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 September 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) ASSETS Current assets: Cash and cash equivalents $ 2 $ 1,639 $ 4,734 $ — $ 6,375 Accounts receivable — 52,218 5,438 (246 ) 57,410 Prepaid and other current assets 85 2,253 375 — 2,713 Total current assets 87 56,110 10,547 (246 ) 66,498 Properties and equipment, net — 1,190,867 349,846 — 1,540,713 Investment in subsidiaries 1,859,722 266,162 — (2,125,884 ) — Intangible assets, net — 118,831 — — 118,831 Goodwill — 270,336 — — 270,336 Equity method investments — 83,911 — — 83,911 Other assets 9,897 16,856 — — 26,753 Total assets $ 1,869,706 $ 2,003,073 $ 360,393 $ (2,126,130 ) $ 2,107,042 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ — $ 15,574 $ 1,074 $ (246 ) $ 16,402 Accrued interest 5,730 — — — 5,730 Deferred revenue — 11,228 1,132 — 12,360 Accrued property taxes — 4,346 3,052 — 7,398 Other current liabilities 22 3,670 2 — 3,694 Total current liabilities 5,752 34,818 5,260 (246 ) 45,584 Long-term debt 1,416,748 — — — 1,416,748 Other long-term liabilities 260 14,745 250 — 15,255 Deferred revenue — 48,408 — — 48,408 Class B unit — 45,380 — — 45,380 Equity - partners 446,946 1,859,722 266,162 (2,125,884 ) 446,946 Equity - noncontrolling interest — — 88,721 — 88,721 Total liabilities and equity $ 1,869,706 $ 2,003,073 $ 360,393 $ (2,126,130 ) $ 2,107,042 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 September 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 94,270 $ 5,918 $ — $ 100,188 Third parties — 21,277 4,319 — 25,596 — 115,547 10,237 — 125,784 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 32,906 3,090 — 35,996 Depreciation and amortization 20,198 4,169 — 24,367 General and administrative 698 1,800 — — 2,498 698 54,904 7,259 — 62,861 Operating income (loss) (698 ) 60,643 2,978 — 62,923 Other income (expense): Equity in earnings of subsidiaries 63,731 2,251 — (65,982 ) — Equity in earnings of equity method investments — 1,114 — — 1,114 Interest expense (18,030 ) (12 ) — — (18,042 ) Interest income — 540 — — 540 Gain on sale of assets and other — 14 24 — 38 45,701 3,907 24 (65,982 ) (16,350 ) Income before income taxes 45,003 64,550 3,002 (65,982 ) 46,573 State income tax expense — (39 ) — — (39 ) Net income 45,003 64,511 3,002 (65,982 ) 46,534 Allocation of net income attributable to noncontrolling interests — (780 ) (751 ) — (1,531 ) Net income attributable to the partners 45,003 63,731 2,251 (65,982 ) 45,003 Other comprehensive income — — — — — Comprehensive income attributable to the partners $ 45,003 $ 63,731 $ 2,251 $ (65,982 ) $ 45,003 Condensed Consolidating Statement of Comprehensive Income Three Months Ended September 30, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 89,772 $ 5,366 $ — $ 95,138 Third parties — 10,758 4,468 — 15,226 — 100,530 9,834 — 110,364 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 31,360 4,638 — 35,998 Depreciation and amortization — 14,854 4,153 — 19,007 General and administrative 1,050 2,573 — — 3,623 1,050 48,787 8,791 — 58,628 Operating income (loss) (1,050 ) 51,743 1,043 — 51,736 Other income (expense): Equity in earnings of subsidiaries 57,193 783 — (57,976 ) — Equity in earnings of equity method investments — 5,072 — — 5,072 Interest expense (14,072 ) — — — (14,072 ) Interest income — 101 — — 101 Gain on sale of assets and other — 154 1 — 155 43,121 6,110 1 (57,976 ) (8,744 ) Income before income taxes 42,071 57,853 1,044 (57,976 ) 42,992 State income tax expense — 69 — — 69 Net income 42,071 57,922 1,044 (57,976 ) 43,061 Allocation of net income attributable to noncontrolling interests — (729 ) (261 ) — (990 ) Net income attributable to the partners 42,071 57,193 783 (57,976 ) 42,071 Other comprehensive income (63 ) (63 ) — 63 (63 ) Comprehensive income attributable to the partners $ 42,008 $ 57,130 $ 783 $ (57,913 ) $ 42,008 Condensed Consolidating Statement of Comprehensive Income Nine Months Ended September 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 278,083 $ 17,546 $ — $ 295,629 Third parties — 60,795 17,004 — 77,799 — 338,878 34,550 — 373,428 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 97,064 9,667 — 106,731 Depreciation and amortization — 61,630 12,487 — 74,117 General and administrative 2,739 5,554 — — 8,293 2,739 164,248 22,154 — 189,141 Operating income (loss) (2,739 ) 174,630 12,396 — 184,287 Other income (expense): Equity in earnings (loss) of subsidiaries 187,349 9,344 — (196,693 ) — Equity in earnings of equity method investments — 4,127 — — 4,127 Interest expense (53,341 ) 92 — — (53,249 ) Interest income — 1,581 — — 1,581 Gain (loss) on sale of assets and other 45 (37 ) 63 — 71 134,053 15,107 63 (196,693 ) (47,470 ) Income (loss) before income taxes 131,314 189,737 12,459 (196,693 ) 136,817 State income tax expense — (149 ) — — (149 ) Net income (loss) 131,314 189,588 12,459 (196,693 ) 136,668 Allocation of net income attributable to noncontrolling interests — (2,239 ) (3,115 ) — (5,354 ) Net income (loss) attributable to Holly Energy Partners 131,314 187,349 9,344 (196,693 ) 131,314 Other comprehensive income (loss) — — — — — Comprehensive income (loss) $ 131,314 $ 187,349 $ 9,344 $ (196,693 ) $ 131,314 Condensed Consolidating Statement of Comprehensive Income Nine Months Ended September 30, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Revenues: Affiliates $ — $ 258,571 $ 18,745 $ — $ 277,316 Third parties — 32,146 15,680 — 47,826 — 290,717 34,425 — 325,142 Operating costs and expenses: Operations (exclusive of depreciation and amortization) — 91,323 11,261 — 102,584 Depreciation and amortization — 45,498 12,231 — 57,729 General and administrative 3,070 5,802 — — 8,872 3,070 142,623 23,492 — 169,185 Operating income (loss) (3,070 ) 148,094 10,933 — 155,957 Other income (expense): Equity in earnings (loss) of subsidiaries 165,624 8,203 — (173,827 ) — Equity in earnings of equity method investments — 10,965 — — 10,965 Interest expense (41,359 ) — — — (41,359 ) Interest income — 306 — — 306 Loss on early extinguishment of debt (12,225 ) — — — (12,225 ) Gain (loss) on sale of assets and other — 313 4 — 317 112,040 19,787 4 (173,827 ) (41,996 ) Income (loss) before income taxes 108,970 167,881 10,937 (173,827 ) 113,961 State income tax expense — (164 ) — — (164 ) Net income (loss) 108,970 167,717 10,937 (173,827 ) 113,797 Allocation of net income attributable to noncontrolling interests — (2,093 ) (2,734 ) — (4,827 ) Net income (loss) attributable to Holly Energy Partners 108,970 165,624 8,203 (173,827 ) 108,970 Other comprehensive income (loss) (91 ) (91 ) — 91 (91 ) Comprehensive income (loss) $ 108,879 $ 165,533 $ 8,203 $ (173,736 ) $ 108,879 Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 2018 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Cash flows from operating activities $ (58,326 ) $ 259,360 $ 25,722 $ (9,344 ) $ 217,412 Cash flows from investing activities Additions to properties and equipment — (28,057 ) (6,213 ) — (34,270 ) Business and asset acquisitions — (6,803 ) (38 ) — (6,841 ) Distributions from UNEV in excess of earnings — 7,156 — (7,156 ) — Proceeds from sale of assets — 210 — — 210 Distributions in excess of equity in earnings of equity investments — 1,368 — — 1,368 — (26,126 ) (6,251 ) (7,156 ) (39,533 ) Cash flows from financing activities Net repayments under credit agreement (91,000 ) — — — (91,000 ) Net intercompany financing activities 231,231 (231,231 ) — — — Proceeds from issuance of common units 114,839 48 — — 114,887 Contribution from general partner 614 — — — 614 Distributions to HEP unitholders (197,300 ) — — — (197,300 ) Distributions to noncontrolling interests — — (22,000 ) 16,500 (5,500 ) Units withheld for tax withholding obligations (58 ) — — — (58 ) Other — (923 ) — — (923 ) 58,326 (232,106 ) (22,000 ) 16,500 (179,280 ) Cash and cash equivalents Increase (decrease) for the period — 1,128 (2,529 ) — (1,401 ) Beginning of period 2 511 7,263 — 7,776 End of period $ 2 $ 1,639 $ 4,734 $ — $ 6,375 Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 2017 Parent Guarantor Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated (In thousands) Cash flows from operating activities $ (57,010 ) $ 215,608 $ 27,064 $ (8,203 ) $ 177,459 Cash flows from investing activities Additions to properties and equipment — (27,725 ) (2,950 ) — (30,675 ) Proceeds from sale of assets — 794 — — 794 Distributions from UNEV in excess of earnings — 6,797 — (6,797 ) — Distributions in excess of equity in earnings of equity investments — 1,224 — — 1,224 — (18,910 ) (2,950 ) (6,797 ) (28,657 ) Cash flows from financing activities Net borrowings under credit agreement 750,000 (553,000 ) — — 197,000 Net intercompany financing activities (357,196 ) 357,196 — — — Proceeds from issuance of 6% Senior Notes 103,250 (1,500 ) — — 101,750 Redemption of senior notes (309,750 ) — — — (309,750 ) Proceeds from issuance of common units 52,285 — — — 52,285 Distributions to HEP unitholders (171,560 ) — — — (171,560 ) Distributions to noncontrolling interests — — (20,000 ) 15,000 (5,000 ) Distribution to HFC for El Dorado tanks (103 ) — — — (103 ) Contributions from general partner 1,072 — — — 1,072 Units withheld for tax withholding obligations (35 ) — — — (35 ) Deferred financing costs (10,953 ) 1,500 — — (9,453 ) Other — (1,189 ) — — (1,189 ) 57,010 (196,993 ) (20,000 ) 15,000 (144,983 ) Cash and cash equivalents Decrease for the period — (295 ) 4,114 — 3,819 Beginning of period 2 301 3,354 — 3,657 End of period $ 2 $ 6 $ 7,468 $ — $ 7,476 |