Supplemental Guarantor / Non-Guarantor Financial Information | Supplemental Guarantor/Non-Guarantor Financial Information Obligations of HEP (“Parent”) under the 6% Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries (“Guarantor Subsidiaries”). These guarantees are full and unconditional, subject to certain customary release provisions. These circumstances include (i) when a Guarantor Subsidiary is sold or sells all or substantially all of its assets, (ii) when a Guarantor Subsidiary is declared “unrestricted” for covenant purposes, (iii) when a Guarantor Subsidiary’s guarantee of other indebtedness is terminated or released and (iv) when the requirements for legal defeasance or covenant defeasance or to discharge the senior notes have been satisfied. The following financial information presents condensed consolidating balance sheets, statements of comprehensive income, and statements of cash flows of the Parent, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting. Condensed Consolidating Balance Sheet June 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) ASSETS Current assets: Cash and cash equivalents $ 2 $ 640 $ 6,014 $ — $ 6,656 Accounts receivable — 45,447 5,305 (586 ) 50,166 Prepaid and other current assets 156 2,629 361 — 3,146 Total current assets 158 48,716 11,680 (586 ) 59,968 Properties and equipment, net — 1,197,968 353,741 — 1,551,709 Investment in subsidiaries 1,866,892 269,911 — (2,136,803 ) — Intangible assets, net — 121,935 — — 121,935 Goodwill — 270,336 — — 270,336 Equity method investments — 84,752 — — 84,752 Other assets 10,483 16,880 — — 27,363 Total assets $ 1,877,533 $ 2,010,498 $ 365,421 $ (2,137,389 ) $ 2,116,063 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ — $ 19,284 $ 1,700 $ (586 ) $ 20,398 Accrued interest 13,189 — — — 13,189 Deferred revenue — 9,675 1,170 — 10,845 Accrued property taxes — 3,077 2,463 — 5,540 Other current liabilities 88 3,505 — — 3,593 Total current liabilities 13,277 35,541 5,333 (586 ) 53,565 Long-term debt 1,395,599 — — — 1,395,599 Other long-term liabilities 260 15,060 206 — 15,526 Deferred revenue — 48,405 — — 48,405 Class B unit — 44,600 — — 44,600 Equity - partners 468,397 1,866,892 269,911 (2,136,803 ) 468,397 Equity - noncontrolling interest — — 89,971 — 89,971 Total liabilities and equity $ 1,877,533 $ 2,010,498 $ 365,421 $ (2,137,389 ) $ 2,116,063 Condensed Consolidating Balance Sheet December 31, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) ASSETS Current assets: Cash and cash equivalents $ 2 $ 511 $ 7,263 $ — $ 7,776 Accounts receivable — 59,448 5,038 (182 ) 64,304 Prepaid and other current assets 13 2,016 282 — 2,311 Total current assets 15 61,975 12,583 (182 ) 74,391 Properties and equipment, net — 1,213,626 355,845 — 1,569,471 Investment in subsidiaries 1,902,285 273,319 — (2,175,604 ) — Intangible assets, net — 129,463 — — 129,463 Goodwill — 266,716 — — 266,716 Equity method investments — 85,279 — — 85,279 Other assets 11,753 17,041 — — 28,794 Total assets $ 1,914,053 $ 2,047,419 $ 368,428 $ (2,175,786 ) $ 2,154,114 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ — $ 20,928 $ 1,526 $ (182 ) $ 22,272 Accrued interest 12,500 756 — — 13,256 Deferred revenue — 8,540 1,058 — 9,598 Accrued property taxes — 3,431 1,221 — 4,652 Other current liabilities — 5,707 — — 5,707 Total current liabilities 12,500 39,362 3,805 (182 ) 55,485 Long-term debt 1,507,308 — — — 1,507,308 Other long-term liabilities 286 15,359 198 — 15,843 Deferred revenue — 47,272 — — 47,272 Class B unit — 43,141 — — 43,141 Equity - partners 393,959 1,902,285 273,319 (2,175,604 ) 393,959 Equity - noncontrolling interest — — 91,106 — 91,106 Total liabilities and equity $ 1,914,053 $ 2,047,419 $ 368,428 $ (2,175,786 ) $ 2,154,114 Condensed Consolidating Statement of Comprehensive Income Three Months Ended June 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 89,522 $ 4,491 $ — $ 94,013 Third parties — 19,540 5,207 — 24,747 — 109,062 9,698 — 118,760 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 31,494 3,039 — 34,533 Depreciation and amortization 20,431 4,177 — 24,608 General and administrative 761 1,912 — — 2,673 761 53,837 7,216 — 61,814 Operating income (loss) (761 ) 55,225 2,482 — 56,946 Other income (expense): Equity in earnings of subsidiaries 58,566 1,881 — (60,447 ) — Equity in earnings of equity method investments — 1,734 — — 1,734 Interest expense (17,662 ) 36 — — (17,626 ) Interest income — 526 — — 526 Gain on sale of assets and other — (79 ) 26 — (53 ) 40,904 4,098 26 (60,447 ) (15,419 ) Income before income taxes 40,143 59,323 2,508 (60,447 ) 41,527 State income tax expense — (28 ) — — (28 ) Net income 40,143 59,295 2,508 (60,447 ) 41,499 Allocation of net income attributable to noncontrolling interests — (729 ) (627 ) — (1,356 ) Net income attributable to the partners 40,143 58,566 1,881 (60,447 ) 40,143 Other comprehensive income — — — — — Comprehensive income attributable to the partners $ 40,143 $ 58,566 $ 1,881 $ (60,447 ) $ 40,143 Condensed Consolidating Statement of Comprehensive Income Three Months Ended June 30, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 88,022 $ 5,130 $ — $ 93,152 Third parties — 10,385 5,606 — 15,991 — 98,407 10,736 — 109,143 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 30,871 3,226 — 34,097 Depreciation and amortization — 15,791 4,154 — 19,945 General and administrative 865 1,750 — — 2,615 865 48,412 7,380 — 56,657 Operating income (loss) (865 ) 49,995 3,356 — 52,486 Other income (expense): Equity in earnings of subsidiaries 48,375 2,519 — (50,894 ) — Equity in earnings of equity method investments — 4,053 — — 4,053 Interest expense (6,175 ) (7,573 ) — — (13,748 ) Interest income — 103 — — 103 Gain on sale of assets and other — 87 2 — 89 42,200 (811 ) 2 (50,894 ) (9,503 ) Income before income taxes 41,335 49,184 3,358 (50,894 ) 42,983 State income tax expense — (127 ) — — (127 ) Net income 41,335 49,057 3,358 (50,894 ) 42,856 Allocation of net income attributable to noncontrolling interests — (682 ) (839 ) — (1,521 ) Net income attributable to the partners 41,335 48,375 2,519 (50,894 ) 41,335 Other comprehensive income (91 ) (91 ) — 91 (91 ) Comprehensive income attributable to the partners $ 41,244 $ 48,284 $ 2,519 $ (50,803 ) $ 41,244 Condensed Consolidating Statement of Comprehensive Income Six Months Ended June 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 183,813 $ 11,628 $ — $ 195,441 Third parties — 39,518 12,685 — 52,203 — 223,331 24,313 — 247,644 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 64,158 6,577 — 70,735 Depreciation and amortization — 41,432 8,318 — 49,750 General and administrative 2,041 3,754 — — 5,795 2,041 109,344 14,895 — 126,280 Operating income (loss) (2,041 ) 113,987 9,418 — 121,364 Other income (expense): Equity in earnings (loss) of subsidiaries 123,618 7,093 — (130,711 ) — Equity in earnings of equity method investments — 3,013 — — 3,013 Interest expense (35,311 ) 104 — — (35,207 ) Interest income — 1,041 — — 1,041 Gain (loss) on sale of assets and other 45 (51 ) 39 — 33 88,352 11,200 39 (130,711 ) (31,120 ) Income (loss) before income taxes 86,311 125,187 9,457 (130,711 ) 90,244 State income tax expense — (110 ) — — (110 ) Net income (loss) 86,311 125,077 9,457 (130,711 ) 90,134 Allocation of net income attributable to noncontrolling interests — (1,459 ) (2,364 ) — (3,823 ) Net income (loss) attributable to Holly Energy Partners 86,311 123,618 7,093 (130,711 ) 86,311 Other comprehensive income (loss) — — — — — Comprehensive income (loss) $ 86,311 $ 123,618 $ 7,093 $ (130,711 ) $ 86,311 Condensed Consolidating Statement of Comprehensive Income Six Months Ended June 30, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 168,798 $ 13,379 $ — $ 182,177 Third parties — 21,388 11,212 — 32,600 — 190,186 24,591 — 214,777 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 59,963 6,623 — 66,586 Depreciation and amortization — 30,644 8,078 — 38,722 General and administrative 2,020 3,229 — — 5,249 2,020 93,836 14,701 — 110,557 Operating income (loss) (2,020 ) 96,350 9,890 — 104,220 Other income (expense): Equity in earnings (loss) of subsidiaries 93,658 7,420 — (101,078 ) — Equity in earnings of equity method investments — 5,893 — — 5,893 Interest expense (12,515 ) (14,772 ) — — (27,287 ) Interest income — 205 — — 205 Loss on early extinguishment of debt (12,225 ) — — — (12,225 ) Gain (loss) on sale of assets and other — 159 3 — 162 68,918 (1,095 ) 3 (101,078 ) (33,252 ) Income (loss) before income taxes 66,898 95,255 9,893 (101,078 ) 70,968 State income tax expense — (233 ) — — (233 ) Net income (loss) 66,898 95,022 9,893 (101,078 ) 70,735 Allocation of net income attributable to noncontrolling interests — (1,364 ) (2,473 ) — (3,837 ) Net income (loss) attributable to Holly Energy Partners 66,898 93,658 7,420 (101,078 ) 66,898 Other comprehensive income (loss) (28 ) (28 ) — 28 (28 ) Comprehensive income (loss) $ 66,870 $ 93,630 $ 7,420 $ (101,050 ) $ 66,870 Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Cash flows from operating activities $ (33,588 ) $ 182,983 $ 18,661 $ (7,093 ) $ 160,963 Cash flows from investing activities Additions to properties and equipment — (18,829 ) (5,910 ) — (24,739 ) Business and asset acquisitions — (6,831 ) — — (6,831 ) Distributions from UNEV in excess of earnings — 3,407 — (3,407 ) — Proceeds from sale of assets — 196 — — 196 Distributions in excess of equity in earnings of equity investments — 299 — — 299 — (21,758 ) (5,910 ) (3,407 ) (31,075 ) Cash flows from financing activities Net repayments under credit agreement (112,000 ) — — — (112,000 ) Net intercompany financing activities 160,330 (160,330 ) — — — Proceeds from issuance of common units 114,899 (68 ) — — 114,831 Contribution from general partner 492 — — — 492 Distributions to HEP unitholders (130,075 ) — — — (130,075 ) Distributions to noncontrolling interests — — (14,000 ) 10,500 (3,500 ) Units withheld for tax withholding obligations (58 ) — — — (58 ) Other — (698 ) — — (698 ) 33,588 (161,096 ) (14,000 ) 10,500 (131,008 ) Cash and cash equivalents Increase (decrease) for the period — 129 (1,249 ) — (1,120 ) Beginning of period 2 511 7,263 — 7,776 End of period $ 2 $ 640 $ 6,014 $ — $ 6,656 Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Cash flows from operating activities $ (20,377 ) $ 122,025 $ 19,373 $ (7,420 ) $ 113,601 Cash flows from investing activities Additions to properties and equipment — (17,670 ) (2,854 ) — (20,524 ) Proceeds from sale of assets — 635 — — 635 Distributions from UNEV in excess of earnings — 3,080 — (3,080 ) — Distributions in excess of equity in earnings of equity investments — 1,654 — — 1,654 — (12,301 ) (2,854 ) (3,080 ) (18,235 ) Cash flows from financing activities Net borrowings under credit agreement — 290,000 — — 290,000 Net intercompany financing activities 389,005 (389,005 ) — — — Redemption of senior notes (309,750 ) — — — (309,750 ) Proceeds from issuance of common units 52,383 251 — — 52,634 Distributions to HEP unitholders (112,195 ) — — — (112,195 ) Distributions to noncontrolling interests — — (14,000 ) 10,500 (3,500 ) Distribution to HFC for El Dorado tanks (103 ) — — — (103 ) Contributions from general partner 1,072 (77 ) — — 995 Units withheld for tax withholding obligations (35 ) — — — (35 ) Other — (730 ) — — (730 ) 20,377 (99,561 ) (14,000 ) 10,500 (82,684 ) Cash and cash equivalents Decrease for the period — 10,163 2,519 — 12,682 Beginning of period 2 301 3,354 — 3,657 End of period $ 2 $ 10,464 $ 5,873 $ — $ 16,339 |