H
O
L
L
Y
F
R
O
N
T
I
E
R
2
0
1
4
A
N
N
U
A
L
R
E
P
O
R
T
2014 ANNUAL REPORT
T
N
E
N
I
T
N
O
C
-
D
I
M
T
S
E
W
H
T
U
O
S
N
I
A
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N
U
O
M
Y
K
C
O
R
EL DORADO REFINERY
• Located in El Dorado, Kansas
• 135,000 BPSD capacity and Nelson Complexity rating of 11.8
• Processes sour and heavy (Canadian) crude oils into high-value light products
• Distributes to high-margin markets in Colorado and Mid-Continent/Plains states
TULSA REFINERY
• Located in Tulsa, Oklahoma
• 125,000 BPSD capacity and Nelson Complexity rating of 14.0
• Processes predominantly sweet crude oil with up to 10,000 BPD of heavy
Canadian crudes
• Distributes to the Mid-Continent states
• Markets high-value specialty lubricants throughout North America
and to Central and South America
NAVAJO REFINERY
• Located in Artesia, New Mexico and operated in conjunction
with a refining facility 65 miles east in Lovington, New Mexico
• 100,000 BPSD capacity and Nelson Complexity rating of 11.8
• Processes sour and heavy crude oils into high-value
light products
• Distributes to high-margin markets in Arizona, New Mexico
and West Texas
SOUTHWEST
SALES OF
REFINERY
PRODUCED
PRODUCTS
106,870 BPD
CHEYENNE REFINERY
• Located in Cheyenne, Wyoming
• 52,000 BPSD capacity and Nelson Complexity rating of 8.9
• Processes sour and heavy Canadian crude oils into high-value light products
• Distributes to high-margin Eastern Rockies and Plains states
WOODS CROSS REFINERY
• Located in Woods Cross, Utah (near Salt Lake City)
• 31,000 BPSD capacity and Nelson Complexity rating of 12.5
• Processes regional sweet and advantaged waxy crude as well as Canadian
sour crude oils
• Distributes to high-margin markets in Utah, Idaho, Nevada, Wyoming
and eastern Washington
HOLLY ENERGY PARTNERS
• 2,900 miles of crude oil and petroleum product pipelines
• 12 million barrels of refined product and crude oil storage
• 10 terminals and 7 rack facilities in 10 Western and Mid-Continent states
• 75% joint-venture interest in the UNEV Pipeline – a 400-mile
refined product pipeline running from Salt Lake City, Utah to Las Vegas, Nevada
• 25% joint-venture interest in SLC Pipeline, LLC – a 95-mile crude oil pipeline system
that serves refineries in the Salt Lake City area
MID-CONTINENT
SALES OF
REFINERY
PRODUCED
PRODUCTS
245,600 BPD
Crude and
Feedstocks
n Sour crude
oil 74%
n Sweet crude
oil 13%
n Heavy sour
crude oil 2%
n Other feed-
stocks and
blends 11%
ROCKY
MOUNTAIN
SALES OF
REFINERY
PRODUCED
PRODUCTS
68,520 BPD
Crude and
Feedstocks
n Sour crude oil 11%
n Sweet crude oil 71%
n Heavy sour
crude oil 14%
n Other feedstocks
and blends 4%
Product Mix
n Gasolines 47%
n Diesel fuels 33%
n Jet fuels 7%
n Asphalt 3%
n Lubricants 4%
n Other 6%
Product Mix
n Gasolines 54%
n Diesel fuels 38%
n Asphalt 1%
n Other 7%
Crude and
Feedstocks
n Sour crude oil 2%
n Sweet crude oil 44%
n Heavy sour
crude oil 30%
n Black wax
crude oil 15%
n Other feedstocks
and blends 9%
Product Mix
n Gasolines 56%
n Diesel fuels 33%
n Asphalt 5%
n Other 6%
The Mid-Continent Region
comprises our Tulsa and
El Dorado Refineries and has a
combined crude oil processing
capacity of 260,000 BPSD.
The Southwest Region consists
of our Navajo Refinery and has
a crude oil processing capacity
of 100,000 BPSD. In addition,
we manufacture and market
commodity and modified
asphalt products throughout
the Southwest Region.
The Rocky Mountain Region
comprises our Cheyenne
and Woods Cross Refineries
and has a combined crude
oil processing capacity of
83,000 BPSD.
Holly Energy Partners owns and
operates substantially all of the
refined product pipeline and
terminalling assets that support
our refining and marketing
operations in the Mid-Continent,
Southwest and Rocky Mountain
Regions of the United States.
Edmonton Hardisty
Spokane
PADD IV
Billings
Boise
Mountain Home
T
e
x
a
c
o
/
B
u
t
t
e
Porta
Grand Forks
PADD II
Minneapolis
Burley
Casper
Guernsey
WOODS CROSS
Salt Lake City
PADD V
Sidney
Omaha
Express
Platte
Denver
CHEYENNE
Des Moines
Chicago
PADD I
Las Vegas
Cedar City
Bloomfield
Albuquerque
Moriarty
J
a
y
h
a
w
k
Wichita
Kansas City
EL DORADO
Cushing
TULSA
Phoenix
Tucson
NAVAJO
Duncan
Wichita Falls
PADD III
Abilene
El Paso
Orla
Houston
Proximity to Growing North American
Crude Production
All five HFC refineries sit close to production growth.
HollyFrontier Corporation
443,000 capacity
12.1 complexity
HollyFrontier refineries
HEP terminals
Third-party terminals
Other HollyFrontier assets
Pipelines
HEP pipelines
UNEV HEP
product pipeline
Third-party product
Third-party crude
HollyFrontier pipeline
Edmonton Hardisty
Spokane
PADD IV
Billings
Boise
Mountain Home
Porta
Grand Forks
T
e
x
a
c
o
/
B
u
t
t
e
Burley
Casper
Guernsey
PADD II
Minneapolis
WOODS CROSS
Salt Lake City
PADD V
Denver
CHEYENNE
Sidney
Omaha
Express
Platte
Des Moines
Chicago
PADD I
Las Vegas
Cedar City
Bloomfield
Phoenix
Tucson
Albuquerque
Moriarty
El Paso
Orla
J
a
y
h
a
w
k
Wichita
Kansas City
EL DORADO
Cushing
TULSA
NAVAJO
Duncan
Wichita Falls
PADD III
Abilene
Houston
PURE-PLAY
COMPETITIVE REFINER
• Five refineries with
443,000 barrels per stream
day refining capacity
ATTRACTIVE NICHE PRODUCT
MARKETS WITH ADVANTAGED
CRUDE SUPPLY
• Rocky Mountains, Southwest and
Mid-Continent Plains states
STRONG INVESTMENT
TRACK RECORD
• Future growth focused
on underwritten projects
• Woods Cross, El Dorado and Tulsa
Refineries purchased at industry
lows on a per barrel basis
STRONG FINANCIAL
PERFORMANCE
• Industry-leading returns on capital
• Best-in-class net income per barrel
crude capacity
• Track record of cash return
to shareholders
• Strong Balance Sheet
HEP OWNERSHIP
• Stable cash flows from HEP
through quarterly regular and
incentive distributions
• HFC owns 39% of HEP including
the 2% GP interest
• HFC received $81 million in cash
distributions in 2014*
* Q4 2013 through Q3 2014 quarterly LP and
GP distributions, announced and paid in 2014
RETURN IN
CAPITAL TO
SHAREHOLDERS
since July 2011 merger
CASH DIVIDEND
YIELD (LTM)
based on December 31, 2014
closing stock price of $37.48
CASH AND
SHORT-TERM
INVESTMENTS
in marketable securities
December 31, 2014
A NICHE
PURE-PLAY
REFINER
RETURN ON
CAPITAL EMPLOYED
Five-year average (excluding 2014
inventory valuation adjustment)
15%$2.8 BIL$8.7%$1.0 BIL DEAR STOCKHOLDERS
HollyFrontier Corporation reported
Net Income attributable to HollyFrontier
stockholders of $281 million, or
$525 million excluding a $397 million
non-cash, pre-tax charge for inventory
valuation adjustment. We were not
immune to commodity price volatility
FINANCIAL RESULTS
In 2014 we achieved:
• Net Income attributable to HFC stockholders
of $281 million, $525 million excluding the lower
of cost or market “LOCM” adjustment
• Gross refining margins of $13.98 per produced barrel
• Operating cash flow of $758.6 million
• $1 billion in cash and short-term investments as
of December 31, 2014, compared to approximately
$187 million in long-term debt (exclusive of HEP debt)
• Over $780 million of capital returned to shareholders
in 2014, during which domestic
crude prices plummeted 46% and
the WTI/Brent crude differential
compressed 40%. Our reported
gross margin per barrel declined only
13% to $13.98 per barrel reflecting
our advantaged geographic location
close to inland crude production
and niche product markets.
2
HollyFrontier Corporation 2014 Annual Report
In 2014, HollyFrontier delivered improved operational perfor-
mance across our refineries. We are seeing the benefit of
past and ongoing investments being made across our refining
system. Our consolidated refinery utilization rate in 2014 was
91.7%, above our five-year average utilization rate and nearly
a 5% improvement relative to 2013 levels due to a combination
of less planned maintenance activity and lower unplanned
downtime. In 2015 and beyond, we will continue to focus on
improving our operational efficiency, reliability, advantaged
crude access and refinery yield improvement.
STRONG TRACK RECORD OF RETURNING
CAPITAL TO STOCKHOLDERS
HollyFrontier remains committed to generating shareholder
value by returning cash to shareholders. In 2014, HollyFrontier
returned over $780 million to stockholders through regular
quarterly dividends, special dividends and share repurchases.
On an annualized basis, the Company’s cash dividend yield was
8.7% as of year-end 2014. In February 2015, the Board of Direc-
tors authorized a new $500 million share repurchase program
reflecting our renewed focus on share repurchases to augment
our dividend program. Since completing the HollyFrontier
merger in July 2011, the Company has returned approximately
$2.8 billion in capital to stockholders.
INVESTING IN OUR OPERATIONS
In 2014, we invested $485 million in our facilities improving
our refining capabilities, safety and refinery reliability and
minimizing our environmental impact. Several of our investments
are scheduled to complete in 2015 and once operational will
augment HollyFrontier’s margins and drive sustainable long-term
value. Our 2014 capital investment projects included:
“ In 2014, HollyFrontier delivered improved
operational performance across our refineries.
We are seeing the benefit of past and
ongoing investments being made across
our refining system.”
MICHAEL C. JENNINGS
• Woods Cross Refinery Expansion: Our Woods Cross
expansion will increase capacity at our Woods Cross
facility located near Salt Lake City, Utah from 31,000 to
45,000 barrels per day while at the same time reducing
emissions. As part of the expansion, we are increasing
our capacity to process locally sourced black wax crude
from 10,000 barrels to 24,000 barrels a day. Upon comple-
tion, the refinery will have the capability of providing the
Las Vegas market with refined products through the
UNEV Pipeline, as well as serving our traditional Salt Lake
City and other markets across the Inter-Mountain West.
We are on track to complete the expansion in the fourth
quarter of 2015.
• El Dorado Naphtha Fractionation: Our ongoing work at our
El Dorado Refinery, in El Dorado, Kansas, will improve liquid
yields by reducing byproducts such as fuel gas, propane and
butane and reduce the benzene content of our gasoline pool
lower. We are on track for completion in the spring of 2015.
• Tulsa Refinery Modernization: In 2014, we filed a permit to
encompass the full 170,000 barrels per day of crude distilla-
tion capacity at our Tulsa Refinery providing flexibility for
future improvement projects. Currently, plans are underway
to modernize the fluid catalytic cracking unit (FCCU) includ-
ing the installation of updated feed nozzles, an upgraded
catalyst stripper and riser termination device. The investments
being made will increase FCC capacity by 4,000 barrels per
day and improve conversion rates from heavy oils to gasoline
and diesel a further 1%. We are on track to complete the FCC
modernization project in the first quarter of 2016.
• Holly Energy Partners’ Crude Gathering System Expansion:
In 2014, Holly Energy Partners completed the expansion
of 800 miles of pipeline in southeastern New Mexico.
The expanded gathering system has capacity up to
100,000 barrels per day and provides additional delivery
capacity to our Navajo Refinery while also connecting
to major clearing points in Cushing, Oklahoma, Midland,
Texas and Crane, Texas.
In addition to these initiatives, we announced the appointment
of George Damiris to serve as our new Chief Operating Officer
in 2014. George has been a key member for the leadership
team since joining the Company in 2007 and has more than
25 years of refining industry experience. We look forward
to benefiting from his leadership as we continue to improve
operational reliability and safety while also completing our
slate of strategic growth projects.
COMMITTED TO THE ENVIRONMENT,
HEALTH, SAFETY AND OUR COMMUNITIES
HollyFrontier Corporation’s core values are health, safety,
corporate citizenship and environmental stewardship. We are
actively investing to reduce the environmental impact of our
operations. Emissions at the Woods Cross Refinery are being
reduced through new investments despite a 50% increase in
plant capacity. We have invested to reduce our water needs,
bringing our usage to half the industry average and have an
active campaign upgrading fired heaters and boilers across
our refineries to reduce our carbon dioxide emissions.
At HollyFrontier, we consider the communities we operate in as
a part of our extended family and are committed to promoting
sustainable social and economic benefits in the areas we oper-
ate. We endeavor to give back both through volunteerism and
charitable giving to improve the lives of those who share the
community where our employees live and work.
Finally, we are dedicated to providing the American consumer
with a secure supply of affordable transportation fuel produced
in a safe and environmentally responsible manner. In 2014, both
the Tulsa and Woods Cross Refineries received the American
Fuel and Petrochemical Manufacturers Association’s Meritorious
Safety Performance Award. We are appreciative for the service
and dedication of all of HollyFrontier’s 2,686 employees who
work hard every day to ensure our business operations are
conducted safely and reliably.
Sincerely,
MICHAEL C. JENNINGS
Chairman, Chief Executive Officer and President
3
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31
2013
2014
Sales and other revenues
Income before income taxes
Net income attributable to HFC stockholders
Net income per common share attributable
to HFC stockholders – diluted
Cash flows from operating activities
Cash flows used for capital expenditures
Total assets
HFC stockholders’ equity
Sales of refined products – barrels per day (“BPD”)
Refinery production – BPD
Employees
$ 20,160,560,000
$ 19,764,327,000
$
$
$
$
$
1,159,399,000
735,842,000
3.64
869,174,000
425,127,000
$
$
$
$
$
467,500,000
281,292,000
1.42
758,596,000
564,821,000
$ 10,056,739,000
$ 9,230,640,000
$ 5,999,620,000
$ 5,523,584,000
446,390
413,820
2,662
461,640
425,010
2,686
7
2
7
,
1
3
2
0
,
1
6
3
7
1
8
2
4
0
1
3
6
6
,
1
8
3
3
,
1
9
6
8
9
5
7
3
8
2
1
9
0
0
2
,
1
6
1
,
0
2
4
6
7
9
1
,
0
4
4
,
5
1
3
2
3
,
8
10 11 12 13 14
10 11 12 13 14
10 11 12 13 14
Net Income Attributable
to HFC Stockholders
$ in millions
Cash Flows from
Operating Activities
$ in millions
Revenues
$ in millions
3
4
4
4
1
4
5
2
4
2
3
3
6
2
2
3
5
0
6
,
0
0
0
6
,
4
2
5
,
5
4
0
2
,
5
9
2
3
0
1
,
7
5
0
0
1
,
6
7
5
,
9
1
3
2
,
9
7
9
6
0
5
0
3
,
10 11 12 13 14
10 11 12 13 14
10 11 12 13 14
Refinery Production
BPD in thousands
HFC Stockholders’ Equity
$ in millions
Total Assets
$ in millions
4
HollyFrontier Corporation 2014 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________
FORM 10-K
_________________________________________________________________
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
For the transition period from __________ to ____________
Commission File Number 1-3876
_________________________________________________________________
HOLLYFRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
_________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
2828 N. Harwood, Suite 1300
Dallas, Texas
(Address of principal executive offices)
75-1056913
(I.R.S. Employer Identification No.)
75201-1507
(Zip Code)
(214) 871-3555
Registrant’s telephone number, including area code
_________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value registered on the New York Stock Exchange.
Securities registered pursuant to 12(g) of the Act:
None.
_________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes
No
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 and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
On June 30, 2014, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the Common Stock, par
value $0.01 per share, held by non-affiliates of the registrant was approximately $8.0 billion, based upon the closing price on the New York Stock Exchange on
such date. (This is not deemed an admission that any person whose shares were not included in the computation of the amount set forth in the preceding sentence
necessarily is an “affiliate” of the registrant.)
195,658,820 shares of Common Stock, par value $.01 per share, were outstanding on February 20, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its annual meeting of stockholders to be held on May 13, 2015, which proxy statement will be filed with the Securities
and Exchange Commission within 120 days after December 31, 2014, are incorporated by reference in Part III.
Table of Content
Item
TABLE OF CONTENTS
Forward-Looking Statements
Definitions
1 and 2. Business and properties
1A. Risk Factors
1B. Unresolved staff comments
3. Legal proceedings
4. Mine safety disclosures
PART I
PART II
5. Market for Registrant's common equity, related stockholder matters and issuer
purchases of equity securities
6. Selected financial data
7. Management's discussion and analysis of financial condition and results of operations
7A. Quantitative and qualitative disclosures about market risk
Reconciliations to amounts reported under generally accepted accounting principles
8. Financial statements and supplementary data
9. Changes in and disagreements with accountants on accounting and financial disclosure
9A. Controls and procedures
9B. Other information
PART III
10. Directors, executive officers and corporate governance
11. Executive compensation
12. Security ownership of certain beneficial owners and management and related
stockholder matters
13. Certain relationships and related transactions, and director independence
14. Principal accounting fees and services
15. Exhibits, financial statement schedules
PART IV
Signatures
Index to exhibits
2
Page
3
4
6
20
29
30
31
32
33
34
47
47
51
98
98
98
98
98
98
99
99
99
100
101
Table of Content
FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form
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-K, including, but not limited to, those under
“Business and Properties” in Items 1 and 2, “Risk Factors” in Item 1A, “Legal Proceedings” in Item 3 and “Management's
Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking statements. 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. 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products
in our markets;
the demand for and supply of crude oil and refined products;
the spread between market prices for refined products and market prices for crude oil;
the possibility of constraints on the transportation of refined products;
the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines;
effects of governmental and environmental regulations and policies;
the availability and cost of our financing;
the effectiveness of our capital investments and marketing strategies;
our efficiency in carrying out construction projects;
our ability to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate
any existing or future acquired operations;
the possibility of terrorist attacks and the consequences of any such attacks;
general economic conditions; and
other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange
Commission filings.
Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are
set forth in this Form 10-K, including without limitation the forward-looking statements that are referred to above. When considering
forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in this Form 10-K
under “Risk Factors” in Item 1A and in conjunction with the discussion in this Form 10-K in “Management's Discussion and
Analysis of Financial Condition and Results of Operations” under the heading “Liquidity and Capital Resources.” All forward-
looking statements included in this Form 10-K and all subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements
speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
3
Table of Content
DEFINITIONS
Within this report, the following terms have these specific meanings:
“Alkylation” means the reaction of propylene or butylene (olefins) with isobutane to form an iso-paraffinic gasoline (inverse
of cracking).
“Aromatic oil” is long chain oil that is highly aromatic in nature and is used to manufacture tires and industrial rubber
products and in the production of specialty asphalt.
“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.
“Biodiesel” means a alternative fuel produced from renewable biological resources.
“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.
“Catalytic reforming” means a refinery process which uses a precious metal (such as platinum) based catalyst to convert
low octane naphtha to high octane gasoline blendstock and hydrogen. The hydrogen produced from the reforming process is used
to desulfurize other refinery oils and is a primary source of hydrogen for the refinery.
“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.
“Ethanol” means a high octane gasoline blend stock that is used to make various grades of gasoline.
“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.
“Hydrodesulfurization” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen and
a catalyst at relatively high temperatures.
“Hydrogen plant” means a refinery unit that converts natural gas and steam to high purity hydrogen, which is then used in
the hydrodesulfurization, hydrocracking and isomerization processes.
“HF alkylation” or hydrofluoric alkylation, means a refinery process which combines isobutane and C3/C4 olefins using
HF acid as a catalyst to make high octane gasoline blend stock.
“Isomerization” means a refinery process for rearranging the structure of C5/C6 molecules without changing their size or
chemical composition and is used to improve the octane of C5/C6 gasoline blendstocks.
“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.
“MSAT2” means Control of Hazardous Air Pollutants from Mobile Sources, a rule issued by the U.S. Environmental
Protection Agency to reduce hazardous emissions from motor vehicles and motor vehicle fuels.
“MEK” means a lube process that separates waxy oil from non-waxy oils using methyl ethyl ketone as a solvent.
“MMBTU” means one million British thermal units.
4
Table of Content
“Natural gasoline” means a low octane gasoline blend stock that is purchased and used to blend with other high octane
stocks produced to make various grades of gasoline.
“Paraffinic oil” is a high paraffinic, high gravity oil produced by extracting aromatic oils and waxes from gas oil and is
used in producing high-grade lubricating oils.
“Refinery gross margin” means the difference between average net sales price and average product costs per produced
barrel of refined products sold. This does not include the associated depreciation and amortization costs.
“Reforming” means the process of converting gasoline type molecules into aromatic, higher octane gasoline blend stocks
while producing hydrogen in the process.
“Roofing flux” is produced from the bottom cut of crude oil and is the base oil used to make roofing shingles for the housing
industry.
“ROSE,” or “Solvent deasphalter / residuum oil supercritical extraction,” means a refinery unit that uses a light
hydrocarbon like propane or butane to extract non-asphaltene heavy oils from asphalt or atmospheric reduced crude. These
deasphalted oils are then further converted to gasoline and diesel in the FCC process. The remaining asphaltenes are either sold,
blended to fuel oil or blended with other asphalt as a hardener.
“Scanfiner” is a refinery unit that removes sulfur from gasoline to produce low sulfur gasoline blendstock.
“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.
“WCS” means Western Canada Select crude oil and is made up of Canadian heavy conventional and bitumen crude oils
blended with sweet synthetic and condensate diluents.
“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.
“WTS” means West Texas Sour, a medium sour crude oil.
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Items 1 and 2. Business and Properties
COMPANY OVERVIEW
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 Annual Report on Form 10-
K 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.
We merged with Frontier Oil Corporation (“Frontier”) on July 1, 2011. Concurrent with the merger, we changed our name from
Holly Corporation (“Holly”) to HollyFrontier and changed the ticker symbol for our common stock traded on the New York Stock
Exchange to “HFC.” Accordingly, this document includes Frontier, its consolidated subsidiaries and the operations of the merged
Frontier businesses effective July 1, 2011, but not prior to this date.
We are principally an independent petroleum refiner that produces high-value refined products such as gasoline, diesel fuel, jet
fuel, specialty lubricant products, and specialty and modified asphalt. We were incorporated in Delaware in 1947 and maintain
our principal corporate offices at 2828 N. Harwood, Suite 1300, Dallas, Texas 75201-1507. Our telephone number is 214-871-3555
and our internet website address is www.hollyfrontier.com. The information contained on our website does not constitute part of
this Annual Report on Form 10-K. A print copy of this Annual Report on Form 10-K will be provided without charge upon written
request to the Vice President, Investor Relations at the above address. A direct link to our SEC filings is available on our website
under the Investor Relations tab. Also available on our website are copies of our Corporate Governance Guidelines, Audit Committee
Charter, Compensation Committee Charter, Nominating / Corporate Governance Committee Charter, Environmental, Health,
Safety, and Public Policy Committee Charter and Code of Business Conduct and Ethics, all of which will be provided without
charge upon written request to the Vice President, Investor Relations at the above address. Our Code of Business Conduct and
Ethics applies to all of our officers, employees and directors, including our principal executive officer, principal financial officer
and principal accounting officer. Our common stock is traded on the New York Stock Exchange under the trading symbol “HFC.”
On February 21, 2011, we entered into a merger agreement providing for a “merger of equals” business combination between us
and Frontier. On July 1, 2011, North Acquisition, Inc., a direct wholly-owned subsidiary of Holly, merged with and into Frontier,
with Frontier surviving as a wholly-owned subsidiary of Holly. Subsequent to the merger and following approval by HollyFrontier's
post-closing board of directors, Frontier merged with and into HollyFrontier, and HollyFrontier continued as the surviving
corporation. This merger combined the legacy Frontier refinery operations consisting of refineries in El Dorado, Kansas (the “El
Dorado Refinery”) and Cheyenne, Wyoming (the “Cheyenne Refinery”) with Holly’s legacy refinery operations to form
HollyFrontier. The aggregate equity consideration paid in connection with the merger was $3.7 billion.
As of December 31, 2014, we:
•
•
•
owned and operated the El Dorado Refinery, two 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”),
the Cheyenne Refinery and a refinery in Woods Cross, Utah (the “Woods Cross Refinery”);
owned and operated NK Asphalt Partners (“NK Asphalt”) which operates various asphalt terminals in Arizona, New
Mexico and Oklahoma;
owned a 50% interest in Sabine Biofuels II, LLC (“Sabine Biofuels”), a biodiesel production facility located in Port
Arthur, Texas; and
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•
owned a 39% interest in HEP which includes our 2% general partner interest. HEP owns and operates logistic assets
consisting of petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities that principally
support our refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain regions of the
United States and Alon USA, Inc.'s (“Alon”) refinery in Big Spring, Texas. Additionally, HEP owns a 75% interest in
UNEV Pipeline, LLC (“UNEV”), which owns a 12-inch refined products pipeline from Salt Lake City, Utah to Las Vegas,
Nevada, together with terminal facilities in the Cedar City, Utah and North Las Vegas areas (the “UNEV Pipeline”), and
a 25% interest in SLC Pipeline LLC (the “SLC Pipeline”), which owns a 95-mile intrastate pipeline system that serves
refineries in the Salt Lake City area.
HEP is a consolidated variable interest entity ("VIE") as defined under U.S. generally accepted accounting principles ("GAAP").
Information on HEP's assets and acquisitions completed between 2010 and 2012 can be found under the “Holly Energy Partners,
L.P.” section provided later in this discussion of Items 1 and 2, “Business and Properties.”
Our operations are currently organized into two reportable segments, Refining and HEP. The Refining segment includes the
operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves
all of the operations of HEP. See Note 19 “Segment Information” in the Notes to Consolidated Financial Statements for additional
information on our reportable segments.
REFINERY OPERATIONS
Our refinery operations serve the Mid-Continent, Southwest and Rocky Mountain regions of the United States. We own and operate
five complex refineries having a combined crude oil processing capacity of 443,000 barrels per stream day. Each of our refineries
has the complexity to convert discounted, heavy and sour crude oils into a high percentage of gasoline, diesel and other high-value
refined products. For 2014, gasoline, diesel fuel, jet fuel and specialty lubricants (excluding volumes purchased for resale)
represented 50%, 34%, 4% and 2%, respectively, of our total refinery sales volumes.
The tables presented below and elsewhere in this discussion of our refinery operations set forth information, including non-GAAP
performance measures, about our refinery operations. The cost of products and refinery gross and net operating margins do not
include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization.
Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally
Accepted Accounting Principles” following Item 7A of Part II of this Form 10-K.
Consolidated
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Refinery production (BPD) (3)
Sales of produced refined products (BPD)
Sales of refined products (BPD) (4)
Refinery utilization (5)
Average per produced barrel (6)
Net sales
Cost of products (7)
Refinery gross margin (8)
Refinery operating expenses (9)
Net operating margin (8)
Refinery operating expenses per throughput barrel (10)
Feedstocks:
Sweet crude oil
Sour crude oil
Heavy sour crude oil
Black wax crude oil
Other feedstocks and blends
Total
2014
Years Ended December 31,
2013
2012
406,180
436,400
425,010
420,990
461,640
387,520
424,780
413,820
410,730
446,390
415,210
453,740
442,730
431,060
443,620
91.7%
87.5%
93.7%
110.19
96.21
13.98
6.38
7.60
6.16
$
$
$
53%
23%
15%
2%
7%
100%
115.60
99.61
15.99
6.15
9.84
5.95
$
$
$
52%
21%
17%
2%
8%
100%
119.48
94.59
24.89
5.49
19.40
5.22
51%
22%
17%
2%
8%
100%
$
$
$
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(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) Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks
through the crude units and other conversion units at our refineries.
(4) Includes refined products purchased for resale.
(5) Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 443,000 BPSD.
(6) Represents average per barrel amount for produced refined products 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 7A of Part II of this Form 10-K.
(7) Transportation, terminal and refinery storage costs billed from HEP are included in cost of products.
(8) Excludes lower of cost or market inventory valuation adjustment of $397.5 million for the year ended December 31, 2014.
(9) Represents operating expenses of our refineries, exclusive of depreciation and amortization and pension settlement costs.
(10) Represents refinery operating expenses, exclusive of depreciation and amortization and pension settlement costs, divided by refinery
throughput.
Principal Products and Customers
Set forth below is information regarding our principal products.
Consolidated
Sales of produced refined products:
Gasolines
Diesel fuels
Jet fuels
Fuel oil
Asphalt
Lubricants
LPG and other
Total
2014
Years Ended December 31,
2013
2012
50%
34%
4%
2%
3%
2%
5%
100%
50%
33%
5%
2%
3%
2%
5%
100%
50%
31%
6%
2%
3%
3%
5%
100%
Light products are shipped to customers via product pipelines or are available for loading at our refinery truck facilities and
terminals. Light products are also made available to customers at various other locations via exchange with other parties.
We have several significant customers, of which two accounted for more than 10% of our business in 2014. For the year ended
December 31, 2014, Shell Oil accounted for $2,097.4 million, or 11%, of our revenues, and Sinclair accounted for $2,018.8 million,
or 10%, of our revenues. Our principal customers for gasoline include other refiners, convenience store chains, independent
marketers and retailers. Diesel fuel is sold to other refiners, truck stop chains, wholesalers and railroads. Jet fuel is sold for
commercial airline use. Specialty lubricant products are sold in both commercial and specialty markets. LPG's are sold to LPG
wholesalers and LPG retailers. We produce and purchase asphalt products that are sold to governmental entities, paving contractors
or manufacturers. Asphalt is also blended into fuel oil and is either sold locally or is shipped to the Gulf Coast. See Note 21
“Significant Customers” in the Notes to Consolidated Financial Statements for additional information on our significant customers.
Mid-Continent Region (El Dorado and Tulsa Refineries)
Facilities
The El Dorado Refinery is a high-complexity coking refinery with a 135,000 barrels per stream day processing capacity and the
ability to process significant volumes of heavy and sour crudes. The integrated refining processes at the Tulsa West and East
refinery facilities provide us with a highly complex refining operation having a combined crude processing rate of approximately
125,000 barrels per stream day. For 2014, gasoline, diesel fuel, jet fuel and specialty lubricants (excluding volumes purchased for
resale) represented 47%, 33%, 7% and 4%, respectively, of our Mid-Continent sales volumes.
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The following table sets forth information about our Mid-Continent region operations, including non-GAAP performance measures.
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Refinery production (BPD) (3)
Sales of produced refined products (BPD)
Sales of refined products (BPD) (4)
Refinery utilization (5)
Average per produced barrel (6)
Net sales
Cost of products (7)
Refinery gross margin (8)
Refinery operating expenses (9)
Net operating margin (8)
Refinery operating expenses per throughput barrel (10)
Feedstocks:
Sweet crude oil
Sour crude oil
Heavy sour crude oil
Other feedstocks and blends
Total
2014
Years Ended December 31,
2013
2012
243,240
255,020
249,350
245,600
273,630
234,930
257,030
251,470
247,030
269,790
248,360
269,760
263,310
254,350
258,020
93.6%
90.4%
95.5%
$
$
$
110.79
98.39
12.40
5.73
6.67
5.52
$
$
$
71%
11%
14%
4%
100%
115.63
99.35
16.28
5.50
10.78
5.29
$
$
$
69%
6%
16%
9%
100%
119.19
95.77
23.42
4.83
18.59
4.55
70%
8%
14%
8%
100%
Footnote references are provided under our Consolidated Refinery Operating Data table on page 8.
The El Dorado Refinery is located on 1,100 acres south of El Dorado, Kansas and is a fully integrated refinery. The principal
processing units at the El Dorado Refinery consist of crude and vacuum distillation; hydrodesulfurization of naphtha, kerosene,
diesel, and gas oil streams; isomerization; catalytic reforming; aromatics recovery; catalytic cracking; alkylation; delayed coking;
hydrogen production; and sulfur recovery. Refining operations began at the site in 1917 and the operating units now present include
both newly constructed units and older units that have been upgraded over the years. Supporting infrastructure includes maintenance
shops, warehouses, office buildings, a laboratory, utility facilities, and a wastewater plant (“Supporting Infrastructure”) and logistics
assets owned by HEP, which includes approximately 3.6 million barrels of tankage, a truck sales terminal, and a propane terminal.
The Tulsa West facility is located on a 750-acre site in Tulsa, Oklahoma situated along the Arkansas River. The principal processing
units at the Tulsa West facility consist of crude and vacuum distillation (with light ends recovery), naphtha hydrodesulfurization,
catalytic reforming, propane de-asphalting, lubes extraction, MEK dewaxing, delayed coker and butane splitter units. Most of the
operating units at the facility currently in service were built in the late 1950s and early 1960s. The refinery was reconfigured to
emphasize specialty lubricant production in the early 1990s. The Tulsa West facility's Supporting Infrastructure includes
approximately 3.2 million barrels of feedstock and product tankage, of which 0.4 million barrels of tankage is owned by Plains
All American Pipeline, L.P. (“Plains”).
The Tulsa East facility is located on a 466-acre site also in Tulsa, Oklahoma situated along the Arkansas River. The principal
process units at the Tulsa East facility consist of crude and vacuum distillation, naphtha hydrodesulfurization, FCC, isomerization,
catalytic reforming, alkylation, scanfiner, diesel hydrodesulfurization and sulfur units. The Tulsa East facility's Supporting
Infrastructure includes approximately 3.4 million barrels of tankage owned by HEP.
Markets and Competition
The primary markets for the El Dorado Refinery's refined products are Colorado and the Plains States, which include the Kansas
City metropolitan area. The gasoline, diesel and jet fuel produced by the El Dorado Refinery are primarily shipped via pipeline
to terminals for distribution by truck or rail. We ship product via the NuStar Pipeline Operating Partnership L.P. Pipeline to the
northern Plains States, via the Magellan Pipeline Company, L.P. (“Magellan”) mountain pipeline to Denver, Colorado, and on the
Magellan mid-continent pipeline to the Plains States.
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The El Dorado Refinery faces competition from other Plains States and Mid-Continent refiners, but the principal competitors for
the El Dorado Refinery are Gulf Coast refiners. Our Gulf Coast competitors typically have lower production costs due to greater
economies of scale; however, they incur higher refined product transportation costs, which allows the El Dorado Refinery to
compete effectively in the Plains States and Rocky Mountain region with Gulf Coast refineries.
For the year ended December 31, 2014, sales to Shell Oil represented approximately 22% of the El Dorado Refinery's total sales
and 11% of our total consolidated sales. We have an offtake agreement with an affiliate of Shell Oil under which Shell Oil purchases
gasoline, diesel and jet fuel production of the El Dorado Refinery at market-based prices through October 2015 primarily to support
its branded and unbranded marketing network. We market gasoline and diesel primarily in Denver and throughout the Plains States.
The Tulsa Refineries serve the Mid-Continent region of the United States. Distillates and gasolines are primarily delivered from
the Tulsa Refineries to market via pipelines owned and operated by Magellan. These pipelines connect the refinery to distribution
channels throughout Colorado, Oklahoma, Kansas, Missouri, Illinois, Iowa, Minnesota, Nebraska and Arkansas. Additionally,
HEP's on-site truck and rail racks facilitate access to local refined product markets.
We have an offtake agreement through November 2019 with an affiliate of Sinclair whereby Sinclair purchases 45,000 to 50,000
BPD of gasoline and distillate products at market prices from us to supply its branded and unbranded marketing network throughout
the Midwest. Upon expiration, the offtake agreement can be renewed by Sinclair for an additional five-year term. For the year
ended December 31, 2014, sales to Sinclair represented approximately 30% of the Tulsa Refineries' total sales and 10% of our
total consolidated sales.
The Tulsa Refineries' principal customers for conventional gasoline include Sinclair, other refiners, convenience store chains,
independent marketers and retailers. Sinclair, truck stop operators and railroads are the primary diesel customers. Jet fuel is sold
primarily for commercial use. The refinery's asphalt and roofing flux products are sold via truck or railcar directly from the
refineries or to customers throughout the Mid-Continent region primarily to paving contractors and manufacturers of roofing
products.
Our Tulsa West facility also produces specialty lubricant products sold in both commercial and specialty markets throughout North
America and to customers with operations in Central America and South America. The specialty lubricant products are high-value
products that provide a significantly higher margin contribution to the refinery. Base oil customers include blender-compounders
who prepare the various finished lubricant and grease products sold to end users. Agricultural products are formulated as
supplemental carriers for herbicides and as Environmental Protection Agency (“EPA”) registered pesticide oils, are sold to product
formulators. Process oil customers include rubber and chemical industry customers. Specialty waxes are sold primarily to packaging
customers as coating material for paper and cardboard, and to non-packaging customers in the construction materials, adhesive
and candle-making markets. Our production represents approximately 6% of paraffinic oil capacity and 13% of wax production
capacity in the United States market and is one of four refineries of specialty aromatic oils in North America.
Principal Products
Set forth below is information regarding the principal products produced at our El Dorado and Tulsa Refineries:
Mid-Continent Region (El Dorado and Tulsa Refineries)
Sales of produced refined products:
Gasolines
Diesel fuels
Jet fuels
Fuel oil
Asphalt
Lubricants
LPG and other
Total
Years Ended December 31,
2013
2012
2014
47%
33%
7%
1%
3%
4%
5%
100%
47%
31%
8%
1%
3%
4%
6%
100%
48%
29%
9%
1%
2%
5%
6%
100%
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Crude Oil and Feedstock Supplies
Both of our Mid-Continent Refineries are connected via pipeline to Cushing, Oklahoma, a significant crude oil pipeline trading
and storage hub. The El Dorado and the Tulsa Refineries are located approximately 125 miles and 50 miles, respectively, from
Cushing, Oklahoma. Local pipelines provide direct access to regional Oklahoma crude production as well as access to United
States onshore, Gulf of Mexico, Canadian and other foreign crudes. The proximity of the refineries to the Cushing pipeline and
storage hub provides the flexibility to optimize their crude slate with a wide variety of crude oil supply options. Additionally, we
have transportation service agreements to transport Canadian crude oil on the Spearhead and Keystone Pipelines, enabling us to
transport Canadian crude oil to Cushing for subsequent shipment to either of our Mid-Continent Refineries.
We also purchase isobutane, natural gasoline, butane and other feedstocks for processing at our Mid-Continent Refineries. The El
Dorado Refinery is connected to Conway, Kansas, a major gas liquids trading and storage hub, via the Oneok Pipeline. From time
to time, other feedstocks such gas oil, naphtha and light cycle oil are purchased from other refiners for use at our refineries.
Southwest Region (Navajo Refinery)
Facilities
The Navajo Refinery has a crude oil processing capacity of 100,000 barrels per stream day and has the ability to process sour
crude oils into high-value light products such as gasoline, diesel fuel and jet fuel. For 2014, gasoline and diesel fuel (excluding
volumes purchased for resale) represented 54% and 38%, respectively, of our Southwest sales volumes.
The following table sets forth information about our Southwest region operations, including non-GAAP performance measures.
Southwest Region (Navajo Refinery)
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Refinery production (BPD) (3)
Sales of produced refined products (BPD)
Sales of refined products (BPD) (4)
Refinery utilization (5)
Average per produced barrel (6)
Net sales
Cost of products (7)
Refinery gross margin (8)
Refinery operating expenses (9)
Net operating margin (8)
Refinery operating expenses per throughput barrel (10)
Feedstocks:
Sweet crude oil
Sour crude oil
Heavy sour crude oil
Other feedstocks and blends
Total
2014
Years Ended December 31,
2013
2012
98,120
110,250
107,520
106,870
115,620
87,910
97,310
94,490
94,830
104,320
93,830
103,120
100,810
99,160
104,620
98.1%
87.9%
93.8%
$
$
$
110.54
94.58
15.96
5.43
10.53
5.26
$
$
$
13%
74%
2%
11%
100%
117.79
103.88
13.91
6.04
7.87
5.89
$
$
$
8%
72%
11%
9%
100%
122.62
95.70
26.92
6.07
20.85
5.84
2%
77%
12%
9%
100%
Footnote references are provided under our Consolidated Refinery Operating Data table on page 8.
The Navajo Refinery's Artesia, New Mexico facility is located on a 561-acre site and is a fully integrated refinery with crude
distillation, vacuum distillation, FCC, ROSE (solvent deasphalter), HF alkylation, catalytic reforming, hydrodesulfurization, mild
hydrocracking, isomerization, sulfur recovery and product blending units. The operating units at the Artesia facility include newly
constructed units, older units that have been relocated from other facilities and upgraded and re-erected in Artesia, and units that
have been operating as part of the Artesia facility (with periodic major maintenance) for many years, in some very limited cases
since before 1970. Supporting Infrastructure includes approximately 2.0 million barrels of feedstock and product tankage, of which
0.3 million barrels of tankage are owned by HEP.
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The Artesia facility is operated in conjunction with a refining facility located in Lovington, New Mexico, approximately 65 miles
east of Artesia. The principal equipment at the Lovington facility consists of a crude distillation unit and associated vacuum
distillation units that were constructed after 1970. Supporting Infrastructure includes 1.1 million barrels of feedstock and product
tankage of which 0.2 million barrels of tankage are owned by HEP. The Lovington facility processes crude oil into intermediate
products that are transported to Artesia by means of three intermediate pipelines owned by HEP. These products are then upgraded
into finished products at the Artesia facility. The combined crude oil capacity of the Navajo Refinery facilities is 100,000 BPSD
and it typically processes or blends an additional 10,000 BPSD of natural gasoline, butane, gas oil and naphtha.
Markets and Competition
The Navajo Refinery primarily serves the southwestern United States market, which has historically experienced a high-growth
rate, including the metropolitan areas of El Paso, Texas; Albuquerque, Moriarty and Bloomfield, New Mexico; Phoenix and Tucson,
Arizona; and portions of northern Mexico. Our products are shipped through HEP's pipelines from Artesia, New Mexico to El
Paso, Texas and from El Paso to Albuquerque and to Mexico via products pipeline systems owned by Magellan and from El Paso
to Tucson and Phoenix via a products pipeline system owned by Kinder Morgan's subsidiary, SFPP, L.P. (“SFPP”). In addition,
petroleum products from the Navajo Refinery are transported to markets in northwest New Mexico, to Moriarty, New Mexico,
near Albuquerque, via HEP's pipelines running from Artesia to San Juan County, New Mexico, and to Bloomfield, New Mexico.
We have refined product storage through our pipelines and terminals agreement with HEP at terminals in El Paso, Texas; Tucson,
Arizona; and Artesia and Moriarty, New Mexico.
El Paso Market
The El Paso market for refined products is currently supplied by a number of area and Gulf Coast refiners and pipelines. Area
refiners include Navajo, WRB Refining, LLC (“WRB”) (a joint venture between Phillips 66 and Cenovus Energy), Valero, Alon
and Western Refining. Pipelines serving this market are owned by Magellan, NuStar Energy L.P. and HEP. Refined products from
the Gulf Coast are transported via Magellan pipelines.
Arizona Market
The Arizona market for refined products is currently supplied by a number of refiners via pipelines and trucks. Refiners include
companies located in west Texas, eastern New Mexico, northern New Mexico, the Gulf Coast and the West Coast. Magellan's
pipeline systems deliver refined products from the Texas Gulf Coast to El Paso and, through interconnections with third-party
common carrier pipelines, into the Arizona market.
New Mexico Markets
The Artesia, Albuquerque, Moriarty and Bloomfield markets are supplied by a number of refiners via pipelines and trucks. Refiners
include Navajo, Valero, Western Refining, Alon and WRB.
We use a common carrier pipeline out of El Paso to serve the Albuquerque market. In addition, HEP leases from Mid-America
Pipeline Company, L.L.C., a pipeline between White Lakes, New Mexico and the Albuquerque vicinity and Bloomfield, New
Mexico. The lease agreement currently runs through 2017, and HEP has options to renew for two additional ten-year periods. HEP
owns and operates a 12-inch pipeline from the Navajo Refinery to the leased pipeline as well as terminalling facilities in Moriarty,
which is 40 miles east of Albuquerque. This facility permits us to ship light products to the Albuquerque and Santa Fe, New Mexico
areas. In addition, we serve southern Colorado and northern Arizona primarily out of a terminal in Bloomfield, New Mexico,
which is owned by Western Refining.
Principal Products
Set forth below is information regarding the principal products produced at our Navajo Refinery:
Southwest Region (Navajo Refinery)
Sales of produced refined products:
Gasolines
Diesel fuels
Fuel oil
Asphalt
LPG and other
Total
Years Ended December 31,
2013
2012
2014
54%
38%
4%
1%
3%
100%
51%
39%
6%
1%
3%
100%
51%
38%
6%
2%
3%
100%
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Crude Oil and Feedstock Supplies
The Navajo Refinery is situated near the Permian Basin, an area that has historically, and continues to have, abundant supplies of
crude oil available both for regional users and for export to other areas. We purchase crude oil from independent producers in
southeastern New Mexico and west Texas as well as from major oil companies. The crude oil is gathered through HEP's pipelines,
our tank trucks and through third-party crude oil pipeline systems for delivery to the Navajo Refinery.
We also purchase volumes of isobutane, natural gasoline and other feedstocks to supply the Navajo Refinery from sources in Texas
and the Mid-Continent area that are delivered to our region on a common carrier pipeline owned by Enterprise Products, L.P.
Ultimately all volumes of these products are shipped to the Artesia refining facilities on HEP's intermediate pipelines running
from Lovington to Artesia. From time to time, we purchase gas oil, naphtha and light cycle oil from other refiners for use as
feedstock.
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Facilities
The Cheyenne and the Woods Cross Refineries have crude oil processing capacities of 52,000 and 31,000 barrels per stream day,
respectively. The Cheyenne Refinery processes heavy Canadian crudes as well as local sweet crudes such as that produced from
the Bakken shale and similar resources. The Woods Cross Refinery processes regional sweet and black wax crude as well as
Canadian sour crude oils into high-value light products. For 2014, gasoline and diesel fuel (excluding volumes purchased for
resale) represented 56% and 33%, respectively, of our Rocky Mountain sales volumes.
The following table sets forth information about our Rocky Mountain region operations, including non-GAAP performance
measures.
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Refinery production (BPD) (3)
Sales of produced refined products (BPD)
Sales of refined products (BPD) (4)
Refinery utilization (5)
Average per produced barrel (6)
Net sales
Cost of products (7)
Refinery gross margin (8)
Refinery operating expenses (9)
Net operating margin (8)
Refinery operating expenses per throughput barrel (10)
Feedstocks:
Sweet crude oil
Sour crude oil
Heavy sour crude oil
Black wax crude oil
Other feedstocks and blends
Total
2014
Years Ended December 31,
2013
2012
64,820
71,130
68,140
68,520
72,390
64,680
70,440
67,860
68,870
72,280
73,020
80,860
78,610
77,550
80,980
78.1%
77.9%
88.0%
107.51
90.95
16.56
10.20
6.36
9.83
$
$
$
44%
2%
30%
15%
9%
100%
112.49
94.63
17.86
8.65
9.21
8.46
$
$
$
43%
1%
34%
14%
8%
100%
116.44
89.29
27.15
6.91
20.24
6.63
47%
1%
31%
11%
10%
100%
$
$
$
Footnote references are provided under our Consolidated Refinery Operating Data table on page 8.
The Cheyenne Refinery facility is located on a 255-acre site and is a fully integrated refinery with crude distillation, vacuum
distillation, coking, FCC, HF alkylation, catalytic reforming, hydrodesulfurization of naphtha and distillates, butane isomerization,
hydrogen production, sulfur recovery and product blending units. The operating units at the Cheyenne Refinery include both newly
constructed units and older units that have been upgraded over the years. Supporting Infrastructure includes approximately 1.9
million barrels of feedstock and product tankage owned by HEP.
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The Woods Cross Refinery facility is located on a 200-acre site and is a fully integrated refinery with crude distillation, solvent
deasphalter, FCC, HF alkylation, catalytic reforming, hydrodesulfurization, isomerization, sulfur recovery and product blending
units. The operating units at the Woods Cross Refinery include newly constructed units, older units that have been relocated from
other facilities, upgraded and re-erected in Woods Cross, and units that have been operating as part of the Woods Cross facility
(with periodic major maintenance) for many years, in some very limited cases since before 1950. Supporting Infrastructure includes
approximately 1.5 million barrels of feedstock and product tankage, of which 0.2 million barrels of tankage are owned by HEP.
The facility typically processes or blends an additional 2,000 BPSD of natural gasoline, butane and gas oil over its 31,000 BPSD
capacity.
We own and operate 4 miles of hydrogen pipeline that connects the Woods Cross Refinery to a hydrogen plant located on the
property of Chevron's Salt Lake City Refinery. Additionally, HEP owns and operates 12 miles of crude oil and refined products
pipelines that allows us to connect our Woods Cross Refinery to common carrier pipeline systems.
Engineering and construction continue on our previously announced expansion project to increase planned processing capacity
to 45,000 BPSD at a cost currently expected to range between $350.0 million and $400.0 million. The expansion is expected to
be completed in the fourth quarter of 2015. This project work includes a new rail loading rack for intermediates and finished
products associated with refining waxy crude oil. Further discussion of this project can be found in “Management's Discussion
and Analysis of Financial Condition and Results of Operations” under Liquidity and Capital Resources.
In conjunction with the expansion, we signed a 10-year, 20,000 BPD crude oil supply agreement with Newfield Exploration
Company. This agreement, which commences upon completion of the expansion, will supply black and yellow wax crude oil
produced in the nearby Uinta Basin to the Woods Cross Refinery. Upon completion of this expansion, the Woods Cross Refinery's
capacity to process waxy crude is expected to double to approximately 24,000 BPD.
Markets and Competition
The Cheyenne Refinery primarily markets its products in eastern Colorado, including metropolitan Denver, eastern Wyoming and
western Nebraska. Because of the location of the Cheyenne Refinery, we are able to sell a significant portion of its diesel directly
from the truck rack at the refinery, therefore, eliminating transportation costs. The Cheyenne Refinery ships refined products via
the Magellan pipeline serving Denver and Colorado Springs, Colorado.
Denver Market
The most competitive market for the Cheyenne Refinery is the Denver metropolitan area. Three other refineries supply the Denver
market: Wyoming refineries near Rawlins and in Casper owned by Sinclair and a refinery in Denver owned by Suncor. Five product
pipelines also supply Denver, including three from outside the region.
Utah Market
The Woods Cross Refinery's primary market is Utah, which is currently supplied by a number of local refiners and the Pioneer
Pipeline. In addition to our Woods Cross Refinery, local area refiners include Chevron, Tesoro, Big West and Silver Eagle. Other
refiners that ship into the Woods Cross market via the Pioneer Pipeline include Sinclair, ExxonMobil, CHS and Phillips 66. We
estimate the four local refineries that compete with our Woods Cross Refinery have a combined capacity to process approximately
150,000 BPD of crude oil. The five Utah refineries collectively supply an estimated 70% of the gasoline and distillate products
consumed in the states of Utah and Idaho, with the remainder imported from refineries in Wyoming and Montana via the Pioneer
Pipeline owned jointly by Sinclair and Phillips 66. Approximately 40% - 45% of the gasoline and diesel fuel produced by our
Woods Cross Refinery is sold through a network of Phillips 66 branded marketers under a long-term supply agreement.
Idaho, Wyoming, Eastern Washington and Nevada Markets
We supply a small percentage of the refined products consumed in the combined Idaho, Wyoming, eastern Washington and Nevada
markets. Our Woods Cross Refinery ships refined products over a common carrier pipeline system owned by Tesoro Logistics
Northwest Pipelines LLC (“Tesoro Logistics”) to numerous terminals, including HEP's terminal at Spokane, Washington and to
terminals at Pocatello and Boise, Idaho and Pasco, Washington that are owned by Tesoro Logistics. We sell to branded and
unbranded customers in these markets. In 2012, we began shipping refined products to Cedar City, Utah and Las Vegas, Nevada
via the UNEV Pipeline. The majority of the Las Vegas, Nevada market for refined products is supplied by various West Coast
refiners and suppliers via Kinder Morgan's CalNev common carrier pipeline system.
Principal Products
Set forth below is information regarding the principal products produced at our Cheyenne and Woods Cross Refineries:
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Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Sales of produced refined products:
Gasolines
Diesel fuels
Jet fuels
Fuel oil
Asphalt
LPG and other
Total
Years Ended December 31,
2013
2012
2014
56%
33%
—%
1%
5%
5%
100%
56%
30%
1%
1%
5%
7%
100%
55%
32%
—%
2%
5%
6%
100%
Crude Oil and Feedstock Supplies
Crude oil is transported to the Cheyenne Refinery from suppliers in Canada, Colorado, Nebraska, North Dakota and Montana via
common carrier pipelines owned by Kinder Morgan, Plains and Suncor Energy, as well as by truck. The Woods Cross Refinery
currently obtains crude oil from suppliers in Canada, Wyoming, Utah and Colorado as delivered via common carrier pipelines
that originate in Canada, Wyoming and Colorado. We also receive crude oil via the SLC Pipeline, a joint venture common carrier
pipeline in which HEP owns a 25% interest. Supplies of black wax crude oil are shipped via truck.
NK Asphalt Partners
We manufacture commodity and modified asphalt products at our manufacturing facilities located in Glendale, Arizona;
Albuquerque, New Mexico; Artesia, New Mexico and Catoosa, Oklahoma. Our Albuquerque and Artesia facilities manufacture
modified hot asphalt products and commodity emulsions from base asphalt materials provided by our refineries and third-party
suppliers. Our Glendale facility manufactures modified hot asphalt products from base asphalt materials provided by our refineries
and third-party suppliers. Our Catoosa facility manufactures specialty modified asphalt and commodity asphalt products. We
market these asphalt products in Arizona, New Mexico, Oklahoma, Kansas, Missouri, Texas and northern Mexico. Our products
are shipped via third-party trucking companies to commercial customers that provide asphalt based materials for commercial and
government projects.
Other Assets
We own a 50% joint venture interest in Sabine Biofuels, a 30 million gallon per year biodiesel production facility located near
Port Arthur, Texas.
HOLLY ENERGY PARTNERS, L.P.
HEP is a Delaware limited partnership that trades on the New York Stock Exchange under the trading symbol “HEP.” HEP was
formed to acquire, own and operate substantially all of the refined product pipeline and terminalling assets that support our refining
and marketing operations in the Mid-Continent, Southwest and Rocky Mountain regions of the United States.
HEP generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by leasing
certain pipeline capacity to Alon, by charging fees for terminalling refined products and other hydrocarbons and by storing and
providing other services at its storage tanks and terminals. HEP does not take ownership of products that it transports or terminals;
therefore, it is not directly exposed to changes in commodity prices.
HEP's recent acquisitions (2010 through present) are summarized below:
UNEV Interest Transaction
On July 12, 2012, HEP acquired from us our 75% interest in UNEV. We received consideration consisting of $260.0 million in
cash and 1.0 million HEP common units. UNEV owns the UNEV Pipeline, a 12-inch refined products pipeline running from Salt
Lake City, Utah to Las Vegas, Nevada together with terminal facilities in Cedar City, Utah and North Las Vegas. The UNEV
Pipeline was completed in late 2011 and became operational during the first quarter of 2012.
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Legacy Frontier Pipeline and Tankage Asset Transaction
On November 9, 2011, HEP acquired from us certain tankage, loading rack and crude receiving assets located at our El Dorado
and Cheyenne Refineries. We received non-cash consideration consisting of promissory notes with an aggregate principal amount
of $150.0 million and 3.8 million HEP common units.
Tulsa East / Lovington Storage Asset Transaction
On March 31, 2010, HEP acquired from us certain storage assets for $93.0 million, consisting of hydrocarbon storage tanks having
approximately 2.0 million barrels of storage capacity, a rail loading rack and a truck unloading rack located at our Tulsa East
facility and an asphalt loading rack facility located at our Navajo Refinery facility located in Lovington, New Mexico.
Transportation Agreements
Agreements with HEP
HEP serves our refineries under long-term pipeline and terminal, tankage and throughput agreements expiring in 2019 through
2026. Under these agreements, we pay HEP fees to transport, store and throughput volumes of refined product and crude oil on
HEP's pipeline and terminal, tankage and loading rack facilities 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 (“PPI”) or Federal Energy Regulatory Commission
index. As of December 31, 2014, these agreements result in minimum annualized payments to HEP of $231.6 million.
Since HEP is a consolidated entity, our transactions with HEP including the transactions discussed above and fees paid under our
transportation agreements with HEP and UNEV, a consolidated subsidiary of HEP, are eliminated and have no impact on our
consolidated financial statements.
Agreement with Alon
HEP has a 15-year pipelines and terminals agreement with Alon expiring in 2020, under which Alon has agreed to transport on
HEP's pipelines and throughput through its terminals, volumes of refined products that results in a minimum level of annual
revenue. The agreed upon tariff rates are increased or decreased annually at a rate equal to the percentage change in PPI, but will
not decrease below the initial tariff rate. Also, HEP has a capacity lease agreement with Alon under which Alon leases space on
HEP's Orla to El Paso pipeline for the shipment of up to 15,000 barrels of refined product per day. The terms under this agreement
expire in 2018 through 2022.
As of December 31, 2014, HEP's assets include:
Pipelines
•
approximately 810 miles of refined product pipelines, including 340 miles of leased pipelines, that transport gasoline,
diesel and jet fuel principally from our Navajo Refinery in New Mexico to our customers in the metropolitan and rural
areas of Texas, New Mexico, Arizona, Colorado, Utah and northern Mexico;
approximately 510 miles of refined product pipelines that transport refined products from Alon's Big Spring refinery in
Texas to its customers in Texas and Oklahoma;
three 65-mile pipelines that transport intermediate feedstocks and crude oil from our Navajo Refinery crude oil distillation
and vacuum facilities in Lovington, New Mexico to our petroleum refinery facilities in Artesia, New Mexico;
approximately 910 miles of crude oil trunk, gathering and connection pipelines located in west Texas, New Mexico and
Oklahoma that deliver crude oil to our Navajo Refinery;
approximately 8 miles of refined product pipelines that support our Woods Cross Refinery located near Salt Lake City,
Utah;
gasoline and diesel connecting pipelines that support our Tulsa East facility;
five intermediate product and gas pipelines between the Tulsa East and Tulsa West facilities; and
crude receiving assets located at our Cheyenne Refinery.
•
•
•
•
•
•
•
Refined Product Terminals and Refinery Tankage
•
•
•
four refined product terminals located in El Paso, Texas; Moriarty and Bloomfield, New Mexico; and Tucson, Arizona,
with an aggregate capacity of approximately 1,200,000 barrels, that are integrated with HEP's refined product pipeline
system that serves our Navajo Refinery;
one refined product terminal located in Spokane, Washington, with a capacity of approximately 400,000 barrels, that serves
third-party common carrier pipelines;
one refined product terminal near Mountain Home, Idaho, with a capacity of 120,000 barrels, that serves a nearby United
States Air Force Base;
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•
•
•
•
two refined product terminals, located in Wichita Falls and Abilene, Texas, and one tank farm in Orla, Texas with aggregate
capacity of approximately 500,000 barrels, that are integrated with HEP's refined product pipelines that serve Alon's Big
Spring, Texas refinery;
a refined product loading rack facility at each of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries,
heavy product / asphalt loading rack facilities at our Tulsa East facility, Navajo Refinery Lovington facility and Cheyenne
Refinery, LPG loading rack facilities at our El Dorado Refinery, Tulsa West facility and Cheyenne Refinery, lube oil
loading racks at our Tulsa West facility and crude oil Leased Automatic Custody Transfer units located at our Cheyenne
Refinery;
on-site crude oil tankage at our Tulsa, Navajo, Cheyenne and Woods Cross Refineries having an aggregate storage capacity
of approximately 1,300,000 barrels; and
on-site refined and intermediate product tankage at our El Dorado, Tulsa and Cheyenne Refineries having an aggregate
storage capacity of approximately 8,100,000 barrels.
Additionally, HEP owns a 75% interest in UNEV, which owns the UNEV Pipeline, a 12-inch refined products pipeline from Salt
Lake City, Utah to Las Vegas, Nevada together with terminal facilities in the Cedar City, Utah and North Las Vegas areas, and a
25% interest in SLC Pipeline LLC, which owns a 95-mile intrastate pipeline system that serves refineries in the Salt Lake City
area.
ADDITIONAL OPERATIONS AND OTHER INFORMATION
Corporate Offices
We lease approximately 60,000 square feet for our principal corporate offices in Dallas, Texas. The lease for our principal corporate
offices expires in 2021. Functions performed in the Dallas office include overall corporate management, refinery and HEP
management, planning and strategy, corporate finance, crude acquisition, logistics, contract administration, marketing, investor
relations, governmental affairs, accounting, tax, treasury, information technology, legal and human resources support functions.
Employees and Labor Relations
As of December 31, 2014, we had 2,686 employees, of which 899 are currently covered by collective bargaining agreements
having various expiration dates between 2015 and 2018. We consider our employee relations to be good.
In early February 2015, we received communications from the United Steelworkers Union representing employees at our El Dorado
and Woods Cross Refineries of its intention to commence a work stoppage in early May 2015 and could receive a similar
communication from the United Steelworkers Union representing employees at our Cheyenne Refinery. We have plans allowing
for the continued operations of all three refineries in the event the union does commence a work stoppage and believe such plans
are adequate to allow continued operations of all three refineries.
Regulation
Refinery and pipeline operations are subject to numerous federal, state and local laws regulating the discharge of substances into
the environment or otherwise relating to the protection of the environment. Permits or other authorizations are required under
these laws for the operation of our refineries, pipelines and related facilities, and these permits and authorizations are subject to
revocation, modification and renewal. Over the years, there have been ongoing communications, including notices of violations,
about environmental matters between us and federal and state authorities, some of which have resulted or will result in changes
to operating procedures and in capital expenditures. Compliance with applicable environmental laws, regulations and permits will
continue to have an impact on our operations, the results of our operations, and our capital requirements. We believe that our
current operations are in substantial compliance with applicable federal, state, and local environmental laws, regulations, and
permits.
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Our operations and many of the products we manufacture are subject to certain requirements of the Federal Clean Air Act (“CAA”)
as well as related state and local laws and regulations. Certain CAA regulatory programs applicable to our refineries require capital
expenditures for the installation of certain air pollution control devices. Additionally, the EPA has the authority under the CAA to
modify the formulation of the refined transportation fuel products we manufacture in order to limit the emissions associated with
their final use. In addition, in 2014, the EPA published a proposed rule that proposes amendments to two refinery standards already
in effect: the National Emission Standards for Hazardous Air Pollutants (“NESHAP”) from Petroleum Refineries and the NESHAP
for Petroleum Refineries: Catalytic Cracking Units, Catalytic Reforming Units and Sulfur Recovery Units. The proposed rule
would also amend emission requirements under the existing Petroleum Refinery New Source Performance Standard. Collectively,
these proposed amendments would, among other things, require monitoring of air concentrations of benzene around the fenceline
perimeter of refineries to assure that emissions are controlled and these results would be available to the public. The proposed
amendments could also require upgraded emission controls for storage tanks and flares. These new proposals, as well as subsequent
rulemaking under the CAA or similar laws, or new agency interpretations of existing laws and regulations, may necessitate
additional expenditures in future years.
Also, we are subject to the EPA's Control of Hazardous Air Pollutants from Mobile Sources (“MSAT2”) regulations that impose
reductions in the benzene content of our produced gasoline. Our refineries currently purchase a portion of their benzene credits
to meet these requirements. If economically justified, we could implement additional benzene reduction projects to eliminate the
need to purchase benzene credits.
The Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 prescribe certain percentages of renewable
fuels (e.g., ethanol and biofuels) that, where required, must be blended into our produced gasoline and diesel. Additional changes
in fuel standards, called Tier 3 standards, to reduce vehicle emissions were finalized in 2014. These new requirements, other
requirements of the CAA, and other presently existing or future environmental regulations may cause us to make substantial capital
expenditures and purchase credits at significant cost to enable our refineries to produce products that meet applicable requirements.
Further regulatory requirements have emerged from concerns over the potential climate impacts of certain "greenhouse gases"
such as carbon dioxide and methane. In response to a statutory directive, the EPA has promulgated rules requiring the reporting
of greenhouse gas emissions. In 2010, the EPA promulgated regulations applying construction and operating permit requirements
under the CAA's Prevention of Significant Deterioration and Title V programs to sources with potential greenhouse gas emissions
above certain threshold levels. The EPA has also announced its intention to issue a New Source Performance Standard directly
regulating greenhouse gas emissions from refineries, although recent statements from EPA Administrator McCarthy indicate that
issuance of such Performance Standard is not imminent. Proposals both expanding and limiting the EPA's authority in this area
continue to be considered in Congress. Litigation challenging the EPA's authority over greenhouse gas emissions also is pending
in federal court.
Our operations are also subject to the Federal Clean Water Act (“CWA”), the Federal Safe Drinking Water Act (“SDWA”) and
comparable state and local requirements. The CWA, the SDWA and analogous laws prohibit any discharge into surface waters,
ground waters, injection wells and publicly-owned treatment works except in conformance with legal authorization, such as pre-
treatment permits and National Pollutant Discharge Elimination System (“NPDES”) permits, issued by federal, state and local
governmental agencies. NPDES permits and analogous water discharge permits are valid for a maximum of five years and must
be renewed. In 2014, the EPA, in conjunction with the Army Corps of Engineers, issued a proposed rule to define 'waters of the
U.S.,' which could expand the regulatory reach of the existing clean water regulations. Finalizing this proposed rule, along with
other regulatory activities the EPA is discussing, may necessitate additional expenditures in future years.
We generate wastes that may be subject to the Resource Conservation and Recovery Act and comparable state and local
requirements. The EPA and various state agencies have limited the approved methods of disposal for certain hazardous and non-
hazardous wastes. The EPA is currently working on several rulemakings that could impact how our refineries manage various
waste streams. While these rulemakings are still in development, it does not appear that these rules will significantly impact our
refineries.
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The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as “Superfund,” imposes
liability, without regard to fault or the legality of the original conduct, on certain classes of persons, including the current and past
owner or operator of the disposal site or sites from which there is a release of a “hazardous substance,” as well as persons that
disposed of or arranged for the disposal or treatment of the hazardous substances at the site or sites. Under CERCLA, such persons
may be subject to joint and several liability for such costs as the cost of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. In the course of our historical operations, as well as in our
current normal operations, we have generated waste, some of which falls within the statutory definition of a “hazardous substance”
and some of which may have been disposed of at sites that may be subject to cleanup and cost recovery actions under CERCLA
by a government entity or other third party. Similarly, locations now owned or operated by us, where third parties have disposed
such hazardous substances in the past, may also be subject to cleanup and cost recovery actions under CERCLA. Under CERCLA,
liable parties may seek contribution from other liable parties to share in the costs of cleanup. Some states have enacted laws similar
to CERCLA which impose similar responsibilities and liabilities on responsible parties. It is also not uncommon for neighboring
landowners and other third parties to file claims under state law for personal injury and property damage allegedly caused by
hazardous substances or other pollutants released into the environment.
As is the case with all companies engaged in industries similar to ours, we face potential exposure to future claims and lawsuits
involving environmental matters. These matters include soil and water contamination, air pollution, personal injury and property
damage allegedly caused by substances that we manufactured, handled, used, released or disposed of. We currently have
environmental remediation projects that relate to recovery, treatment and monitoring activities resulting from past releases of
refined product and crude oil into the environment. As of December 31, 2014, we had an accrual of $104.5 million related to such
environmental liabilities.
We are and have been the subject of various state, federal and private proceedings and inquiries relating to compliance with
environmental regulations and conditions, including those discussed above. Compliance with current and future environmental
regulations is expected to require additional expenditures, including expenditures for investigation and remediation, which may
be significant, at our refineries and at pipeline transportation facilities. To the extent that future expenditures for these purposes
are material and can be reasonably determined, these costs are disclosed and accrued, if applicable.
Our operations are also subject to various laws and regulations relating to occupational health and safety. We maintain safety,
training and maintenance programs as part of our ongoing efforts to ensure compliance with applicable laws and regulations.
Compliance with applicable health and safety laws and regulations has required and continues to require substantial expenditures.
Health and environmental legislation and regulations change frequently. We cannot predict what additional health and
environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or
regulations will be administered or interpreted with respect to our operations. Compliance with more stringent laws or regulations
or adverse changes in the interpretation of existing laws or regulations by government agencies could have an adverse effect on
our financial position and the results of our operations and could require substantial expenditures for the installation and operation
of systems and equipment that we do not currently possess.
Insurance
Our operations are subject to hazards of operations, including fire, explosion and weather-related perils. We maintain various
insurance coverages, including business interruption insurance, subject to certain deductibles. 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.
We have a risk management oversight committee that is made up 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.
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Item 1A. Risk Factors
Investing in us involves a degree of risk, including the risks described below. Our operating results have been, and will continue
to be, affected by a wide variety of risk factors, many of which are beyond our control, that could have adverse effects on profitability
during any particular period. You should carefully consider the following risk factors together with all of the other information
included in this Annual Report on Form 10-K, including the financial statements and related notes, when deciding to invest in us.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and
adversely affect our business operations. If any of the following risks were to actually occur, our business, financial condition or
results of operations could be materially and adversely affected.
The headings provided in this Item 1A. are for convenience and reference purposes only and shall not affect or limit the extent or
interpretation of the risk factors.
The prices of crude oil and refined products materially affect our profitability, and are dependent upon many factors that are
beyond our control, including general market demand and economic conditions, seasonal and weather-related factors, regional
and grade differentials and governmental regulations and policies.
Among these factors is the demand for crude oil and refined products, which is largely driven by the conditions of local and
worldwide economies as well as by weather patterns and the taxation of these products relative to other energy sources.
Governmental regulations and policies, particularly in the areas of taxation, energy and the environment, also have a significant
impact on our activities. Operating results can be affected by these industry factors, product and crude pipeline capacities, changes
in transportation costs, accidents or interruptions in transportation, competition in the particular geographic areas that we serve,
and factors that are specific to us, such as the success of particular marketing programs and the efficiency of our refinery operations.
The demand for crude oil and refined products can also be reduced due to a local or national recession or other adverse economic
condition that results in lower spending by businesses and consumers on gasoline and diesel fuel, higher gasoline prices due to
higher crude oil prices, a shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as ethanol or wider
adoption of gas/electric hybrid vehicles), or an increase in vehicle fuel economy, whether as a result of technological advances by
manufacturers, legislation mandating or encouraging higher fuel economy or the use of alternative fuel.
We do not produce crude oil and must purchase all our crude oil, the price of which fluctuates based upon worldwide and local
market conditions. Our profitability depends largely on the spread between market prices for refined petroleum products and crude
oil prices. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined products
are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of certain
existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to markets that
serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable pricing. Additionally,
due to the seasonality of refined products markets and refinery maintenance schedules, results of operations for any particular
quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the event of unseasonably
cool weather in the summer months and / or unseasonably warm weather in the winter months in the markets in which we sell our
petroleum products. In general, prices for refined products are influenced by the price of crude oil. Although an increase or decrease
in the price for crude oil may result in a similar increase or decrease in prices for refined products, there may be a time lag in the
realization of the similar increase or decrease in prices for refined products. The effect of changes in crude oil prices on operating
results therefore depends in part on how quickly refined product prices adjust to reflect these changes. A substantial or prolonged
increase in crude oil prices without a corresponding increase in refined product prices, a substantial or prolonged decrease in
refined product prices without a corresponding decrease in crude oil prices, or a substantial or prolonged decrease in demand for
refined products could have a significant negative effect on our earnings and cash flow. Also, crude oil supply contracts are generally
short-term contracts with market-responsive pricing provisions. We purchase our refinery feedstocks weeks before manufacturing
and selling the refined products. Price level changes during the period between purchasing feedstocks and selling the manufactured
refined products from these feedstocks could have a significant effect on our financial condition and results of operations. Also,
our crude oil and refined products inventories are valued at the lower of cost or market under the last-in, first-out (“LIFO”) inventory
valuation methodology. If the market value of our inventory were to decline to an amount less than our LIFO cost, we would
record a write-down of inventory and a non-cash charge to cost of products sold even when there is no underlying economic impact
at that point in time. For example, for the year ended December 31, 2014, we recorded a non-cash increase to cost of products
sold in the amount of $397.5 million. Continued volatility in crude oil and refined products prices could result in additional lower
of cost or market inventory charges in the future, or in reversals reducing cost of products sold in subsequent periods should prices
recover.
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A material decrease in the supply of crude oil available to our refineries could significantly reduce our production levels.
To maintain or increase production levels at our refineries, we must continually contract for crude oil supplies from third parties.
A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed commodity prices,
lack of drilling activity, natural production declines or otherwise, could result in a decline in the volume of crude oil available to
our refineries. In addition, any prolonged disruption of a significant pipeline that is used in supplying crude oil to our refineries
or the potential operation of a new, converted or expanded crude oil pipeline that transports crude oil to other markets could result
in a decline in the volume of crude oil available to our refineries. Such an event could result in an overall decline in volumes of
refined products processed at our refineries and therefore a corresponding reduction in our cash flow. In addition, the future growth
of our operations will depend in part upon whether we can contract for additional supplies of crude oil at a greater rate than the
rate of natural decline in our currently connected supplies. If we are unable to secure additional crude oil supplies of sufficient
quality or crude pipeline expansion to our refineries, we will be unable to take full advantage of current and future expansion of
our refineries' production capacities.
We may not be able to successfully execute our business strategies to grow our business. Further, if we are unable to complete
capital projects at their expected costs or in a timely manner, if we are unsuccessful in integrating the operations of assets we
acquire, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations,
or cash flows could be materially and adversely affected.
One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and
refurbishment of used units from another refinery) and the expansion of existing ones. Projects are generally initiated to increase
the yields of higher-value products, increase the amount of lower cost crude oils that can be processed, increase refinery production
capacity, meet new governmental requirements, or maintain the operations of our existing assets. Additionally, our growth strategy
includes projects that permit access to new and/or more profitable markets. The construction process involves numerous regulatory,
environmental, political, and legal uncertainties, most of which are not fully within our control, including:
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denial or delay in issuing requisite regulatory approvals and/or permits;
compliance with or liability under environmental regulations;
unplanned increases in the cost of construction materials or labor;
disruptions in transportation of modular components and/or construction materials;
severe adverse weather conditions, natural disasters, or other events (such as equipment malfunctions, explosions, fires,
spills) affecting our facilities, or those of vendors and suppliers;
shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
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• market-related increases in a project's debt or equity financing costs; and/or
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nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or sub-contractors involved with
a project.
If we are unable to complete capital projects at their expected costs or in a timely manner our financial condition, results of
operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our facilities
could subject us to fines or penalties as well as affect our ability to supply certain products we make. In addition, our revenues
may not increase immediately upon the expenditure of funds on a particular project. For instance, if we build a new refinery
processing unit, the construction will occur over an extended period of time and we will not receive any material increases in
revenues until after completion of the project. Moreover, we may construct facilities to capture anticipated future growth in demand
for refined products in a region in which such growth does not materialize. As a result, new capital investments may not achieve
our expected investment return, which could adversely affect our financial condition or results of operations.
Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our
control, including changes in general economic conditions, available alternative supply and customer demand.
An additional component of our growth strategy is to selectively acquire complementary assets for our refining operations in order
to increase earnings and cash flow. Our ability to do so will be dependent upon a number of factors, including our ability to identify
attractive acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain
financing to fund acquisitions and to support our growth, and other factors beyond our control. Risks associated with acquisitions
include those relating to:
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diversion of management time and attention from our existing business;
challenges in managing the increased scope, geographic diversity and complexity of operations and inefficiencies that
may result therefrom;
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difficulties in integrating the financial, technological and management standards, processes, procedures and controls of
an acquired business with those of our existing operations;
liability for known or unknown environmental conditions or other contingent liabilities not covered by indemnification
or insurance;
greater than anticipated expenditures required for compliance with environmental or other regulatory standards or for
investments to improve operating results;
difficulties or delays in achieving anticipated operational improvements or benefits;
incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired assets; and
issuance of additional equity, which could result in further dilution of the ownership interest of existing stockholders.
Any acquisitions that we do consummate may have adverse effects on our business and operating results.
We may incur significant costs to comply with new or changing environmental, energy, health and safety laws and regulations,
and face potential exposure for environmental matters.
Refinery and pipeline operations are subject to federal, state and local laws regulating, among other things, the generation, storage,
handling, use and transportation of petroleum and hazardous substances by pipeline, truck, rail and barge, the emission and discharge
of materials into the environment, waste management, and characteristics and composition of gasoline and diesel fuels, and other
matters otherwise relating to the protection of the environment. Permits or other authorizations are required under these laws for
the operation of our refineries, pipelines and related operations, and these permits and authorizations are subject to revocation,
modification and renewal or may require operational changes, which may involve significant costs. Furthermore, a violation of
permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations,
injunctions, and/or refinery shutdowns. In addition, major modifications of our operations due to changes in the law could require
changes to our existing permits or expensive upgrades to our existing pollution control equipment, which could have a material
adverse effect on our business, financial condition, or results of operations. Over the years, there have been ongoing
communications, including notices of violations, about environmental matters between us and federal and state authorities, some
of which have resulted or will result in changes to operating procedures and in capital expenditures. Compliance with applicable
environmental laws, regulations and permits will continue to have an impact on our operations, results of our operations and capital
requirements.
As is the case with all companies engaged in industries similar to ours, we face potential exposure to future claims and lawsuits
involving environmental matters. The matters include, but are not limited to, soil, groundwater and waterway contamination, air
pollution, personal injury and property damage allegedly caused by substances which we manufactured, handled, used, released
or disposed.
We are and have been the subject of various state, federal and private proceedings relating to environmental regulations, conditions
and inquiries. Current and future environmental regulations are expected to require additional expenditures, including expenditures
for investigation and remediation, which may be significant, at our facilities. To the extent that future expenditures for these
purposes are material and can be reasonably determined, these costs are disclosed and accrued.
Our operations are also subject to various laws and regulations relating to occupational health and safety. We maintain safety,
training and maintenance programs as part of our ongoing efforts to ensure compliance with applicable laws and regulations.
Compliance with applicable health and safety laws and regulations has required and continues to require substantial expenditures.
Failure to appropriately manage occupational health and safety risks associated with our business could also adversely impact our
employees, communities, stakeholders, reputation and results of operations.
We cannot predict what additional health and environmental legislation or regulations will be enacted or become effective in the
future or how existing or future laws or regulations will be administered or interpreted with respect to our operations. However,
new environmental laws and regulations, including new regulations relating to alternative energy sources and the risk of global
climate change, new interpretations of existing laws and regulations, increased governmental enforcement or other developments
could require us to make additional unforeseen expenditures. For example, the EPA has begun regulating certain sources of
greenhouse gas emissions, or “GHGs,” (including carbon dioxide, methane and nitrous oxides) from large stationary sources like
refineries under the authority of the CAA, and it is possible that Congress could pass federal legislation that creates a comprehensive
GHG regulatory program, either directly or indirectly, such as via a federal renewal energy standard. Also, new federal or state
legislation or regulatory programs that restrict emissions of GHGs in areas where we conduct business could adversely affect
demand for our products and our results of operations.
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The costs of environmental and safety regulations are already significant and compliance with more stringent laws or regulations
or adverse changes in the interpretation of existing regulations by government agencies could have an adverse effect on the financial
position and the results of our operations and could require substantial expenditures for the installation and operation of systems
and equipment that we do not currently possess.
From time to time, new federal energy policy legislation is enacted by the U.S. Congress. For example, in December 2007, the
U.S. Congress passed the Energy Independence and Security Act, which, among other provisions, mandates annually increasing
levels for the use of renewable fuels such as ethanol, commencing in 2008 and escalating for 15 years, as well as increasing energy
efficiency goals, including higher fuel economy standards for motor vehicles, among other steps. These statutory mandates may
have the impact over time of offsetting projected increases in the demand for refined petroleum products in certain markets,
particularly gasoline. In the near term, the new renewable fuel standard presents ethanol production and logistics challenges for
both the ethanol and refining industries and may require additional capital expenditures or expenses by us to accommodate increased
ethanol use. Other legislative changes may similarly alter the expected demand and supply projections for refined petroleum
products in ways that cannot be predicted.
For additional information on regulations and related liabilities or potential liabilities affecting our business, see “Regulation”
under Items 1 and 2, “Business and Properties,” and Item 3, “Legal Proceedings.”
The adoption of climate change legislation by Congress could result in increased operating costs and reduced demand for the
refined products we produce.
In December 2009, the EPA determined that emissions of carbon dioxide, methane and other GHGs present an endangerment to
public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the
earth's atmosphere and other climatic changes. Based on these findings, the EPA has begun adopting and implementing regulations
to restrict emissions of GHGs under existing provisions of the federal CAA. For example, the EPA adopted rules that require
certain large stationary sources to obtain permits to authorize emissions of GHGs. The EPA’s rules relating to emissions of GHGs
from large stationary sources of emissions were, for the most part, upheld by the U.S. Supreme Court in 2014. The EPA has also
adopted rules requiring the reporting of GHG emissions from specified large GHG emission sources in the United States, including
petroleum refineries, on an annual basis. The EPA has also announced its intention to issue a New Source Performance Standard
directly regulating GHG emissions from refineries, although recent statements from EPA Administrator McCarthy indicate that
issuance of such Performance Standard is not imminent..
In addition, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of GHGs and almost
one-half of the states have already taken legal measures to reduce emissions of GHGs primarily through the planned development
of GHG emission inventories and/or regional GHG cap and trade programs. These cap and trade programs generally work by
requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing
plants, to acquire and on an annual basis surrender emission allowances. The number of allowances available for purchase is
reduced over time in an effort to achieve the overall GHG emission reduction goal.
The adoption of legislation or regulatory programs to reduce emissions of GHGs could require us to incur increased operating
costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or comply with new
regulatory or reporting requirements. Any such legislation or regulatory programs could also increase the cost of consuming, and
thereby reduce demand for, the refined products that we produce. Consequently, legislation and regulatory programs to reduce
emissions of GHGs could have an adverse effect on our business, financial condition and results of operations.
In addition, some scientists have concluded that increasing concentrations of GHGs in the Earth's atmosphere may produce climate
changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other
climatic events. If any such events were to occur, they could have an adverse effect on our financial condition and results of
operations.
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Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured.
Our operations are subject to operational hazards and unforeseen interruptions such as natural disasters, adverse weather, accidents,
fires, explosions, hazardous materials releases, power failures, mechanical failures and other events beyond our control. These
events might result in a loss of equipment or life, injury, or extensive property damage or destruction of property, as well as a
curtailment or an interruption in our operations and may affect our ability to meet marketing commitments. We maintain significant
insurance coverage, but it does not cover all potential losses, costs or liabilities, and our business interruption insurance coverage
generally does not apply unless a business interruption exceeds 45 days. If any refinery were to experience an interruption in
operations, earnings from the refinery could be materially adversely affected (to the extent not recoverable through insurance)
because of lost production and repair costs.
The availability of adequate insurance may be affected by conditions in the insurance market over which we have no control,
resulting in the inability to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market
conditions, premiums and deductibles for certain of our insurance policies could increase or, in some instances, certain insurance
could become unavailable or available only for reduced amounts of coverage. We could suffer losses for uninsurable or uninsured
risks or in amounts in excess of our existing insurance coverage. The occurrence of an event that is not fully covered by insurance
could have a material adverse effect on our business, financial condition and results of operations.
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 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 unable to obtain and maintain adequate
insurance at reasonable cost. In addition, we cannot assure you that our insurers will renew our insurance coverage on acceptable
terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. Further, our
underwriters could have credit issues that affect their ability to pay claims. The unavailability of full insurance coverage to cover
events in which we suffer significant losses could have a material adverse effect on our business, financial condition and results
of operations.
The availability and cost of renewable identification numbers could have an adverse effect on our financial condition and
results of operations. In addition, the EPA has not yet finalized the 2014 percentage standards under its Renewable Fuel
Standard 2 (“RFS2”) regulations.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS2 regulations reflecting the increased
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. We currently purchase RINs for some fuel categories on the open market in order to
comply with the quantity of renewable fuels we are required to blend under the RFS2. Recently, due in part to the nation's fuel
supply approaching the “blend wall” (the 10% ethanol limit prescribed by most automobile warranties), the price of RINs has
been extremely volatile with the price dramatically increasing in recognition of the decrease in RINs availability. While we cannot
predict the future prices of RINs, the costs to obtain the necessary number of RINs could be material. If we are unable to pass the
costs of compliance with the RFS2 on to our customers, if sufficient RINs are unavailable for purchase, if we have to pay a
significantly higher price for RINs or if we are otherwise unable to meet the RFS2 mandates, our financial condition and results
of operations could be adversely affected. Additionally, the EPA has not yet finalized the 2014 percentage standards under its
RFS2 program. When the EPA ultimately finalizes the required blending percentages for 2014, such levels could be higher or
lower than amounts estimated and accrued for in our consolidated financial statements as of December 31, 2014.
Competition in the refining and marketing industry is intense, and an increase in competition in the markets in which we sell
our products could adversely affect our earnings and profitability.
We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of
their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors
may be better able to withstand volatile market conditions, to obtain crude oil in times of shortage and to bear the economic risks
inherent in all areas of the refining industry.
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We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used at
our refineries. We do not have a retail business and therefore are dependent upon others for outlets for our refined products. Certain
of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail outlets.
Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to offset
losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand
periods of depressed refining margins or feedstock shortages.
In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in our
geographic market. These transactions could increase the future competitive pressures on us.
The markets in which we compete may be impacted by competitors' plans for expansion projects and refinery improvements that
could increase the production of refined products in our areas of operation and significantly affect our profitability.
Also, the potential operation of new or expanded refined product transportation pipelines, or the conversion of existing pipelines
into refined product transportation pipelines, could impact the supply of refined products to our existing markets and negatively
affect our profitability.
In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our
industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental
regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and
demand for our products and our profitability. There are presently significant governmental and consumer pressures to increase
the use of alternative fuels in the United States.
A disruption to or proration of the refined product distribution systems we utilize could negatively impact our profitability.
We utilize various common carrier or other third party pipeline systems to deliver our products to market. The key systems utilized
by the Cheyenne, El Dorado, Navajo, Woods Cross, and Tulsa Refineries are Rocky Mountain, NuStar Energy, SFPP and Plains,
Chevron, and Magellan, respectively. All five refineries also utilize systems owned by HEP. If these key pipelines or their associated
tanks and terminals become inoperative or decrease the capacity available to us, we may not be able to sell our product, or we
may be required to hold our product in inventory or supply products to our customers through an alternative pipeline or by rail or
additional tanker trucks from the refinery, all of which could increase our costs and result in a decline in profitability.
We may be subject to information technology system failures, network disruptions and breaches in data security.
Information technology system failures, network disruptions (whether intentional by a third party or due to natural disaster),
breaches of network or data security, or disruption or failure of the network system used to monitor and control pipeline operations
could disrupt our operations by impeding our processing of transactions, our ability to protect customer or company information
and our financial reporting. Our computer systems, including our back-up systems, could be damaged or interrupted by power
outages, computer and telecommunications failures, computer viruses, internal or external security breaches, events such as fires,
earthquakes, floods, tornadoes and hurricanes, and/or errors by our employees. There can be no assurance that a system failure or
data security breach will not have a material adverse effect on our financial condition and results of operations.
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We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital
markets. This may hinder or prevent us from meeting our future capital needs.
The domestic and global financial markets and economic conditions are disrupted and volatile from time to time due to a variety
of factors, including low consumer confidence, high unemployment, geoeconomic and geopolitical issues, weak economic
conditions and uncertainty in the financial services sector. In addition, the fixed-income markets have experienced periods of
extreme volatility, which negatively impacted market liquidity conditions. As a result, the cost of raising money in the debt and
equity capital markets has increased substantially at times while the availability of funds from these markets diminished
significantly. In particular, as a result of concerns about the stability of financial markets generally and the solvency of lending
counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders and institutional
investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt on similar terms or at all and
reduce, or in some cases cease, to provide funding to borrowers. In addition, lending counterparties under any existing revolving
credit facility and other debt instruments may be unwilling or unable to meet their funding obligations, or we may experience a
decrease in our capacity to issue debt or obtain commercial credit or a deterioration in our credit profile, including a rating agency
lowering or withdrawing of our credit ratings if, in its judgment, the circumstances warrant. Due to these factors, we cannot be
certain that new debt or equity financing will be available on acceptable terms. If funding is not available when needed, or is
available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be required to sell
assets. Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions or
construction projects, take advantage of other business opportunities or respond to competitive pressures, comply with regulatory
requirements, or meet our short-term or long-term working capital requirements, any of which could have a material adverse effect
on our revenues and results of operations. Failure to comply with regulatory requirements in a timely manner or meet our short-
term or long-term working capital requirements could subject us to regulatory action.
We depend upon HEP for a substantial portion of the crude supply and distribution network that serve our refineries and we
own a significant equity interest in HEP.
We currently own a 39% interest in HEP, including the 2% general partner interest. HEP operates a system of crude oil and
petroleum product pipelines, distribution terminals and refinery tankage in Arizona, Idaho, Kansas, New Mexico, Oklahoma,
Texas, Utah, Washington and Wyoming. HEP generates revenues by charging tariffs for transporting petroleum products and crude
oil through its pipelines, leasing certain pipeline capacity to Alon, charging fees for terminalling refined products and other
hydrocarbons and storing and providing other services at its terminals. HEP serves the Cheyenne, El Dorado, Navajo, Woods
Cross and Tulsa Refineries under several long-term pipeline and terminal, tankage and throughput agreements expiring in 2019
through 2026. Furthermore, our financial statements include the consolidated results of HEP. HEP is subject to its own operating
and regulatory risks, including, but not limited to:
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its reliance on its significant customers, including us;
competition from other pipelines;
environmental regulations affecting pipeline operations;
operational hazards and risks;
pipeline tariff regulations affecting the rates HEP can charge;
limitations on additional borrowings and other restrictions due to HEP's debt covenants; and
other financial, operational and legal risks.
The occurrence of any of these risks could directly or indirectly affect HEP's as well as our financial condition, results of operations
and cash flows as HEP is a consolidated VIE. Additionally, these risks could affect HEP's ability to continue operations which
could affect their ability to serve our supply and distribution network needs.
For additional information about HEP, see “Holly Energy Partners, L.P.” under Items 1 and 2, “Business and Properties.” For risks
related to HEP's business, see Item 1A of HEP's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
We are exposed to the credit risks, and certain other risks, of our key customers and vendors.
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We derive a significant portion
of our revenues from contracts with key customers.
If any of our key customers default on their obligations to us, our financial results could be adversely affected. Furthermore, some
of our customers may be highly leveraged and subject to their own operating and regulatory risks. In addition, nonperformance
by vendors who have committed to provide us with products or services could result in higher costs or interfere with our ability
to successfully conduct our business.
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Any substantial increase in the nonpayment and/or nonperformance by our customers or vendors could have a material adverse
effect on our results of operations and cash flows.
Terrorist attacks, and the threat of terrorist attacks or domestic vandalism, have resulted in increased costs to our business.
Continued global hostilities or other sustained military campaigns may adversely impact our results of operations.
The long-term impacts of terrorist attacks, such as the attacks that occurred on September 11, 2001, and the threat of future terrorist
attacks on the energy transportation industry in general, and on us in particular, are not known at this time. Increased security
measures taken by us as a precaution against possible terrorist attacks or vandalism have resulted in increased costs to our business.
Future terrorist attacks could lead to even stronger, more costly initiatives or regulatory requirements. Uncertainty surrounding
continued global hostilities or other sustained military campaigns may affect our operations in unpredictable ways, including
disruptions of crude oil supplies and markets for refined products, and the possibility that infrastructure facilities could be direct
targets of, or indirect casualties of, an act of terror. In addition, disruption or significant increases in energy prices could result in
government-imposed price controls. Any one of, or a combination of, these occurrences could have a material adverse effect on
our business, financial condition and results of operations.
Changes in the insurance markets attributable to terrorist attacks could make certain types of insurance more difficult for us to
obtain. Moreover, the insurance that may be available to us may be significantly more expensive than our existing insurance
coverage. Instability in the financial markets as a result of terrorism or war could also affect our ability to raise capital including
our ability to repay or refinance debt.
Increases in required fuel economy and regulation of CO2 emissions from motor vehicles may reduce demand for transportation
fuels.
In 2010, the EPA and the National Highway Traffic Safety Administration (“NHTSA”) finalized new standards, raising the required
Corporate Average Fuel Economy (“CAFE”) of the nation's passenger fleet by 40% to approximately 35 miles per gallon (“m.p.g.”)
by 2016 and imposing the first-ever federal GHG emissions standards on cars and light trucks. In September 2011, the EPA and
the Department of Transportation finalized first-time standards for fuel economy of medium and heavy duty trucks. On August
28, 2012 the EPA and NHTSA adopted standards through model year 2025 in two phases. The first phase establishes final standards
for 2017-2021 model year vehicles that are projected to require 40.3 - 41.0 m.p.g. in model year 2021 on an average industry fleet-
wide basis. The second phase of the CAFE program represents non-final “augural” standards for 2022-2025 model year vehicles
that are projected to require 48.7 - 49.7 m.p.g. in model year 2025, on an average industry fleet-wide basis. Such increases in fuel
economy standards, along with mandated increases in use of renewable fuels discussed above, could result in decreasing demand
for petroleum fuels. Decreasing demand for petroleum fuels could have a material effect on our financial condition and results of
operation.
To successfully operate our petroleum refining facilities, we are required to expend significant amounts for capital outlays and
operating expenditures.
The refining business is characterized by high fixed costs resulting from the significant capital outlays associated with refineries,
terminals, pipelines and related facilities. We are dependent on the production and sale of quantities of refined products at refined
product margins sufficient to cover operating costs, including any increases in costs resulting from future inflationary pressures
or market conditions and increases in costs of fuel and power necessary in operating our facilities. Furthermore, future major
capital investment, various environmental compliance related projects, regulatory requirements or competitive pressures could
result in additional capital expenditures, which may not produce a return on investment. Such capital expenditures may require
significant financial resources that may be contingent on our access to capital markets and commercial bank loans. Additionally,
other matters, such as regulatory requirements or legal actions, may restrict our access to funds for capital expenditures.
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Our refineries consist of many processing units, a number of which have been in operation for many years. One or more of the
units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled
turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the
units are not operating. We have taken significant measures to expand and upgrade units in our refineries by installing new
equipment and redesigning older equipment to improve refinery capacity. The installation and redesign of key equipment at our
refineries involves significant uncertainties, including the following: our upgraded equipment may not perform at expected
throughput levels; operating costs of the upgraded equipment may be higher than expected; the yield and product quality of new
equipment may differ from design and/or specifications and redesign, modification or replacement of the equipment may be
required to correct equipment that does not perform as expected, which could require facility shutdowns until the equipment has
been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment, or repaired equipment
could lead to lower revenues or higher costs or otherwise have a negative impact on our future financial condition and results of
operations.
In addition, we expect to execute turnarounds at our refineries, which involve numerous risks and uncertainties. These risks include
delays and incurrence of additional and unforeseen costs. The turnarounds allow us to perform maintenance, upgrades, overhaul
and repair of process equipment and materials, during which time all or a portion of the refinery will be under scheduled downtime.
We may be unable to pay future regular and/or special dividends.
We will only be able to pay dividends from our available cash on hand, cash from operations or borrowings under our credit
agreement. The declaration of future regular and/or special dividends on our common stock will be at the discretion of our board
of directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital
requirements, and restrictions in our debt agreements and legal requirements. We cannot assure you that any dividends will be
paid or the frequency of such payments.
Product liability claims and litigation could adversely affect our business and results of operations.
A significant portion of our operating responsibility on refined product pipelines is to insure the quality and purity of the products
loaded at our loading racks. If our quality control measures were to fail, we may have contaminated or off-specification commingled
pipelines and storage tanks or off-specification product could be sent to public gasoline stations. These types of incidents could
result in product liability claims from our customers.
Product liability is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions against
manufacturers and resellers based upon claims for injuries caused by the use of or exposure to various products. There can be no
assurance that product liability claims against us would not have a material adverse effect on our business or results of operations
or our ability to maintain existing customers or retain new customers.
Our hedging transactions may limit our gains and expose us to other risks.
We periodically enter into derivative transactions as it relates to inventory levels and/or future production to manage the risks from
changes in the prices of crude oil, refined products and other feedstocks. These transactions limit our potential gains if commodity
prices move above or below the certain price levels established by our hedging instruments. We hedge price risk on inventories
above our target levels to minimize the impact these price fluctuations have on our earnings and cash flows. Consequently, our
hedging results may fluctuate significantly from one reporting period to the next depending on commodity price fluctuations and
our relative physical inventory positions. These transactions may also expose us to risks of financial losses; for example, if our
production is less than we anticipated at the time we entered into a hedge agreement or if a counterparty to our hedge agreements
fails to perform its obligations under the agreements.
Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our suppliers,
which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities of crude oil
to operate our refineries at desired capacity.
An unfavorable credit profile, or a significant increase in the price of crude oil, could affect the way crude oil suppliers view our
ability to make payments and induce them to shorten the payment terms of their invoices with us or require credit enhancement.
Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our suppliers of
more burdensome payment terms or credit enhancement requirements on us may have a material adverse effect on our liquidity
and our ability to make payments to our suppliers. This in turn could cause us to be unable to operate our refineries at desired
capacity. A failure to operate our refineries at desired capacity could adversely affect our profitability and cash flow.
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Our credit facility contains certain covenants and restrictions that may constrain our business and financing activities.
The operating and financial restrictions and covenants in our credit facility and any future financing agreements could adversely
affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example,
our revolving credit facility imposes usual and customary requirements for this type of credit facility, including: (i) limitations on
liens and indebtedness; (ii) a prohibition on changes in control and (iii) restrictions on engaging in mergers and consolidations. If
we fail to satisfy the covenants set forth in the credit facility or another event of default occurs under the credit facility, the maturity
of the loan could be accelerated or we could be prohibited from borrowing for our future working capital needs and issuing letters
of credit. We might not have, or be able to obtain, sufficient funds to make these immediate payments. If we desire to undertake
a transaction that is prohibited by the covenants in our credit facility, we will need to obtain consent under our credit facility. Such
refinancing may not be possible or may not be available on commercially acceptable terms.
Our business may suffer due to a change in the composition of our Board of Directors, or by the departure of any of our key
senior executives or other key employees. Furthermore, a shortage of skilled labor or disruptions in our labor force may make
it difficult for us to maintain labor productivity.
Our future performance depends to a significant degree upon the continued contributions of our senior management team and key
technical personnel. We do not currently maintain key man life insurance, non-compete agreements, or employment agreements
with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management
team or a key technical employee could significantly harm us. We face competition for these professionals from our competitors,
our customers and other companies operating in our industry. To the extent that the services of members of our senior management
team and key technical personnel would be unavailable to us for any reason, we may be required to hire other personnel to manage
and operate our company. We may not be able to locate or employ such qualified personnel on acceptable terms, or at all.
Furthermore, our operations require skilled and experienced laborers with proficiency in multiple tasks. A shortage of trained
workers due to retirements or otherwise could have an adverse impact on our labor productivity and costs and our ability to expand
production in the event there is an increase in the demand for our products and services, which could adversely affect our operations.
As of December 31, 2014, approximately 33% of our employees were represented by labor unions under collective bargaining
agreements with various expiration dates. We may not be able to renegotiate our collective bargaining agreements when they
expire on satisfactory terms or at all. A failure to do so may increase our costs. In addition, our existing labor agreements may not
prevent a strike or work stoppage at any of our facilities in the future, and any work stoppage could negatively affect our results
of operations and financial condition.
The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be
impacted.
The market price of our common stock may be influenced by many factors, some of which are beyond our control, including:
•
•
•
•
•
•
•
•
our quarterly or annual earnings or those of other companies in our industry;
changes in accounting standards, policies, guidance, interpretations or principles;
general economic and stock market conditions;
the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
future sales of our common stock;
announcements by us or our competitors of significant contracts or acquisitions;
sales of common stock by us, our senior officers or our affiliates; and/or
the other factors described in these Risk Factors.
In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many companies, including companies in our industry. The price of our common
stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially
reduce our stock price.
Item 1B. Unresolved Staff Comments
We do not have any unresolved staff comments.
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Item 3. Legal Proceedings
Commitment and Contingency Reserves
We periodically establish reserves for certain legal proceedings. The establishment of a reserve involves an estimation process
that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to
be adequate, future changes in the facts and circumstances could result in the actual liability exceeding the estimated ranges of
loss and amounts accrued.
While the outcome and impact on us cannot be predicted with certainty, based on advice of counsel, management believes that
the resolution of these proceedings through settlement or adverse judgment will not either individually or in the aggregate have
a materially adverse effect on our financial condition, results of operations or cash flows.
Environmental Matters
We are reporting the following proceedings to comply with SEC regulations which require us to disclose proceedings arising under
federal, state or local provisions regulating the discharge of materials into the environment or protecting the environment if we
reasonably believe that such proceedings may result in monetary sanctions of $100,000 or more. Our respective subsidiaries have
or will develop corrective action plans regarding these disclosures that will be implemented in consultation with the respective
federal and state agencies. It is not possible to predict the ultimate outcome of these proceedings, although none are currently
expected to have a material effect on our financial condition, results of operations or cash flows.
Frontier Refining LLC (“FR”), our wholly-owned subsidiary, completed certain environmental audits at the Cheyenne Refinery
regarding compliance with federal and state environmental requirements. By letters dated October 5, 2012, November 7, 2012,
and January 10, 2013, and pursuant to EPA's audit policy to the extent applicable, FR submitted reports to the EPA voluntarily
disclosing non-compliance with certain emission limitations, reporting requirements, and provisions of a 2009 federal consent
decree. By letters dated October 31, 2012, February 6, 2013, June 21, 2013, July 9, 2013 and July 25, 2013, and pursuant to
applicable Wyoming audit statutes, FR submitted environmental audit reports to the Wyoming Department of Environmental
Quality (“WDEQ”) voluntarily disclosing non-compliance with certain notification, reporting, and other provisions of the refinery's
state air permit and other environmental regulatory requirements. Additional self-disclosures and follow-up correspondence are
anticipated as the audit activities are completed. No further action has been taken by either agency at this time. The Cheyenne
Refinery also has one outstanding Notice of Violations issued in January 2013 that is subject to ongoing settlement negotiations
with the WDEQ.
The Cheyenne Refinery received a letter from the EPA dated December 22, 2014, reviewing air emission incident reports submitted
to the EPA during the period 2011 to 2013 and assessing a penalty for a number of these incidents. The Cheyenne Refinery reviewed
the EPA's penalty assessment with legal counsel and has paid the penalty.
Between November 2010 and February 2012, certain of our subsidiaries submitted multiple reports to the EPA to voluntarily
disclose non-compliance with fuels regulations at the Cheyenne, El Dorado, Navajo, Tulsa and Woods Cross refineries and at the
Cedar City, Utah and Henderson, Colorado terminals. Our subsidiaries have complied with all EPA requests for additional
information regarding the voluntary disclosures. The EPA and our subsidiaries are now engaged in settlement discussions with
the EPA that may resolve the voluntarily disclosed non-compliance events.
On July 2, 2014, the Woods Cross Refinery received a letter issued by the U.S. EPA Region 8 dated June 26, 2014 describing
certain instances where the Woods Cross Refinery may not be in compliance with the refinery's 2008 Consent Decree and calculating
proposed stipulated penalties in accordance with that decree. The letter requested information and documentation setting forth
Woods Cross's position on the EPA's assessment and further requested that Woods Cross provide reasons why the EPA's assessment
may be incorrect. Woods Cross evaluated the EPA letter and submitted a response on July 29, 2014, explaining that many of the
instances of apparent noncompliance are unwarranted and for those no penalty should be assessed. By letter dated February 10,
2015, the EPA considered the information provided by the Woods Cross Refinery and assessed a stipulated penalty that is less
than $100,000.
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In correspondence dated December 26, 2013, the Oklahoma Department of Environmental Quality (“ODEQ”) notified our Tulsa
Refinery of allegations of noncompliance with certain regulations, permit conditions and consent decree provisions at the Tulsa
East and West refineries. ODEQ intends to seek penalties for allegations of failure to meet various permit or consent decree
requirements, including failure to timely install monitoring equipment on a Tulsa West refinery flare. On January 21, 2015, the
ODEQ notified the Tulsa Refinery that no penalty would be assessed for the Tulsa West refinery flare issue. As a result, any
penalties on the remaining issues are expected to be less than $100,000.
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 4. Mine Safety Disclosures
Not Applicable.
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PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the New York Stock Exchange under the trading symbol “HFC.” The following table sets forth
the range of the daily high and low sales prices per share of common stock, dividends declared per share and the trading volume
of common stock for the periods indicated:
Years Ended December 31,
High
Low
Dividends
Trading Volume
2014
Fourth quarter
Third quarter
Second quarter
First quarter
2013
Fourth quarter
Third quarter
Second quarter
First quarter
$
$
$
$
$
$
$
$
46.47
51.31
53.42
50.74
50.63
47.21
52.87
59.20
$
$
$
$
$
$
$
$
35.31
42.76
43.61
43.17
39.65
38.98
39.96
42.76
$
$
$
$
$
$
$
$
0.82
0.82
0.82
0.80
0.80
0.80
0.80
0.80
152,657,400
139,658,000
152,909,200
174,540,200
230,186,600
174,416,900
229,246,900
217,439,700
In September 2014, our Board of Directors approved a $500 million share repurchase program authorizing us to repurchase common
stock in the open market or through privately negotiated transactions. The following table includes repurchases made under this
program during the fourth quarter of 2014.
Period
October 2014
November 2014
December 2014
Total for October to December 2014
Total Number of
Shares Purchased
460,000
80,000
Average Price
Paid Per Share
43.29
$
44.35
$
—
— $
540,000
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
460,000
80,000
$
$
— $
540,000
447,928,446
444,380,840
444,380,840
In February 2015, our Board of Directors approved a $500 million share repurchase program, which replaced all existing share
repurchase programs including approximately $425 million remaining under the existing $500 million share repurchase program.
The timing and amount of stock repurchases will depend on market conditions, corporate, regulatory and other relevant
considerations. This program may be discontinued at any time by our Board of Directors.
As of February 9, 2015, we had approximately 124,680 stockholders, including beneficial owners holding shares in street name.
We intend to consider the declaration of a dividend on a quarterly basis, although there is no assurance as to future dividends since
they are dependent upon future earnings, capital requirements, our financial condition and other factors. Our senior notes limit
the payment of dividends at any time we are not rated investment grade by both Moody's and Standard & Poor's. See Note 11
“Debt” in the Notes to Consolidated Financial Statements.
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Item 6. Selected Financial Data
The following table shows our selected financial information as of the dates or for the periods indicated. This table should be read
in conjunction with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
FINANCIAL DATA (1)
For the period
Sales and other revenues
Income before income taxes (2)
Income tax provision
Net income
Less net income attributable to noncontrolling interest
Net income attributable to HollyFrontier stockholders
Earnings per share attributable to HollyFrontier
stockholders - basic
Earnings per share attributable to HollyFrontier
stockholders - diluted
Cash dividends declared per common share
Average number of common shares outstanding:
Basic
Diluted
Net cash provided by operating activities
Net cash provided by (used for) investing activities
Net cash provided by (used for) financing activities
At end of period
Cash, cash equivalents and investments in marketable
securities
Working capital
Total assets
Total debt (3)
Total equity
2014
Years Ended December 31,
2012
2011
2013
2010
(In thousands, except per share data)
$ 19,764,327
467,500
141,172
326,328
45,036
281,292
$
$ 20,160,560
1,159,399
391,576
767,823
31,981
735,842
$
$ 20,090,724
2,787,995
1,027,962
1,760,033
32,861
$ 1,727,172
$ 15,439,528
1,641,695
581,991
1,059,704
36,307
$ 1,023,397
$ 8,322,929
192,363
59,312
133,051
29,087
103,964
$
$
$
$
$
$
$
1.42
1.42
3.26
$
$
$
3.66
3.64
3.20
$
$
$
8.41
8.38
3.10
$
$
$
6.46
6.42
1.34
$
$
$
0.98
0.97
0.30
197,243
197,428
200,419
201,234
204,379
205,274
157,948
158,756
869,174
758,596
$
(526,735) $
(292,322) $
(838,392) $ (1,160,035) $
$ 1,662,687
(711,104) $
(772,788) $
$
$ 1,338,391
$
228,494
(217,082) $
106,436
107,218
283,255
(213,232)
34,482
$ 1,042,095
$ 1,531,595
$ 9,230,640
$ 1,054,890
$ 6,100,719
$ 1,665,263
$ 2,221,954
$ 10,056,739
$
997,519
$ 6,609,398
$ 2,393,401
$ 2,815,821
$ 10,328,997
$ 1,336,238
$ 6,642,658
$ 1,840,610
$ 2,030,063
$ 9,576,243
$ 1,214,742
$ 5,835,900
230,444
$
$
313,580
$ 3,049,951
$
810,561
$ 1,288,139
(1) We merged with Frontier on July 1, 2011. Our consolidated financial and operating results reflect the operations of the merged Frontier
businesses beginning July 1, 2011. See “Company Overview” under Items 1 and 2, “Business and Properties” for information on our
merger.
(2) Reflects a non-cash lower of cost or market inventory valuation adjustment charge of $397.5 million for the year ended December 31,
2014.
(3) Includes total HEP debt of $867.6 million, $807.6 million, $864.7 million, $525.9 million and $482.3 million, respectively, which is
non-recourse to HollyFrontier.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Item 7 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of this Annual Report
on Form 10-K. 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 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.
Overview
We are principally an independent petroleum refiner that produces high-value refined products such as gasoline, diesel fuel, jet
fuel, specialty lubricant products, and specialty and modified asphalt. We own and operate refineries having a combined crude oil
processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain
regions of the United States. Our refineries are 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, a petroleum refinery in Artesia, New
Mexico, which operates in conjunction with crude, vacuum distillation and other facilities situated 65 miles away in Lovington,
New Mexico (the Navajo Refinery), Cheyenne, Wyoming (the Cheyenne Refinery) and Woods Cross, Utah (the Woods Cross
Refinery).
For the year ended December 31, 2014, net income attributable to HollyFrontier stockholders was $281.3 million compared to
$735.8 million and $1,727.2 million for the years ended December 31, 2013, and 2012, respectively. Overall gross refining margins
per produced product sold for 2014 decreased 13% and 44% over the respective years ended December 31, 2013 and 2012, which
was due principally to significant contraction in WTI to Brent crude differentials. Additionally, net income for the year ended
December 31, 2014 reflects a $397.5 million ($244.0 million after-tax) non-cash charge to adjust the value of our inventory to the
lower of cost or market at December 31, 2014.
OUTLOOK
Our profitability is affected by the spread, or differential, between the market prices for crude oil on the world market (which is
based on the price for Brent, North Sea Crude) and the price for inland U.S. crude oil (which is based on the price for WTI). We
expect continued volatility in the pricing relationship between inland and coastal crude. After reaching parity in early 2015, we've
already recently witnessed the inland/coastal crude differential widen to more than $9.00 per barrel. We believe new inbound
pipeline capacity, current storage economics and upcoming refinery maintenance activity should continue to drive Cushing
inventories higher and spreads wider throughout 2015.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS2 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 RINs, in lieu of such
blending. The price of RINs may be extremely volatile as observed in 2013, when prices escalated sharply due to real or perceived
future shortages in RINs. Although our RINs costs remain material, the price of RINs has decreased significantly from 2013 highs,
due in part to regulatory easing of the 2014 annual Renewable Volume Obligation, or RVO. As of December 31, 2014, we are
purchasing RINs in order to meet approximately half of our renewable fuel requirements. Additionally, the EPA has not yet finalized
the 2014 percentage standards under its RFS2 program. We cannot predict with certainty our exposure to increased RINs costs in
the future, nor can we predict the extent by which costs associated with RFS2 will impact our future results of operations.
A more detailed discussion of our financial and operating results for the years ended December 31, 2014, 2013 and 2012 is presented
in the following sections.
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Results Of Operations
Financial Data
2014
Years Ended December 31,
2013
(In thousands, except per share data)
2012
Sales and other revenues
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)
Lower of cost or market inventory valuation adjustment
Operating expenses (exclusive of depreciation and amortization)
General and administrative expenses (exclusive of depreciation and
amortization)
Depreciation and amortization
Total operating costs and expenses
Income from operations
Other income (expense):
Earnings (loss) of equity method investments
Interest income
Interest expense
Loss on early extinguishment of debt
Gain on sale of assets
Income before income taxes
Income tax provision
Net income
Less net income attributable to noncontrolling interest
Net income attributable to HollyFrontier stockholders
Earnings per share attributable to HollyFrontier stockholders:
Basic
Diluted
Cash dividends declared per common share
Average number of common shares outstanding:
Basic
Diluted
Other Financial Data
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Capital expenditures
EBITDA (1)
$
19,764,327
$
20,160,560
$
20,090,724
17,228,385
397,478
17,625,863
1,144,940
114,609
363,381
19,248,793
515,534
(2,007)
4,430
(43,646)
(7,677)
866
(48,034)
467,500
141,172
326,328
45,036
281,292
1.42
1.42
3.26
197,243
197,428
$
$
$
$
17,392,227
—
17,392,227
1,090,850
127,963
303,446
18,914,486
1,246,074
(2,072)
5,556
(68,050)
(22,109)
—
(86,675)
1,159,399
391,576
767,823
31,981
735,842
3.66
3.64
3.20
200,419
201,234
$
$
$
$
15,840,643
—
15,840,643
994,966
128,101
242,868
17,206,578
2,884,146
2,923
4,786
(104,186)
—
326
(96,151)
2,787,995
1,027,962
1,760,033
32,861
1,727,172
8.41
8.38
3.10
204,379
205,274
2014
Years Ended December 31,
2013
(In thousands)
2012
$
758,596
(292,322) $
(838,392) $
$
564,821
$
832,738
$
869,174
(526,735) $
(1,160,035) $
$
425,127
$
1,515,467
1,662,687
(711,104)
(772,788)
335,263
3,097,402
$
$
$
$
$
$
$
$
$
(1) Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net income
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. EBITDA presented above is reconciled
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Table of Content
to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following
Item 7A of Part II of this Form 10-K.
Our operations are organized into two reportable segments, Refining and HEP. See Note 19 “Segment Information” in the Notes
to Consolidated Financial Statements for additional information on our reportable segments.
Refining 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 lower of cost or market inventory valuation
adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under
“Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this
Form 10-K.
Consolidated
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Refinery production (BPD) (3)
Sales of produced refined products (BPD)
Sales of refined products (BPD) (4)
Refinery utilization (5)
Average per produced barrel (6)
Net sales
Cost of products (7)
Refinery gross margin (8)
Refinery operating expenses (9)
Net operating margin (8)
Refinery operating expenses per throughput barrel (10)
Years Ended December 31,
2014
2013
2012
406,180
436,400
425,010
420,990
461,640
387,520
424,780
413,820
410,730
446,390
415,210
453,740
442,730
431,060
443,620
91.7%
87.5%
93.7%
$
$
$
110.19
96.21
13.98
6.38
7.60
6.16
$
$
$
115.60
99.61
15.99
6.15
9.84
5.95
$
$
$
119.48
94.59
24.89
5.49
19.40
5.22
(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) Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks
through the crude units and other conversion units at our refineries.
(4) Includes refined products purchased for resale.
(5) Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 443,000 BPSD.
(6) Represents average per barrel amount for produced refined products 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 7A of Part II of this Form 10-K.
(7) Transportation, terminal and refinery storage costs billed from HEP are included in cost of products.
(8) Excludes lower of cost or market inventory valuation adjustment of $397.5 million for the year ended December 31, 2014.
(9) Represents operating expenses of our refineries, exclusive of depreciation and amortization and pension settlement costs.
(10) Represents refinery operating expenses, exclusive of depreciation and amortization and pension settlement costs, divided by refinery
throughput.
Results of Operations – Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Summary
Net income attributable to HollyFrontier stockholders for the year ended December 31, 2014 was $281.3 million ($1.42 per basic
and diluted share), a $454.6 million decrease compared to $735.8 million ($3.66 per basic and $3.64 per diluted share) for the
year ended December 31, 2013. Net income decreased due principally to a non-cash lower of cost or market inventory valuation
charge of $244.0 million, net of tax, and a year-over-year decrease in refining margins. Refinery gross margins for the year ended
December 31, 2014 decreased to $13.98 per produced barrel from $15.99 for the year ended December 31, 2013.
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Sales and Other Revenues
Sales and other revenues decreased 2% from $20,160.6 million for the year ended December 31, 2013 to $19,764.3 million for
the year ended December 31, 2014 due to a decrease in year-over-year sales prices, partially offset by higher refined product sales
volumes. The average sales price we received per produced barrel sold decreased 5% from $115.60 for the year ended December 31,
2013 to $110.19 for the year ended December 31, 2014. Sales and other revenues for the years ended December 31, 2014 and
2013 include $57.3 million and $53.4 million, respectively, in HEP revenues attributable to pipeline and transportation services
provided to unaffiliated parties.
Cost of Products Sold
Cost of products sold decreased 1% from $17,392.2 million for the year ended December 31, 2013 to $17,228.4 million for the
year ended December 31, 2014, due principally to a decrease in year-over-year crude costs, partially offset by higher refined
product sales volumes. The average price we paid per barrel for crude oil and feedstocks and the transportation costs of moving
the finished products to the market place decreased 3% from $99.61 for the year ended December 31, 2013 to $96.21 for the year
ended December 31, 2014.
Lower of Cost or Market Inventory Valuation Adjustment
For the year ended December 31, 2014, we recorded a $397.5 million non-cash charge against income from operations to adjust
the value of our inventory to the lower of cost or market at December 31, 2014. This is attributable to a significant decrease in
market prices for crude oil and refined products at December 31, 2014. There was no comparable inventory valuation adjustment
for the year ended December 31, 2013.
Gross Refinery Margins
Gross refinery margin per produced barrel decreased 13% from $15.99 for the year ended December 31, 2013 to $13.98 for the
year ended December 31, 2014. This was due to a decrease in average per barrel sales prices for refined products sold, partially
offset by decreased crude oil and feedstock prices for the current year. Gross refinery margin per produced barrel does not include
the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization. See
“Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this
Form 10-K for a reconciliation to the income statement of prices of refined products sold and cost of products purchased.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 5% from $1,090.9 million for the year ended
December 31, 2013 to $1,144.9 million for the year ended December 31, 2014 due principally to higher year-over-year repair and
maintenance and fuel costs and increased environmental accruals, partially offset by $31.7 million in pension settlement costs
incurred during 2013. For the years ended December 31, 2014 and 2013, operating expenses include $103.4 million and $95.7
million, respectively, in costs attributable to HEP operations.
General and Administrative Expenses
General and administrative expenses decreased 10% from $128.0 million for the year ended December 31, 2013 to $114.6 million
for the year ended December 31, 2014 due principally to lower incentive compensation expense during the current year, and the
effects of $4.5 million in pension settlement costs incurred in 2013. For the years ended December 31, 2014 and 2013, general
and administrative expenses include $8.5 million and $9.4 million, respectively, in costs attributable to HEP operations.
Depreciation and Amortization Expenses
Depreciation and amortization increased 20% from $303.4 million for the year ended December 31, 2013 to $363.4 million for
the year ended December 31, 2014. The increase was due principally to depreciation and amortization attributable to capitalized
improvement projects, capitalized refinery turnaround costs and accelerated depreciation of assets no longer in operation. For the
years ended December 31, 2014 and 2013, depreciation and amortization expenses include $60.5 million and $64.7 million,
respectively, in costs attributable to HEP operations.
Interest Income
Interest income for the year ended December 31, 2014 was $4.4 million compared to $5.6 million for the year ended December 31,
2013. This decrease was due to lower investment levels in marketable debt securities during the current year period.
Interest Expense
Interest expense was $43.6 million for the year ended December 31, 2014 compared to $68.1 million for the year ended
December 31, 2013. This decrease was due to lower year-over-year debt levels. For the years ended December 31, 2014 and 2013,
interest expense included $36.1 million and $46.8 million, respectively, in interest costs attributable to HEP operations.
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Loss on Early Extinguishment of Debt
In March 2014, HEP redeemed its $150.0 million aggregate principal amount of 8.25% senior notes maturing March 2018 at a
redemption cost of $156.2 million, at which time it recognized a $7.7 million early extinguishment loss consisting of a $6.2 million
debt redemption premium and unamortized discount and financing costs of $1.5 million. In June 2013, we redeemed our $286.8
million aggregate principal amount of 9.875% senior notes maturing June 2017 at a redemption cost of $301.0 million, at which
time we recognized a $22.1 million early extinguishment loss consisting of a $14.2 million debt redemption premium and an
unamortized discount of $7.9 million.
Income Taxes
For the year ended December 31, 2014, we recorded income tax expense of $141.2 million compared to $391.6 million for the
year ended December 31, 2013. This decrease was due principally to lower pre-tax earnings during the year ended December 31,
2014 compared to 2013. Our effective tax rates, before consideration of earnings attributable to the noncontrolling interest, were
30.2% and 33.8% for the years ended December 31, 2014 and 2013, respectively.
Results of Operations – Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Summary
Net income attributable to HollyFrontier stockholders for the year ended December 31, 2013 was $735.8 million ($3.66 per basic
and $3.64 per diluted share), a $991.4 million decrease compared to $1,727.2 million ($8.41 per basic and $8.38 per diluted share)
for the year ended December 31, 2012. Net income decreased due principally to a year-over-year decrease in refining margins,
refinery downtime and pension settlement and debt extinguishment charges. Refinery gross margins for the year ended
December 31, 2013 decreased to $15.99 per produced barrel from $24.89 for the year ended December 31, 2012.
Sales and Other Revenues
Sales and other revenues increased slightly from $20,090.7 million for the year ended December 31, 2012 to $20,160.6 million
for the year ended December 31, 2013 due to higher refined product sales volumes, partially offset by a decrease in year-over-
year sales prices. The average sales price we received per produced barrel sold decreased 3% from $119.48 for the year ended
December 31, 2012 to $115.60 for the year ended December 31, 2013. Refined product sales volumes for 2013 reflected higher
volumes of purchased products, comprising 8% of total refined products sales compared to 3% for the year ended December 31,
2012 due to a decrease in refinery production and corresponding sales volumes of produced product as a result of planned turnaround
and maintenance projects at our refineries and other unplanned refinery outages during 2013. Sales and other revenues for the
years ended December 31, 2013 and 2012 include $53.4 million and $47.6 million, respectively, in HEP revenues attributable to
pipeline and transportation services provided to unaffiliated parties.
Cost of Products Sold
Cost of products sold increased 10% from $15,840.6 million for the year ended December 31, 2012 to $17,392.2 million for the
year ended December 31, 2013, due principally to higher refined product sales volumes and crude costs for 2013. The sales volume
increase is attributable to higher sales volumes of purchased products caused in part, by planned turnaround projects and unplanned
refinery outages during the year ended December 31, 2013. The average price we paid per barrel for crude oil and feedstocks and
the transportation costs of moving the finished products to the market place increased 5% from $94.59 for the year ended
December 31, 2012 to $99.61 for the year ended December 31, 2013.
Gross Refinery Margins
Gross refinery margin per produced barrel decreased 36% from $24.89 for the year ended December 31, 2012 to $15.99 for the
year ended December 31, 2013. This was due to a decrease in average per barrel sales prices for refined products sold combined
with increased crude oil and feedstock prices for 2013. Gross refinery margin per produced barrel does not include the effects of
depreciation and amortization.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 10% from $995.0 million for the year ended
December 31, 2012 to $1,090.9 million for the year ended December 31, 2013 due principally to higher repair and maintenance
and fuel costs during 2013 and $31.7 million in pension settlement costs, partially offset by a decrease in environmental remediation
costs. For the years ended December 31, 2013 and 2012, operating expenses include $95.7 million and $88.9 million, respectively,
in costs attributable to HEP operations.
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General and Administrative Expenses
General and administrative expenses were $128.0 million and $128.1 million for the years ended December 31, 2013 and 2012,
respectively. For the years ended December 31, 2013 and 2012, general and administrative expenses include $9.4 million and $5.3
million, respectively, in costs attributable to HEP operations.
Depreciation and Amortization Expenses
Depreciation and amortization increased 25% from $242.9 million for the year ended December 31, 2012 to $303.4 million for
the year ended December 31, 2013. The increase was due principally to depreciation and amortization attributable to capitalized
improvement projects and capitalized refinery turnaround costs. For the years ended December 31, 2013 and 2012, depreciation
and amortization expenses include $64.7 million and $57.8 million, respectively, in costs attributable to HEP operations.
Interest Income
Interest income for the year ended December 31, 2013 was $5.6 million compared to $4.8 million for the year ended December 31,
2012. This increase was due to interest received on increased investments in marketable debt securities during 2013.
Interest Expense
Interest expense was $68.1 million for the year ended December 31, 2013 compared to $104.2 million for the year ended
December 31, 2012. This decrease was due to lower year-over-year debt levels principally as a result of the redemption of our
$286.8 million 9.875% senior notes in June 2013 and $200 million 8.5% senior notes in September 2012. For the years ended
December 31, 2013 and 2012, interest expense included $46.8 million and $57.2 million, respectively, in interest costs attributable
to HEP operations.
Loss on Early Extinguishment of Debt
In June 2013, we redeemed our $286.8 million aggregate principal amount of 9.875% senior notes maturing June 2017 at a
redemption cost of $301.0 million, at which time we recognized a $22.1 million early extinguishment loss consisting of a $14.2
million debt redemption premium and an unamortized discount of $7.9 million.
Income Taxes
For the year ended December 31, 2013, we recorded income tax expense of $391.6 million compared to $1,028.0 million for the
year ended December 31, 2012. This decrease was due principally to lower pre-tax earnings during the year ended December 31,
2013 compared to 2012. Our effective tax rates, before consideration of earnings attributable to the noncontrolling interest, were
33.8% and 36.9% for the years ended December 31, 2013 and 2012, respectively.
LIQUIDITY AND CAPITAL RESOURCES
HollyFrontier Credit Agreement
On July 1, 2014, we entered into a new $1 billion senior unsecured revolving credit facility maturing in July 2019 (the “HollyFrontier
Credit Agreement”) and contemporaneously terminated our previous $1 billion senior secured revolving 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. Indebtedness under the HollyFrontier Credit Agreement is recourse to HollyFrontier and
guaranteed by certain of our wholly-owned subsidiaries. At December 31, 2014, we were in compliance with all covenants, had
no outstanding borrowings and had outstanding letters of credit totaling $4.7 million under the HollyFrontier Credit Agreement.
HEP Credit Agreement
HEP has a $650 million senior secured revolving credit facility that matures in November 2018 (the “HEP Credit Agreement”)
and is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general
partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit. At December 31, 2014, HEP was
in compliance with all of its covenants, had outstanding borrowings of $571.0 million and no outstanding letters of credit under
the HEP Credit Agreement.
See Note 11 "Debt" in the Notes to Consolidated Financial Statements for additional information on our debt instruments.
39
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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. In addition, components of our growth strategy include construction of new refinery processing units and 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.
As of December 31, 2014, our cash, cash equivalents and investments in marketable securities totaled $1.0 billion. 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.
In September 2014, our Board of Directors approved a $500 million share repurchase program authorizing us to repurchase common
stock in the open market or through privately negotiated transactions. As of December 31, 2014, we had remaining authorization
to repurchase up to $444.4 million under this stock repurchase program.
In February 2015, our Board of Directors approved a $500 million share repurchase program, which replaced all existing share
repurchase programs including approximately $425.0 million remaining under the existing $500 million share repurchase program.
The timing and amount of stock repurchases will depend on market conditions, corporate, regulatory and other relevant
considerations. This program may be discontinued at any time by our Board of Directors. 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.
Cash and cash equivalents decreased $372.1 million for the year ended December 31, 2014. Net cash used for investing and
financing activities of $292.3 million and $838.4 million, respectively, exceeded net cash provided by operating activities of $758.6
million. Working capital decreased by $690.4 million during the year ended December 31, 2014.
Cash Flows – Operating Activities
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net cash flows provided by operating activities were $758.6 million for the year ended December 31, 2014 compared to $869.2
million for the year ended December 31, 2013, a decrease of $110.6 million. Net income for the year ended December 31, 2014
was $326.3 million, a decrease of $441.5 million compared to $767.8 million for the year ended December 31, 2013. Non-cash
adjustments to net income consisting of lower of cost or market inventory valuation adjustment, depreciation and amortization,
loss of equity method investments, inclusive of distributions, write-offs of unamortized discounts on the early extinguishments of
debt, gain on sale of assets, deferred income taxes, equity-based compensation expense, fair value changes to derivative instruments
and loss on settlement of retirement benefit obligations, net of contributions totaled $580.0 million for the year ended December 31,
2014 compared to $430.4 million for the same period in 2013. Changes in working capital items decreased cash flows by $64.1
million for the year ended December 31, 2014 compared to $157.0 million for the year ended December 31, 2013. Additionally,
for the year ended December 31, 2014, turnaround expenditures decreased to $96.8 million from $193.9 million for the same
period of 2013.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net cash flows provided by operating activities were $869.2 million for the year ended December 31, 2013 compared to $1,662.7
million for the year ended December 31, 2012, a decrease of $793.5 million. Net income for the year ended December 31, 2013
was $767.8 million, a decrease of $992.2 million compared to $1,760.0 million for the year ended December 31, 2012. Non-cash
adjustments to net income consisting of depreciation and amortization, loss of equity method investments, inclusive of distributions,
the write-off of an unamortized discount on the early extinguishment of debt, gain on sale of assets, deferred income taxes, equity-
based compensation expense, fair value changes to derivative instruments and loss on settlement of retirement benefit obligations,
net of contributions totaled $430.4 million for the year ended December 31, 2013 compared to $410.7 million for the same period
in 2012. Changes in working capital items decreased cash flows by $157.0 million for the year ended December 31, 2013 compared
to $398.0 million for the year ended December 31, 2012. Additionally, for the year ended December 31, 2013, turnaround
expenditures increased to $193.9 million from $159.7 million for the same period of 2012.
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Cash Flows – Investing Activities and Planned Capital Expenditures
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net cash flows used for investing activities were $292.3 million for the year ended December 31, 2014 compared to $526.7 million
for the year ended December 31, 2013, a decrease of $234.4 million. Cash expenditures for properties, plants and equipment for
2014 increased to $564.8 million from $425.1 million for the same period in 2013. These include HEP capital expenditures of
$79.8 million and $51.9 million for the years ended December 31, 2014 and 2013, respectively. We received proceeds of $16.6
million and $7.8 million from the sale of assets during the years ended December 31, 2014 and 2013, respectively. For the year
ended December 31, 2013, we acquired trucking operations for $11.3 million. Also for the years ended December 31, 2014 and
2013, we invested $1,025.6 million and $935.5 million, respectively, in marketable securities and received proceeds of $1,276.4
million and $846.1 million, respectively, from the sale or maturity of marketable securities.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net cash flows used for investing activities were $526.7 million for the year ended December 31, 2013 compared to $711.1 million
for the year ended December 31, 2012, a decrease of $184.4 million. Cash expenditures for properties, plants and equipment for
2013 increased to $425.1 million from $335.3 million for the same period in 2012. These include HEP capital expenditures of
$51.9 million and $44.9 million for the years ended December 31, 2013 and 2012, respectively. In addition, for the year ended
December 31, 2013, we received proceeds of $7.8 million from the sale of property and equipment and acquired trucking operations
for $11.3 million. Also for the years ended December 31, 2013 and 2012, we invested $935.5 million and $671.6 million,
respectively, in marketable securities and received proceeds of $846.1 million and $297.7 million, respectively, from the sale or
maturity of marketable securities.
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. Our appropriated
capital budget for 2015 is $137.0 million including both sustaining capital and major capital projects. We expect to spend
approximately $600.0 million to $650.0 million in cash for capital projects appropriated in 2015 and prior years. In addition, we
expect to spend approximately $45.0 million on refinery turnarounds and $27.0 million on tank work. Refinery turnaround spending
is amortized over the useful life of the turnaround. Our new capital appropriation for 2015 and expected cash spending is as follows:
New Appropriation
Expected Cash Spending
Range
Location:
El Dorado
Tulsa
Navajo
Cheyenne
Woods Cross
Corporate and Other
Total
Type:
Sustaining
Reliability and Growth
Compliance and Safety
Total
(In millions)
$
145.0 – $
97.0 –
37.0 –
94.0 –
208.0 –
19.0 –
17.0
43.0
19.0
25.0
14.0
19.0
137.0
$
600.0 – $
93.0
13.0
31.0
$
113.0 – $
312.0 –
175.0 –
137.0
$
600.0 – $
157.0
105.0
40.0
102.0
225.0
21.0
650.0
123.0
338.0
189.0
650.0
$
$
$
$
41
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A significant portion of our current capital spending is associated with compliance-oriented capital improvements. This spending
is required due to existing consent decrees (for projects including FCC unit flue gas scrubbers and tail gas treatment units), federal
fuels regulations (particularly, MSAT2 which mandates a reduction in the benzene content of blended gasoline), refinery waste
water treatment improvements and other similar initiatives. 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.
El Dorado Refinery
Capital projects at the El Dorado Refinery include naphtha fractionation and an additional hydrogen plant. They also include the
installation of an FCC gasoline hydrotreater in order to meet Tier 3 gasoline requirements. Continuing project work is planned to
include upgrades to the crude unit desalter and a new tail gas treatment unit to reduce air emissions in compliance with the El
Dorado Refinery's existing EPA consent decree.
Tulsa Refineries
Capital spending for the Tulsa Refineries in 2015 includes previously approved capital appropriations for numerous infrastructure
upgrades, including a project to improve FCC yields. Spending on maintenance capital items and general improvements continues
at an elevated level at the Tulsa Refineries due to lower maintenance capital expenditures made prior to HollyFrontier's purchase
of the facilities.
Navajo Refinery
The Navajo Refinery capital spending in 2015 will be principally directed towards previously approved capital appropriations as
well as maintenance capital spending. Included among previously approved capital projects is a $25.0 million upgrade to the
Navajo Refinery's waste water treatment system.
Cheyenne Refinery
We are continuing with our previously approved plan to install a new hydrogen plant at the Cheyenne Refinery. The hydrogen
plant, along with a now-completed naphtha fractionation project, is anticipated to allow us to reduce benzene content in Cheyenne
gasoline production, while at the same time improving the refinery's overall liquid yields and light oils production. Previously
appropriated projects still underway at Cheyenne include wastewater treatment plant improvements, a flue gas scrubber for the
FCC unit to reduce air emissions and a redundant tail gas unit associated with the sulfur recovery process.
Woods Cross Refinery
Engineering and construction continue on our previously announced expansion project to increase planned processing capacity
to 45,000 BPSD, at a cost currently expected to range between $350.0 million and $400.0 million. On November 18, 2013, the
Utah Division of Air Quality issued a revised air quality permit (the “Approval Order”) authorizing the expansion. On December
18, 2013, two local environmental groups filed an administrative appeal challenging the issuance of the Approval Order and
seeking a stay of the Approval Order. On March 25, 2014, the administrative law judge (“ALJ”) issued a recommendation to the
Executive Director of the Utah Department of Environmental Quality (the “DEQ”) recommending that the motion to stay the
Approval Order be denied. On May 8, 2014, the Executive Director of the DEQ issued an order approving the ALJ's recommendation
and denying the motion to stay the Approval Order. The environmental groups did not file an appeal of this denial. The merits
briefing and oral argument were completed in September 2014. On October 1, 2014, Holly Refining & Marketing Company -
Woods Cross LLC, our wholly-owned subsidiary, and the State of Utah jointly submitted proposed findings of fact and conclusions
of law to the ALJ. The expansion is expected to be completed in the fourth quarter of 2015. This project work includes a new rail
loading rack for intermediates and finished products associated with refining waxy crude oil. The expansion, and expected
completion timeline and cost, are subject to the Woods Cross refinery successfully obtaining the Approval Order.
Regulatory compliance items or other presently existing or future environmental regulations / consent decrees could cause us to
make additional capital investments beyond those described above and incur additional operating costs to meet applicable
requirements, including those related to recently promulgated Federal Tier 3 gasoline standards.
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 of
several years, 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. The 2015 HEP capital budget is comprised of $10.0
million for maintenance capital expenditures and $73.0 million for expansion capital expenditures.
42
Table of Content
Cash Flows – Financing Activities
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net cash flows used for financing activities were $838.4 million for the year ended December 31, 2014 compared to $1,160.0
million for the year ended December 31, 2013, a decrease of $321.6 million. During the year ended December 31, 2014, we
purchased $158.8 million in common stock, paid $647.2 million in dividends and recognized $2.0 million excess tax benefits on
our equity-based compensation. Also during this period, HEP received $642.3 million and repaid $434.3 million under the HEP
Credit Agreement, paid $156.2 million upon the redemption of HEP's 8.25% senior notes and paid distributions of $78.2 million
to noncontrolling interests. During the year ended December 31, 2013, we received $73.4 million from the sale of HEP common
units, purchased $225.0 million in common stock, paid $645.9 million in dividends, paid $301.0 million upon the redemption of
our 9.875% senior notes and recognized $2.6 million excess tax benefits on our equity-based compensation. Also during this
period, HEP received $310.6 million and repaid $368.6 million under the HEP Credit Agreement, paid distributions of $71.2
million to noncontrolling interests and received proceeds of $73.4 million upon its March 2013 common unit offering.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net cash flows used for financing activities were $1,160.0 million for the year ended December 31, 2013 compared to $772.8
million for the year ended December 31, 2012, an increase of $387.2 million. During the year ended December 31, 2013, we
received $73.4 million from the sale of HEP common units, purchased $225.0 million in common stock, paid $645.9 million in
dividends, paid $301.0 million upon the redemption of our 9.875% senior notes and recognized $2.6 million excess tax benefits
on our equity-based compensation. Also during this period, HEP received $310.6 million and repaid $368.6 million under the HEP
Credit Agreement, paid distributions of $71.2 million to noncontrolling interests and received proceeds of $73.4 million upon its
March 2013 common unit offering. During the year ended December 31, 2012, we purchased $209.6 million in common stock,
paid $658.1 million in dividends, paid $205.0 million in principal on our 9.875% senior notes and recognized $23.4 million excess
tax benefits on our equity-based compensation. Also during this period, HEP received $294.8 million in net proceeds upon the
issuance of the HEP 6.5% senior notes, paid $185.0 million in principal on the HEP 6.25% senior notes, received $587.0 million
and repaid $366.0 million under the HEP Credit Agreement and paid distributions of $58.8 million to noncontrolling interests.
Additionally, UNEV joint venture partner contributions of $6.0 million were received during the year ended December 31, 2012.
Contractual Obligations and Commitments
The following table presents our long-term contractual obligations as of December 31, 2014 in total and by period due beginning
in 2015. The table below does not include our contractual obligations to HEP under our long-term transportation agreements as
these related-party transactions are eliminated in the Consolidated Financial Statements. A description of these agreements is
provided under “Holly Energy Partners, L.P.” under Items 1 and 2, “Business and Properties.” Also, the table below does not
reflect renewal options on our operating leases that are likely to be exercised.
Contractual Obligations and Commitments
Total
Payments Due by Period
Less than 1
Year
1-3 Years
(In thousands)
3-5 Years
Over
5 Years
HollyFrontier Corporation (1)
Long-term debt - principal (2)
Long-term debt - interest (3)
Supply agreements (4)
Transportation and storage agreements (5)
Other long-term obligations
Operating leases
Holly Energy Partners
Long-term debt - principal (6)
Long-term debt - interest (7)
Pipeline operating and right of way leases
Other agreements
Total
$
$
$
$
183,167
64,065
4,049,303
1,186,720
25,110
87,827
5,596,192
871,000
156,795
17,972
13,823
1,059,590
6,655,782
43
1,880
14,233
332,626
157,931
12,932
22,573
542,175
$
4,514
27,711
995,790
248,432
12,153
36,801
1,325,401
$
155,745
15,307
837,367
194,086
25
20,234
1,222,764
$
21,028
6,814
1,883,520
586,271
—
8,219
2,505,852
—
31,886
6,928
1,785
40,599
582,774
—
63,773
10,462
3,388
77,623
$ 1,403,024
571,000
51,386
316
2,356
625,058
$ 1,847,822
300,000
9,750
266
6,294
316,310
$ 2,822,162
Table of Content
(1) Amounts shown do not include commitments to deliver barrels of crude oil held for other parties at our refineries. We periodically hold crude
oil owned by third parties in the storage tanks at our refineries, which may be run through production. We will be obligated to deliver these stored
barrels of crude oil upon the other party's request.
(2) Our long-term debt consists of the $150.0 million principal balance on our 6.875% senior notes and a long-term financing obligation having a
principal balance of $33.2 million at December 31, 2014.
Interest payments consist of interest on our 6.875% senior notes and on our long-term financing obligation.
(3)
(4) We have long-term supply agreements to secure certain quantities of crude oil, feedstock and other resources used in the production process at
market prices. We have estimated future payments under these fixed-quantity agreements expiring between 2015 and 2025 using current market
rates. Additionally, commitments include purchases of 20,000 BPD of crude oil under a 10-year agreement to supply our Woods Cross Refinery that
is expected to commence upon completion of our expansion project in the fourth quarter of 2015.
(5) Consists of contractual obligations under agreements with third parties for the transportation of crude oil, natural gas and feedstocks to our refineries
and for terminal and storage services under contracts expiring between 2015 and 2033.
(6) HEP's long-term debt consists of the $300.0 million principal balance on the 6.5% HEP senior notes and $571.0 million of outstanding borrowings
(7)
under the HEP Credit Agreement. The HEP Credit Agreement expires in 2018.
Interest payments consist of interest on the 6.5% HEP senior notes and interest on long-term debt under the HEP Credit Agreement. Interest on the
HEP Credit Agreement debt is based on the weighted average rate of 2.15% at December 31, 2014.
CRITICAL ACCOUNTING POLICIES
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. We consider the following policies to be the
most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations,
financial condition and cash flows. For additional information, see Note 1 “Description of Business and Summary of Significant
Accounting Policies” in the Notes to Consolidated Financial Statements.
Variable Interest Entities
HEP is a VIE as defined under GAAP. A VIE is a legal entity whose equity owners do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial support or, as a group, the equity holders lack the power,
through voting rights, to direct the activities that most significantly impact the entity's financial performance. As the general partner
of HEP, we have the sole ability to direct the activities of HEP that most significantly impact HEP's financial performance, and
therefore we consolidate HEP.
Derivative Instruments
We have commodity price swap, interest rate swap and NYMEX futures contracts that are measured at fair value and recognized
as other assets or liabilities in our consolidated balance sheets. Changes in fair value to derivative instruments are recognized in
earnings unless specific hedge accounting criteria is met. Derivatives meeting certain hedge accounting criteria are designated as
“accounting hedges” and changes in fair value are recorded directly to other comprehensive income. These gains or losses are
reclassified to earnings as the hedging instruments mature. Also, on a quarterly basis, hedge ineffectiveness on our accounting
hedges is measured by comparing the change in fair value of the derivative contracts against the expected future cash inflows/
outflows on the respective transaction being hedged. Any hedge ineffectiveness is recognized in earnings. See Note 12 “Derivative
Instruments and Hedging Activities” in the Notes to Consolidated Financial Statements.
Inventory Valuation
Our crude oil and refined product inventories are stated at the lower of cost or market. Cost is determined using the LIFO inventory
valuation methodology and market is determined using current replacement costs. Under the LIFO method, the most recently
incurred costs are charged to cost of sales and inventories are valued at the earliest acquisition costs. 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 when
inventory volumes decline and result in charging cost of sales with LIFO inventory costs generated in prior periods. At December 31,
2014, market values had fallen below historical LIFO inventory costs and, as a result, we recognized a non-cash pretax loss of
$397.5 million. Such losses are subject to reversal in subsequent periods, not to exceed historical LIFO costs, if prices recover.
Deferred Maintenance Costs
Our refinery units require regular major maintenance and repairs that are commonly referred to as “turnarounds.” Catalysts used
in certain refinery processes also require routine “change-outs.” The required frequency of the maintenance varies by unit and by
catalyst, but generally is every two to five years. In order to minimize downtime during turnarounds, we often utilize contract
labor as well as our maintenance personnel on a continuous 24 hour basis. Whenever possible, turnarounds are scheduled so that
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some units continue to operate while others are down for maintenance. We record the costs of turnarounds as deferred charges
and amortize the deferred costs over the expected periods of benefit.
Long-lived Assets
We calculate depreciation and amortization based on estimated useful lives of our assets. When assets are placed into service, we
make estimates with respect to their useful lives that we believe are reasonable. However, factors such as competition, regulation
or environmental matters could cause us to change our estimates, thus impacting the future calculation of depreciation and
amortization. We evaluate long-lived assets for potential 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, if any, to be recorded is equal to the amount by which a long-lived asset's carrying value exceeds its fair value,
which is generally determined under an income approach using forecasted cash flows associated with the underlying asset. Estimates
of future cash flows require subjective assumptions with regard to future operating results and actual results could differ from
those estimates. No impairments of long-lived assets were recorded during the years ended December 31, 2014, 2013 and 2012.
Goodwill
We have goodwill that primarily arose from our merger with Frontier Oil Corporation on July 1, 2011. 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 events or circumstances indicate the possibility of impairment.
We performed our annual goodwill impairment testing as of July 1, 2014, which entailed an assessment of our reporting unit fair
values relative to their respective carrying values that were derived using a combination of both income and market approaches.
Our income approach utilizes the discounted future expected cash flows and has an 80% weighting. Our market approach, which
includes both the guideline public company and guideline transaction methods, each having a 10% weighting, utilizes pricing
multiples derived from historical market transactions of similar assets. Our discounted cash flows reflect estimates of future cash
flows based on both historical and forward crack-spreads, forecasted production levels, operating costs and capital expenditures.
Our goodwill is allocated by reporting unit as follows: El Dorado, $1.7 billion; Cheyenne, $0.3 billion; and HEP, $0.3 billion.
Based on our testing as of July 1, 2014, the fair value of our Cheyenne reporting unit exceeded its carrying cost by slightly less
than 20%, and the fair value of our El Dorado and HEP reporting units exceeded their respective carrying values by a much larger
percentage. There were no impairments of goodwill during the years December 31, 2014, 2013 and 2012.
Historically, the refining industry has experienced significant fluctuations in operating results over an extended business cycle
including changes in prices of crude oil and refined products, changes in operating costs including natural gas and higher costs of
complying with government regulations. It is reasonably possible that at some future downturn in refining operations that the
goodwill related to our Cheyenne Refinery will be determined to be impaired. A prolonged operating margin decrease of 8% to
10% could potentially result in impairment to goodwill allocated to our Cheyenne reporting unit and such impairment charges
could be significant.
Environmental Costs
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. 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 clean-up 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.
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.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS2 regulations reflecting the increased
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 RINs, in lieu of such
blending. The EPA has not yet finalized the 2014 percentage standards under its RFS2 program. The estimated quantity of renewable
fuels or RINs that we are required to purchase and that have been accrued for as of and for the year ended December 31, 2014 are
based on quantities proposed by the EPA in November 2013.
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New Accounting Pronouncements
Revenue Recognition
In May 2014, an accounting standard update (ASU 2014-09, “Revenue from Contracts with Customers”) was issued requiring
revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected
consideration for these goods or services. This standard is effective January 1, 2017, and we are evaluating the impact of this
standard.
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
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 and futures contracts to mitigate price exposure with respect to:
•
•
•
•
•
our inventory positions;
natural gas purchases;
costs of crude oil and related grade differentials;
prices of refined products; and
our refining margins.
As of December 31, 2014, we have the following notional contract volumes related to all outstanding derivative contracts used
to mitigate commodity price risk:
Contract Description
Natural gas price swap - long
Natural gas price swap - short
WTI price swap - long
Ultra-low sulfur diesel price swap - short
4,380,000
4,380,000
WTI basis spread price swap - long
NYMEX futures (WTI) - short
4,015,000
4,015,000
2,058,000
2,058,000
Notional Contract Volumes by Year of
Maturity
Total
Outstanding
Notional
2015
2016
2017
Unit of
Measure
57,600,000
19,200,000
19,200,000
19,200,000 MMBTU
28,800,000
9,600,000
9,600,000
9,600,000 MMBTU
5,475,000
5,475,000
—
—
—
—
— Barrels
— Barrels
— Barrels
— Barrels
The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity positions hedged
under our derivative contracts:
Commodity-based Derivative Contracts
2014
2013
Hypothetical 10% change in underlying commodity prices
$
(In thousands)
11,947
$
69,228
Estimated Change in Fair Value at December 31,
Interest Rate Risk Management
HEP uses interest rate swaps to manage its exposure to interest rate risk.
As of December 31, 2014, HEP had three interest rate swap contracts that hedge its exposure to the cash flow risk caused by the
effects of LIBOR changes on $305.0 million in credit agreement advances. The first interest rate swap effectively converts $155.0
million of LIBOR based debt to fixed-rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of
December 31, 2014, which equaled an effective interest rate of 2.99%. This swap matures in February 2016. HEP has two additional
interest rate swaps with identical terms which effectively convert $150.0 million of LIBOR based debt to fixed-rate debt having
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an interest rate of 0.74% plus an applicable margin of 2.00% as of December 31, 2014, which equaled an effective interest rate
of 2.74%. Both of these swap contracts mature in July 2017. These swap contracts have been designated as cash flow hedges.
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 these debt instruments as of December 31, 2014 is presented below:
HollyFrontier Senior Notes
HEP Senior Notes
Outstanding
Principal
Estimated
Fair Value
(In thousands)
Estimated
Change in
Fair Value
$
$
150,000
300,000
$
$
155,250
291,000
$
$
3,100
8,495
For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At December 31,
2014, outstanding borrowings under the HEP Credit Agreement were $571.0 million. By means of its cash flow hedges, HEP has
effectively converted the variable rate on $305.0 million of outstanding principal to a weighted average fixed rate of 2.87%. For
the remaining unhedged Credit Agreement borrowings of $266.0 million, a hypothetical 10% change in interest rates applicable
to the HEP Credit Agreement would not materially affect cash flows.
At December 31, 2014, our marketable securities included investments in investment grade, highly-liquid investments with
maturities generally not greater than one year from the date of purchase and hence the interest rate market risk implicit in these
investments is low. Due to the short-term nature of our cash and cash equivalents, a hypothetical 10% increase in interest rates
would not have a material effect on the fair market value of our portfolio. Since we have the ability to liquidate this portfolio, we
do not expect our operating results or cash flows to be materially affected by the effect of a sudden change in market interest rates
on our investment portfolio.
Our operations are subject to hazards of petroleum processing operations, including fire, explosion and weather-related perils. We
maintain various insurance coverages, including business interruption insurance, subject to certain deductibles. 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.
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.
Item 7A. 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 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
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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.
Net income attributable to HollyFrontier stockholders
Add income tax provision
Add interest expense (1)
Subtract interest income
Add depreciation and amortization
EBITDA
Years Ended December 31,
2013
2012
2014
(In thousands)
$
$
281,292
141,172
51,323
(4,430)
363,381
832,738
$
$
735,842
391,576
90,159
(5,556)
303,446
1,515,467
$
$
1,727,172
1,027,962
104,186
(4,786)
242,868
3,097,402
(1) Includes loss on early extinguishment of debt of $7.7 million and $22.1 million for the years ended December 31, 2014 and 2013, respectively.
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 barrel is the difference between average net sales price and average cost of products per barrel of
produced refined products. Net operating margin per barrel is the difference between refinery gross margin and refinery operating
expenses per barrel of produced refined products. These two margins do not include the non-cash effects of lower of cost or market
inventory valuation adjustments or depreciation and amortization. Each of these component performance measures can be
reconciled directly to our consolidated statements of income.
Other companies in our industry may not calculate these performance measures in the same manner.
Refinery Gross and Net Operating Margins
Below are reconciliations to our consolidated statements of income for (i) net sales, cost of products (exclusive of lower of cost
or market inventory valuation adjustment) and operating expenses, in each case averaged per produced barrel sold, and (ii) net
operating margin and refinery gross margin. Due to rounding of reported numbers, some amounts may not calculate exactly.
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Reconciliation of produced product sales to total sales and other revenues
Consolidated
Average sales price per produced barrel sold
Times sales of produced refined products (BPD)
Times number of days in period
Produced refined product sales
Total produced refined product sales
Add refined product sales from purchased products and rounding (1)
Total refined product sales
Add direct sales of excess crude oil (2)
Add other refining segment revenue (3)
Total refining segment revenue
Add HEP segment sales and other revenues
Add corporate and other revenues
Subtract consolidations and eliminations
Sales and other revenues
Years Ended December 31,
2013
2012
2014
(Dollars in thousands, except per barrel amounts)
$
$
$
$
110.19
420,990
365
16,931,944
16,931,944
1,566,925
18,498,869
1,060,354
147,002
19,706,225
332,626
2,103
(276,627)
19,764,327
$
$
$
$
115.60
410,730
365
17,330,342
17,330,342
1,581,395
18,911,737
1,052,915
140,791
20,105,443
307,053
1,314
(253,250)
20,160,560
$
$
$
$
119.48
431,060
366
18,850,116
18,850,116
572,206
19,422,322
505,971
114,662
20,042,955
288,501
1,048
(241,780)
20,090,724
Reconciliation of average cost of products per produced barrel sold to cost of products sold (exclusive of lower of cost or
market inventory valuation adjustment)
Consolidated
Average cost of products per produced barrel sold
Times sales of produced refined products (BPD)
Times number of days in period
Cost of products for produced products sold
Total cost of products for produced products sold
Add refined product costs from purchased products and rounding (1)
Total cost of refined products sold
Add crude oil cost of direct sales of excess crude oil (2)
Add other refining segment cost of products sold (4)
Total refining segment cost of products sold
Subtract consolidations and eliminations
Costs of products sold (exclusive of lower of cost or market inventory
valuation adjustment and depreciation and amortization)
Years Ended December 31,
2013
2012
2014
(Dollars in thousands, except per barrel amounts)
$
$
$
$
$
$
96.21
420,990
365
14,783,758
14,783,758
1,572,944
16,356,702
1,030,235
113,664
17,500,601
(272,216)
$
$
$
99.61
410,730
365
14,933,178
14,933,178
1,553,476
16,486,654
1,048,224
106,241
17,641,119
(248,892)
94.59
431,060
366
14,923,271
14,923,271
572,755
15,496,026
492,790
90,132
16,078,948
(238,305)
$
17,228,385
$
17,392,227
$
15,840,643
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Reconciliation of average refinery operating expenses per produced barrel sold to total operating expenses
Consolidated
Average refinery operating expenses per produced barrel sold
Times sales of produced refined products (BPD)
Times number of days in period
Refinery operating expenses for produced products sold
Total refinery operating expenses for produced products sold
Add refining segment pension settlement costs
Add other refining segment operating expenses and rounding (5)
Total refining segment operating expenses
Add HEP segment operating expenses
Add corporate and other costs
Subtract consolidations and eliminations
Operating expenses (exclusive of depreciation and amortization)
Years Ended December 31,
2013
2012
2014
(Dollars in thousands, except per barrel amounts)
$
$
$
$
6.38
420,990
365
980,359
980,359
—
42,810
1,023,169
104,801
18,402
(1,432)
1,144,940
$
$
$
$
6.15
410,730
365
921,986
921,986
31,657
39,812
993,455
97,081
1,739
(1,425)
1,090,850
$
$
$
$
5.49
431,060
366
866,146
866,146
—
37,231
903,377
89,395
2,721
(527)
994,966
Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues
Consolidated
Net operating margin per barrel
Add average refinery operating expenses per produced barrel
Refinery gross margin per barrel
Add average cost of products per produced barrel sold
Average sales price per produced barrel sold
Times sales of produced refined products sold (BPD)
Times number of days in period
Produced refined product sales
Total produced refined product sales
Add refined product sales from purchased products and rounding (1)
Total refined product sales
Add direct sales of excess crude oil (2)
Add other refining segment revenue (3)
Total refining segment revenue
Add HEP segment sales and other revenues
Add corporate and other revenues
Subtract consolidations and eliminations
Sales and other revenues
Years Ended December 31,
2013
2012
2014
(Dollars in thousands, except per barrel amounts)
$
$
$
$
$
7.60
6.38
13.98
96.21
110.19
420,990
365
16,931,944
16,931,944
1,566,925
18,498,869
1,060,354
147,002
19,706,225
332,626
2,103
(276,627)
19,764,327
$
$
$
$
$
9.84
6.15
15.99
99.61
115.60
410,730
365
17,330,342
17,330,342
1,581,395
18,911,737
1,052,915
140,791
20,105,443
307,053
1,314
(253,250)
20,160,560
$
$
$
$
$
19.40
5.49
24.89
94.59
119.48
431,060
366
18,850,116
18,850,116
572,206
19,422,322
505,971
114,662
20,042,955
288,501
1,048
(241,780)
20,090,724
(1) We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery
commitments.
(2) We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market
prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding
acquisition cost as inventory and then upon sale as cost of products sold. Additionally, at times we enter into buy/sell exchanges of
crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at cost.
(3) Other refining segment revenue includes the incremental revenues associated with NK Asphalt and miscellaneous revenue.
(4) Other refining segment cost of products sold includes the incremental cost of products for NK Asphalt and miscellaneous costs.
(5) Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses
of NK Asphalt.
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Item 8. Financial Statements and Supplementary Data
MANAGEMENT'S REPORT ON ITS ASSESSMENT OF THE COMPANY'S INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of HollyFrontier Corporation (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the Company's internal control over financial reporting as of December 31, 2014 using the criteria for
effective control over financial reporting established in “Internal Control - Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, management concludes
that, as of December 31, 2014, the Company maintained effective internal control over financial reporting.
The Company's independent registered public accounting firm has issued an attestation report on the effectiveness of the Company's
internal control over financial reporting as of December 31, 2014. That report appears on page 53.
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
and Stockholders of HollyFrontier Corporation
We have audited HollyFrontier Corporation's internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), (the “COSO criteria”). HollyFrontier Corporation's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management's Report on its Assessment of the Company's Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, HollyFrontier Corporation maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2014, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of HollyFrontier Corporation as of December 31, 2014 and 2013, and the related consolidated
statements of income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31,
2014 and our report dated February 25, 2015 expressed an unqualified opinion thereon.
/s/
ERNST & YOUNG LLP
Dallas, Texas
February 25, 2015
52
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Income for the years ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Equity for the years ended
December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Page
Reference
54
55
56
57
58
59
60
53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
and Stockholders of HollyFrontier Corporation
We have audited the accompanying consolidated balance sheets of HollyFrontier Corporation (the “Company”) as of December 31,
2014 and 2013, and the related consolidated statements of income, comprehensive income, cash flows and equity for each of the
three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of HollyFrontier Corporation at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
HollyFrontier Corporation's internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 25, 2015 expressed an unqualified opinion thereon.
Dallas, Texas
February 25, 2015
/s/
ERNST & YOUNG LLP
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ASSETS
Current assets:
HOLLYFRONTIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Cash and cash equivalents (HEP: $2,830 and $6,352, respectively)
Marketable securities
Total cash, cash equivalents and short-term marketable securities
Accounts receivable: Product and transportation (HEP: $40,129 and $34,736, respectively)
Crude oil resales
Inventories: Crude oil and refined products
Materials, supplies and other (HEP: $1,940 and $1,591, respectively)
Income taxes receivable
Prepayments and other (HEP: $2,443 and $2,283, respectively)
Total current assets
Properties, plants and equipment, at cost (HEP: $1,269,161 and $1,199,594, respectively)
Less accumulated depreciation (HEP: $(244,850) and $(194,619), respectively)
Other assets: Turnaround costs
Goodwill (HEP: $288,991 and $288,991, respectively)
Intangibles and other (HEP: $73,928 and $74,979, respectively)
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $17,881 and $22,898, respectively)
Income taxes payable
Accrued liabilities (HEP: $26,321 and $28,668, respectively)
Deferred income tax liabilities
Total current liabilities
Long-term debt (HEP: $867,579 and $807,630, respectively)
Deferred income taxes (HEP: $367 and $336, respectively)
Other long-term liabilities (HEP: $47,170 and $35,918, respectively)
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; 255,962,866 shares issued as of
December 31, 2014 and December 31, 2013
Additional capital
Retained earnings
Accumulated other comprehensive income
Common stock held in treasury, at cost – 59,876,776 and 57,132,515 shares as of
December 31, 2014 and December 31, 2013, respectively
Total HollyFrontier stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
December 31,
2014
2013
$
$
$
567,985
474,110
1,042,095
507,040
82,865
589,905
920,104
115,027
1,035,131
11,719
104,148
2,782,998
4,852,441
(1,181,902)
3,670,539
257,153
2,331,781
188,169
2,777,103
9,230,640
1,108,138
19,642
106,214
17,409
1,251,403
1,054,890
646,870
176,758
940,103
725,160
1,665,263
665,098
43,704
708,802
1,241,448
112,799
1,354,247
109,376
58,756
3,896,444
4,343,857
(949,261)
3,394,596
258,436
2,331,922
175,341
2,765,699
10,056,739
1,325,376
—
125,115
223,999
1,674,490
997,519
616,842
158,490
—
—
2,560
4,003,628
2,778,577
27,894
(1,289,075)
5,523,584
577,135
6,100,719
9,230,640
$
2,560
3,990,630
3,144,480
822
(1,138,872)
5,999,620
609,778
6,609,398
10,056,739
$
$
$
$
Parenthetical amounts represent asset and liability balances attributable to Holly Energy Partners, L.P. (“HEP”) as of December 31, 2014 and December 31,
2013. HEP is a consolidated variable interest entity.
See accompanying notes.
55
Table of Content
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended December 31,
2013
2012
2014
$
19,764,327
$
20,160,560
$
20,090,724
17,228,385
17,392,227
15,840,643
397,478
17,625,863
1,144,940
114,609
363,381
19,248,793
515,534
(2,007)
4,430
(43,646)
(7,677)
866
(48,034)
467,500
334,834
(193,662)
141,172
326,328
45,036
281,292
1.42
1.42
197,243
197,428
$
$
$
—
17,392,227
1,090,850
127,963
303,446
18,914,486
1,246,074
(2,072)
5,556
(68,050)
(22,109)
—
(86,675)
1,159,399
277,172
114,404
391,576
767,823
31,981
735,842
3.66
3.64
200,419
201,234
$
$
$
—
15,840,643
994,966
128,101
242,868
17,206,578
2,884,146
2,923
4,786
(104,186)
—
326
(96,151)
2,787,995
932,554
95,408
1,027,962
1,760,033
32,861
1,727,172
8.41
8.38
204,379
205,274
Sales and other revenues
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)
Lower of cost or market inventory valuation adjustment
Operating expenses (exclusive of depreciation and amortization)
General and administrative expenses (exclusive of depreciation and
amortization)
Depreciation and amortization
Total operating costs and expenses
Income from operations
Other income (expense):
Earnings (loss) of equity method investments
Interest income
Interest expense
Loss on early extinguishment of debt
Gain on sale of assets
Income before income taxes
Income tax provision:
Current
Deferred
Net income
Less net income attributable to noncontrolling interest
Net income attributable to HollyFrontier stockholders
Earnings per share attributable to HollyFrontier stockholders:
Basic
Diluted
Average number of common shares outstanding:
$
$
$
Basic
Diluted
See accompanying notes.
56
Table of Content
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Securities available-for-sale:
Unrealized gain (loss) on marketable securities
Reclassification adjustments to net income on sale or maturity of marketable
securities
Net unrealized gain (loss) on marketable securities
Hedging instruments:
Change in fair value of cash flow hedging instruments
Reclassification adjustments to net income on settlement of cash flow hedging
instruments
Amortization of unrealized loss attributable to discontinued cash flow hedges
Net unrealized gain (loss) on hedging instruments
Pension and other post-retirement benefit obligations:
Loss on pension plan
Pension plan loss reclassified to net income
Gain (loss) on post-retirement healthcare plan
Post-retirement healthcare plan gain reclassified to net income
Gain (loss) on retirement restoration plan
Retirement restoration plan loss reclassified to net income
Net change in pension and other post-retirement benefit obligations
Other comprehensive income (loss) before income taxes
Income tax expense (benefit)
Other comprehensive income (loss)
Total comprehensive income
Less noncontrolling interest in comprehensive income
Years Ended December 31,
2014
2013
2012
$
326,328
$
767,823
$
1,760,033
(153)
(4)
(157)
73
(39)
34
149
(385)
(236)
105,414
(7,614)
(252,817)
(50,682)
1,080
55,812
—
—
(7,434)
(4,296)
(615)
920
(11,425)
44,230
17,098
27,132
353,460
45,096
(14,318)
1,749
(20,183)
—
37,589
3,301
(4,040)
632
111
37,593
17,444
5,882
11,562
779,385
34,296
56,683
5,095
(191,039)
(3,485)
1,956
55,402
(1,952)
(593)
63
51,391
(139,884)
(54,950)
(84,934)
1,675,099
34,225
Comprehensive income attributable to HollyFrontier stockholders
$
308,364
$
745,089
$
1,640,874
See accompanying notes.
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HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2013
2012
2014
$
326,328
$
767,823
$
1,760,033
397,478
363,381
5,257
1,489
(866)
(193,662)
29,598
(22,668)
—
108,876
(78,842)
94,237
1,486
(217,541)
19,642
8,047
(96,803)
13,159
758,596
(485,002)
(79,819)
16,633
—
(1,025,602)
1,276,447
5,021
(292,322)
642,300
(434,300)
—
—
(156,188)
—
—
(158,847)
(647,197)
(78,202)
2,040
(7,998)
(838,392)
(372,118)
940,103
567,985
55,716
237,907
—
303,446
5,198
7,948
—
114,404
35,775
(53,185)
16,771
(68,832)
(15,929)
(34,419)
1,377
2,068
—
(41,229)
(193,920)
21,878
869,174
(373,271)
(51,856)
7,802
(11,301)
(935,512)
846,143
(8,740)
(526,735)
310,600
(368,600)
—
(300,973)
—
73,444
73,444
(225,023)
(645,920)
(71,201)
2,562
(8,368)
(1,160,035)
(817,596)
1,757,699
940,103
76,647
372,846
$
$
$
$
$
$
—
242,868
701
—
(326)
95,408
39,203
52,335
(19,524)
71,627
(205,013)
19,056
(9,366)
(194,051)
(40,366)
(39,851)
(159,707)
49,660
1,662,687
(290,334)
(44,929)
—
—
(671,552)
297,711
(2,000)
(711,104)
587,000
(366,000)
294,750
(205,000)
(185,000)
—
—
(209,600)
(658,085)
(58,788)
23,361
4,574
(772,788)
178,795
1,578,904
1,757,699
101,709
983,618
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Lower of cost or market inventory adjustment
Depreciation and amortization
Net loss of equity method investments, inclusive of distributions
Loss on early extinguishment of debt attributable to unamortized discount
Gain on sale of assets
Deferred income taxes
Equity-based compensation expense
Change in fair value – derivative instruments
Loss on settlement of retirement benefit obligations, net of contributions
(Increase) decrease in current assets:
Accounts receivable
Inventories
Income taxes receivable
Prepayments and other
Increase (decrease) in current liabilities:
Accounts payable
Income taxes payable
Accrued liabilities
Turnaround expenditures
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Additions to properties, plants and equipment
Additions to properties, plants and equipment – HEP
Proceeds from sale of assets
Acquisition of trucking operations
Purchases of marketable securities
Sales and maturities of marketable securities
Other, net
Net cash used for investing activities
Cash flows from financing activities:
Borrowings under credit agreement – HEP
Repayments under credit agreement – HEP
Net proceeds from issuance of senior notes – HEP
Redemption of senior notes
Redemption of senior notes - HEP
Proceeds from sale of HEP common units
Proceeds from common unit offerings – HEP
Purchase of treasury stock
Dividends
Distributions to noncontrolling interest
Excess tax benefit from equity-based compensation
Other, net
Net cash used for financing activities
Cash and cash equivalents:
Increase (decrease) for the period
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
Income taxes
See accompanying notes.
$
$
$
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HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
HollyFrontier Stockholders' Equity
Balance at December 31, 2011
$
2,563
$ 3,859,367
$1,964,656
$
77,873
$ (700,449) $
631,890
$
5,835,900
Common
Stock
Additional
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Non-
controlling
Interest
Total Equity
Net income
Dividends
Distributions to noncontrolling interest
holders
Other comprehensive income, net of tax
Allocated equity on HEP common unit
issuances, net of tax
Contribution from joint venture partner
Issuance of common stock under incentive
compensation plans, net of forfeitures
Equity-based compensation, inclusive of
tax benefit
Purchase of treasury stock
Net proceeds received under structured
share repurchase arrangement
Purchase of HEP units for restricted grants
Balance at December 31, 2012
Net income
Dividends
Distributions to noncontrolling interest
holders
Other comprehensive income, net of tax
Allocated equity on HEP common unit
issuances, net of tax
Issuance of common stock under incentive
compensation plans, net of forfeitures
Equity-based compensation, inclusive of
tax benefit
Purchase of treasury stock
Purchase of HEP units for restricted grants
Other
Balance at December 31, 2013
Net income
Dividends
Distributions to noncontrolling interest
holders
Other comprehensive income, net of tax
Issuance of common stock under incentive
compensation plans, net of forfeitures
Equity-based compensation, inclusive of
tax benefit
Purchase of treasury stock
Purchase of HEP units for restricted grants
Other
Balance at December 31, 2014
See accompanying notes.
— 1,727,172
—
—
—
—
—
—
—
—
—
11,469
—
(3)
(27,809)
—
—
—
—
59,706
—
8,620
—
(637,059)
—
—
—
—
—
—
—
—
—
—
—
—
(86,298)
—
—
—
—
—
—
—
—
—
—
—
—
—
27,812
—
(234,666)
—
—
32,861
—
(58,788)
1,364
(18,768)
3,000
—
2,858
—
—
(4,713)
1,760,033
(637,059)
(58,788)
(84,934)
(7,299)
3,000
—
62,564
(234,666)
8,620
(4,713)
$
2,560
$ 3,911,353
$3,054,769
$
(8,425) $ (907,303) $
589,704
$
6,642,658
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,184
(9,669)
34,762
—
—
—
735,842
(646,131)
—
—
—
—
—
—
—
—
—
—
—
9,247
—
—
—
—
—
—
—
—
—
—
—
9,669
—
(241,238)
—
—
31,981
—
(71,201)
2,315
767,823
(646,131)
(71,201)
11,562
58,702
112,886
—
—
3,575
—
(5,313)
15
38,337
(241,238)
(5,313)
15
$
2,560
$ 3,990,630
$3,144,480
$
822
$ (1,138,872) $
609,778
$
6,609,398
—
—
—
—
—
—
—
—
—
—
—
—
—
(15,101)
28,099
—
—
—
281,292
(647,195)
—
—
—
—
—
—
—
—
—
—
27,072
—
—
—
—
—
—
—
—
—
15,101
—
(165,304)
—
—
45,036
—
(78,202)
60
—
3,539
—
(3,577)
501
326,328
(647,195)
(78,202)
27,132
—
31,638
(165,304)
(3,577)
501
$
2,560
$ 4,003,628
$2,778,577
$
27,894
$ (1,289,075) $
577,135
$
6,100,719
59
Table of Content
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Description of Business and Summary of Significant Accounting Policies
Description of Business: 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
Annual Report on Form 10-K 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 principally an independent petroleum refiner that produces high-value light products such as gasoline, diesel fuel, jet fuel,
specialty lubricant products, and specialty and modified asphalt. We own and operate petroleum refineries that serve markets
throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. As of December 31, 2014, we:
•
•
•
•
owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”), two 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 NK Asphalt Partners (“NK Asphalt”) which operates various asphalt terminals in Arizona, New
Mexico and Oklahoma;
owned a 50% interest in Sabine Biofuels II, LLC (“Sabine Biofuels”), a biodiesel production facility located in Port
Arthur, Texas; and
owned a 39% interest in HEP, a consolidated variable interest entity (“VIE”), which includes our 2% general partner
interest. HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines and terminal,
tankage and loading rack facilities that principally support our refining and marketing operations in the Mid-Continent,
Southwest and Rocky Mountain regions of the United States and Alon USA, Inc.'s (“Alon”) refinery in Big Spring, Texas.
Additionally, HEP owns a 75% interest in UNEV Pipeline, LLC (“UNEV”), which owns a 12-inch refined products
pipeline from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal facilities in the Cedar City, Utah and
North Las Vegas areas (the “UNEV Pipeline”) and a 25% interest in SLC Pipeline LLC (the “SLC Pipeline”), which owns
a 95-mile intrastate pipeline system that serves refineries in the Salt Lake City area.
Principles of Consolidation: Our consolidated financial statements include our accounts and the accounts of partnerships and
joint ventures that we control through an ownership interest greater than 50% or through a controlling financial interest with respect
to variable interest entities. All significant intercompany transactions and balances have been eliminated.
Variable Interest Entities: HEP is a VIE as defined under U.S. generally accepted accounting principles (“GAAP”). A VIE is a
legal entity whose equity owners do not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support or, as a group, the equity holders lack the power, through voting rights, to direct the activities that
most significantly impact the entity's financial performance, the obligation to absorb the entity's expected losses or rights to expected
residual returns. As the general partner of HEP, we have the sole ability to direct the activities of HEP that most significantly impact
HEP's financial performance, and therefore we consolidate HEP.
Use of Estimates: The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash Equivalents: We consider all highly liquid instruments with a maturity of three months or less at the date of purchase to be
cash equivalents. Cash equivalents are stated at cost, which approximates market value and are primarily invested in highly-rated
instruments issued by government or municipal entities with strong credit standings.
60
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Marketable Securities: We consider all marketable debt securities with maturities greater than three months at the date of purchase
to be marketable securities. Our marketable securities consist of certificates of deposit, commercial paper, corporate debt securities
and government and municipal debt securities with the maximum maturity or put date of any individual issue generally not more
than two years, while the maximum duration of the portfolio of investments is not greater than one year. These instruments are
classified as available-for-sale, and as a result, are reported at fair value. Unrealized gains and losses, net of related income taxes,
are reported as a component of accumulated other comprehensive income.
Balance Sheet Offsetting: We purchase and sell inventories of crude oil with certain same-parties that are net settled in accordance
with contractual net settlement provisions. Our policy is to present such balances on a net basis because it more appropriately
presents our economic resources (accounts receivable) and claims against us (accounts payable) and the future cash flows associated
with such assets and liabilities.
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 based on our historical loss experience as well
as specific accounts identified as high risk, which historically have been minimal. Credit losses are charged to the allowance for
doubtful accounts when an account is deemed uncollectible. Our allowance for doubtful accounts was $2.4 million at December 31,
2014 and 2013.
Accounts receivable attributable to crude oil resales generally represent the sell side of excess crude oil sales to other purchasers
and / or users in cases when our crude oil supplies are in excess of our immediate needs as well as certain reciprocal buy / sell
exchanges of crude oil. At times we enter into such buy / sell exchanges to facilitate the delivery of quantities to certain locations.
In many cases, we enter into net settlement agreements relating to the buy/sell arrangements, which may mitigate credit risk.
Inventories: Inventories are stated at the lower of cost, using the last-in, first-out (“LIFO”) method for crude oil, unfinished and
finished refined products and the average cost method for materials and supplies, or market. Cost, consisting of raw material,
transportation and conversion costs, is determined using the LIFO inventory valuation methodology and market is determined
using current replacement costs. Under the LIFO method, the most recently incurred costs are charged to cost of sales and inventories
are valued at the earliest acquisition costs. 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 December 31, 2014, market values had fallen below historical LIFO inventory costs and, as a result, we recognized a non-cash
pretax loss of of $397.5 million. Such losses are subject to reversal in subsequent periods, not to exceed historical LIFO costs, if
prices recover.
Derivative Instruments: All derivative instruments are recognized as either assets or liabilities in our consolidated balance sheets
and are measured at fair value. Changes in the derivative instrument's fair value are recognized in earnings unless specific hedge
accounting criteria are met. See Note 12 for additional information.
Long-lived assets: We calculate depreciation and amortization based on estimated useful lives of our assets. We evaluate long-
lived assets for potential 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, if any, to be
recorded is equal to the amount by which a long-lived asset's carrying value exceeds its fair value, which is generally determined
under an income approach using the forecasted cash flows associated with the underlying asset. Estimates of future cash flows
require subjective assumptions with regard to future operating results and actual results could differ from those estimates. No
impairments of long-lived assets were recorded during the years ended December 31, 2014, 2013 and 2012.
61
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Asset Retirement Obligations: We record legal obligations associated with the retirement of long-lived assets that result from the
acquisition, construction, development and / or the normal operation of long-lived assets. The fair value of the estimated cost to
retire a tangible long-lived asset is recorded as a liability with the associated retirement costs capitalized as part of the asset's
carrying amount in the period in which it is incurred and when a reasonable estimate of the fair value of the liability can be made.
If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is
available to estimate the liability's fair value. Certain of our refining assets have no recorded liability for asset retirement obligations
since the timing of any retirement and related costs are currently indeterminable.
Our asset retirement obligations were $19.8 million and $19.1 million at December 31, 2014 and 2013, respectively, which are
included in “Other long-term liabilities” in our consolidated balance sheets. Accretion expense was insignificant for the years
ended December 31, 2014, 2013 and 2012.
Intangibles and Goodwill: Intangible assets are assets (other than financial assets) that lack physical substance. Goodwill represents
the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Goodwill acquired in
a business combination and intangible assets with indefinite useful lives are not amortized while, intangible assets with finite useful
lives are amortized on a straight-line basis. Goodwill and intangible assets not subject to amortization are tested for impairment
annually or more frequently if events or changes in circumstances indicate the asset might be impaired. Our analysis entails a
comparison of the estimated fair value of these assets that are derived using a combination of both income (discounted future
expected net cash flows) and comparable market approaches against their respective carrying values. Estimates of future cash
flows and fair value of assets require subjective assumptions with regard to future operating results and actual results could differ
from those estimates.
In addition to goodwill, our consolidated HEP assets include a third-party transportation agreement that currently generates
minimum annual cash inflows of $25.0 million and has an expected remaining term through 2035. The transportation agreement
is being amortized on a straight-line basis through 2035 that results in annual amortization expense of $2.0 million. The balance
of this transportation agreement was $40.5 million and $42.5 million at December 31, 2014 and 2013, respectively, and is presented
net of accumulated amortization of $19.7 million and $17.7 million, respectively, in “Intangibles and other” in our consolidated
balance sheets. There were no impairments of intangible assets or goodwill during the years ended December 31, 2014, 2013 and
2012.
Investments in Joint Ventures: We consolidate the financial and operating results of joint ventures in which we have an ownership
interest of greater than 50% and use the equity method of accounting for investments in which we have a noncontrolling interest.
Under the equity method of accounting, we record our pro-rata share of earnings, and contributions to and distributions from joint
ventures as adjustments to our investment balance.
HEP has a 25% joint venture interest in the SLC Pipeline that is accounted for using the equity method of accounting. As of
December 31, 2014, HEP's underlying equity in the SLC Pipeline was $58.9 million compared to its recorded investment balance
of $24.5 million, a difference of $34.4 million. This is attributable to the difference between HEP's contributed capital and its
allocated equity at formation of the SLC Pipeline. This difference is being amortized as an adjustment to HEP's pro-rata share of
earnings.
Additionally, we have a 50% ownership interest in Sabine Biofuels, a biofuels production facility. This equity method investment
had a carrying balance of $8.5 million at December 31, 2014.
Revenue Recognition: Refined product sales and related cost of sales are recognized when products are shipped and title has
passed to customers. HEP recognizes pipeline transportation revenues as products are shipped through its pipelines. 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 in cost of products sold.
Depreciation: Depreciation is provided by the straight-line method over the estimated useful lives of the assets, primarily 20 to
25 years for refining, pipeline and terminal facilities, 10 to 40 years for buildings and improvements, 5 to 30 years for other fixed
assets and 5 years for vehicles.
62
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Cost Classifications: Costs of products sold include the cost of crude oil, other feedstocks, blendstocks and purchased finished
products, inclusive of transportation costs. We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities
in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price
recorded as revenues and the corresponding acquisition cost as cost of products sold. Additionally, we enter into buy/sell exchanges
of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at cost. Operating expenses
include direct costs of labor, maintenance materials and services, utilities, marketing expense and other direct operating costs.
General and administrative expenses include compensation, professional services and other support costs.
Deferred Maintenance Costs: Our refinery units require regular major maintenance and repairs which are commonly referred to
as “turnarounds.” Catalysts used in certain refinery processes also require regular “change-outs.” The required frequency of the
maintenance varies by unit and by catalyst, but generally is every two to five years. Turnaround costs are deferred and amortized
over the period until the next scheduled turnaround. Other repairs and maintenance costs are expensed when incurred. Deferred
turnaround and catalyst amortization expense was $96.9 million, $84.8 million and $54.4 million for the years ended December 31,
2014, 2013 and 2012, respectively.
Environmental Costs: 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. 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 clean-
up 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.
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.
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 current and accumulated 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.
New Accounting Pronouncements
Revenue Recognition
In May 2014, an accounting standard update (ASU 2014-09, “Revenue from Contracts with Customers”) was issued requiring
revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected
consideration for these goods or services. This standard is effective January 1, 2017, and we are evaluating the impact of this
standard.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 2: Variable Interest Entities
Holly Energy Partners
HEP, a consolidated VIE, is a publicly held master limited partnership that was formed to acquire, own and operate the petroleum
product and crude oil pipeline and terminal, tankage and loading rack facilities that support our refining and marketing operations
in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. HEP also owns and operates refined product
pipelines and terminals, located primarily in Texas, that serve Alon's refinery in Big Spring, Texas.
As of December 31, 2014, we owned a 39% interest in HEP, including the 2% general partner interest. 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 we
consolidate HEP. See Note 20 for supplemental guarantor/non-guarantor financial information, including HEP balances included
in these consolidated financial statements.
HEP has two primary customers (including us) and generates revenues by charging tariffs for transporting petroleum products and
crude oil though its pipelines, by charging fees for terminalling refined products and other hydrocarbons, and 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 83% of HEP’s total revenues for the year ended December 31, 2014. 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. With the exception of the assets
of HEP Logistics Holdings, L.P., one of our wholly-owned subsidiaries and HEP’s general partner, HEP’s creditors have no recourse
to our other assets. Any recourse to HEP’s 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. Furthermore, our creditors have no recourse to the assets of HEP and
its consolidated subsidiaries. See Note 11 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.
UNEV Interest Transaction
On July 12, 2012, HEP acquired from us our 75% interest in UNEV. We received consideration consisting of $260.0 million in
cash and 1.0 million HEP common units.
Transportation Agreements
HEP serves our refineries under long-term pipeline and terminal, tankage and throughput agreements expiring from 2019 through
2026. Under these agreements, we pay HEP fees to transport, store and throughput volumes of refined product and crude oil on
HEP's pipeline and terminal, tankage and loading rack facilities 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 December 31, 2014, these agreements result in minimum annualized payments to HEP of $231.6 million.
Our transactions with HEP including the acquisition discussed above and fees paid under our transportation agreements with HEP
and UNEV are eliminated and have no impact on our consolidated financial statements.
HEP's recent common unit issuances (2012 through present) are summarized below:
2013 Issuances
In March 2013, HEP closed on a public offering of 1,875,000 of its common units. Additionally, our wholly-owned subsidiary,
HollyFrontier Holdings LLC, as a selling unitholder, closed on a public sale of 1,875,000 HEP common units held by it. HEP used
net proceeds of $73.4 million to repay indebtedness incurred under its credit facility and for general partnership purposes.
2012 Issuances
In July 2012, HEP issued 1.0 million of its common units to us as partial consideration for its purchase of our 75% interest in
UNEV.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
As a result of these transactions and resulting HEP ownership changes, we adjusted additional capital and equity attributable to
HEP's noncontrolling interest holders to effectively reallocate a portion of HEP's equity among its unitholders.
NOTE 3:
Financial Instruments
Our financial instruments consist of cash and cash equivalents, investments in marketable securities, accounts receivable, accounts
payable, debt and derivative instruments. The carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value. HEP's outstanding credit agreement borrowings also approximate fair value as interest rates are
reset frequently at current interest rates.
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.
The carrying amounts and estimated fair values of our investments in marketable securities, derivative instruments and senior
notes at December 31, 2014 and December 31, 2013 were as follows:
Financial Instrument
December 31, 2014
Assets:
Marketable securities
NYMEX futures contracts
Commodity price swaps
HEP interest rate swaps
Total assets
Liabilities:
Commodity price swaps
HollyFrontier senior notes
HEP senior notes
HEP interest rate swaps
Total liabilities
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
Fair Value by Input Level
(In thousands)
$
$
$
$
474,110
17,619
208,296
1,019
701,044
196,897
154,144
296,579
1,065
648,685
$
$
$
$
474,110
17,619
208,296
1,019
701,044
196,897
155,250
291,000
1,065
644,212
$
$
$
$
— $
17,619
—
—
17,619
$
— $
—
—
—
— $
474,110
—
208,296
1,019
683,425
196,897
155,250
291,000
1,065
644,212
$
$
$
$
—
—
—
—
—
—
—
—
—
—
65
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Financial Instrument
December 31, 2013
Assets:
Marketable securities
Commodity price swaps
HEP interest rate swaps
Total assets
Liabilities:
NYMEX futures contracts
Commodity price swaps
HollyFrontier senior notes
HEP senior notes
HEP interest rate swaps
Total liabilities
Carrying
Amount
Fair Value
Fair Value by Input Level
Level 1
(In thousands)
Level 2
Level 3
$
$
$
$
725,160
43,284
1,670
770,114
3,569
83,349
155,054
444,630
1,814
688,416
$
$
$
$
725,160
43,284
1,670
770,114
3,569
83,349
161,250
471,750
1,814
721,732
$
$
$
$
— $
—
—
— $
725,160
36,312
1,670
763,142
$
$
3,569
—
—
—
—
3,569
$
$
— $
41,059
161,250
471,750
1,814
675,873
$
—
6,972
—
6,972
—
42,290
—
—
—
42,290
Level 1 Financial 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 Financial Instruments
Investments in marketable securities and derivative instruments consisting of commodity price swaps and HEP's interest rate swaps
are measured and recorded at fair value using Level 2 inputs. The fair values of the commodity price and interest rate swap contracts
are 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 inputs, quoted forward commodity prices with respect
to our commodity price swaps and the forward London Interbank Offered Rate (“LIBOR”) yield curve with respect to HEP's
interest rate swaps. The fair value of the marketable securities and senior notes is based on values provided by a third party, which
were derived using market quotes for similar type instruments, a Level 2 input.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Level 3 Financial Instruments
We have commodity price swap contracts that relate to forecasted sales of diesel and forecasted purchases of WCS and WTS for
which quoted forward market prices were previously not readily available. The forward rate used to value these price swaps were
derived using a projected forward rate using quoted market rates for similar products, adjusted for regional pricing and grade
differentials, a Level 3 input. Effective December 31, 2014, we recategorized these swap contracts to Level 2 financial instruments
due to increased visibility of quoted forward pricing information. Our policy is to recognize transfers in and out of Level 3 based
on the fair value of the underlying financial instruments as of the end of the reporting period during which such transfers are made.
The following table presents the changes in fair value of our Level 3 assets and liabilities (all related to derivative instruments)
for the years ended December 31, 2014 and 2013:
Level 3 Financial Instruments
Liability balance at beginning of period
Change in fair value:
Recognized in other comprehensive income
Recognized in cost of products sold
Settlement date fair value of contractual maturities:
Recognized in sales and other revenues
Recognized in cost of products sold
Transfer out of Level 3
Liability balance at end of period
NOTE 4: Earnings Per Share
Years Ended December 31,
2014
2013
(In thousands)
$
(35,318) $
(33,658)
304,275
14,876
(88,326)
(21,848)
(173,659)
$
— $
(71,751)
35,236
20,060
14,795
—
(35,318)
Basic earnings per share is calculated as net income attributable to HollyFrontier stockholders divided by the average number of
shares of common stock outstanding. Diluted earnings per share assumes, when dilutive, the issuance of the net incremental shares
from restricted shares and performance share units. The following is a reconciliation of the denominators of the basic and diluted
per share computations for net income attributable to HollyFrontier stockholders:
Net income attributable to HollyFrontier stockholders
Participating securities' share in earnings
Net income attributable to common shares
Average number of shares of common stock outstanding
Effect of dilutive variable restricted shares and performance share units (1)
Average number of shares of common stock outstanding assuming
dilution
Basic earnings per share
Diluted earnings per share
2014
Years Ended December 31,
2013
(In thousands, except per share data)
2012
$
281,292
$
735,842
$
1,727,172
820
280,472
197,243
185
2,754
733,088
200,419
815
7,648
1,719,524
204,379
895
197,428
201,234
205,274
$
$
1.42
1.42
$
$
3.66
3.64
$
$
8.41
8.38
166
(1) Excludes anti-dilutive restricted and performance share units of:
356
166
67
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 5:
Stock-Based Compensation
As of December 31, 2014, we have two principal share-based compensation plans (collectively, the “Long-Term Incentive
Compensation Plan”).
The compensation cost charged against income for these plans was $26.1 million, $32.2 million and $36.3 million for the years
ended December 31, 2014, 2013 and 2012, 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 $3.5 million, $3.6
million and $2.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Restricted Stock and Restricted Stock Units
Under our Long-Term Incentive Compensation Plan, we grant certain officers and other key employees restricted stock and
restricted stock unit awards with awards generally vesting over a period of one to three years. Restricted stock award recipients
are generally entitled to all the rights of absolute ownership of the restricted shares from the date of grant including the right to
vote the shares and to receive dividends. Upon vesting, restrictions on the restricted shares lapse at which time they convert to
common shares. 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 and 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.
A summary of restricted stock and restricted stock unit activity and changes during the year ended December 31, 2014 is presented
below:
Restricted Stock and Restricted Stock Units
Grants
Weighted
Average Grant
Date Fair
Value
Aggregate
Intrinsic Value
($000)
Outstanding at January 1, 2014 (non-vested)
Granted
Vesting (transfer / conversion to common stock)
Forfeited
Outstanding at December 31, 2014 (non-vested)
737,562
464,189
(452,711)
(79,263)
669,777
$
$
39.54
42.03
40.21
42.29
40.49
$
24,180
For the years ended December 31, 2014, 2013 and 2012, restricted stock and restricted stock units vested having a grant date fair
value of $18.2 million, $16.2 million and $27.7 million, respectively. For the years ended December 31, 2013 and 2012, we granted
restricted stock and restricted stock units having a weighted average grant date fair value of $42.00 and $37.27, respectively. As
of December 31, 2014, there was $20.8 million of total unrecognized compensation cost related to non-vested restricted stock and
restricted stock unit grants. That cost is expected to be recognized over a weighted-average period of 1.6 years.
Performance Share Units
Under our Long-Term Incentive Compensation Plan, we grant certain officers and other key employees performance share units,
which are payable in stock 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 under these awards can range from zero to 200%. As of December 31,
2014, estimated share payouts for outstanding non-vested performance share unit awards averaged approximately 65%.
68
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
A summary of performance share unit activity and changes during the year ended December 31, 2014 is presented below:
Performance Share Units
Outstanding at January 1, 2014 (non-vested)
Granted
Vesting and transfer of ownership to recipients
Forfeited
Outstanding at December 31, 2014 (non-vested)
Grants
983,610
283,769
(425,170)
(117,155)
725,054
For the year ended December 31, 2014, we issued 416,111 shares of our common stock, representing a 98% payout on vested
performance share units having a grant date fair value of $14.3 million. For the years ended December 31, 2013 and 2012, we
issued common stock upon the vesting of the performance share units having a grant date fair value of $11.6 million and $6.0
million, respectively. As of December 31, 2014, there was $20.2 million of total unrecognized compensation cost related to non-
vested performance share units having a grant date fair value of $43.70 per unit. That cost is expected to be recognized over a
weighted-average period of 2.0 years.
NOTE 6: Cash and Cash Equivalents and Investments in Marketable Securities
Our investment portfolio at December 31, 2014 consisted of cash, cash equivalents and investments in marketable securities.
We currently invest in marketable debt securities with the maximum maturity or put date of any individual issue generally not
greater than one year from the date of purchase, which are usually held until maturity. All of these instruments are classified as
available-for-sale. As a result, they are reported at fair value using quoted market prices. Interest income is recorded as earned.
Unrealized gains and losses, net of related income taxes, are reported as a component of accumulated other comprehensive income.
Upon sale or maturity, realized gains on our marketable debt securities are recognized as interest income. These gains are computed
based on the specific identification of the underlying cost of the securities, net of unrealized gains and losses previously reported
in other comprehensive income. Unrealized gains and losses on our available-for-sale securities are due to changes in market prices
and are considered temporary.
The following is a summary of our marketable securities:
December 31, 2014
Certificates of deposit
Commercial paper
Corporate debt securities
State and political subdivisions debt securities
Total marketable securities
December 31, 2013
Certificates of deposit
Commercial paper
Corporate debt securities
State and political subdivisions debt securities
Total marketable securities
Amortized Cost
Gross
Unrealized
Gain
Gross
Unrealized Loss
Fair Value
(Net Carrying
Amount)
(In thousands)
$
$
$
$
54,000
52,297
136,181
231,819
474,297
74,802
78,216
96,889
475,235
725,142
$
$
$
$
10
7
1
5
23
21
28
6
49
104
$
$
$
$
— $
(4)
(94)
(112)
(210) $
(1) $
—
(44)
(41)
(86) $
54,010
52,300
136,088
231,712
474,110
74,822
78,244
96,851
475,243
725,160
Interest income recognized on our marketable securities was $2.2 million and $2.1 million for the years ended December 31, 2014
and 2013, respectively.
69
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 7:
Inventories
Inventory consists of the following components:
Crude oil
Other raw materials and unfinished products(1)
Finished products(2)
Lower of cost or market reserve
Process chemicals(3)
Repairs and maintenance supplies and other
Total inventory
December 31,
2014
2013
(In thousands)
$
581,592
$
204,467
531,523
(397,478)
4,028
110,999
567,281
154,534
519,633
—
3,504
109,295
$
1,035,131
$
1,354,247
(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.
Crude oil, other raw materials, unfinished products and finished products are carried at the lower of cost or market. Cost is
determined principally under the LIFO valuation method to reflect a better matching of cost and revenue. Ending inventory costs
in excess of market values are written down to current replacement costs and charged to cost of products sold in the period recorded.
In subsequent periods a new lower of cost or market reserve determination is made based on current conditions. We determine the
need for a lower of cost or market inventory adjustment by evaluating inventories on an aggregate basis.
At December 31, 2014, market values had fallen below historical LIFO inventory costs and, as a result, we recognized a non-cash
pretax loss of $397.5 million. Such losses are subject to reversal in subsequent periods, not to exceed historical LIFO costs, if
prices recover.
At December 31, 2014, the LIFO value of inventory, net of the lower of cost or market reserve, was equal to current costs. The
excess of current cost over the LIFO value of inventory was $273.0 million at December 31, 2013. For the year ended December 31,
2012, we recognized a reduction of $4.2 million to cost of products sold due to the liquidation of certain quantities of LIFO
inventory that were carried at historical acquisition costs below market value at the time of liquidation.
NOTE 8:
Properties, Plants and Equipment
The components of properties, plants and equipment are as follows:
December 31,
2014
2013
(In thousands)
Land, buildings and improvements
$
255,260
$
Refining facilities
Pipelines and terminals
Transportation vehicles
Other fixed assets
Construction in progress
Accumulated depreciation
2,634,432
1,226,923
35,178
136,545
564,103
4,852,441
(1,181,902)
3,670,539
$
$
70
235,625
2,510,750
1,158,288
41,066
116,801
281,327
4,343,857
(949,261)
3,394,596
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
We capitalized interest attributable to construction projects of $11.8 million, $12.1 million and $9.1 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
Depreciation expense was $261.8 million, $213.6 million and $182.9 million for the years ended December 31, 2014, 2013 and
2012, respectively. For the years ended December 31, 2014, 2013 and 2012, depreciation expense included $58.1 million, $62.3
million and $55.5 million, respectively, attributable to HEP operations.
NOTE 9: Goodwill
We performed our annual goodwill impairment testing as of July 1, 2014, which entailed an assessment of our reporting unit fair
values relative to their respective carrying values that were derived using a combination of both income and market approaches.
Our income approach utilizes the discounted future expected cash flows and has an 80% weighting. Our market approach, which
includes both the guideline public company and guideline transaction methods, each having a 10% weighting, utilizes pricing
multiples derived from historical market transactions of similar assets. Our discounted cash flows reflect estimates of future cash
flows based on both historical and forward crack-spreads, forecasted production levels, operating costs and capital expenditures.
Based on our testing as of July 1, 2014, the fair value of our Cheyenne reporting unit exceeded its carrying cost by slightly less
than 20%, and the fair value of our El Dorado and HEP reporting units exceeded their respective carrying values by a much larger
percentage.
Historically, the refining industry has experienced significant fluctuations in operating results over an extended business cycle
including changes in prices of crude oil and refined products, changes in operating costs including natural gas and higher costs of
complying with government regulations. It is reasonably possible that at some future downturn in refining operations that the
goodwill related to our Cheyenne Refinery will be determined to be impaired.
The following table provides a summary of changes to our goodwill balance by segment for the year ended December 31, 2014.
Balance at January 1, 2014
Adjustment to goodwill
Balance at December 31, 2014
Refining
Segment
HEP
(In thousands)
Total
$
$
2,042,931
(141)
2,042,790
$
$
288,991
—
288,991
$
$
2,331,922
(141)
2,331,781
During 2014, we recorded an insignificant reduction to goodwill due to the sale of certain business assets.
NOTE 10: Environmental
We expensed $28.5 million, $13.2 million and $46.1 million for the years ended December 31, 2014, 2013 and 2012, respectively,
for environmental remediation obligations. In 2012, we increased certain environmental cost accruals to reflect revisions to certain
cost estimates and the time frame for which certain environmental remediation and monitoring activities are expected to occur.
The accrued environmental liability reflected in our consolidated balance sheets was $104.5 million and $87.8 million at
December 31, 2014 and 2013, respectively, of which $81.8 million and $73.6 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).
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NOTE 11: Debt
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
HollyFrontier Credit Agreement
On July 1, 2014, we entered into a new $1 billion senior unsecured revolving credit facility maturing in July 2019 (the “HollyFrontier
Credit Agreement”) and contemporaneously terminated our previous $1 billion senior secured revolving 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. Indebtedness under the HollyFrontier Credit Agreement is recourse to HollyFrontier and
guaranteed by certain of our wholly-owned subsidiaries. At December 31, 2014, we were in compliance with all covenants, had
no outstanding borrowings and had outstanding letters of credit totaling $4.7 million under the HollyFrontier Credit Agreement.
HEP Credit Agreement
HEP has a $650 million senior secured revolving credit facility that matures in November 2018 (the “HEP Credit Agreement”)
and is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general
partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit. At December 31, 2014, HEP was
in compliance with all of its covenants, had outstanding borrowings of $571.0 million and no outstanding letters of credit under
the HEP Credit Agreement.
Indebtedness under the HEP Credit Agreement bears interest, at HEP's option, at either a reference rate announced by the
administrative agent plus an applicable margin or at a rate equal to LIBOR plus an applicable margin. In each case, the applicable
margin is based upon the ratio of HEP’s funded debt to earnings before interest, taxes, depreciation and amortization (as defined
in the HEP Credit Agreement). The weighted average interest rates in effect on HEP’s Credit Agreement borrowings were 2.152%
and 2.163% at December 31, 2014 and 2013, respectively.
HEP’s obligations under the HEP Credit Agreement are collateralized by substantially all of HEP’s assets. Indebtedness under the
HEP Credit Agreement involves recourse to HEP Logistics Holdings, L.P., its general partner, and is guaranteed by HEP’s 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 Senior Notes
Our 6.875% senior notes ($150 million aggregate principal amount maturing November 2018) (the “HollyFrontier Senior Notes”)
are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional debt, incur liens,
enter into sale-and-leaseback transactions, pay dividends, enter into mergers, sell assets and enter into certain transactions with
affiliates. Additionally, we have certain redemption rights under the HollyFrontier Senior Notes.
At any time, following notice to the trustee, that the HollyFrontier Senior Notes are rated investment grade by both Moody's and
Standard & Poor's and no default or event of default exists, we are not subject to many of the foregoing covenants (a "Covenant
Suspension"). As of December 31, 2014, the HollyFrontier Senior Notes were rated investment grade by both Standard & Poor's
(BBB-) and Moody's (Baa3). As a result, we are under the Covenant Suspension pursuant to the terms of the indenture governing
the HollyFrontier Senior Notes.
In June 2013, we redeemed our $286.8 million aggregate principal amount of 9.875% senior notes maturing June 2017 at a
redemption cost of $301.0 million, at which time we recognized a $22.1 million early extinguishment loss consisting of a $14.2
million debt redemption premium and an unamortized discount of $7.9 million.
In September 2012, we redeemed our $200 million aggregate principal amount of 8.5% senior notes maturing September 2016 at
a redemption price of $208.5 million.
HollyFrontier Financing Obligation
We have a financing obligation that relates to a sale and lease-back of certain crude oil tankage that we sold to an affiliate of Plains
All American Pipeline, L.P. (“Plains”) in October 2009 for $40.0 million. Monthly lease payments are recorded as a reduction in
principal over the 15-year lease term ending in 2024.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
HEP Senior Notes
In March 2012, HEP issued $300 million in an aggregate principal amount of 6.5% HEP senior notes maturing March 2020 (the
“HEP Senior Notes”). The $294.8 million in net proceeds were used to repay $157.8 million aggregate principal amount of 6.25%
HEP senior notes, $72.9 million in promissory notes due to HollyFrontier, related fees, expenses and accrued interest in connection
with these transactions and to repay borrowings under the HEP Credit Agreement. In April 2012, HEP called for redemption the
remaining $27.2 million aggregate principal amount outstanding of 6.25% HEP senior notes.
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. At any time when the HEP Senior Notes are rated investment grade by both Moody’s and 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 under the HEP Senior Notes.
In March 2014, HEP redeemed its $150.0 million aggregate principal amount of 8.25% senior notes maturing March 2018 at a
redemption cost of $156.2 million, at which time HEP recognized a $7.7 million early extinguishment loss consisting of a $6.2
million debt redemption premium and unamortized discount and financing cost of $1.5 million. HEP funded the redemption with
borrowings under the HEP Credit Agreement.
Indebtedness under the HEP Senior Notes involves recourse to HEP Logistics Holdings, L.P., its general partner, and is guaranteed
by HEP’s wholly-owned subsidiaries. However, 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.
The carrying amounts of long-term debt are as follows:
6.875% Senior Notes
Principal
Unamortized premium
Financing Obligation
Total HollyFrontier long-term debt
HEP Credit Agreement
HEP 6.5% Senior Notes
Principal
Unamortized discount
HEP 8.25% Senior Notes
Principal
Unamortized discount
Total HEP long-term debt
Total long-term debt
December 31,
2014
2013
(In thousands)
$
$
150,000
4,144
154,144
33,167
187,311
571,000
300,000
(3,421)
296,579
—
—
—
867,579
$
1,054,890
$
150,000
5,054
155,054
34,835
189,889
363,000
300,000
(4,073)
295,927
150,000
(1,297)
148,703
807,630
997,519
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Principal maturities of long-term debt are as follows:
Years Ending December 31,
(In thousands)
2015
2016
2017
2018
2019
Thereafter
Total
$
1,880
2,121
2,393
723,700
3,046
321,027
$
1,054,167
NOTE 12: 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 and futures contracts to mitigate price exposure with respect to:
•
•
•
•
•
our inventory positions;
natural gas purchases;
costs of crude oil and related grade differentials;
prices of refined products; and
our refining margins.
Accounting Hedges
We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural gas and WTI crude oil
and forecasted sales of 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. On a quarterly basis, hedge ineffectiveness is measured by comparing
the change in fair value of the swap contracts against the expected future cash inflows/outflows on the respective transaction being
hedged. Any hedge ineffectiveness is also recognized in earnings.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments
and maturities of commodity price swaps under hedge accounting:
Unrealized
Gain (Loss)
Recognized in
OCI
Gain (Loss) Recognized in
Earnings Due to Settlements
Amount
Location
Gain (Loss) Attributable to
Hedge Ineffectiveness
Recognized in Earnings
Location
Amount
Year Ended December 31, 2014
Commodity price swaps
Change in fair value
Gain reclassified to earnings due to
settlements
Amortization of discontinued hedges
reclassified to earnings
Total
Year Ended December 31, 2013
Commodity price swaps
Change in fair value
Gain reclassified to earnings due to
settlements
Amortization of discontinued hedges
reclassified to earnings
Total
Year Ended December 31, 2012
Commodity price swaps
Change in fair value
Loss reclassified to earnings due to
settlements
Total
$
$
$
$
$
$
Sales and other
revenues
Cost of products
sold
Operating
expenses
Sales and other
revenues
Cost of products
sold
Operating
expenses
107,518
(52,884)
1,080
55,714
(8,808)
(16,410)
900
(24,318)
Sales and other
revenues
Operating
expenses
(248,399)
55,175
(193,224)
$
$
$
$
$
$
(In thousands)
Sales and other
revenues
Cost of products
sold
Operating
expenses
Sales and other
revenues
Cost of products
sold
Sales and other
revenues
Cost of products
sold
88,326
(37,313)
791
51,804
(20,060)
38,949
(3,379)
15,510
(98,750)
43,575
(55,175)
$
$
$
$
$
$
274
(4,377)
(547)
(4,650)
45
515
560
(491)
(515)
(1,006)
As of December 31, 2014, we have the following notional contract volumes related to outstanding derivative instruments serving
as cash flow hedges against price risk on forecasted purchases of natural gas and crude oil and sales of refined products:
Derivative instruments
Natural gas - long
WTI crude oil - long
Ultra-low sulfur diesel - short
Notional Contract Volumes by Year of
Maturity
Total
Outstanding
Notional
2015
2016
2017
Unit of
Measure
28,800,000
9,600,000
9,600,000
9,600,000 MMBTU
4,380,000
4,380,000
4,380,000
4,380,000
—
—
— Barrels
— Barrels
In 2013, we dedesignated certain commodity price swaps (long positions) that previously received hedge accounting treatment.
These contracts now serve as economic hedges against price risk on forecasted natural gas purchases totaling 28,800,000 MMBTU's
to be purchased ratably through 2017. As of December 31, 2014, we have an unrealized loss of $3.2 million classified in accumulated
other comprehensive income that relates to the application of hedge accounting prior to dedesignation that is amortized as a charge
to operating expenses as the contracts mature.
Economic Hedges
We also have swap contracts that serve as economic hedges (derivatives used for risk management, but not designated as accounting
hedges) to fix our purchase price on forecasted purchases of WTI crude oil, and to lock in the spread between WTI and WCS and
WTS on forecasted purchases of crude oil inventory. Also, we have NYMEX futures contracts to lock in prices on forecasted
purchases of inventory. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to
income.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:
Location of Gain (Loss) Recognized in Income
2014
Years Ended December 31,
2013
(In thousands)
2012
Cost of products sold
Operating expenses
Total
$
$
68,509
(185)
68,324
$
$
20,751
(5,250)
15,501
$
$
12,295
573
12,868
As of December 31, 2014, we have the following notional contract volumes related to our outstanding derivative contracts serving
as economic hedges:
Derivative Instrument
Notional Contract Volumes by Year of
Maturity
Total
Outstanding
Notional
2015
2016
2017
Unit of
Measure
Commodity price swap (WTI basis spread) - long
4,015,000
4,015,000
Commodity price swap (WTI) - long
1,095,000
1,095,000
—
—
— Barrels
— Barrels
Commodity price swap (natural gas) - long
28,800,000
9,600,000
9,600,000
9,600,000 MMBTU
Commodity price swap (natural gas) - short
28,800,000
9,600,000
9,600,000
9,600,000 MMBTU
NYMEX futures (WTI) - short
2,058,000
2,058,000
—
— Barrels
Interest Rate Risk Management
HEP uses interest rate swaps to manage its exposure to interest rate risk.
As of December 31, 2014, HEP had three interest rate swap contracts that hedge its exposure to the cash flow risk caused by the
effects of LIBOR changes on $305.0 million in credit agreement advances. The first interest rate swap effectively converts $155.0
million of LIBOR based debt to fixed rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of
December 31, 2014, which equaled an effective interest rate of 2.99%. This swap matures in February 2016. HEP has two additional
interest rate swaps with identical terms which effectively convert $150.0 million of LIBOR based debt to fixed rate debt having
an interest rate of 0.74% plus an applicable margin of 2.00% as of December 31, 2014, which equaled an effective interest rate of
2.74%. Both of these swap contracts mature in July 2017. All of these swap contracts have been designated as cash flow hedges.
To date, there has been no ineffectiveness on these cash flow hedges.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table presents the pre-tax effect on other comprehensive income and earnings due to fair value adjustments and
maturities of HEP's interest rate swaps under hedge accounting:
Year Ended December 31, 2014
Interest rate swaps
Change in fair value
Loss reclassified to earnings due to settlements
Total
Year Ended December 31, 2013
Interest rate swaps
Change in fair value
Loss reclassified to earnings due to settlements
Amortization of discontinued hedge reclassified to earnings
Total
Year Ended December 31, 2012
Interest rate swaps
Change in fair value
Loss reclassified to earnings due to settlements
Amortization of discontinued hedge reclassified to earnings
Total
Unrealized Gain
(Loss)
Recognized in
OCI
Loss Recognized in Earnings Due to
Settlements
Location
(In thousands)
Amount
$
$
$
$
$
$
(2,104)
2,202
98
1,194
2,092
849
4,135
(4,418)
1,508
5,095
2,185
Interest expense
Interest expense
Interest expense
$
$
$
$
$
$
(2,202)
(2,202)
(2,941)
(2,941)
(6,603)
(6,603)
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.
Derivatives in Net Asset Position
Derivatives in Net Liability Position
Gross
Liabilities
Offset in
Balance Sheet
Gross Assets
Net Assets
Recognized in
Balance Sheet
Gross
Liabilities
Gross Assets
Offset in
Balance Sheet
(In thousands)
Net
Liabilities
Recognized in
Balance Sheet
December 31, 2014
Derivatives designated as cash flow hedging instruments:
Commodity price swap
contracts
Interest rate swap contracts
$
$
173,658
1,019
174,677
$
$
(142,115) $
—
(142,115) $
Derivatives not designated as cash flow hedging instruments:
Commodity price swap
contracts
NYMEX futures contracts
Total net balance
Balance sheet classification:
$
$
17,630
17,619
35,249
$
$
(12,942) $
—
(12,942) $
Prepayment and other
Intangibles and other
$
$
$
77
$
$
$
$
31,543
1,019
32,562
4,688
17,619
22,307
54,869
53,850
1,019
54,869
21,441
1,065
22,506
20,398
—
20,398
$
$
$
$
— $
—
— $
(17,007) $
—
(17,007) $
Other long-term liabilities
$
$
$
21,441
1,065
22,506
3,391
—
3,391
25,897
25,897
25,897
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Derivatives in Net Asset Position
Derivatives in Net Liability Position
Gross
Liabilities
Offset in
Balance Sheet
Gross Assets
Net Assets
Recognized in
Balance Sheet
Gross
Liabilities
Gross Assets
Offset in
Balance Sheet
(In thousands)
Net
Liabilities
Recognized in
Balance Sheet
December 31, 2013
Derivatives designated as cash flow hedging instruments:
Commodity price swap
contracts
Interest rate swap contracts
$
$
— $
1,670
1,670
$
Derivatives not designated as cash flow hedging instruments:
Commodity price swap
contracts
NYMEX futures contracts
$
$
6,972
—
6,972
$
$
Total net balance
Balance sheet classification:
Prepayment and other
Intangibles and other
— $
—
— $
— $
—
— $
$
$
$
— $
$
$
$
1,670
1,670
6,972
—
6,972
8,642
6,972
1,670
8,642
63,561
1,814
65,375
19,766
3,569
23,335
$
$
$
$
(23,679) $
—
(23,679) $
(12,611) $
—
(12,611) $
Accrued liabilities
Other long-term liabilities
$
$
$
39,882
1,814
41,696
7,155
3,569
10,724
52,420
26,843
25,577
52,420
At December 31, 2014, we had a pre-tax net unrealized gain of $11.5 million classified in accumulated other comprehensive
income that relates to all accounting hedges having contractual maturities through 2017. Assuming commodity prices and interest
rates remain unchanged, an unrealized gain of $35.3 million will be effectively transferred from accumulated other comprehensive
income into the statement of income as the hedging instruments contractually mature over the next twelve-month period.
NOTE 13: Income Taxes
The provision for income taxes is comprised of the following:
Current
Federal
State
Deferred
Federal
State
2014
Years Ended December 31,
2013
(In thousands)
2012
$
$
294,509
40,325
(168,756)
(24,906)
141,172
$
$
270,024
7,148
94,896
19,508
391,576
$
$
797,406
135,148
70,671
24,737
1,027,962
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The statutory federal income tax rate applied to pre-tax book income reconciles to income tax expense as follows:
Tax computed at statutory rate
State income taxes, net of federal tax benefit
Domestic production activities deduction
Noncontrolling interest in net income
Uncertain tax positions
Other
2014
Years Ended December 31,
2013
(In thousands)
2012
$
$
163,625
13,641
(20,998)
(17,431)
—
2,335
141,172
$
$
405,790
21,363
(22,101)
(12,378)
(193)
(905)
391,576
$
$
975,798
110,739
(54,745)
(12,783)
7,309
1,644
1,027,962
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Our deferred income tax assets and liabilities as
of December 31, 2014 and 2013 are as follows:
Deferred income taxes
Accrued employee benefits
Accrued environmental costs
Hedging instruments
Inventory differences
Prepaid insurance
Prepayments and other
Total current
Properties, plants and equipment (due primarily to tax in
excess of book depreciation)
Accrued employee benefits
Accrued post-retirement benefits
Accrued environmental costs
Hedging instruments
Deferred turnaround costs
Net operating loss and tax credit carryforwards
Investment in HEP
Other
Total noncurrent
Total
Assets
December 31, 2014
Liabilities
(In thousands)
Total
6,854
5,930
—
—
—
3,160
15,944
—
16,120
9,716
24,814
9,584
—
10,119
—
—
70,353
86,297
$
$
— $
—
(21,185)
(7,375)
(4,793)
—
(33,353)
(581,017)
—
—
—
—
(110,827)
—
(25,244)
(135)
(717,223)
(750,576) $
6,854
5,930
(21,185)
(7,375)
(4,793)
3,160
(17,409)
(581,017)
16,120
9,716
24,814
9,584
(110,827)
10,119
(25,244)
(135)
(646,870)
(664,279)
$
$
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Deferred income taxes
Accrued employee benefits
Accrued environmental costs
Hedging instruments
Inventory differences
Prepaid insurance
Prepayments and other
Total current
Properties, plants and equipment (due primarily to tax in
excess of book depreciation)
Accrued employee benefits
Accrued post-retirement benefits
Accrued environmental costs
Hedging instruments
Deferred turnaround costs
Net operating loss and tax credit carryforwards
Investment in HEP
Other
Total noncurrent
Total
Assets
December 31, 2013
Liabilities
(In thousands)
Total
$
$
3,138
5,010
12,417
—
—
—
20,565
—
41,997
—
20,431
3,744
—
24,086
—
10,858
101,116
121,681
$
$
— $
—
—
(235,823)
(7,222)
(1,519)
(244,564)
(578,958)
—
(8,071)
—
—
(101,158)
—
(29,771)
—
(717,958)
(962,522) $
3,138
5,010
12,417
(235,823)
(7,222)
(1,519)
(223,999)
(578,958)
41,997
(8,071)
20,431
3,744
(101,158)
24,086
(29,771)
10,858
(616,842)
(840,841)
At December 31, 2014, we had a Kansas income tax credit of $9.7 million that is scheduled to be utilized in 2015 through 2019.
This amount is reflected in other current and non-current deferred tax assets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at December 31
2014
Years Ended December 31,
2013
(In thousands)
2012
$
$
$
9,006
—
—
(9,006)
— $
12,641
25,728
(5,092)
(24,271)
9,006
$
$
2,425
10,305
(89)
—
12,641
At December 31, 2013 and 2012, there were $0.4 million and $10.2 million, respectively, of unrecognized tax benefits that, if
recognized, would affect our effective tax rate. Unrecognized tax benefits are adjusted in the period in which new information
about a tax position becomes available or the final outcome differs from the amount recorded.
We recognize interest and penalties relating to liabilities for unrecognized tax benefits as an element of tax expense. We have not
recorded any penalties related to our uncertain tax positions as we believe that it is more likely than not that there will not be any
assessment of penalties.
We are subject to U.S. federal income tax, Oklahoma, Kansas, New Mexico, Iowa, Arizona, Utah, Colorado and Nebraska income
tax and to income tax of multiple other state jurisdictions. We have substantially concluded all state and local income tax matters
for tax years through 2009 and have materially concluded all U.S. federal income tax matters for tax years through December 31,
2012.
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 14: Stockholders' Equity
Shares of our common stock outstanding and activity for the years ended December 31, 2014, 2013 and 2012 are presented below:
Common shares outstanding at January 1
Issuance of restricted stock, excluding restricted stock with
performance feature
Vesting of performance units
Vesting of restricted stock with performance feature
Forfeitures of restricted stock
Purchase of treasury stock (1)
Common shares outstanding at December 31
Years Ended December 31,
2013
2012
2014
198,830,351
203,551,496
209,332,646
376,622
416,111
77,430
(76,107)
(3,538,317)
196,086,090
292,855
210,819
15,141
(15,794)
(5,224,166)
198,830,351
691,207
869,231
146,400
(3,975)
(7,484,013)
203,551,496
(1) Includes 279,680, 235,922 and 560,484 shares, respectively, withheld under the terms of stock-based compensation agreements to
provide funds for the payment of payroll and income taxes due at the vesting of share-based awards, as well as other stock repurchases
under separate authority from our Board of Directors.
In September 2014, our Board of Directors approved a $500 million share repurchase program authorizing us to repurchase common
stock in the open market or through privately negotiated transactions. As of December 31, 2014, we had remaining authorization
to repurchase up to $444.4 million under this stock repurchase program.
In February 2015, our Board of Directors approved a $500 million share repurchase program, which replaced all existing share
repurchase programs including approximately $425.0 million remaining under the existing $500 million share repurchase program.
The timing and amount of stock repurchases will depend on market conditions, corporate, regulatory and other relevant
considerations. This program may be discontinued at any time by our Board of Directors. 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.
In May 2012, we entered into a structured share repurchase arrangement with a financial institution under which we provided an
up-front cash payment of $100.0 million and, depending on market conditions, would either receive shares of our common stock
or cash at the expiration of the agreement. The agreement expired in September 2012 at which time we received our up-front
payment plus an additional $8.6 million in cash that was recorded as additional capital.
During the years ended December 31, 2014, 2013 and 2012, we withheld shares of our common stock from certain employees in
the amounts of $11.4 million, $11.3 million and $22.4 million, respectively. These withholdings were made under the terms of
restricted stock 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.
81
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 15: Other Comprehensive Income (Loss)
The components and allocated tax effects of other comprehensive income (loss) are as follows:
Year Ended December 31, 2014
Net unrealized loss on marketable securities
Net unrealized gain on hedging instruments
Net change in pension and other post-retirement benefit obligations
Other comprehensive income
Less other comprehensive income attributable to noncontrolling interest
Other comprehensive income attributable to HollyFrontier stockholders
Year Ended December 31, 2013
Net unrealized gain on marketable securities
Net unrealized loss on hedging instruments
Net change in pension and other post-retirement benefit obligations
Other comprehensive income
Less other comprehensive income attributable to noncontrolling interest
Other comprehensive income attributable to HollyFrontier stockholders
Year Ended December 31, 2012
Net unrealized loss on marketable securities
Net unrealized loss on hedging instruments
Net change in pension and other post-retirement benefit obligations
Other comprehensive loss
Less other comprehensive income attributable to noncontrolling interest
Other comprehensive loss attributable to HollyFrontier stockholders
Before-Tax
Tax Expense
(Benefit)
(In thousands)
After-Tax
$
$
$
$
$
$
(157) $
(62) $
55,812
(11,425)
44,230
60
44,170
34
(20,183)
37,593
17,444
2,315
15,129
$
$
$
(236) $
(191,039)
51,391
(139,884)
1,364
(141,248) $
21,583
(4,423)
17,098
—
17,098
17
(8,669)
14,534
5,882
—
5,882
$
$
$
(95) $
(74,846)
19,991
(54,950)
—
(54,950) $
(95)
34,229
(7,002)
27,132
60
27,072
17
(11,514)
23,059
11,562
2,315
9,247
(141)
(116,193)
31,400
(84,934)
1,364
(86,298)
82
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table presents the income statement line item effects for reclassifications out of accumulated other comprehensive
income (“AOCI”):
AOCI Component
Gain (Loss) Reclassified From AOCI
Income Statement Line Item
Marketable securities
$
Years Ended December 31,
2012
$
2014
2013
(In thousands)
39
$
—
39
15
24
4
—
4
2
2
Interest income
59
326 Gain on sale of marketable equity securities
385
150
235 Net of tax
Income tax expense
Hedging instruments:
Commodity price swaps
Interest rate swaps
Pension and other post-retirement
benefit obligations:
Pension obligation
Post-retirement healthcare
obligation
Retirement restoration plan
88,326
(37,313)
791
(2,202)
49,602
19,712
29,890
1,335
31,225
—
—
—
—
—
—
482
3,366
448
4,296
1,663
2,633
(920)
(356)
(564)
(20,060)
38,949
(3,379)
(2,941)
12,569
5,554
7,015
1,783
8,798
(3,226)
(30,127)
(4,236)
(37,589)
(14,547)
(23,042)
646
2,868
526
4,040
1,563
2,477
(111)
(43)
(68)
(98,750) Sales and other revenues
43,575 Cost of products sold
— Operating expenses
Interest expense
(6,603)
(61,778)
(22,590)
(39,188) Net of tax
Income tax expense (benefit)
3,753 Noncontrolling interest
(35,435) Net of tax and noncontrolling interest
(226) Cost of products sold
(1,486) Operating expenses
(244) General and administrative expenses
(1,956)
(761)
Income tax benefit
(1,195) Net of tax
— Cost of products sold
1,913 Operating expenses
39 General and administrative expenses
1,952
759
Income tax expense
1,193 Net of tax
(63) General and administrative expenses
(25)
(38) Net of tax
Income tax benefit
Total reclassifications for the period
$
33,296
$
(11,811) $
(35,240)
Accumulated other comprehensive income in the equity section of our consolidated balance sheets includes:
December 31,
2014
2013
Unrealized gain on post-retirement benefit obligations
Unrealized gain (loss) on marketable securities
Unrealized gain (loss) on hedging instruments, net of noncontrolling interest
Accumulated other comprehensive income
$
$
83
$
(In thousands)
20,689
(85)
7,290
27,894
$
27,691
10
(26,879)
822
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 16: Retirement Plans
Post-retirement Healthcare Plans
We provide post-retirement medical benefits to certain eligible employees. These plans are unfunded and provide differing levels
of healthcare benefits dependent upon hire date and work location. Not all of our employees are covered by these plans at
December 31, 2014.
The following table sets forth the changes in the benefit obligation and plan assets of our post-retirement healthcare plans for the
years ended December 31, 2014 and 2013:
Change in plans' benefit obligation
Post-retirement plans' benefit obligation - beginning of year
Service cost
Interest cost
Participant contributions
Amendments
Settlements
Benefits paid
Actuarial loss (gain)
Post-retirement plans' benefit obligation - end of year
Change in plan assets
Fair value of plan assets - beginning of year
Employer contributions
Participant contributions
Settlements
Benefits paid
Fair value of plan assets - end of year
Funded status
Under-funded balance
Amounts recognized in consolidated balance sheets
Accrued post-retirement liability
Amounts recognized in accumulated other comprehensive income
Cumulative actuarial loss
Prior service credit
Total
Years Ended December 31,
2014
2013
(In thousands)
15,715
895
638
573
3,383
—
(1,533)
3,962
23,633
$
$
— $
960
573
—
(1,533)
— $
26,797
1,112
665
564
(820)
(8,627)
(1,585)
(2,391)
15,715
—
9,648
564
(8,627)
(1,585)
—
(23,633) $
(15,715)
(23,633) $
(15,715)
(5,074) $
39,419
34,345
$
(1,022)
47,098
46,076
$
$
$
$
$
$
$
$
Benefit payments, which reflect expected future service, are expected to be paid as follows: $1.8 million in 2015; $1.7 million in
2016; $1.7 million in 2017; $1.8 million in 2018; $1.8 million in 2019; and $9.9 million in 2020 through 2024.
The weighted average assumptions used to determine end of period benefit obligations:
Discount rate
Current health care trend rate
Ultimate health care trend rate
Year rate reaches ultimate trend rate
84
December 31,
2014
2013
3.60%
8.00%
5.00%
2042
4.25%
8.00%
5.00%
2045
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Net periodic post-retirement expense consisted of the following components:
Service cost – benefit earned during the year
Interest cost on projected benefit obligations
Amortization of prior service credit
Amortization of net loss
Loss on settlement
Net periodic post-retirement expense (credit)
2014
Years Ended December 31,
2013
(In thousands)
2012
$
$
$
895
638
(4,296)
—
—
(2,763) $
$
1,112
665
(5,896)
130
1,726
(2,263) $
1,892
3,519
(2,221)
269
—
3,459
Prior service credits are amortized over the average remaining effective period to obtain full benefit eligibility for participants.
Assumed health care cost trend rates have an effect on the amounts reported for the post-retirement health care benefit plans. The
weighted average assumptions used to determine net periodic benefit expense follow:
Discount rate
Current health care trend rate
Ultimate health care trend rate
Year rate reaches ultimate trend rate
The effect of a 1% change in health care cost trend rates is as follows:
Service cost
Interest cost
Year-end accumulated post-retirement benefit obligation
Years Ended December 31,
2013
2012
2014
4.25%
8.00%
5.00%
2045
3.45%
8.10%
5.00%
2023
4.60%
8.40%
5.00%
2023
1% Point
Increase
1% Point
Decrease
$
$
$
(In thousands)
191
58
1,881
$
$
$
(150)
(47)
(1,607)
Pension Plan
In 2013, we terminated the HollyFrontier Corporation Pension Plan (the "Plan"), a non-contributory defined benefit retirement
plan that covered certain employees. In June 2013, we made contributions of $22.7 million to the Plan, which was sufficient for
the Plan to settle its obligations to all participants including the premium paid to the non-participating annuity provider. In 2013,
we recognized a pre-tax pension settlement charge of $39.5 million, of which $37.6 million was reclassified out of accumulated
other comprehensive income, representing the irrevocable portion of our obligation. Net periodic pension expense was $42.6
million and $6.6 million for the years ended December 31, 2013 and 2012, respectively.
The following table sets forth the changes in the benefit obligation and plan assets of our retirement plan for the year ended
December 31, 2013:
85
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Change in plan's benefit obligation
Pension plan's benefit obligation - beginning of year
Interest cost
Benefits paid
Actuarial loss
Settlements paid
Pension plan's benefit obligation - end of year
Change in pension plan assets
Fair value of plan assets - beginning of year
Actual return on plan assets
Benefits paid
Employer contributions
Settlements paid
Fair value of plan assets - end of year
Year Ended
December 31, 2013
(In thousands)
$
$
$
$
95,485
1,797
(3,957)
2,981
(96,306)
—
77,757
(219)
(3,957)
22,725
(96,306)
—
Additionally, we had a program that provided transition benefit payments to certain employees that participated in a previously
terminated defined benefit plan. The program extended through 2014 and provided payments subsequent to year-end provided the
employee was employed by us on the last day of each year. The payments are based on each employee's years of service and
eligible salary. Transition benefit costs under this program were $10.8 million, $12.5 million and $15.6 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
Retirement Restoration Plan
We have an unfunded retirement restoration plan that provides for additional payments from us so that total retirement plan benefits
for certain executives will be maintained at the levels provided in the retirement plan before the application of Internal Revenue
Code limitations. We expensed $1.2 million, $0.4 million and $0.3 million for the years ended December 31, 2014, 2013 and 2012,
respectively, in connection with this plan. The accrued liability reflected in the consolidated balance sheets was $3.0 million and
$6.8 million at December 31, 2014 and 2013, respectively. As of December 31, 2014, the projected benefit obligation under this
plan was $3.0 million. Annual benefit payments of $0.2 million are expected to be paid through 2024, which reflect expected future
service.
Defined Contribution Plans
We have a defined contribution “401(k)” plan that covers substantially all employees. Our contributions are based on an employee's
eligible compensation and years of service. We also partially match the employee's contributions. We expensed $16.1 million,
$15.5 million and $16.0 million for the years ended December 31, 2014, 2013 and 2012, respectively, in connection with these
plans.
86
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 17: Lease Commitments
We lease certain office and storage facilities, rail cars and other equipment under long-term operating leases, most of which contain
renewal options. At December 31, 2014, the minimum future rental commitments under operating leases having non-cancellable
lease terms in excess of one year are as follows:
2015
2016
2017
2018
2019
Thereafter
Total
(In thousands)
29,501
27,893
19,370
12,262
8,288
8,485
105,799
$
$
Rental expense charged to operations was $58.9 million, $48.5 million and $42.6 million for the years ended December 31, 2014,
2013 and 2012, respectively. For the years ended December 31, 2014, 2013 and 2012, rental expense included $8.0 million, $8.3
million and $8.1 million, respectively, in costs attributable to the HEP operations.
NOTE 18: Contingencies and Contractual Commitments
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.
In early February 2015, we received communications from the United Steelworkers Union representing employees at our El Dorado
and Woods Cross Refineries of its intention to commence a work stoppage in early May 2015 and could receive a similar
communication from the United Steelworkers Union representing employees at our Cheyenne Refinery. We have plans allowing
for the continued operations of all three refineries in the event the union does commence a work stoppage and believe such plans
are adequate to allow continued operations of all three refineries.
Pursuant to the 2007 Energy Independence and Security Act, the Environmental Protection Agency (“EPA”) promulgated the
Renewable Fuel Standard 2 (“RFS2”) regulations reflecting the increased 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. The EPA
has not yet finalized the 2014 percentage standards under its RFS2 program. The estimated quantity of renewable fuels or RINs
that we are required to purchase and that have been accrued for as of and for the year ended December 31, 2014 are based on
quantities proposed by the EPA in November 2013.
Contractual Commitments
We have various long-term agreements (entered in the normal course of business) to purchase crude oil, natural gas, feedstocks
and other resources to ensure we have adequate supplies to operate our refineries. The substantial majority of our purchase
obligations are based on market prices or rates. These contracts expire in 2015 through 2025.
We also have long-term agreements with third parties for the transportation and storage of crude oil, natural gas and feedstocks
to our refineries and for terminal and storage services that expire in 2015 through 2033. At December 31, 2014, the minimum
future transportation and storage fees under transportation agreements having terms in excess of one year are as follows:
87
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
2015
2016
2017
2018
2019
Thereafter
Total
$
(In thousands)
157,931
129,928
118,504
101,166
92,920
586,271
$
1,186,720
Transportation and storage costs incurred under these agreements totaled $164.6 million, $122.0 million and 89.4 million for the
years ended December 31, 2014, 2013 and 2012, respectively. These amounts do not include contractual commitments under our
long-term transportation agreements with HEP, as all transactions with HEP are eliminated in these consolidated financial
statements.
NOTE 19: Segment Information
Our operations are organized into two reportable segments, Refining and HEP. Our operations that are not included in the Refining
and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial
statements and are included in Consolidations and Eliminations.
The Refining segment represents the operations of the El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK
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 regions of the United States. Additionally, the Refining segment includes
specialty lubricant products produced at our Tulsa Refineries that are marketed throughout North America and are distributed in
Central and South America. NK Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma.
The HEP segment includes all of the operations of HEP, which owns and operates logistics assets consisting of petroleum product
and crude oil pipelines and terminal, tankage and loading rack facilities in the Mid-Continent, Southwest and Rocky Mountain
regions of the United States. The HEP segment also includes a 75% interest in UNEV (a consolidated subsidiary of HEP) and a
25% interest in the SLC Pipeline. 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 (see
Note 1).
88
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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Year Ended December 31, 2014
Sales and other revenues
Depreciation and amortization
Income (loss) from operations
Capital expenditures
Total assets
Year Ended December 31, 2013
Sales and other revenues
Depreciation and amortization
Income (loss) from operations
Capital expenditures
Total assets
Year Ended December 31, 2012
Sales and other revenues
Depreciation and amortization
Income (loss) from operations
Capital expenditures
Total assets
Refining
HEP
Corporate
and Other
Consolidations
and Eliminations
Consolidated
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19,706,225
293,871
491,106
465,472
6,965,245
$ 332,626
60,548
$
$ 156,453
$
79,819
$1,434,572
20,105,443
233,182
1,237,687
344,113
7,094,558
$ 307,053
$
64,701
$ 133,522
$
51,856
$1,413,907
20,042,955
181,247
2,879,383
278,705
6,702,872
$ 288,501
$
57,789
$ 133,723
44,929
$
$1,426,800
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(In thousands)
2,103
$
$
9,790
(129,874) $
$
19,530
$
1,150,865
$
1,314
$
6,391
(123,030) $
$
29,158
$
1,881,121
$
1,048
$
4,660
(126,840) $
$
11,629
$
2,531,967
(276,627) $
(828) $
(2,151) $
— $
(320,042) $
19,764,327
363,381
515,534
564,821
9,230,640
(253,250) $
(828) $
(2,105) $
— $
(332,847) $
20,160,560
303,446
1,246,074
425,127
10,056,739
(241,780) $
(828) $
(2,120) $
— $
(332,642) $
20,090,724
242,868
2,884,146
335,263
10,328,997
HEP segment revenues from external customers were $57.3 million, $53.4 million and $47.6 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
NOTE 20: Supplemental Guarantor/Non-Guarantor Financial Information
Our obligations under the HollyFrontier Senior Notes have been jointly and severally guaranteed by the substantial majority of
our existing and future restricted subsidiaries (“Guarantor Restricted Subsidiaries”). These guarantees are full and unconditional.
HEP, in which we have a 39% ownership interest at December 31, 2014, and its subsidiaries (collectively, “Non-Guarantor Non-
Restricted Subsidiaries”), and certain of our other subsidiaries (“Non-Guarantor Restricted Subsidiaries”) have not guaranteed
these obligations.
The following condensed consolidating financial information is provided for HollyFrontier Corporation (the “Parent”), the
Guarantor Restricted Subsidiaries, the Non-Guarantor Restricted Subsidiaries and the Non-Guarantor Non-Restricted Subsidiaries.
The information has been presented as if the Parent accounted for its ownership in the Guarantor Restricted Subsidiaries, and the
Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Restricted Subsidiaries and Non-Guarantor
Non-Restricted Subsidiaries, using the equity method of accounting. The Guarantor Restricted Subsidiaries and the Non-Guarantor
Restricted Subsidiaries are collectively the “Restricted Subsidiaries.”
89
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Balance Sheet
December 31, 2014
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Intercompany accounts receivable
Inventories
Income taxes receivable
Prepayments and other
Total current assets
Properties, plants and equip, net
Investment in subsidiaries
Intangibles and other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Intercompany accounts payable
Income taxes payable
Accrued liabilities
Deferred income tax liabilities
Total current liabilities
Long-term debt
Liability to HEP
Deferred income tax liabilities
Other long-term liabilities
Investment in HEP
Equity – HollyFrontier
Equity – noncontrolling interest
Total liabilities and equity
$
565,080
474,068
5,107
—
—
11,719
14,734
1,070,708
31,808
5,912,233
30,082
$ 7,044,831
$
11,457
568,881
19,642
41,403
17,409
658,792
179,144
—
646,503
43,451
—
5,516,941
—
$ 7,044,831
$
$
$
$
— $
42
579,526
171,341
1,033,191
—
95,194
1,879,294
2,873,350
291,912
2,388,844
7,433,400
$
1,117,429
—
—
45,331
—
1,162,760
33,167
233,217
—
92,023
—
5,912,233
—
7,433,400
$
$
(In thousands)
75
—
3,774
397,540
—
—
—
401,389
902
—
25,000
427,291
2
—
—
1,382
—
1,384
—
—
—
—
133,995
291,912
—
427,291
$
— $
—
—
(568,881)
—
—
—
(568,881)
—
(6,204,145)
(25,000)
$ (6,798,026) $
$
— $
(568,881)
—
—
—
(568,881)
(25,000)
—
—
—
—
(6,204,145)
—
$ (6,798,026) $
565,155
474,110
588,407
—
1,033,191
11,719
109,928
2,782,510
2,906,060
—
2,418,926
8,107,496
1,128,888
—
19,642
88,116
17,409
1,254,055
187,311
233,217
646,503
135,474
133,995
5,516,941
—
8,107,496
$
$
$
$
2,830
—
40,129
—
1,940
—
2,443
47,342
1,024,311
—
362,919
1,434,572
17,881
—
—
26,321
—
44,202
867,579
—
367
47,170
—
380,172
95,082
1,434,572
$
$
$
$
— $
—
(38,631)
—
—
—
(8,223)
(46,854)
(259,832)
—
(4,742)
(311,428) $
(38,631) $
—
—
(8,223)
—
(46,854)
—
(233,217)
—
(5,886)
(133,995)
(373,529)
482,053
(311,428) $
567,985
474,110
589,905
—
1,035,131
11,719
104,148
2,782,998
3,670,539
—
2,777,103
9,230,640
1,108,138
—
19,642
106,214
17,409
1,251,403
1,054,890
—
646,870
176,758
—
5,523,584
577,135
9,230,640
90
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Balance Sheet
December 31, 2013
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Intercompany accounts receivable
Inventories
Income taxes receivable
Prepayments and other
Total current assets
Properties, plants and equip, net
Investment in subsidiaries
Intangibles and other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Intercompany accounts payable
Accrued liabilities
Deferred income tax liabilities
Total current liabilities
Long-term debt
Liability to HEP
Deferred income tax liabilities
Other long-term liabilities
Investment in HEP
Equity – HollyFrontier
Equity – noncontrolling interest
Total liabilities and equity
$
931,920
725,160
6,095
—
—
109,376
21,843
1,794,394
30,007
5,726,976
23,034
$ 7,574,411
$
16,704
463,530
43,254
223,999
747,487
180,054
—
616,506
35,874
—
5,994,490
—
$ 7,574,411
$
$
$
$
1,817
—
698,109
149,907
1,352,656
—
45,413
2,247,902
2,633,739
221,638
2,380,268
7,483,547
1,323,603
—
63,181
—
1,386,784
34,835
245,536
—
89,416
—
5,726,976
—
7,483,547
$
$
$
$
14
—
8,075
313,623
—
—
—
321,712
24
—
25,000
346,736
383
—
795
—
1,178
—
—
—
—
123,920
221,638
—
346,736
$
— $
—
—
(463,530)
—
—
—
(463,530)
—
(5,948,614)
(25,000)
$ (6,437,144) $
$
— $
(463,530)
—
—
(463,530)
(25,000)
—
—
—
—
(5,948,614)
—
$ (6,437,144) $
933,751
725,160
712,279
—
1,352,656
109,376
67,256
3,900,478
2,663,770
—
2,403,302
8,967,550
1,340,690
—
107,230
223,999
1,671,919
189,889
245,536
616,506
125,290
123,920
5,994,490
—
8,967,550
$
$
$
$
6,352
—
34,736
—
1,591
—
2,283
44,962
1,004,975
—
363,970
1,413,907
22,898
—
28,668
—
51,566
807,630
—
336
35,918
—
420,969
97,488
1,413,907
$
$
$
$
— $
—
(38,213)
—
—
—
(10,783)
(48,996)
(274,149)
—
(1,573)
940,103
725,160
708,802
—
1,354,247
109,376
58,756
3,896,444
3,394,596
—
2,765,699
(324,718) $ 10,056,739
1,325,376
(38,212) $
—
—
125,115
(10,783)
223,999
—
1,674,490
(48,995)
997,519
—
—
(245,536)
616,842
—
158,490
(2,718)
—
(123,920)
5,999,620
(415,839)
512,290
609,778
(324,718) $ 10,056,739
91
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Statement of Income and Comprehensive Income
Year Ended December 31, 2014
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
Sales and other revenues
Operating costs and expenses:
Cost of products sold
Lower of cost or market
inventory adjustment
Operating expenses
General and administrative
Depreciation and amortization
Total operating costs and
expenses
Income (loss) from operations
Other income (expense):
Earnings (loss) of equity
method investments
Interest income (expense)
Loss on early extinguishment of
debt
Gain (loss) on sale of assets
Income before income taxes
Income tax provision
Net income
Less net income attributable to
noncontrolling interest
Net income attributable to
HollyFrontier stockholders
Comprehensive income
attributable to HollyFrontier
stockholders
$
558
$ 19,706,833
$
937
$
(In thousands)
— $
19,708,328
$
332,626
$
(276,627) $ 19,764,327
—
—
4,660
98,200
8,041
17,500,601
397,478
1,036,911
4,914
309,101
110,901
19,249,005
(110,343)
457,828
531,542
(2,390)
—
1,422
530,574
420,231
140,937
279,294
66,227
8,043
—
(556)
73,714
531,542
—
531,542
—
—
—
671
7
678
259
—
—
—
—
—
—
—
70,369
(602,763)
568
—
—
70,937
71,196
—
71,196
—
—
—
(602,763)
(602,763)
—
(602,763)
17,500,601
397,478
1,041,571
103,785
317,149
19,360,584
347,744
65,375
6,221
—
866
72,462
420,206
140,937
279,269
—
—
104,801
10,824
60,548
176,173
156,453
2,987
(36,098)
(7,677)
—
(40,788)
115,665
235
115,430
(272,216)
17,228,385
—
(1,432)
—
(14,316)
397,478
1,144,940
114,609
363,381
(287,964)
19,248,793
11,337
515,534
(70,369)
(9,339)
—
—
(79,708)
(68,371)
—
(68,371)
(2,007)
(39,216)
(7,677)
866
(48,034)
467,500
141,172
326,328
—
—
(25)
—
(25)
8,288
36,773
45,036
$
$
279,294
306,366
$
$
531,542
587,294
$
$
71,221
71,259
$
$
(602,763) $
279,294
(658,553) $
306,366
$
$
107,142
107,181
$
$
(105,144) $
281,292
(105,183) $
308,364
92
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Statement of Income and Comprehensive Income
Year Ended December 31, 2013
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
Sales and other revenues
Operating costs and expenses:
Cost of products sold
Operating expenses
General and administrative
Depreciation and amortization
Total operating costs and
expenses
Income (loss) from operations
Other income (expense):
Earnings of equity method
investments
Interest income (expense)
Loss on early extinguishment of
debt
Income before income taxes
Income tax provision
Net income
Less net income attributable to
noncontrolling interest
Net income attributable to
HollyFrontier stockholders
Comprehensive income
attributable to HollyFrontier
stockholders
$
878
$ 20,105,726
$
153
$
(In thousands)
— $
20,106,757
$
307,053
$
(253,250) $ 20,160,560
—
—
113,231
5,548
17,641,119
995,194
2,752
247,514
118,779
18,886,579
(117,901)
1,219,147
1,280,868
(15,849)
(22,109)
1,242,910
1,125,009
391,243
733,766
52,752
8,969
—
61,721
1,280,868
—
1,280,868
—
—
733,766
$
1,280,868
743,013
$
1,258,370
$
$
$
$
—
—
231
—
231
(78)
—
—
—
—
—
—
57,186
(1,338,518)
—
—
(1,338,518)
(1,338,518)
—
(1,338,518)
542
—
57,728
57,650
—
57,650
—
17,641,119
995,194
116,214
253,062
19,005,589
1,101,168
52,288
(6,338)
(22,109)
23,841
1,125,009
391,243
733,766
—
—
57,650
$ (1,338,518) $
733,766
59,470
$ (1,317,840) $
743,013
$
$
—
97,081
11,749
64,701
173,531
133,522
2,826
(46,849)
—
(44,023)
89,499
333
89,166
6,632
82,534
84,354
(248,892)
(1,425)
—
(14,317)
17,392,227
1,090,850
127,963
303,446
(264,634)
18,914,486
11,384
1,246,074
(57,186)
(9,307)
—
(66,493)
(55,109)
—
(55,109)
(2,072)
(62,494)
(22,109)
(86,675)
1,159,399
391,576
767,823
25,349
31,981
(80,458) $
735,842
(82,278) $
745,089
$
$
Condensed Consolidating Statement of Income and Comprehensive Income
Year Ended December 31, 2012
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
Sales and other revenues
Operating costs and expenses:
Cost of products sold
Operating expenses
General and administrative
Depreciation and amortization
Total operating costs and
expenses
Income (loss) from operations
Other income (expense):
Earnings of equity method
investments
Interest income (expense)
Gain on sale of marketable
securities
Income before income taxes
Income tax provision
Net income
Less net income attributable to
noncontrolling interest
Net income attributable to
HollyFrontier stockholders
Comprehensive income
attributable to HollyFrontier
stockholders
$
494
$ 20,043,335
$
174
$
(In thousands)
— $
20,044,003
$
288,501
$
(241,780) $ 20,090,724
—
—
118,860
4,172
16,078,948
906,098
1,519
181,735
123,032
17,168,300
(122,538)
2,875,035
2,921,077
(41,564)
—
2,879,513
2,756,975
1,027,591
1,729,384
49,347
(3,631)
326
46,042
2,921,077
—
2,921,077
—
—
$ 1,729,384
$
2,921,077
$ 1,643,086
$
2,728,675
$
$
—
—
128
—
128
46
—
—
—
—
—
—
49,066
(2,970,865)
—
—
(2,970,865)
(2,970,865)
—
(2,970,865)
676
—
49,742
49,788
—
49,788
—
16,078,948
906,098
120,507
185,907
17,291,460
2,752,543
48,625
(44,519)
326
4,432
2,756,975
1,027,591
1,729,384
—
—
49,788
$ (2,970,865) $
1,729,384
50,610
$ (2,779,285) $
1,643,086
$
$
93
—
89,395
7,594
57,789
154,778
133,723
3,364
(57,219)
—
(53,855)
79,868
371
79,497
1,153
78,344
79,166
(238,305)
(527)
—
(828)
15,840,643
994,966
128,101
242,868
(239,660)
17,206,578
(2,120)
2,884,146
(49,066)
2,338
—
(46,728)
(48,848)
—
(48,848)
2,923
(99,400)
326
(96,151)
2,787,995
1,027,962
1,760,033
31,708
32,861
(80,556) $
1,727,172
(81,378) $
1,640,874
$
$
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2014
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
(In thousands)
$
174,022
$
880,213
$
1,187
$
(403,090) $
652,332
$
186,757
$
(80,493) $
758,596
Cash flows from operating
activities (1)
Cash flow from investing
activities
Additions to properties, plants
and equipment
Additions to properties, plants
and equipment – HEP
Proceeds from sale of assets
Purchases of marketable
securities
Sales and maturities of
marketable securities
Other, net
Net intercompany advances
Cash flows from financing
activities
Net borrowings under credit
agreement – HEP
Redemption of senior notes -
HEP
Purchase of treasury stock
Dividends
Distributions to noncontrolling
interest
Excess tax benefit from equity-
based compensation
Other, net
Net receipt of intercompany
advances
Distributions to Parent (1)
Cash and cash equivalents
Increase (decrease) for the
period
Beginning of period
End of period
—
(719)
(1,628)
—
25,281
25,281
(9,769)
(474,324)
(909)
—
—
(1,025,560)
1,276,447
—
—
241,118
—
—
(158,847)
(647,197)
—
2,040
(3,257)
25,281
—
(781,980)
—
16,633
(42)
—
5,021
(24,562)
(477,274)
—
—
—
—
—
—
(1,666)
—
(403,090)
(404,756)
(366,840)
931,920
565,080
$
$
(1,817)
1,817
— $
—
—
—
—
—
—
—
—
—
—
502
—
—
502
61
14
75
—
—
—
—
—
—
—
—
—
—
—
—
(25,281)
403,090
377,809
(485,002)
—
—
16,633
(1,025,602)
1,276,447
5,021
—
(212,503)
—
—
(158,847)
(647,197)
(79,819)
—
—
—
—
—
(79,819)
208,000
(156,188)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(485,002)
(79,819)
16,633
(1,025,602)
1,276,447
5,021
—
(292,322)
208,000
(156,188)
(158,847)
(647,197)
—
(158,695)
80,493
(78,202)
2,040
(4,421)
—
—
(808,425)
—
(3,577)
—
—
(110,460)
—
—
—
—
80,493
2,040
(7,998)
—
—
(838,392)
—
—
— $
(368,596)
933,751
565,155
$
(3,522)
6,352
2,830
$
$
—
—
— $
(372,118)
940,103
567,985
(1) Parent operating cash flows include cash inflows of $403.1 million, $806.0 million, and $2,727.6 million for the years ended
December 31, 2014, 2013 and 2012, respectively, representing distributions of earnings from the Restricted Subsidiaries.
94
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2013
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
(In thousands)
$
448,297
$
1,044,492
$
70,977
$
(805,981) $
757,785
$
182,799
$
(71,410) $
869,174
Cash flows from operating
activities (1)
Cash flows from investing
activities:
Additions to properties, plants
and equipment
Additions to properties, plants
and equipment – HEP
Proceeds from sale of assets
Acquisition of trucking
operations
Purchases of marketable
securities
Sales and maturities of
marketable securities
Other, net
Net intercompany advances
Cash flows from financing
activities:
Net borrowings under credit
agreement – HEP
Redemption of senior notes
Proceeds from common unit
offerings - HEP
Purchase of treasury stock
Contribution from general
partner
Dividends
Distributions to noncontrolling
interest
Excess tax benefit from equity-
based compensation
Other, net
Net repayment of intercompany
advances
Distributions to Parent (1)
Cash and cash equivalents
Increase (decrease) for the
period:
Beginning of period
End of period
(11,727)
(361,520)
(24)
—
—
—
(935,512)
846,135
—
—
(101,104)
—
(300,973)
73,444
(225,023)
—
(645,920)
—
2,562
—
(68,171)
—
(1,164,081)
—
5,071
(11,301)
—
8
(8,740)
137,613
(238,869)
—
—
—
—
—
—
—
—
(1,477)
—
(805,981)
(807,458)
—
—
—
—
—
—
—
—
—
—
—
—
(69,442)
(69,466)
—
(68,171)
(68,171)
—
—
—
—
(1,499)
—
—
—
—
—
—
(1,499)
—
—
—
—
—
—
—
—
—
68,171
805,981
874,152
(373,271)
—
—
5,071
(11,301)
(935,512)
846,143
(8,740)
—
(477,610)
—
(300,973)
73,444
(225,023)
(1,499)
(645,920)
(51,856)
2,731
—
—
—
—
—
(49,125)
(58,000)
—
73,444
—
1,499
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(373,271)
(51,856)
7,802
(11,301)
(935,512)
846,143
(8,740)
—
(526,735)
(58,000)
(300,973)
146,888
(225,023)
—
(645,920)
—
(142,611)
71,410
(71,201)
2,562
(1,477)
—
—
(1,098,886)
—
(6,891)
—
—
(132,559)
—
—
—
2,562
(8,368)
—
—
71,410
—
(1,160,035)
(816,888)
1,748,808
931,920
$
$
(1,835)
3,652
1,817
$
12
2
14
$
—
—
— $
(818,711)
1,752,462
933,751
$
1,115
5,237
6,352
$
—
(817,596)
—
— $
1,757,699
940,103
95
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2012
Parent
Guarantor
Restricted
Subsidiaries
Non-
Guarantor
Restricted
Subsidiaries
HollyFrontier
Corp. Before
Consolidation
of HEP
Non-Guarantor
Non-Restricted
Subsidiaries
(HEP Segment)
Consolidations
and
Eliminations
Eliminations
Consolidated
(In thousands)
$ 1,571,928
$
2,656,514
$
63,759
$ (2,727,561) $
1,564,640
$
162,036
$
(63,989) $
1,662,687
Cash flows from operating
activities (1)
Cash flows from investing
activities:
Additions to properties, plants
and equipment
Additions to properties, plants
and equipment – HEP
Payments received on
promissory notes
Purchases of marketable
securities
Sales and maturities of
marketable securities
Other, net
Net intercompany advances
Cash flows from financing
activities:
Net borrowings under credit
agreement – HEP
Proceeds from issuance of
common units – HEP
Redemptions of senior notes
Principal tender on senior notes
Purchase of treasury stock
Contribution from general
partner
Distribution from HEP upon
UNEV transfer
Dividends
Distributions to noncontrolling
interest
Excess tax benefit from equity-
based compensation
Other, net
Net receipt of intercompany
advances
Distributions to Parent (1)
Cash and cash equivalents
Increase (decrease) for the
period:
Beginning of period
End of period
(7,965)
(282,369)
—
—
(671,552)
296,780
—
—
(382,737)
—
—
(205,000)
—
(209,600)
—
—
(658,085)
—
23,361
8,620
24,430
—
—
—
931
(2,000)
101,943
(181,495)
—
—
—
—
—
—
260,922
—
—
—
(1,370)
—
—
72,900
—
—
—
—
—
—
—
—
(126,373)
(53,473)
—
24,430
24,430
—
—
—
—
—
(10,286)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(24,430)
2,727,561
2,703,131
(290,334)
—
—
(44,929)
72,900
(72,900)
(671,552)
297,711
(2,000)
—
(593,275)
—
—
(205,000)
—
(209,600)
(10,286)
260,922
(658,085)
—
—
—
—
(117,829)
221,000
294,750
—
(185,000)
—
10,286
(260,922)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(290,334)
(44,929)
—
(671,552)
297,711
(2,000)
—
(711,104)
221,000
294,750
(205,000)
(185,000)
(209,600)
—
—
(658,085)
—
(122,777)
63,989
(58,788)
23,361
7,250
—
—
(791,438)
—
(2,676)
—
—
(45,339)
—
—
—
—
63,989
23,361
4,574
—
—
(772,788)
—
(1,016,274)
(2,727,561)
(2,468,009)
—
(10,286)
172,917
1,575,891
$ 1,748,808
$
7,010
(3,358)
3,652
$
—
2
2
$
—
—
— $
179,927
1,572,535
1,752,462
$
(1,132)
6,369
5,237
$
—
—
— $
178,795
1,578,904
1,757,699
96
Table of Contents
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 21: Significant Customers
All revenues are domestic revenues, except for sales of fuel oil for export into Mexico. We have two significant customers (Shell
Oil and Sinclair), each of which has historically accounted for 10% or more of our annual revenues. Shell Oil accounted for
$2,097.4 million (11%), $1,830.5 million (9%) and $2,323.6 million (12%) for the years ended December 31, 2014, 2013 and
2012, respectively, and Sinclair accounted for $2,018.8 million (10%), $2,134.3 million (11%) and $2,106.6 million (10%) of our
revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Our export sales were less than 3% of our revenues
for the years ended December 31, 2014, 2013 and 2012.
NOTE 22: Quarterly Information (Unaudited)
First
Quarter
Second
Quarter
Third
Quarter
(In thousands, except per share data)
Fourth
Quarter (1)
Year
Year Ended December 31, 2014
Sales and other revenues
Operating costs and expenses
Income (loss) from operations (1)
Income (loss) before income taxes
Net income (loss) attributable to
HollyFrontier stockholders
Net income (loss) per share attributable to
HollyFrontier stockholders - basic
Net income (loss) per share attributable to
HollyFrontier stockholders - diluted
Dividends per common share
Average number of shares of common
stock outstanding:
Basic
Diluted
Year Ended December 31, 2013
Sales and other revenues
Operating costs and expenses
Income from operations
Income before income taxes
Net income attributable to HollyFrontier
stockholders
Net income per share attributable to
HollyFrontier stockholders - basic
Net income per share attributable to
HollyFrontier stockholders - diluted
Dividends per common share
Average number of shares of common
stock outstanding:
Basic
Diluted
$ 4,791,053
$ 4,520,057
270,996
$
251,576
$
$ 5,372,600
$ 5,076,255
296,345
$
286,485
$
$ 5,317,555
$ 5,014,944
302,611
$
290,774
$
$ 4,283,119
$ 4,637,537
$
$
(354,418) $
(361,335) $
$ 19,764,327
$ 19,248,793
515,534
467,500
$
$
$
$
152,061
0.76
0.76
0.80
$
$
$
$
176,429
0.89
0.89
0.82
$
$
$
$
175,006
0.88
0.88
0.82
$
$
$
$
(222,204) $
281,292
(1.13) $
(1.13) $
$
0.82
1.42
1.42
3.26
198,297
198,924
198,139
198,380
197,261
197,535
195,310
195,310
197,243
197,428
$ 4,707,789
$ 4,158,594
549,195
$
529,465
$
$ 5,298,848
$ 4,838,842
460,006
$
417,792
$
$ 5,327,122
$ 5,177,372
149,750
$
137,437
$
$ 4,826,801
$ 4,739,678
87,123
$
74,705
$
$ 20,160,560
$ 18,914,486
$ 1,246,074
$ 1,159,399
$
$
$
$
333,669
1.64
1.63
0.80
$
$
$
$
256,981
1.27
1.27
0.80
$
$
$
$
82,290
0.41
0.41
0.80
$
$
$
$
62,902
0.32
0.31
0.80
$
$
$
$
735,842
3.66
3.64
3.20
202,726
203,428
201,543
201,905
199,098
199,509
198,371
199,311
200,419
201,234
(1) Loss from operations for the fourth quarter of 2014 reflects a non-cash lower of cost or market inventory valuation charge of $397.5
million.
97
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
We have had no change in, or disagreement with, our independent registered public accountants on matters involving accounting
and financial disclosure.
Item 9A. 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
annual report on Form 10-K. 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, 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 December 31, 2014.
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.
See Item 8 for “Management's Report on its Assessment of the Company's Internal Control Over Financial Reporting” and “Report
of the Independent Registered Public Accounting Firm.”
Item 9B. Other Information
There have been no events that occurred in the fourth quarter of 2014 that would need to be reported on Form 8-K that have not
previously been reported.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K in response to this item will
be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 13, 2015 and is incorporated
herein by reference.
Item 11. Executive Compensation
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K in response to this item will be set forth in our
definitive proxy statement for the annual meeting of stockholders to be held on May 13, 2015 and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The equity compensation plan information required by Item 201(d) and the information required by Item 403 of Regulation S-K
in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on
May 13, 2015 and is incorporated herein by reference.
98
Table of Content
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Items 404 and 407(a) of Regulation S-K in response to this item will be set forth in our definitive
proxy statement for the annual meeting of stockholders to be held on May 13, 2015 and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 9(e) of Schedule 14A in response to this item will be set forth in our definitive proxy statement
for the annual meeting of stockholders to be held on May 13, 2015 and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this report
(1)
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Income for the years ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Equity for the years ended
December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(2)
Index to Consolidated Financial Statement Schedules
Page in
Form 10-K
54
55
56
57
58
59
60
All schedules are omitted since the required information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in the consolidated financial statements or
notes thereto.
(3)
Exhibits
The Exhibit Index on pages 102 to 109 of this Annual Report on Form 10-K lists the exhibits that are filed or furnished,
as applicable, as part of this Annual Report on Form 10-K.
99
Table of Content
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2015
HOLLYFRONTIER CORPORATION
(Registrant)
/s/ Michael C. Jennings
Michael C. Jennings
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and as of the date indicated.
Signature
Capacity
Date
/s/ Michael C. Jennings
Michael C. Jennings
/s/ Douglas S. Aron
Douglas S. Aron
/s/ J.W. Gann, Jr.
J.W. Gann, Jr.
/s/ Denise C. McWatters
Denise C. McWatters
/s/ Douglas Y. Bech
Douglas Y. Bech
/s/ Leldon Echols
Leldon Echols
/s/ R. Kevin Hardage
R. Kevin Hardage
/s/ Robert J. Kostelnik
Robert J. Kostelnik
/s/ James H. Lee
James H. Lee
/s/ Franklin Myers
Franklin Myers
/s/ Michael E. Rose
Michael E. Rose
/s/ Tommy A. Valenta
Tommy A. Valenta
Chairman of the Board, Chief
Executive Officer and President
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Senior Vice President, General
Counsel and Secretary
Director
Director
Director
Director
Director
Director
Director
Director
100
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
Table of Content
Exhibit
Number
Description
HOLLYFRONTIER CORPORATION
INDEX TO EXHIBITS
Exhibits are numbered to correspond to the exhibit table
in Item 601 of Regulation S-K
2.1
2.2
2.3
2.4
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Asset Sale and Purchase Agreement, dated October 19, 2009, between Holly Refining & Marketing-Tulsa LLC, HEP
Tulsa LLC and Sinclair Tulsa Refining Company (incorporated by reference to Exhibit 2.1 of Registrant's Current
Report on Form 8-K filed October 21, 2009, File No. 1-03876).
Amendment No. 1 to Asset Sale and Purchase Agreement, dated December 1, 2009, between Holly Refining &
Marketing-Tulsa LLC, HEP Tulsa LLC and Sinclair Tulsa Refining Company (incorporated by reference to Exhibit 2.1
of Registrant's Current Report on Form 8-K filed December 7, 2009, File No. 1-03876).
Asset Sale and Purchase Agreement, dated April 15, 2009, between Holly Refining & Marketing-Midcon, L.L.C. and
Sunoco, Inc. (incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K filed April 16, 2009,
File No. 1-03876).
Agreement and Plan of Merger among Holly Corporation, North Acquisition, Inc. and Frontier Oil Corporation, dated
February 21, 2011 (incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K filed February
22, 2011, File No. 1-03876).
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).
Amended and Restated Bylaws of HollyFrontier Corporation (incorporated by reference to Exhibit 3.1 of Registrant's
Current Report on Form 8-K filed February 20, 2014, File No. 1-03876).
Indenture, dated March 10, 2010, among Holly Energy Partners, L.P., Holly Energy Finance Corp., the Guarantors
and U.S. Bank National Association, providing for the issuance of 8.25% Senior Notes due 2018 (incorporated by
reference to Exhibit 4.1 of Holly Energy Partners, L.P.'s Current Report on Form 8-K filed March 11, 2010, File No.
1-32225).
First Supplemental Indenture, dated April 14, 2010, among Holly Energy Storage-Tulsa LLC, Holly Energy Storage-
Lovington LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors and U.S. Bank National
Association (incorporated by reference to Exhibit 4.3 of Holly Energy Partners, L.P.'s Quarterly Report on Form 10-
Q for the quarterly period ended June 30, 2010, File No. 1-32225).
Second Supplemental Indenture, dated June 4, 2010, among HEP Operations LLC, Holly Energy Partners, L.P., Holly
Energy Finance Corp., the other Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit
4.4 of Holly Energy Partners, L.P.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, File
No. 1-32225).
Third Supplemental Indenture, dated December 29, 2011, among Cheyenne Logistics LLC, El Dorado Logistics LLC,
Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors and U.S. Bank National Association
(incorporated by reference to Exhibit 4.16 of Holly Energy Partners, L.P.'s Annual Report on Form 10-K for its fiscal
year ended December 31, 2011, File No. 1-32225).
Fourth Supplemental Indenture, dated August 6, 2012, among HEP UNEV Holdings LLC, HEP UNEV Pipeline LLC,
Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors and U.S. Bank National Association
(incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2012, File No. 1-03876).
Indenture, dated November 22, 2010, among HollyFrontier Corporation (as successor-in-interest to Frontier Oil
Corporation), the Guarantors and Wells Fargo Bank, National Association, providing for the issuance of 6 7/8% Senior
Notes due 2018 (incorporated by reference to Exhibit 4.1 of Frontier Oil Corporation's Current Report on Form 8-K
filed November 22, 2010, File Number 1-07627).
First Supplemental Indenture, dated November 22, 2010, among HollyFrontier Corporation (as successor-in-interest
to Frontier Oil Corporation), the Guarantors and Wells Fargo Bank, National Association (incorporated by reference
to Exhibit 4.2 of Frontier Oil Corporation's Current Report on Form 8-K filed November 22, 2010, File Number
1-07627).
Second Supplemental Indenture, dated May 26, 2011, among HollyFrontier Corporation (as successor-in-interest to
Frontier Oil Corporation), the Guarantors and Wells Fargo Bank, National Association (incorporated by reference to
Exhibit 4.2 of Frontier Oil Corporation's Current Report on Form 8-K filed May 27, 2011, File No. 1-07627).
101
Table of Content
Exhibit
Number
Description
4.9
4.10
4.11
4.12
4.13
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Third Supplemental Indenture, dated July 1, 2011, among HollyFrontier Corporation (as successor-in-interest to
Frontier Oil Corporation), the Guarantors and Wells Fargo Bank, National Association (incorporated by reference to
Exhibit 4.1 of Registrant's Current Report on Form 8-K filed July 8, 2011, File No. 1-03876).
Fourth Supplemental Indenture, dated September 6, 2013, among HollyFrontier Corporation, as issuer (as successor-
in-interest to Frontier Oil Corporation), the Guarantors and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.1 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2013, File No. 1-03876).
Form of 6 7/8% Senior Note Due 2018 (incorporated by reference to Exhibit 4.3 of Frontier Oil Corporation's Current
Report on form 8-K filed November 22, 2010, file Number 1-07627).
Indenture, dated March 12, 2012, among Holly Energy Partners, L.P., Holly Energy Finance Corp., the Guarantors
and U.S. Bank National Association, providing for the issuance of 6.50% Senior Notes due 2020 (incorporated by
reference to Exhibit 4.1 of Holly Energy Partners, L.P.'s Current Report on Form 8-K filed March 12, 2012, File No.
1-32225).
First Supplemental Indenture, dated August 6, 2012, among HEP UNEV Holdings LLC, HEP UNEV Pipeline LLC,
Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors and U.S. Bank National Association
(incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2012, File No. 1-03876).
Amended and Restated Intermediate Pipelines Agreement, dated June 1, 2009, among Holly Corporation, Navajo
Refining Company, L.L.C, Holly Energy Partners, L.P., Holly Energy Partners – Operating, L.P., HEP Pipeline, L.L.C.,
Lovington-Artesia, L.L.C., HEP Logistics Holdings, L.P., Holly Logistics Services, L.L.C. and HEP Logistics GP,
L.L.C. (incorporated by reference to Exhibit 10.2 of Holly Energy Partners, L.P.'s Current Report on Form 8-K filed
June 5, 2009, File No. 1-32225).
Amendment to Amended and Restated Intermediate Pipelines Agreement, dated December 9, 2010, among Navajo
Refining Company, L.L.C, Holly Energy Partners, L.P., Holly Energy Partners – Operating, L.P., HEP Pipeline, L.L.C.,
Lovington-Artesia, L.L.C., HEP Logistics Holdings, L.P., Holly Logistics Services, L.L.C. and HEP Logistics GP,
L.L.C. (incorporated by reference to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 2010, File No. 1-03876).
Assignment and Assumption Agreement (Amended and Restated Intermediate Pipelines Agreement), effective January
1, 2011, between Navajo Refining Company, L.L.C. and Holly Refining & Marketing Company LLC (incorporated
by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2010,
File No. 1-03876).
Tulsa Equipment and Throughput Agreement, dated August 1, 2009, between Holly Refining & Marketing - Tulsa
LLC and HEP Tulsa LLC (incorporated by reference to Exhibit 10.3 of Holly Energy Partners L.P.'s Current Report
on Form 8-K filed August 6, 2009, File No. 1-32225).
Amendment to Tulsa Equipment and Throughput Agreement, dated December 9, 2010, among Holly Refining &
Marketing - Tulsa LLC and HEP Tulsa LLC (incorporated by reference to Exhibit 10.7 of Registrant's Annual Report
on Form 10-K for its fiscal year ended December 31, 2010, File No. 1-03876).
Assignment and Assumption Agreement (Tulsa Equipment and Throughput Agreement), effective January 1, 2011,
between Holly Refining & Marketing - Tulsa, LLC and Holly Refining & Marketing Company LLC (incorporated by
reference to Exhibit 10.8 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2010,
File No. 1-03876).
Tulsa Purchase Option Agreement, dated August 1, 2009, between Holly Refining & Marketing - Tulsa LLC and HEP
Tulsa LLC (incorporated by reference to Exhibit 10.4 of Holly Energy Partners L.P.'s Current Report on Form 8-K
filed August 6, 2009, File No. 1-32225).
Second Amended and Restated Crude Pipelines and Tankage Agreement, dated July 16, 2013, among Navajo Refining
Company, L.L.C., Holly Refining & Marketing Company - Woods Cross LLC, HollyFrontier Refining & Marketing
LLC, Holly Energy Partners-Operating, L.P., HEP Pipeline, LLC and HEP Woods Cross, L.L.C. (incorporated by
reference to Exhibit 10.3 of Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013,
File No. 1-03876).
102
Table of Content
Exhibit
Number
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Description
Amended and Restated Refined Product Pipelines and Terminals Agreement, dated December 1, 2009, among Navajo
Refining Company, L.L.C., Holly Refining & Marketing Company - Woods Cross, Holly Energy Partners - Operating,
L.P., HEP Pipeline Assets, Limited Partnership, HEP Pipeline, L.L.C., HEP Refining Assets, L.P., HEP Refining, L.L.C.,
HEP Mountain Home, L.L.C. and HEP Woods Cross, L.L.C. (incorporated by reference to Exhibit 10.9 of Holly Energy
Partners, L.P.'s Current Report on Form 8-K filed December 7, 2009, File No. 1-32225).
Assignment and Assumption Agreement (Amended and Restated Refined Product Pipelines and Terminals Agreement),
effective January 1, 2011, among Navajo Refining Company, L.L.C., Holly Refining & Marketing - Woods Cross and
Holly Refining & Marketing Company LLC (incorporated by reference to Exhibit 10.12 of Registrant's Annual Report
on Form 10-K for its fiscal year ended December 31, 2010, File No. 1-03876).
First Amendment to Amended and Restated Refined Product Pipelines and Terminals Agreement, dated November 7,
2013, effective September 30, 2013, among HollyFrontier Refining & Marketing LLC (formerly Holly Refining &
Marketing LLC), Holly Energy Partners - Operating, L.P., HEP Pipeline Assets, Limited Partnership, HEP Pipeline,
L.L.C., HEP Refining Assets, L.P., HEP Refining L.L.C., HEP Mountain Home, L.L.C. and HEP Woods Cross, L.L.C.
(incorporated by reference to Exhibit 10.14 of Registrant’s Annual Report on Form 10-K for its fiscal year ended
December 31, 2013, File No. 1-03876).
Second Amended and Restated Throughput Agreement (Tucson Terminal), dated September 19, 2013, effective June
1, 2013, among HollyFrontier Refining & Marketing LLC, HEP Refining, L.L.C. and Holly Energy Partners - Operating,
L.P. (incorporated by reference to Exhibit 10.5 of Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2013, File No. 1-03876).
Pipeline Throughput Agreement (Roadrunner), dated December 1, 2009, between Navajo Refining Company, L.L.C.
and Holly Energy Partners - Operating, L.P. (incorporated by reference to Exhibit 10.4 of Holly Energy Partners, L.P.'s
Current Report on Form 8-K filed December 7, 2009, File No. 1-32225).
Assignment and Assumption Agreement (Pipeline Throughput Agreement (Roadrunner)), effective January 1, 2011,
between Navajo Refining Company, L.L.C. and Holly Refining & Marketing Company LLC (incorporated by reference
to Exhibit 10.14 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2010, File No.
1-03876).
Assignment and Assumption Agreement (First Amended and Restated Pipelines, Tankage and Loading Rack
Throughput Agreement (Tulsa East)), effective January 1, 2011, between Holly Refining & Marketing - Tulsa LLC
and Holly Refining & Marketing Company LLC (incorporated by reference to Exhibit 10.17 of Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 2010, File No. 1-03876).
Second Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement, dated August 31, 2011,
between Holly Refining & Marketing - Tulsa LLC, HEP Tulsa LLC and Holly Energy Storage - Tulsa LLC (incorporated
by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed September 1, 2011, File No. 1-03876).
Indemnification Proceeds and Payments Allocation Agreement, dated December 1, 2009, between HEP Tulsa LLC
and Holly Refining & Marketing - Tulsa LLC (incorporated by reference to Exhibit 10.2 of Registrant's Current Report
on Form 8-K filed December 7, 2009, File No. 1-03876).
Pipeline Systems Operating Agreement, dated February 8, 2010, among Navajo Refining Company, L.L.C., Lea
Refining Company, Woods Cross Refining Company, L.L.C., Holly Refining & Marketing - Tulsa LLC and Holly
Energy Partners - Operating, L.P. (incorporated by reference to Exhibit 10.1 of Holly Energy Partners, L.P.'s Current
Report on Form 8-K filed February 9, 2010, File No. 1-32225).
First Amendment to Pipeline Systems Operating Agreement, dated March 31, 2010, among Navajo Refining Company,
L.L.C., Lea Refining Company, Woods Cross Refining Company, L.L.C., Holly Refining & Marketing - Tulsa LLC
and Holly Energy Partners - Operating, L.P. (incorporated by reference to Exhibit 10.5 of Registrant's Current Report
on Form 8-K filed April 6, 2010, File No. 1-03876).
Loading Rack Throughput Agreement (Lovington), dated March 31, 2010, between Navajo Refining Company, L.L.C.
and Holly Energy Storage-Lovington LLC (incorporated by reference to Exhibit 10.2 of Registrant's Current Report
on Form 8-K filed April 6, 2010, File No. 1-03876).
First Amended and Restated Lease and Access Agreement (East Tulsa), dated March 31, 2010, among Holly Refining
& Marketing-Tulsa, HEP Tulsa LLC and Holly Energy Storage-Tulsa LLC (incorporated by reference to Exhibit 10.4
of Registrant's Current Report on Form 8-K filed April 6, 2010, File No. 1-03876).
103
Table of Content
Exhibit
Number
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Description
LLC Interest Purchase Agreement, dated November 9, 2011, among HollyFrontier Corporation, Frontier Refining
LLC, Frontier El Dorado Refining LLC, Holly Energy Partners-Operating, L.P. and Holly Energy Partners, L.P.
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed November 10, 2011, File
No. 1-03876).
First Amended and Restated Tankage, Loading Rack and Crude Oil Receiving Throughput Agreement (Cheyenne),
dated November 11, 2011, between Frontier Refining LLC and Cheyenne Logistics LLC (incorporated by reference
to Exhibit 10.26 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2011, File No.
1-03876).
First Amended and Restated Pipeline Delivery, Tankage and Loading Rack Throughput Agreement (El Dorado), dated
November 11, 2011, between Frontier El Dorado Refining LLC and El Dorado Logistics LLC (incorporated by reference
to Exhibit 10.27 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2011, File No.
1-03876).
Second Amended and Restated Pipeline Delivery, Tankage and Loading Rack Throughput Agreement (El Dorado),
dated January 7, 2014, between Frontier El Dorado Refining LLC and El Dorado Logistics LLC (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed January 13, 2014, File No. 1-03876).
Eighth Amended and Restated Omnibus Agreement, dated July 16, 2013, among HollyFrontier Corporation, Holly
Energy Partners, L.P. and certain of their respective subsidiaries (incorporated by reference to Exhibit 10.2 of
Registrant's Current Report on Form 8-K filed July 22, 2013, File No. 1-03876).
Ninth Amended and Restated Omnibus Agreement, dated January 7, 2014, among HollyFrontier Corporation, Holly
Energy Partners, L.P. and certain of their respective subsidiaries (incorporated by reference to Exhibit 10.2 of
Registrant's Current Report on Form 8-K filed January 13, 2014, File No. 1-03876).
Tenth Amended and Restated Omnibus Agreement, dated September 26, 2014, by and among HollyFrontier
Corporation, Holly Energy Partners, L.P. and certain of their respective subsidiaries (incorporated by reference to
Exhibit 10.2 of Registrant's Current Report on Form 8-K filed September 29, 2014, File No. 1-03876).
Lease and Access Agreement (Cheyenne), dated November 9, 2011, between Frontier Refining LLC and Cheyenne
Logistics LLC (incorporated by reference to Exhibit 10.5 of Registrant's Current Report on Form 8-K filed November
10, 2011, File No. 1-03876).
First Amendment to Lease and Access Agreement (Cheyenne), effective June 5, 2012, between Frontier Refining LLC
and Cheyenne Logistics LLC. (incorporated by reference to Exhibit 10.32 of Registrant's Annual Report on Form 10-
K for its fiscal year ended December 31, 2013, File No. 1-03876).
Lease and Access Agreement (El Dorado), dated November 9, 2011, between Frontier El Dorado Refining LLC and
El Dorado Logistics LLC (incorporated by reference to Exhibit 10.6 of Registrant's Current Report on Form 8-K filed
November 10, 2011, File No. 1-03876).
First Amendment to Lease and Access Agreement ( El Dorado), effective August 15, 2012, between Frontier El Dorado
Refining LLC and El Dorado Logistics LLC. (incorporated by reference to Exhibit 10.34 of Registrant's Annual Report
on Form 10-K for its fiscal year ended December 31, 2013, File No. 1-03876).
Second Amendment to Lease and Access Agreement ( El Dorado), effective December 5, 2012, between Frontier El
Dorado Refining LLC and El Dorado Logistics LLC. (incorporated by reference to Exhibit 10.35 of Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 2013, File No. 1-03876).
Third Amendment to Lease and Access Agreement ( El Dorado), dated January 7, 2014, between Frontier El Dorado
Refining LLC and El Dorado Logistics LLC. (incorporated by reference to Exhibit 10.36 of Registrant's Annual Report
on Form 10-K for its fiscal year ended December 31, 2013, File No. 1-03876).
Credit Agreement, dated July 1, 2011, among HollyFrontier Corporation and certain of its subsidiaries, as borrowers,
Union Bank, N.A., as administrative agent and certain lenders from time to time party thereto (incorporated by reference
to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed July 8, 2011, File No. 1-03876).
First Amendment to Credit Agreement, dated August 24, 2011, among HollyFrontier Corporation and certain of its
subsidiaries, as borrowers, Union Bank, N.A, as administrative agent and certain lenders from time to time party thereto
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed August 30, 2011, File No.
1-03876).
104
Table of Content
Exhibit
Number
10.37
10.38
10.39
10.40
10.41
10.42
10.43
Description
Second Amendment to Credit Agreement and First Amendment to Guarantee and Collateral Agreement, dated March
19, 2013, among HollyFrontier Corporation and certain of its subsidiaries, as borrowers, Union Bank, N.A., as
administrative agent and certain lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 of
Registrant's Current Report on Form 8-K filed March 21, 2013, File No. 1-03876).
Guarantee and Collateral Agreement, dated July 1, 2011, among HollyFrontier Corporation and certain of its subsidiaries
in favor of Union Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2 of Registrant's Current
Report on Form 8-K filed July 8, 2011, File No. 1-03876).
Senior Unsecured 5-Year Revolving Credit Agreement, dated July 1, 2014, among HollyFrontier Corporation, as
borrower, Union Bank, N. A. as administrative agent, and each of the financial institutions party thereto as lenders
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed July 8, 2014, File No.
1-03876).
Subsidiary Guarantee, Dated July 1, 2014, by certain subsidiaries of HollyFrontier Corporation in favor of Union Bank,
N. A. as administrative agent (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K
filed July 8, 2014, File No. 1-03876).
Frontier Products Offtake Agreement El Dorado Refinery, dated October 19, 1999, between Frontier Oil and Refining
Company and Equiva Trading Company (now Shell Oil Products US, assignee of Equiva Trading Company) (“the
Agreement”) and First Amendment to the Agreement dated September 18, 2000, Second Amendment to the Agreement
dated September 21, 2000, Third Amendment to the Agreement dated December 19, 2000, Fourth Amendment to the
Agreement dated February 22, 2001, Fifth Amendment to the Agreement dated August 14, 2001, Sixth Amendment
to the Agreement dated November 5, 2001, Seventh Amendment to the Agreement dated April 22, 2002, Eighth
Amendment to the Agreement date d May 30, 2003, Ninth Amendment to the Agreement dated May 25, 2004, Tenth
Amendment to the Agreement dated May 3, 2005, Eleventh Amendment to the Agreement dated March 31, 2006,
Twelfth Amendment to the Agreement dated May 11, 2006, Thirteenth Amendment to the Agreement dated September
30, 2007, Fourteenth Amendment to the Agreement dated May 1, 2008 and Fifteenth Amendment to the Agreement
dated May 28, 2008 (incorporated by reference to Exhibit 10.1 to Frontier Oil Corporation's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2008, File No. 1-07627).
Sixteenth Amendment dated November 1, 2009, to the Frontier Products Offtake Agreement El Dorado Refinery, dated
October 19, 1999, between Frontier Oil and Refining Company and Equiva Trading Company (now Shell Oil Products
US, assignee of Equiva Trading Company) (incorporated by reference to Exhibit 10.14 to Frontier Oil Corporation's
Annual Report on Form 10-K for its fiscal year ended December 31, 2009, File No. 1-07627).
Seventeenth Amendment, dated August 27, 2013, to the Frontier Products Offtake Agreement El Dorado Refinery,
dated October 19, 1999, between Frontier Oil and Refining Company (now HollyFrontier Refining & Marketing LLC,
as successor-by-merger to Frontier Oil and Refining Company) and Equiva Trading Company (now Shell Oil Products
US, assignee of Equiva Trading Company) (incorporated by reference to Exhibit 10.5 of Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2013, File No. 1-03876).
10.44 Master Crude Oil Purchase and Sale Contract, dated November 1, 2010, among BNP Paribas Energy Trading GP, BNP
Paribas Energy Trading Canada Corp., Frontier Oil and Refining Company and Frontier Oil Corporation (incorporated
by reference to Exhibit 10.1 to Frontier Oil Corporation's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2010, File No. 1-07627).
10.45
10.46
10.47
10.48
Guaranty, dated November 1, 2010, by Frontier Oil Corporation in favor of BNP Paribas Energy Trading GP and BNP
Paribas Energy Trading Canada Corp. (incorporated by reference to Exhibit 10.1 to Frontier Oil Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2010, File No. 1-07627).
LLC Interest Purchase Agreement, dated July 12, 2012, among HollyFrontier Corporation, Holly Energy Partners, L.P.
and HEP UNEV Holdings LLC (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2012, File No. 1-03876).
Limited Partial Waiver of Incentive Distribution Rights under the First Amended and Restated Agreement of Limited
Partnership of Holly Energy Partners, L.P., dated July 12, 2012 (incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, File No. 1-03876).
Amended and Restated Limited Liability Company Agreement of HEP UNEV Holdings LLC, dated July 12, 2012,
among HEP UNEV Holdings LLC, HollyFrontier Holdings LLC and Holly Energy Partners, L.P. (incorporated by
reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2012, File No. 1-03876).
105
Table of Content
Exhibit
Number
10.49
10.50
10.51
10.52
10.53
10.54
Description
Transportation Services Agreement, dated July 16, 2013, between HollyFrontier Refining & Marketing LLC and Holly
Energy Partners-Operating, L.P. (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-
K filed July 22, 2013, File No. 1-03876).
Amended and Restated Transportation Services Agreement dated September 26, 2014, by and between HollyFrontier
Refining & Marketing LLC and Holly Energy Partners - Operating L.P. (incorporated by reference to Exhibit 10.1 of
Registrant's Current Report on Form 8-K filed September 29, 2014, File No. 1-03876).
Refined Products Purchase Agreement, dated December 1, 2009, between Holly Refining & Marketing - Tulsa LLC
and Sinclair Tulsa Refining Company (incorporated by reference to Exhibit 10.4 of Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2013, File No. 1-03876).
First Amendment to Refined Products Purchase Agreement, dated May 17, 2010, between Holly Refining & Marketing
- Tulsa LLC and Sinclair Tulsa Refining Company (incorporated by reference to Exhibit 10.5 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2013, File No. 1-03876).
Second Amendment to Refined Products Purchase Agreement, dated December 19, 2011, between HollyFrontier
Refining & Marketing LLC and Sinclair Oil Corporation (incorporated by reference to Exhibit 10.6 of Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, File No 1-03876).
Third Amendment to Refined Products Purchase Agreement, dated June 1, 2012, between HollyFrontier Refining &
Marketing LLC and Sinclair Oil Corporation (incorporated by reference to Exhibit 10.7 of Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2013, File No. 1-03876).
10.55*
Fourth Amendment to Refined Products Purchase Agreement dated February 27, 2014, between HollyFrontier Refining
& Marketing LLC and Sinclair Oil Corporation.
10.56*
Fifth Amendment to Refined Products Purchase Agreement dated June 23, 2014, between HollyFrontier Refining &
Marketing LLC and Sinclair Oil Corporation.
10.57+ HollyFrontier Corporation Long-Term Incentive Compensation Plan (formerly the Holly Corporation Long-Term
Incentive Compensation Plan), as amended and restated on May 24, 2007 as approved at the Annual Meeting of
Stockholders of Holly Corporation on May 24, 2007 (incorporated by reference to Exhibit 10.4 of Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 2008, File No. 1-03876).
10.58+
First Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by reference
to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2008, File No.
1-03876).
10.59+
Second Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed May 18, 2011, File No. 1-03876).
10.60+ Third Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by
reference to Exhibit 4.6 of the Registrant's Registration Statement on Form S-8 filed November 9, 2012, File No.
333-184877).
10.61+ Holly Corporation – Supplemental Payment Agreement for 2001 Service as Director (incorporated by reference to
Exhibit 10.19 of Registrant's Annual Report on Form 10-K for its fiscal year ended July 31, 2002, File No. 1-03876).
10.62+ Holly Corporation – Supplemental Payment Agreement for 2002 Service as Director (incorporated by reference to
Exhibit 10.20 of Registrant's Annual Report on Form 10-K for its fiscal year ended July 31, 2002, File No. 1-03876).
10.63+ Holly Corporation – Supplemental Payment Agreement for 2003 Service as Director (incorporated by reference to
Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2003, File No.
1-03876).
10.64+ Holly Corporation Amended and Restated Change in Control Agreement Policy (incorporated by reference to Exhibit
10.1 of Registrant's Current Report on Form 8-K filed March 1, 2011, File No. 1-03876).
10.65+ Holly Corporation Employee Form of Change in Control Agreement (for grandfathered Holly Corporation employees)
(incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K filed February 20, 2008, File
No. 1-03876).
10.66+ HollyFrontier Corporation Form of Change in Control Agreement (for legacy Frontier Oil Corporation executives)
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed February 24, 2012, File
No. 1-03876).
106
Table of Content
Exhibit
Number
Description
10.67+ HollyFrontier Corporation Form of Amendment to Change in Control Agreement for Chief Executive Officer and
Chief Financial Officer (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed
May 10, 2012, File No. 1-03876).
10.68+ HollyFrontier Corporation Form of Change in Control Agreement (for legacy Holly Corporation employees)
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed March 30, 2012, File No.
1-03876).
10.69+ HollyFrontier Corporation Form of Change in Control Agreement (for HollyFrontier Corporation new hires and
promotes) (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K filed March 30, 2012,
File No. 1-03876).
10.70+ HollyFrontier Corporation Form of Amendment to Change in Control Agreement for David L. Lamp and George J.
Damiris (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed March 14, 2013,
File No. 1-03876).
10.71+
Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.5 of Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2009, File No. 1-03876).
10.72+
Form of Employee Restricted Stock Agreement [time based vesting] (incorporated by reference to Exhibit 10.10 of
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, File No. 1-03876).
10.73+
Form of Performance Share Unit Agreement (for 162(m) covered employees) (incorporated by reference to Exhibit
4.11 of the Registrant's Registration Statement on Form S-8 filed November 9, 2012, File No. 333-184877).
10.74+
Form of Performance Share Unit Agreement (for non-162(m) covered employees) (incorporated by reference to Exhibit
4.12 of the Registrant's Registration Statement on Form S-8 filed November 9, 2012, File No. 333-184877).
10.75+
Form of Restricted Stock Agreement (time-based vesting) (incorporated by reference to Exhibit 4.13 of the Registrant's
Registration Statement on Form S-8 filed November 9, 2012, File No. 333-184877).
10.76+
Form of Notice of Grant of Restricted Stock (incorporated by reference to Exhibit 4.14 of the Registrant's Registration
Statement on Form S-8 filed November 9, 2012, File No. 333-184877).
10.77*
Form of Performance Share Unit Agreement (for 162(m) covered employees).
10.78*
Form of Performance Share Unit Agreement (for non-162(m) covered employees).
10.79+
Form of Restricted Stock Unit Agreement (for non-employee directors) (incorporated by reference to Exhibit 10.63
of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2012, File No. 1-03876).
10.80+
Form of Notice of Grant of Restricted Stock Units (for non-employee directors) (incorporated by reference to Exhibit
10.64 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2012, File No. 1-03876).
10.81+
Form of Indemnification Agreement entered into with directors and officers of Holly Corporation (incorporated by
reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed December 13, 2006, File No. 1-03876).
10.82+ Retention and Assumption Agreement, dated February 21, 2011, among Frontier Oil Corporation, Holly Corporation
and Michael C. Jennings (incorporated by reference to Exhibit 10.1 to Frontier Oil Corporation's Current Report on
Form 8-K filed February 21, 2011, File No. 1-07627).
10.83+ Retention and Assumption Agreement, dated February 21, 2011, among Frontier Oil Corporation, Holly Corporation
and Doug S. Aron (incorporated by reference to Exhibit 10.2 to Frontier Oil Corporation's Current Report on Form 8-
K filed February 21, 2011, File No. 1-07627).
10.84+ HollyFrontier Corporation Omnibus Incentive Compensation Plan (formerly the Frontier Oil Corporation Omnibus
Incentive Compensation Plan) (incorporated by reference to Exhibit 10.5 of Registrant's Current Report on Form 8-K
filed July 8, 2011, File No. 1-03876).
10.85+
10.86+
Form of Frontier Oil Corporation Omnibus Incentive Compensation Plan Stock Unit Agreement with Double Trigger
Vesting (incorporated by reference to Exhibit 10.15 of Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2011, File No. 1-03876).
Form of Frontier Oil Corporation Omnibus Incentive Compensation Plan Restricted Stock Agreement with Double
Trigger Vesting (incorporated by reference to Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2011, File No. 1-03876).
107
Table of Content
Exhibit
Number
Description
10.87+
10.88+
10.89+
HollyFrontier Corporation Executive Nonqualified Deferred Compensation Plan (formerly the Frontier Deferred
Compensation Plan) (incorporated by reference to Exhibit 10.73 of Registrant's Annual Report on Form 10-K for its
fiscal year ended December 31, 2012, File No. 1-03876).
Form of Indemnification Agreement between Frontier and each of its officers and directors (incorporated by reference
to Exhibit 10.41 to Frontier Oil Corporation's Annual Report on Form 10-K for its fiscal year ended December 31,
2006, File No. 1-07627).
Form of Indemnification Agreement between HollyFrontier Corporation and each of its officers and directors
(incorporated by reference to Exhibit 10.79 of Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 2011, File No. 1-03876).
21.1*
Subsidiaries of Registrant.
23.1*
Consent of Independent Registered Public Accounting Firm.
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 Registrant's Annual Report on Form 10-K for its fiscal year ended December
31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated
Statements of Cash Flows, (v) Consolidated Statements of Equity, and (vi) Notes to the Consolidated Financial
Statements.
* Filed herewith.
** Furnished herewith.
+ Constitutes management contracts or compensatory plans or arrangements.
++ Filed electronically herewith.
108
I, Michael C. Jennings, certify that:
CERTIFICATION
Exhibit 31.1
1.
I have reviewed this annual report on Form 10-K of HollyFrontier Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting
Date: February 25, 2015
/s/ Michael C. Jennings
Michael C. Jennings
Chief Executive Officer and President
I, Douglas S. Aron, certify that:
CERTIFICATION
Exhibit 31.2
1.
I have reviewed this annual report on Form 10-K of HollyFrontier Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant's most recent fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 25, 2015
/s/ Douglas S. Aron
Douglas S. Aron
Executive Vice President and Chief Financial
Officer
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER UNDER SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350
Exhibit 32.1
In connection with the accompanying report on Form 10-K for the period ending December 31, 2014 and filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Jennings, Chief Executive Officer of
HollyFrontier Corporation (the “Company”) hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act
of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 25, 2015
/s/ Michael C. Jennings
Michael C. Jennings
Chief Executive Officer and President
CERTIFICATION OF CHIEF FINANCIAL
OFFICER UNDER SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350
Exhibit 32.2
In connection with the accompanying report on Form 10-K for the period ending December 31, 2014 and filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas S. Aron, Chief Financial Officer of HollyFrontier
Corporation (the “Company”) hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act
of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 25, 2015
/s/ Douglas S. Aron
Douglas S. Aron
Executive Vice President and Chief Financial
Officer
CORPORATE INFORMATION
CORPORATE OFFICERS
STOCK TRANSFER AGENT AND REGISTRAR
Michael C. Jennings
Chief Executive Officer and President
Doug S. Aron
Executive Vice President and
Chief Financial Officer
George J. Damiris
Executive Vice President and
Chief Operating Officer
James M. Stump
Senior Vice President, Refining Operations
Denise C. McWatters
Senior Vice President, General Counsel
and Secretary
J.W. Gann Jr.
Vice President, Controller and
Chief Accounting Officer
BOARD OF DIRECTORS
Michael C. Jennings
Chairman of the Board
Douglas Y. Bech
Leldon E. Echols
R. Kevin Hardage
Robert J. Kostelnik
James H. Lee
Franklin Myers
Michael E. Rose
Tommy A. Valenta
CORPORATE OFFICE
HollyFrontier Corporation
2828 North Harwood, Suite 1300
Dallas, TX 75201-1507
214.871.3555
www.hollyfrontier.com
AUDITORS
Ernst & Young LLP
Dallas, Texas
STOCK EXCHANGE LISTING
New York Stock Exchange
Ticker Symbol: HFC
Wells Fargo Shareowner Services
1110 Centre Point Curve, Suite 101
Mendota Heights, MN 55120
1.800.468.9716
www.shareownerline.com
Correspondence or questions concerning share
holdings, transfers, lost certificates, dividends,
or address or registration changes should be
directed to Wells Fargo Shareowner Services.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at
8:30 a.m. on May 13, 2015, at the DoubleTree by Hilton
Hotel Tulsa Downtown, 616 West Seventh Street,
Tulsa, Oklahoma.
SEC FILINGS
A direct link to the filings of HollyFrontier Corporation
at the U.S. Securities and Exchange Commission website
is available on the HollyFrontier Corporation website at
www.hollyfrontier.com on the Investor Relations page.
STOCK PERFORMANCE
Set forth is a line graph comparing, for the period commencing January 1,
2010, and ending December 31, 2014, the annual percentage change in
cumulative total stockholder return on our common stock to the cumulative
total stockholder return of the S&P Composite 500 Stock Index and an
industry peer group chosen by the Company. The stock price performance
depicted in the following graph is not necessarily indicative of future price
performance. The graph will not be deemed to be incorporated by reference
in any filing by the Company under the Securities Act of 1933 or the Securi-
ties Exchange of 1934, except to the extent that the Company specifically
incorporates such graph by reference.
HollyFrontier
S&P 500 Index
Peer Group
$600
$500
$400
$300
$200
$100
$0
2009
2010
2011
2012
2013
2014
HollyFrontier
100
S&P 500 Index
100
Peer Group
100
162
115
139
195
117
132
422
136
244
481
180
369
390
205
379
(1) The amounts shown assume that the value of the investment in HollyFrontier
and each index was $100 on January 1, 2010 and that all dividends
were reinvested.
(2) The Peer Group consists of Alon USA Energy, Inc., Delek US Holdings, Inc.,
Marathon Petroleum Corporation (included from 6/23/2011), Tesoro
Corporation, Valero Energy Corporation and Western Refining, Inc.
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2828 North Harwood
Suite 1300
Dallas, Texas 75201-1507