thousands, except per barrel amounts)
Consolidated
Average refinery operating expenses per produced barrel sold	$	5.73	$	6.28	$	7.25	$	6.07
Times produced barrels sold (BPD)	443,940		348,890		399,690		379,370
Times number of days in period	91		91		181		182
Refinery operating expenses	231,484		199,384		524,493		419,105
Add (subtract) rounding	(62)		(98)		(216)		(165)
West and Mid-Continent regions operating expenses	231,422		199,286		524,277		418,940
Add Cheyenne Refinery operating expenses	—		40,073		—		79,593
Refining segment operating expenses	231,422		239,359		524,277		498,533
Add lubricants and specialty products segment operating expenses	61,310		47,840		122,063		101,971
Add HEP segment operating expenses	42,068		34,737		83,433		69,718
Add (subtract) corporate, other and eliminations	(609)		(18,577)		4,327		(38,518)
Operating expenses (exclusive of depreciation and amortization)	$	334,191	$	303,359	$	734,100	$	631,704

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(Dollars in thousands, except per barrel amounts)
Consolidated
Average refinery operating expenses per produced barrel sold $ 6.87
$ 5.92
$ 6.56
$ 6.40
Times produced barrels sold (BPD) 382,910
469,100
417,600
446,190
Times number of days in period 91
91
182
181
Refinery operating expenses 239,384
252,714
498,581
516,866
Add (subtract) rounding (25 ) 1
(48 ) 346
Total refining segment operating expenses 239,359
252,715
498,533
517,212
Add lubricants and specialty products segment operating expenses 47,840
59,122
101,971
112,681
Add HEP segment operating expenses 34,737
40,608
69,718
78,121
Subtract corporate, other and eliminations (18,577 ) (19,193 ) (38,518 ) (43,170 )
Operating expenses (exclusive of depreciation and amortization) $ 303,359
$ 333,252
$ 631,704
$ 664,844

Table of Content


~~Item 4.~~	~~Controls and Procedures~~

Item 4.Controls and Procedures

Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, ~~2020~~.2021.

Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Table of Content

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1.Legal Proceedings

In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and other matters. Damages or penalties may be sought from us in some matters and certain matters may require years to resolve. While the outcome and impact of these proceedings and investigations on us cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes that the resolution of these proceedings and investigations through settlement or adverse judgment will not either individually or in the aggregate have a material adverse effect on our financial condition, results of operations or cash flows.

The environmental proceedings are reported to comply with SEC regulations which require us to disclose proceedings arising under provisions regulating the discharge of materials into the environment or protecting the environment ifwhen a governmental authority is party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe ~~that such proceedings may result in monetary sanctions of~~could exceed $300,000 or more. Certain disclosures made under the SEC’s prior $100,000 ~~or more.~~threshold will remain until their resolution.

Environmental Matters

~~Cheyenne~~

HollyFrontier Cheyenne Refining LLC (“HFCR”) has been in discussions with the Wyoming Department of Environmental Quality (“WDEQ”) and the United States Environmental Protection Agency (“EPA”) relating to alleged violations of air quality emission limitations and requirements related to operation of certain refinery units at the Cheyenne Refinery.

Notices of Violations were issued by the WDEQ in late 2016 and 2018. On July 18, 2019, HFCR and WDEQ entered into a consent decree, and on August 9, 2019, HFCR paid penalties in the amount of $117,000 related to alleged violations of air quality limits that occurred during the second quarter of 2016 through the second quarter of 2017. Separately, on October 23, 2019, HFCR received a Notice of Violation from the WDEQ for possible violations of air quality standards during the first and second quarters of 2019. No penalty demand has yet been made by the WDEQ relating to such possible violations. HFCR and WDEQ are in discussions to resolve WDEQ’s alleged violations of air quality limits that occurred during the third quarter of 2017 through calendar year 2019.

On August 19, 2019 and October 30, 2019, HFCR received letters from the EPA providing a preliminary estimate of stipulated penalties related to the alleged violations that occurred during the third quarter of 2017 through the second quarter of 2019, pursuant to HFCR’s federal consent decree. HFCR responded to the EPA preliminary estimate of stipulated penalties related to the alleged violations that occurred during the third quarter of 2017 through calendar year 2018 in a letter dated September 18, 2019, followed by meetings with the EPA and the WDEQ on November 14, 2019 and December 4, 2019, to discuss an appropriate resolution of all alleged violations. HFCR settled the allegations in ~~the EPA's~~ ~~August 19, 2019 and October 30, 2019 letters, and pursuant to a demand letter dated January 9, 2020, HFCR was assessed stipulated penalties totaling $700,000 pursuant to~~ ~~HFCR's~~ ~~federal consent decree. HFCR remitted payment of this amount to resolve the alleged violations.~~

El Dorado

HollyFrontier El Dorado Refining LLC (“HFEDR”) has been engaged in discussions with, and has responded to document requests from, the EPA, the U.S. Department of Justice (“DOJ”) and the State of Kansas regarding alleged Clean Air Act civil violations relating to flaring devices and other equipment at the refinery. Topics of the discussions ~~included~~included: (a) three information requests for activities beginning in January 2009, (b) the Clean Air Act’s Risk Management Program (“RMP”) compliance issues relating to a November 2014 inspection and subsequent events, (c) a Notice of Violation issued by the EPA in August 2017, and (d) possible late reporting under the Emergency Planning and Community Right-to-Know Act for the release of sulfur dioxide and visible emissions from October 2018.

Some of the foregoing civil investigations resulted from fires that occurred at the El Dorado Refinery in September 2017, October 2018 and March 2019. An employee fatality occurred during the September 2017 event. On May 28, 2020, HFEDR reached a settlement in the form of a proposed consent decree with the EPA, the DOJ, and the State of Kansas regarding the alleged Clean Air Act civil violations relating to flaring devices and other equipment at the refinery, as well as compliance with the ~~Clean Air Act’s Risk Management Program (“RMP”).~~RMP.

~~Table of Content~~

The proposed consent decree was lodged with the U.S. District Court for the District of Kansas, and the 30-day public comment period ended on July 18, 2020. On July 27, 2020, the EPA, the DOJ and the State of Kansas filed their Unopposed Motion to enter the Consent Decree with the U.S. District Court for the District of ~~Kansas. The~~Kansas, and on August 27, 2020, the consent decree ~~will become effective when~~was entered by the district ~~judge.~~judge and became effective. Pursuant to the consent decree, among other terms and conditions, HFEDR is required to complete certain projects, implement protocols regarding the examination of its fired heaters and conduct a third party RMP audit of certain of its processes. In addition, HFEDR ~~will be~~was required to pay a civil penalty of $2 million to the United States and $2 million to the State of Kansas in two installments, the first half within 30 days of entry of the consent decree and the second within six months of entry of the consent decree. All payments have been timely made, and HFEDR has undertaken several of the required projects. The ~~proposed~~ consent decree ~~will resolve~~resolves the alleged federal and state civil Clean Air Act liability for penalties and injunctive relief, other than potential civil penalties for RMP violations. Finally, as part of the settlement, a 2009 consent decree applicable to the refinery ~~will be~~was terminated. In March 2021, the EPA contacted HFEDR to begin discussions on potential civil penalties for the RMP violations noted above.

The Occupational Safety and Health Administration (“OSHA”) conducted investigations into both the September 2017 and March 2019 events identified above, and HFEDR settled the OSHA claims related to those investigations in 2018 and 2019, respectively. In April 2019, HFEDR became aware that the EPA also initiated a criminal investigation into one or more of the foregoing events. HFEDR has received a grand jury subpoena requesting certain documents be provided to the EPA with respect to the September 2017 event. HFEDR cooperated with the EPA in responding to the subpoena. In May 2021, the EPA returned the records that HFEDR produced in response to the subpoena. We ~~are cooperating with this investigation.~~do not believe that criminal charges will be brought.

Table of Content

Tulsa

HollyFrontier Tulsa Refining LLC (“HFTR”) operates under two Consent Decrees with the EPA and the Oklahoma Department of Environmental Quality (“ODEQ”) for the East and West Refineries. On December 13, 2017, during a meeting between the parties, ODEQ proposed stipulated penalties related to violations of the two Consent Decrees. The violations concern Clean Air Act regulated fuel gas and flare operations. On July 1, 2019, ODEQ issued a demand letter for stipulated penalties under the East Refinery Consent Decree as proposed in the 2017 meeting. In August 2019, HFTR paid the penalties set forth in the demand letter to ODEQ and the EPA satisfying the requirements of the East Refinery Consent Decree. On September 16, 2019, ODEQ issued a demand letter for stipulated penalties under the West Refinery Consent Decree. Following discussions with ODEQ, in a letter dated April 17, 2020, ODEQ reduced its September 2019 demand for stipulated penalties. In May 2020, HFTR paid to ODEQ and the EPA the penalty set forth in the April 17, 2020 demand letter, which satisfied the requirements of the West Refinery Consent Decree. Separately, on April 3, 2019, ~~during a meeting between the parties,~~ the EPA notified HFTR of potential ~~monitoring~~ violations of the Consent Decrees. ~~HFTR is working with the~~On December 1, 2020, ODEQ, on behalf of ODEQ and the EPA, issued two demand letters alleging violations under the Consent Decrees, which stemmed from inspections conducted by the EPA at the refineries from May 1 through 5, 2017, as well as from a review of the refineries’ records. The alleged violations included the failure to ~~document~~comply with applicable continuous emissions monitoring system (CEMS) requirements and exceedances of the hydrogen sulfide (H2S) emission limits. During a ~~settlement agreement~~follow-up conference call with ODEQ, on January 6, 2021, ODEQ shared its stipulated penalty amounts for alleged violations pursuant to the two Consent Decrees. HFTR submitted timely responses to the ODEQ demand letters on February 8, 2021. Based on HFTR’s responses, during a follow-up conference call on April 9, 2021, ODEQ confirmed both ODEQ and EPA had reduced the stipulated penalties for the ~~additional actions.~~alleged violations of the two Consent Decrees and was seeking total stipulated penalties of $93,500. On April 9, 2021, HFTR confirmed acceptance of the above-referenced penalties. This matter will be resolved once ODEQ issues the revised demand letters and HFTR pays the penalty following its receipt of the revised demand letters.

~~Federal Trade Commission~~Woods Cross

HollyFrontier Woods Cross Refining LLC (“HFWCR”) operates under a federal consent decree with the EPA and the Utah Department of Environmental Quality. On ~~July 23, 2019,~~November 3, 2020, HFWCR received a letter from the ~~Federal Trade Commission (“FTC”) issued~~EPA identifying potential violations of HFWCR’s federal consent decree that occurred from calendar year 2015 through the date of the letter. HFWCR provided a ~~Civil Investigative Demand and a related Subpoena Duces Tecum requesting we provide specified information relating~~response letter to the ~~Sonneborn acquisition that closed~~EPA on December 3, 2020 disputing certain of the potential violations in the EPA's November 3, 2020 letter, and HFWCR supplemented its response letter on February ~~1, 2019. We are in~~5, 2021, March 5, 2021 March 31, 2021 and April 16, 2021, with additional information. On May 20, 2021, the ~~process~~EPA sent a final demand letter with an assessment of ~~responding~~stipulated penalties totaling $212,922.50 based on HFWCR’s defenses and responses to the FTC request. Based on the limited information that we have at this time, we are unable to predict the outcome of this request. On December 14, 2018, we received early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act from the FTC and Department of Justice with respect to the Sonneborn acquisition. On January 17, 2019, we received early termination of the applicable waiting period under the German antitrust laws with respect to the Sonneborn acquisition. Early termination is granted to transactions that the antitrust agencies determine raise no substantive competition concerns.initial informal demand letter. The penalty was paid in June 2021.

Renewable Fuel Standard

The first lawsuit is before the U.S. Court of Appeals for the Tenth Circuit. The matter is fully briefed and remains pending before that court.

The second lawsuit is before the U.S. Court of Appeals for the DC Circuit. Briefing of the issues before the court commenced on December 7, 2020; however, in light of the Supreme Court’s decision to review HollyFrontier’s petition for certiorari of the Tenth Circuit ~~dismissed one of these four lawsuits on November 12, 2019 for lack of jurisdiction.~~ January 24, 2020 decision, this case was stayed pending a decision from the Supreme Court. The stay has not been lifted to date.

On January 24, 2020, in a separate matter before the ~~U.S. Court of Appeals for~~Tenth Circuit, the Tenth Circuit vacated the small refinery exemptions granted to two of our refineries for 2016 and remanded the case to the EPA for further proceedings. On ~~March 24,~~April 15, 2020, the Tenth Circuit issued its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for ~~Rehearing~~a Writ of Certiorari with the U.S. Supreme Court seeking review of ~~Appeals for~~the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted HollyFrontier’s petition. The oral argument occurred on April 27, 2021. The U.S. Supreme Court issued its opinion in this matter on June 25, 2021 and reversed the Tenth Circuit. On ~~April 7, 2020,~~July 27, 2021, the Tenth Circuit ~~denied our request~~recalled the mandate it issued to ~~reconsider its decision, and~~the EPA on April 15, 2020, and vacated its January 24, 2020 judgment. On July 29, 2021, the Tenth Circuit ~~entered~~issued an order and judgment confirming that it recalled its mandate ~~remanding the matter back~~and vacated its previous judgment in this case. The Tenth Circuit also issued a new mandate returning jurisdiction to the EPA. ~~It is not clear at this time what steps~~

In December 2020, various subsidiaries of HollyFrontier also filed a petition for review in the ~~EPA will take with respect to our 2016~~DC Circuit challenging EPA’s denial of small refinery ~~exemptions, or how~~exemption petitions for years prior to 2016. The petition was consolidated with petitions from eight other refining companies challenging the same decision. In light of the Supreme Court’s decision to hear HollyFrontier’s appeal of the Tenth Circuit decision, this case was stayed pending a decision from the Supreme Court. Following the Supreme Court’s decision, HollyFrontier’s subsidiaries filed a motion on July 26, 2021 to dismiss their petition. The DC Circuit granted this motion and dismissed the case ~~will impact future small refinery exemptions.~~on July 28, 2021.

Table of Content

Other

We are a party to various other litigation and proceedings that we believe, based on advice of counsel, will not either individually or in the aggregate have a materially adverse impact on our financial condition, results of operations or cash flows.


~~Item 1A.~~	~~Risk Factors~~

Item 1A.Risk Factors

Except for the ~~additional~~ risk ~~factor~~factors below, there have been no material changes in our risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 and in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020.~~2021. You should carefully consider the risk factors discussed below and in our ~~2019~~2020 Form 10-K and March 31, 2021 Form 10-Q, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

~~Our~~The pending Sinclair Transactions may not be consummated on a timely basis or at all.Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business ~~depends on hydrocarbon supply~~ and ~~demand fundamentals, which can~~financial results.

On August 2, 2021, we entered into the Business Combination Agreement with Sinclair and certain other parties thereto in connection with the Sinclair Transactions. We expect the Sinclair Transactions to close in mid-2022. The Sinclair Transactions are subject to closing conditions. If these conditions are not satisfied or waived, the Sinclair Transactions will not be ~~adversely affected by numerous factors outside of our control, including~~consummated. If the ~~widespread outbreak of an illness, pandemic (like COVID-19) or any other public health crisis as well as actions taken by oil producers.~~

Our success depends on the demand for petroleum products such as transportation fuels and finished lubricant products, which is largely driven by the conditions of local and worldwide economies, and the supply of crude oil and other feedstocks. COVID-19’s spread across the globe and governmental actions in response thereto have negatively affected worldwide economic and commercial activity, reduced global demand for oil, gas and refined products, and created significant volatility and disruption of financial and commodity markets. Other factors currently impacting crude oil supply include production levels implemented by OPEC members, other large oil producers such as Russia and domestic and Canadian oil producers. The oversupply of crude oil in the market has caused certain domestic and Canadian oil producers from whom we source crude oil to shut-in their production, which could impact our ability to readily source crude oil once the stored crude oil is depleted. While there has been a recent stabilization in demand for refined products in the second quarter of 2020, this combination of events has contributed to an overall drop in prices for crude oil and refined products in the first half of 2020. In addition, the supply and demand for refined and finished lubricant products will depend on many other factors outside of our control, some of which include:

changes in domestic and international demand for, and the marketability of, our refined and finished lubricant products due to governmental actions, including travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, which could result in a full or partial shutdown of our facilities;

~~increased price volatility, including the price we receive for refined and finished lubricant products;~~

~~the health of our workforce, including contractors and subcontractors, and their access to our facilities, which could result in a full or partial shutdown of our facilities if a significant portion~~closing of the ~~workforce~~Sinclair Transactions are substantially delayed or do not occur at ~~a facility is impacted;~~

all, or if the ~~ability or willingness~~terms of ~~our vendors and suppliers~~the Sinclair Transactions are required to ~~provide~~be modified substantially, we may not realize the equipment, parts, crude oil or other raw materials for our operations or otherwise fulfill their contractual obligations, which could reduce our production levels or otherwise cause our delay or failure to deliver refined or other finished lubricant products timelyanticipated benefits of the acquisition fully or at all or ~~cause delay~~they may take longer to realize than expected. The closing conditions include, among others, the affirmative vote of the majority of the votes cast by holders of shares of our common stock present in person or represented by proxy and entitled to vote at a special meeting of our stockholders in favor of the issuance of New Parent Common Stock to Sinclair in the Sinclair Transactions, the absence of a law or order prohibiting the transactions contemplated by the Business Combination Agreement and the termination or expiration of any waiting periods under the Hart-Scott Rodino Act, as amended, with respect to the Sinclair Transactions. We will also incur substantial transaction costs whether or not the Sinclair Transactions are completed. Any failure to complete ~~projects~~the Sinclair Transactions could have a material adverse effect on our stock price, our competitiveness and reputation in the marketplace, and our future business and financial results, including our ability to execute on our strategy to return capital to our stockholders that was described in our press release and investor presentation announcing the Sinclair Transactions.

The anticipated benefits of the pending Sinclair Transactionsmay not be realized fully or at all or may take longer to realize than expected.

The Sinclair Transactions will require management to devote significant attention and resources to integrating the Sinclair business with our ~~facilities;~~business. Potential difficulties that may be encountered in the integration process include, among others:


•	t~~he ability or willingness of our customers to fulfill their contractual obligations or any material reduction in, or loss of, revenue from our customers;~~

~~increased potential for~~ •the ~~occurrence of operational hazards,~~inability to successfully integrate the Sinclair business into the HollyFrontier business in a manner that permits us to achieve the full revenue and cost savings anticipated from the Sinclair Transactions, including ~~terrorism, cyberattacks or domestic vandalism,~~the approximately $100 million in run-rate synergies that HollyFrontier expects the combined company to realize, as well as ~~information system failures~~another $100 to $200 million in estimated one-time savings from working capital benefits during the first two years after closing of the Sinclair Transactions;

•complexities associated with managing the larger, integrated business;

•potential unknown liabilities and unforeseen expenses, delays or ~~communication network disruptions;~~regulatory conditions associated with the Sinclair Transactions;

•integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services;

~~increased cost~~•loss of key employees;

•integrating relationships with customers, vendors and ~~reduced availability~~business partners;

•performance shortfalls at one or both of ~~capital for growth~~the companies as a result of the diversion of management’s attention caused by completing the Sinclair Transactions and integrating Sinclair’s operations into HollyFrontier; and

•the disruption of, or ~~capital expenditures;~~the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

~~availability and operability~~

Table of ~~terminals, tankage and pipelines that store and transport crude oil and refined and finished lubricant products;~~Content

~~delay by government authorities~~Delays or difficulties in ~~issuing or maintaining permits necessary for~~the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect from this integration or that these benefits will be achieved within the anticipated time frame.

The actual value of the consideration we will pay to Sinclair may exceed the value allocated to such consideration at the time we entered into the Business Combination Agreement.

Under the Business Combination Agreement, the number of shares of New Parent Common Stock we will issue to Sinclair at the closing is fixed at 60,230,036, which represents approximately 26.75% of HollyFrontier’s outstanding common stock as of July 30, 2021, and there will be no adjustment for changes in the market price of our ~~capital projects;~~common stock. Neither we nor the Sinclair stockholders are permitted to “walk away” from the transaction solely because of changes in the market price of our common stock between the signing of the Business Combination Agreement and the closing. Our common stock has historically experienced volatility. Stock price changes may result from a variety of factors that are beyond our control, including changes in our business, operations and prospects, regulatory considerations and general market and economic conditions. The closing price of our common stock on the New York Stock Exchange on July 30, 2021, was $29.40; and on August 5, 2021, the closing price of our common stock was $29.40. The value of the common stock we issue in connection with the closing of the Sinclair Transactions may be significantly higher at the closing than when we entered into the Business Combination Agreement.

~~shareholder activism~~We will issue a large number of shares New Parent Common Stock in connection with the Sinclair Transactions, which will result in dilution to our existing stockholders and ~~activities~~may cause the market price of our common stock to decline in the future as the result of sales of our common stock owned by ~~non-governmental organizations to limit sources~~Sinclair stockholders or current HollyFrontier stockholders. Our stockholders may not realize a benefit from the Sinclair Transactions commensurate with the ownership dilution they will experience.

At the closing of ~~funding for~~ the ~~energy sector;~~Sinclair Transactions, we will issue 60,230,036 shares of New Parent Common Stock, which represents 26.75% of the outstanding shares of our common stock on an adjusted basis as of July 30, 2021. The issuance of the such shares of common stock will result in dilution of our existing stockholders’ ownership interests and may also have an adverse impact on net income per share in fiscal periods that include (or follow) the closing.

~~Table~~The Stockholders Agreement (the “Stockholders Agreement”) by and among New Parent, Sinclair and the stockholders of ~~Content~~

Further, New Parent has agreed to file, within five business days following the closing date, a shelf registration statement under the Securities Act, to permit the public resale of all the registrable securities held by the Sinclair Parties once the Restricted Shares are no longer subject to a lock-up.

In addition, following their receipt of shares of New Parent Common Stock as stock consideration in the Sinclair Transactions, subject to release from the associated lock-up provisions and the filing of a resale registration statement or satisfaction of the requirements of Rule 144, the Sinclair Parties may ~~not be fully recoverable~~seek to sell the shares of New Parent Common Stock delivered to them. HollyFrontier stockholders may also seek to sell shares held by them of our common stock held in anticipation of completion of the closing, or ~~adequately covered by insurance;~~of New Parent Common Stock following the closing. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of New Parent Common Stock, may affect the market for, and the market price of, our common stock and New Parent Common Stock in an adverse manner.

~~The spread~~If we are unable to realize the strategic and financial benefits currently anticipated from the Sinclair Transactions, our stockholders will have experienced dilution of COVID-19 has caused us to significantly modify our business practices (including limiting employee and contractor presence at our work locations, restricting travel unless approved by senior leadership, quarantining employees when necessary, reducing our expected total consolidated capital expenditures for 2020 and reducing utilization at our refineries),their ownership interest without receiving commensurate benefit, and we may ~~take further actions~~be unable to execute on our strategy to return capital to our stockholders that was described in our press release and investor presentation announcing the Sinclair Transactions.

Sinclair will become a significant holder of the combined company’s common stock following completion of the Sinclair Transactions.

On a pro forma basis, based on our outstanding shares of common stock as of July 30, 2021,Sinclair will own 26.75% of the New Parent Common Stock following the closing of the Sinclair Transactions. Additionally, pursuant to the Stockholders Agreement, the Sinclair Parties will be entitled to nominate (i) two persons to the board of directors of New Parent at the closing and for so long as the Sinclair Parties beneficially own common stock constituting not less than 15% of all outstanding New Parent Common Stock and (ii) one person to the Board for so long as the Sinclair Parties beneficially own less than 15% but more than or equal to 5% of all outstanding New Parent Common Stock. As a result, Sinclair (and the Sinclair Parties) will have the ability to influence our management and affairs. Further, the existence of a new significant stockholder may ~~be required by government authorities~~have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that ~~we determine are~~they may deem to be in the best interests of our ~~employees, contractors, customers, suppliers and communities. There is no certainty that such measures~~company.

So long as Sinclair continues to control a significant amount of the New Parent Common Stock, it will continue to be ~~sufficient~~able to mitigate the risks posed by the virus, and our ability to perform critical functions could be adversely impacted. In addition, a reasonable expectation exists that further deterioration in gross margins or a prolonged economic slowdown dueinfluence all matters requiring stockholder approval, subject to the ~~COVID-19 pandemic~~voting agreements of the Sinclair Parties set forth in the Stockholders Agreement. Moreover, this concentration of stock ownership may also adversely affect the trading price of the New Parent Common Stock to the extent investors perceive a disadvantage in owning stock of a company with a significant stockholder.

The Sinclair Transactions will expand our business into branded marketing and licensing, and we could face a variety of risks of expanding into a new business.

The Sinclair Transactions will expand our business into branded marketing and licensing, including the addition of over 300 distributors and 1,500 branded retail sites. Risks of our expanding this business line include: (i) potential diversion of management’s attention and other resources, including available cash, from our existing businesses; (ii) unanticipated liabilities or contingencies; (iii) the need for additional capital and other resources to expand this line of business; and (iv) inefficient combination or integration of operational and management systems and controls. Expanding this line of business may also lead to increased litigation and regulatory risk and could have an impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the expansion and integration of the branded marketing business could have a material adverse effect on our business, results of operations and financial condition.

Potential litigation relating to the Sinclair Transactions could result in substantial costs to HollyFrontier.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert the time and resources of management. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition.

Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions and other disruptive risks for which we may not be adequately insured.

Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks such as natural disasters, adverse weather, accidents, maritime disasters or casualties (including those involving marine vessels/terminals), fires, explosions, hazardous materials releases or spills, terror or cyberattacks, domestic vandalism, power failures, mechanical failures and other events beyond our control. These events could result in an ~~additional impairment~~injury, loss of ~~assets~~life, property damage or destruction, as well as a curtailment or an interruption in our operations and may affect our ability to meet customer commitments. In addition, the consequences of ~~goodwill~~any operational incident (including as a result of a maritime disaster or casualty) at our marine terminal facilities may be even more significant as a result of the complexities involved in addressing releases or spills occurring in U.S. federal and/or state waters and/or the repair of marine terminal facilities.

We may not be able to maintain or obtain insurance of the type and amount we desire at commercially reasonable rates and exclusions from coverage may limit our ability to recover the amount of the full loss in all situations. As a result of market conditions, premiums and deductibles for certain of our insurance policies could increase. In some ~~point~~instances, certain insurance could become unavailable or available only for reduced amounts of coverage.

There can be no assurance that insurance will cover all or any damages and losses resulting from these types of hazards. We are not fully insured against all risks to our business and therefore, we self-insure certain risks. If any of our facilities were to experience an interruption in operations, our earnings could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs.

The energy industry is highly capital intensive, and the entire or partial loss of individual facilities can result in significant costs to both industry companies, such as us, and their insurance carriers. In recent years, several large energy industry claims have resulted in significant increases in the ~~future. Such impairment charges could~~level of premium costs and deductible periods for participants in the energy industry. As a result of large energy industry claims, insurance companies that have historically participated in underwriting energy-related facilities may discontinue that practice or demand significantly higher premiums or deductible periods to cover these facilities. If significant changes in the number or financial solvency of insurance underwriters for the energy industry occur, or if other adverse conditions over which we have no control prevail in the insurance market, we may be ~~material.~~

~~As the potential effects of COVID-19 are difficult~~unable to ~~predict, the duration of any potential business disruption or the extent to which it may negatively affect our operating results is uncertain. Any potential impact will depend on future developments~~obtain and new information that may emerge regarding the spread, severity and duration of the COVID-19 pandemic and the actions taken by authorities to contain it or manage its impact, all of which are beyond our control.maintain adequate insurance at reasonable cost. In addition, we cannot assure you that our insurers will renew our insurance coverage on acceptable terms, if ~~the volatility and seasonality in the oil and gas industry were to increase, the demand for our products and the prices~~at all, or that we will be able to ~~charge~~arrange for ~~those products may decline. We are monitoring~~adequate alternative coverage in the ~~situation~~event of non-renewal. Further, our underwriters could have credit issues that affect their ability to ~~assess further possible implications to our business and to take actions in an effort to mitigate~~pay claims. If a significant accident or event occurs that is self-insured or not fully insured, it could have a material adverse ~~consequences. These potential effects, while uncertain, could adversely affect~~effect on our business, financial condition and results of ~~operations and/or cash flows, as well as our ability to pay dividends to our shareholders.~~operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Under our common stock repurchase programs, repurchases are being made from time to time in the open market or privately negotiated transactions based on market conditions, securities law limitations and other factors. The following table includes repurchases made under these programs during the second quarter of ~~2020.~~2021.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 2021	—	$	—	—	$	1,000,000,000
May 2021	—	$	—	—	$	1,000,000,000
June 2021	—	$	—	—	$	1,000,000,000
Total for April to June 2021	—			—

Period
Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly Announced Plans or Programs

Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under the Plans or Programs
April 2020 —
$ —
—
$ 1,000,000,000
May 2020 —
$ —
—
$ 1,000,000,000
June 2020 —
$ —
—
$ 1,000,000,000
Total for April to June 2020 —
—

Table of Content

Item 6.Exhibits


~~Item 6.~~Exhibit Number			~~Exhibits~~

~~The Exhibit Index on page 62 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of the Quarterly Report on Form 10-Q.~~

~~Table of Content~~Description

~~Exhibit Index~~



2.1+		Sale and Purchase Agreement, dated as of May 4, 2021, by and between Equilon Enterprises LLC d/b/a Shell Oil Products US and HollyFrontier Puget Sound Refining LLC (incorporated by reference to Exhibit ~~Number~~	~~Description~~2.1 of Registrant’s Current Report on Form 8-K filed May 4, 2021, File No. 1-03876).

~~3.1~~2.2†		Business Combination Agreement, dated as of August 2, 2021, by and among HollyFrontier Corporation, Hippo Parent Corporation, Hippo Merger Sub, Inc., The Sinclair Companies and Hippo Holding LLC (incorporated by reference to Exhibit 2.1 of Registrant’s Current Report on Form 8-K filed August 3, 2021, File No. 1-03876).

3.1		Amended and Restated Certificate of Incorporation of HollyFrontier Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed July 8, 2011, File No. 1-03876).

3.2		Amended and Restated By-Laws of HollyFrontier Corporation (incorporated by reference to Exhibit ~~3.1~~3.2 of Registrant’s ~~Current~~Annual Report on Form ~~8-K filed February 20, 2014,~~10-K for the fiscal year ended December 31, 2020, File No. 1-03876).

~~10.1*+~~10.1		First Amendment to Seventh Amended and Restated ~~Consulting~~Master Throughput Agreement, ~~and Release, dated June~~entered into as of April 30, ~~2020,~~2021, effective as of April 1, 2021, by and between HollyFrontier ~~Corporation, HollyFrontier Payroll Services, Inc.~~Refining & Marketing LLC and ~~James Stump.~~Holly Energy Partners – Operating L.P. (incorporated by reference to Exhibit 10.9 of Registrant’s Quarterly Report on Form 10-Q filed May 5, 2021. File No. 1-03876).

~~10.2+~~10.2†		Second Amendment to Senior Unsecured 5-Year Revolving Credit Agreement, dated as of April 30, 2021, among HollyFrontier Corporation, ~~2020 Long Term Incentive Plan~~as borrower, MUFG Bank, Ltd., as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed May ~~15, 2020,~~3, 2021, File No. 1-03876).

10.3+*		HollyFrontier Corporation ~~2020 Long Term Incentive Plan Sub-Plan for U.K. Employees~~Director’s Stock Compensation Deferral Plan.

10.4*		Second Amendment to Seventh Amended and Restated Master Throughput Agreement, entered into as of July 27, 2021, effective as of May 1, 2021, by and between HollyFrontier Refining & Marketing LLC and Holly Energy Partners -- Operating L.P.

10.5†		Stockholders Agreement, dated as of August 2, 2021, by and among Hippo Parent Corporation, the Sinclair Companies, and the stockholders set forth on Schedule I thereto, as may be amended from time to time (incorporated by reference to Exhibit ~~4.4~~10.1 of Registrant’s ~~Registration Statement~~Current Report on Form ~~S-8~~8-K filed ~~June 1, 2020,~~August 3, 2021, File No. ~~333-238835)~~ 1-03876).

10.4*10.6		Second Amendment to Third Amended and Restated Crude Pipelines and Tankage Agreement dated as of May 26, 2020, by and among HollyFrontier Navajo Refining LLC, HollyFrontier Woods Cross Refining LLC, HollyFrontier Refining & Marketing LLC, Holly Energy Partners - Operating, L.P., HEP Pipeline, L.L.C. and HEP Woods Cross, L.L.C.

10.5*	~~First Amendment to Fifth Amended and Restated Master Lease and Access~~Letter Agreement, dated as of August ~~4, 2020, effective as of January 23, 2020,~~2, 2021, by and among ~~certain subsidiaries of~~HollyFrontier Corporation and Holly Energy Partners, L.P. ~~and certain subsidiaries of HollyFrontier Corporation.~~

~~10.6+~~	~~Form of Restricted Stock Unit Agreement (for employees)~~ (incorporated by reference to Exhibit 10.2 of Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarterly period ended March 31, 2020,~~8-K filed August 3, 2021, File No. 1-03876).

~~10.7+~~31.1*		~~Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, File No. 1-03876).~~

31.1*	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

101++		The following financial information from HollyFrontier Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020,~~2021, formatted as inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of ~~Income,~~Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

~~104~~104++		Cover page Interactive Data File (formatted as inline XBRL and contained in exhibit 101).

* Filed herewith.

** Furnished herewith.

+ Constitutes management contracts or compensatory plans or arrangements.

++Filed electronically herewith.

† Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request.

Table of Content

SIGNATURES

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

HOLLYFRONTIER CORPORATION

~~HOLLYFRONTIER CORPORATION~~(Registrant)

~~(Registrant)~~

Date: August 6, ~~2020~~2021

/s/ Richard L. Voliva III

Richard L.Voliva III

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

Date: August 6, ~~2020~~2021

/s/ Indira Agarwal

Indira Agarwal

Vice President, Controller and

Chief Accounting Officer

(Principal Accounting Officer)

6367



	Remainder of 2020	2021	2022	Thereafter	Total
	(In thousands)
Refined product sales volumes (barrels)	10,398	15,958	12,799	24,465	63,620



Restricted Stock Units	Grants		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value ($000)

Outstanding at January 1, 2020	1,101,781		$	53.30
Granted	62,776		35.58
Vested	(79,956	)	44.30
Forfeited	(59,494	)	53.41
Converted from performance share units	19,450		38.13
Outstanding at June 30, 2020	1,044,557		52.48		$	30,501



	June 30, 2020			December 31, 2019
	(In thousands)
HollyFrontier 5.875% Senior Notes
Principal	$	1,000,000		$	1,000,000
Unamortized discount and debt issuance costs	(5,902		)	(6,391		)
	994,098			993,609

HEP Credit Agreement	995,000			965,500

HEP 5.0% Senior Notes
Principal	500,000			—
Unamortized discount and debt issuance costs	(8,352		)	—
	491,648			—

HEP 6.0% Senior Notes
Principal	—			500,000
Unamortized discount and debt issuance costs	—			(3,469		)
	—			496,531

Total HEP long-term debt	1,486,648			1,462,031

Total long-term debt	$	2,480,746		$	2,455,640


	Gain (Loss) Recognized in Earnings
Derivatives Not Designated as Hedging Instruments	Income Statement Location	Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020
		(In thousands)
Commodity contracts	Cost of products sold	$	(9,469)	$	(7,180)	$	(12,079)	$	17,909
	Interest expense	4,831		(5,100)		7,506		4,712
Foreign currency contracts	Gain (loss) on foreign currency transactions	(6,086)		(14,315)		(12,829)		19,160
	Total	$	(10,724)	$	(26,595)	$	(17,402)	$	41,781


	Before-Tax		Tax Expense (Benefit)		After-Tax
	(In thousands)
Three Months Ended June 30, 2021
Net change in foreign currency translation adjustment	$	2,088	$	450	$	1,638
Net unrealized gain on hedging instruments	5,424		1,363		4,061
Net change in pension and other post-retirement benefit obligations	(932)		(228)		(704)
Other comprehensive income attributable to HollyFrontier stockholders	$	6,580	$	1,585	$	4,995

Three Months Ended June 30, 2020
Net change in foreign currency translation adjustment	$	11,710	$	2,488	$	9,222
Net unrealized gain on hedging instruments	6,914		1,762		5,152

Other comprehensive income attributable to HollyFrontier stockholders	$	18,624	$	4,250	$	14,374

Six Months Ended June 30, 2021
Net change in foreign currency translation adjustment	$	(3,775)	$	(775)	$	(3,000)
Net unrealized gain on hedging instruments	782		194		588
Net change in pension and other post-retirement benefit obligations	(1,862)		(465)		(1,397)
Other comprehensive loss attributable to HollyFrontier stockholders	$	(4,855)	$	(1,046)	$	(3,809)

Six Months Ended June 30, 2020
Net change in foreign currency translation adjustment	$	(9,876)	$	(2,139)	$	(7,737)
Net unrealized loss on hedging instruments	(6,410)		(1,636)		(4,774)
Net change in pension and other post-retirement benefit obligations	(42)		(4)		(38)
Other comprehensive loss attributable to HollyFrontier stockholders	$	(16,328)	$	(3,779)	$	(12,549)



AOCI Component	Gain (Loss) Reclassified From AOCI						Income Statement Line Item
	Three Months Ended June 30,
	2020			2019
	(In thousands)
Hedging instruments:
Commodity price swaps	$	(5,403	)	$	—		Sales and other revenues
	459			5,674			Cost of products sold
	(457		)	(353		)	Operating expenses
	(5,401		)	5,321
	(1,377		)	1,357			Income tax expense (benefit)
Total reclassifications for the period	$	(4,024	)	$	3,964		Net of tax

	Six Months Ended June 30,
	2020			2019
Hedging instruments:
Commodity price swaps	$	49		$	(1,799	)	Sales and other revenues
	2,289			9,295			Cost of products sold
	(1,163		)	(533		)	Operating expenses
	1,175			6,963
	300			1,776			Income tax expense
Total reclassifications for the period	$	875		$	5,187		Net of tax


																	Refining		Lubricants and Specialty Products		HEP		Corporate, Other and Eliminations (1)		Consolidated Total
		Refining			Lubricants and Specialty Products			HEP		Corporate, Other and Eliminations			Consolidated Total				(In thousands)
Three Months Ended June 30, 2021																Three Months Ended June 30, 2021
Sales and other revenues:																Sales and other revenues:
Revenues from external customers																Revenues from external customers	$	3,887,273	$	662,755	$	27,092	$	3	$	4,577,123
Intersegment revenues																Intersegment revenues	205,186		6,434		99,142		(310,762)		0
																	$	4,092,459	$	669,189	$	126,234	$	(310,759)	$	4,577,123
Cost of products sold (exclusive of lower of cost or market inventory)																Cost of products sold (exclusive of lower of cost or market inventory)	$	3,619,319	$	491,218	$	0	$	(284,808)	$	3,825,729
Lower of cost or market inventory valuation adjustment																Lower of cost or market inventory valuation adjustment	$	(118,825)	$	0	$	0	$	0	$	(118,825)
Operating expenses																Operating expenses	$	231,422	$	61,310	$	42,068	$	(609)	$	334,191
Selling, general and administrative expenses																Selling, general and administrative expenses	$	30,136	$	37,583	$	2,846	$	7,189	$	77,754
Depreciation and amortization																Depreciation and amortization	$	79,938	$	19,152	$	22,275	$	2,677	$	124,042

Income (loss) from operations																Income (loss) from operations	$	250,469	$	59,926	$	59,045	$	(35,208)	$	334,232
Earnings of equity method investments																Earnings of equity method investments	$	0	$	0	$	3,423	$	0	$	3,423
Capital expenditures																Capital expenditures	$	33,150	$	5,614	$	24,498	$	119,618	$	182,880
		(In thousands)
Three Months Ended June 30, 2020	Three Months Ended June 30, 2020															Three Months Ended June 30, 2020
Sales and other revenues:																Sales and other revenues:
Revenues from external customers		$	1,690,042		$	353,644		$	19,244	$	—		$	2,062,930		Revenues from external customers	$	1,690,042	$	353,644	$	19,244	$	0	$	2,062,930
Intersegment revenues		37,462			3,643			95,563		(136,668		)	—			Intersegment revenues	37,462		3,643		95,563		(136,668)		0
		$	1,727,504		$	357,287		$	114,807	$	(136,668	)	$	2,062,930			$	1,727,504	$	357,287	$	114,807	$	(136,668)	$	2,062,930
Cost of products sold (exclusive of lower of cost or market inventory)		$	1,433,437		$	258,347		$	—	$	(114,788	)	$	1,576,996		Cost of products sold (exclusive of lower of cost or market inventory)	$	1,433,437	$	258,347	$	0	$	(114,788)	$	1,576,996
Lower of cost or market inventory valuation adjustment		$	(269,904	)	$	—		$	—	$	—		$	(269,904	)	Lower of cost or market inventory valuation adjustment	$	(269,904)	$	0	$	0	$	0	$	(269,904)
Operating expenses		$	239,359		$	47,840		$	34,737	$	(18,577	)	$	303,359		Operating expenses	$	239,359	$	47,840	$	34,737	$	(18,577)	$	303,359
Selling, general and administrative expenses		$	32,811		$	35,919		$	2,535	$	4,104		$	75,369		Selling, general and administrative expenses	$	32,811	$	35,919	$	2,535	$	4,104	$	75,369
Depreciation and amortization		$	81,694		$	19,779		$	24,008	$	4,697		$	130,178		Depreciation and amortization	$	81,694	$	19,779	$	24,008	$	4,697	$	130,178
Long-lived asset impairment ⁽¹⁾		$	215,242		$	204,708		$	16,958	$	—		$	436,908
Long-lived asset impairment (2)																Long-lived asset impairment (2)	$	215,242	$	204,708	$	16,958	$	0	$	436,908
Income (loss) from operations		$	(5,135	)	$	(209,306	)	$	36,569	$	(12,104	)	$	(189,976	)	Income (loss) from operations	$	(5,135)	$	(209,306)	$	36,569	$	(12,104)	$	(189,976)
Earnings of equity method investments		$	—		$	—		$	2,156	$	—		$	2,156		Earnings of equity method investments	$	0	$	0	$	2,156	$	0	$	2,156
Capital expenditures		$	12,102		$	4,311		$	11,798	$	17,776		$	45,987		Capital expenditures	$	12,102	$	4,311	$	11,798	$	17,776	$	45,987

Three Months Ended June 30, 2019
Sales and other revenues:
Revenues from external customers		$	4,208,776		$	545,346		$	28,382	$	111		$	4,782,615
Intersegment revenues		88,484			—			102,369		(190,853		)	—
		$	4,297,260		$	545,346		$	130,751	$	(190,742	)	$	4,782,615
Cost of products sold (exclusive of lower of cost or market inventory)		$	3,458,832		$	415,353		$	—	$	(169,301	)	$	3,704,884
Lower of cost or market inventory valuation adjustment		$	47,801		$	—		$	—	$	—		$	47,801
Operating expenses		$	252,715		$	59,122		$	40,608	$	(19,193	)	$	333,252
Selling, general and administrative expenses		$	29,638		$	42,087		$	1,988	$	11,604		$	85,317
Depreciation and amortization		$	76,225		$	23,020		$	24,241	$	3,422		$	126,908
Goodwill impairment		$	—		$	152,712		$	—	$	—		$	152,712
Income (loss) from operations		$	432,049		$	(146,948	)	$	63,914	$	(17,274	)	$	331,741
Earnings of equity method investments		$	—		$	—		$	1,783	$	—		$	1,783
Capital expenditures		$	33,899		$	9,331		$	7,034	$	6,470		$	56,734


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~



	Three Months Ended June 30,						Change from 2019
	2020			2019			Change			Percent
	(In thousands, except per share data)
Sales and other revenues	$	2,062,930		$	4,782,615		$	(2,719,685	)	(57	)%
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)	1,576,996			3,704,884			(2,127,888		)	(57	)
Lower of cost or market inventory valuation adjustment	(269,904		)	47,801			(317,705		)	(665	)
	1,307,092			3,752,685			(2,445,593		)	(65	)
Operating expenses (exclusive of depreciation and amortization)	303,359			333,252			(29,893		)	(9	)
Selling, general and administrative expenses (exclusive of depreciation and amortization)	75,369			85,317			(9,948		)	(12	)
Depreciation and amortization	130,178			126,908			3,270			3
Long-lived asset and goodwill impairments	436,908			152,712			284,196			186
Total operating costs and expenses	2,252,906			4,450,874			(2,197,968		)	(49	)
Income (loss) from operations	(189,976		)	331,741			(521,717		)	(157	)
Other income (expense):
Earnings of equity method investments	2,156			1,783			373			21
Interest income	1,506			4,588			(3,082		)	(67	)
Interest expense	(32,695		)	(34,264		)	1,569			(5	)
Gain on sales-type leases	33,834			—			33,834			—
Gain on foreign currency transactions	2,285			2,213			72			3
Other, net	1,572			92			1,480			1,609
	8,658			(25,588		)	34,246			(134	)
Income (loss) before income taxes	(181,318		)	306,153			(487,471		)	(159	)
Income tax expense (benefit)	(30,911		)	89,336			(120,247		)	(135	)
Net income (loss)	(150,407		)	216,817			(367,224		)	(169	)
Less net income attributable to noncontrolling interest	26,270			19,902			6,368			32
Net income (loss) attributable to HollyFrontier stockholders	$	(176,677	)	$	196,915		$	(373,592	)	(190	)%
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic	$	(1.09	)	$	1.16		$	(2.25	)	(194	)%
Diluted	$	(1.09	)	$	1.15		$	(2.24	)	(195	)%
Cash dividends declared per common share	$	0.35		$	0.33		$	0.02		6	%
Average number of common shares outstanding:
Basic	161,889			169,356			(7,467		)	(4	)%
Diluted	161,889			170,547			(8,658		)	(5	)%



Southwest Region (Navajo Refinery)
Crude charge (BPD) ⁽¹⁾	79,460			109,080			93,130			107,560
Refinery throughput (BPD) ⁽²⁾	89,470			119,480			103,460			117,860
Sales of produced refined products (BPD) ⁽³⁾	101,880			122,090			107,740			122,730
Refinery utilization ⁽⁴⁾	79.5		%	109.1		%	93.1		%	107.6		%

Average per produced barrel ⁽⁵⁾
Refinery gross margin	$	11.08		$	23.45		$	11.89		$	19.70
Refinery operating expenses ⁽⁶⁾	5.12			4.53			5.20			4.73
Net operating margin	$	5.96		$	18.92		$	6.69		$	14.97

Refinery operating expenses per throughput barrel ⁽⁷⁾	$	5.83		$	4.63		$	5.42		$	4.93

Feedstocks:
Sweet crude oil	25		%	24		%	24		%	20		%
Sour crude oil	64		%	67		%	66		%	71		%
Other feedstocks and blends	11		%	9		%	10		%	9		%
Total	100		%	100		%	100		%	100		%

Sales of produced refined products:
Gasolines	53		%	48		%	54		%	51		%
Diesel fuels	34		%	40		%	36		%	38		%
Fuel oil	2		%	4		%	2		%	3		%
Asphalt	8		%	6		%	5		%	5		%
LPG and other	3		%	2		%	3		%	3		%
Total	100		%	100		%	100		%	100		%



Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) ⁽¹⁾	63,170			79,660			70,170			80,440
Refinery throughput (BPD) ⁽²⁾	68,020			86,700			75,610			87,080
Sales of produced refined products (BPD) ⁽³⁾	64,750			74,000			72,100			78,000
Refinery utilization ⁽⁴⁾	65.1		%	82.1		%	72.3		%	82.9		%

Average per produced barrel ⁽⁵⁾
Refinery gross margin	$	11.41		$	22.48		$	13.54		$	17.07
Refinery operating expenses ⁽⁶⁾	13.60			11.53			12.17			11.11
Net operating margin	$	(2.19	)	$	10.95		$	1.37		$	5.96

Refinery operating expenses per throughput barrel ⁽⁷⁾	$	12.95		$	9.84		$	11.61		$	9.95



Consolidated
Crude charge (BPD) ⁽¹⁾	349,580			453,030			392,970			426,890
Refinery throughput (BPD) ⁽²⁾	377,500			484,890			424,540			459,460
Sales of produced refined products (BPD) ⁽³⁾	382,910			469,100			417,600			446,190
Refinery utilization ⁽⁴⁾	76.5		%	99.1		%	86.0		%	93.4		%

Average per produced barrel ⁽⁵⁾
Refinery gross margin	$	8.44		$	19.64		$	10.00		$	16.39
Refinery operating expenses ⁽⁶⁾	6.87			5.92			6.56			6.40
Net operating margin	$	1.57		$	13.72		$	3.44		$	9.99

Refinery operating expenses per throughput barrel ⁽⁷⁾	$	6.97		$	5.73		$	6.45		$	6.22

Feedstocks:
Sweet crude oil	48		%	44		%	45		%	42		%
Sour crude oil	25		%	29		%	27		%	31		%
Heavy sour crude oil	17		%	16		%	17		%	16		%
Black wax crude oil	3		%	4		%	4		%	4		%
Other feedstocks and blends	7		%	7		%	7		%	7		%
Total	100		%	100		%	100		%	100		%


•	t~~he impact of any economic downturn, recession or other disruption of the U.S. and global economies and financial and commodity markets.~~


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~