UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 25, 2012 (July 12, 2012)
HOLLY ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware | 001-32225 | 20-0833098 | ||
(State of Incorporation) | (Commission File Number) |
(I.R.S. Employer Identification Number) |
2828 N. Harwood, Suite 1300, Dallas, Texas 75201
(Address of Principal Executive Offices)
(214) 871-3555
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
On July 12, 2012, HollyFrontier Corporation (HollyFrontier), Holly Energy Partners, L.P. (the Partnership), and its subsidiary, HEP UNEV Holdings LLC (Buyer), entered into an LLC Interest Purchase Agreement pursuant to which, among other things, Buyer acquired all of the issued and outstanding limited liability company interests of HEP UNEV Pipeline LLC (f/k/a Holly UNEV Pipeline Company) from HollyFrontier, thereby indirectly acquiring 75% of all of the issued and outstanding membership interests in UNEV Pipeline, LLC (UNEV Pipeline), the owner of an approximately 400 mile, 12-inch refined products pipeline currently running from Woods Cross, Utah to Las Vegas, Nevada, related products terminals in or near Cedar City, Utah and Las Vegas, Nevada, and other related assets. This amendment on Form 8-K/A is being filed to amend and supplement the Current Report on Form 8-K filed by the Partnership on July 12, 2012 to include the financial statements and pro forma financial information required under Item 9.01.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The unaudited financial statements of UNEV Pipeline relating to the Acquisition as of and for the six months ended June 30, 2012 and June 30, 2011 are filed as Exhibit 99.1 to this amendment and are incorporated herein by reference.
The audited financial statements of UNEV Pipeline relating to the Acquisition as of and for the year ended December 31, 2011 are filed as Exhibit 99.2 to this amendment and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The pro forma combined financial statements of the Partnership with respect to the Acquisition as of and for the six months ended June 30, 2012 and for the year ended December 31, 2011 is filed as Exhibit 99.3 to this amendment and incorporated herein by reference.
(d) Exhibits.
23.1* | Consent of Ernst & Young LLP, independent auditor. | |
99.1* | Unaudited financial statements of UNEV Pipeline as of and for the six months ended June 30, 2012 and 2011. | |
99.2* | Audited financial statements of UNEV Pipeline as of and for the year ended December 31, 2011. | |
99.3* | Unaudited pro forma combined financial statements of the Partnership as of and for the six months ended June 30, 2012 and for the year ended December 31, 2011. |
* | Filed herewith. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HOLLY ENERGY PARTNERS, L.P. | ||||||||||
By: | HEP Logistics Holdings, L.P., its General Partner | |||||||||
By: | Holly Logistic Services, L.L.C., its General Partner | |||||||||
By: | /s/ Bruce R. Shaw | |||||||||
Name: Bruce R. Shaw | ||||||||||
Title: Senior Vice President and Chief Financial Officer | ||||||||||
Date: September 25, 2012 |
3
EXHIBIT INDEX
Exhibit Number |
Exhibit Title | |
23.1* | Consent of Ernst & Young LLP, independent auditor. | |
99.1* | Unaudited financial statements of UNEV Pipeline as of and for the six months ended June 30, 2012 and 2011. | |
99.2* | Audited financial statements of UNEV Pipeline as of and for the year ended December 31, 2011. | |
99.3* | Unaudited pro forma combined financial statements of the Partnership as of and for the six months ended June 30, 2012 and for the year ended December 31, 2011. |
* | Filed herewith. |
4
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form S-3 No. 333-178304) of Holly Energy Partners, L.P. and in the related Prospectus and (Form S-8 No. 333-182865) pertaining to the Holly Energy Partners, L. P. Long-Term Incentive Plan of Holly Energy Partners, L.P, of our report dated September 25, 2012, with respect to the financial statements of UNEV Pipeline, L.L.C. included in this Current Report on Form 8-K/A of Holly Energy Partners, L.P.
/s/ Ernst & Young LLP
Dallas, Texas
September 25, 2012
Exhibit 99.1
FINANCIAL STATEMENTS
UNEV Pipeline, LLC
Six Months Ended June 30, 2012
UNEV Pipeline, LLC
Financial Statements
Six Months Ended June 30, 2012
Contents
Financial Statements (unaudited)
Balance Sheets |
1 | |||
Statements of Operations |
2 | |||
Statement of Changes in Partners Capital |
3 | |||
Statements of Cash Flows |
4 | |||
Notes to Financial Statements |
5 |
UNEV Pipeline, LLC
Balance Sheets
(In Thousands)
June 30,
2012 (Unaudited) |
December 31, 2011 | |||||||
Cash and cash equivalents |
$ | | $ | 3,100 | ||||
Restricted cash |
1,000 | 1,000 | ||||||
Receivable from affiliates |
4,719 | 4,080 | ||||||
Other current assets |
43 | 85 | ||||||
|
|
|
|
|||||
Total current assets |
5,762 | 8,265 | ||||||
Properties and equipment, net |
403,452 | 401,287 | ||||||
|
|
|
|
|||||
Total assets |
$ | 409,214 | $ | 409,552 | ||||
|
|
|
|
|||||
Accounts payable |
$ | 3,032 | $ | 12,268 | ||||
Payable to affiliates |
597 | 1,274 | ||||||
Deferred Revenue |
2,534 | | ||||||
|
|
|
|
|||||
Total current liabilities |
6,163 | 13,542 | ||||||
Partners Capital |
403,051 | 396,010 | ||||||
|
|
|
|
|||||
Total liabilities & partners capital |
$ | 409,214 | $ | 409,552 | ||||
|
|
|
|
See accompanying notes.
1
UNEV Pipeline, LLC
Statements of Operations
(Unaudited)
(In Thousands)
Six Months
Ended June 30, |
||||||||
2012 | 2011 | |||||||
Revenues: |
||||||||
Transportation revenue from affliates |
$ | 7,792 | $ | | ||||
Other revenue |
21 | 2 | ||||||
|
|
|
|
|||||
7,813 | 2 | |||||||
Expenses: |
||||||||
Operating (exclusive of depreciation) |
5,648 | 330 | ||||||
Depreciation |
7,124 | 358 | ||||||
|
|
|
|
|||||
12,772 | 688 | |||||||
|
|
|
|
|||||
Net loss |
$ | (4,959 | ) | $ | (686 | ) | ||
|
|
|
|
See accompanying notes.
2
UNEV Pipeline, LLC
Statement of Changes in Partners Capital
(Unaudited)
(In Thousands)
Sinclair | HFC | Total | ||||||||||
Balance December 31, 2011 |
$ | 99,002 | $ | 297,008 | $ | 396,010 | ||||||
Contributions made |
3,000 | 9,000 | 12,000 | |||||||||
Net loss |
(1,240 | ) | (3,719 | ) | (4,959 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2012 |
$ | 100,762 | $ | 302,289 | $ | 403,051 | ||||||
|
|
|
|
|
|
See accompanying notes.
3
UNEV Pipeline, LLC
Statements of Cash Flows
(Unaudited)
(In Thousands)
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (4,959 | ) | $ | (686 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
7,124 | 358 | ||||||
(Increase) decrease in current assets |
||||||||
Receivable from affiliates |
(3,639 | ) | (57 | ) | ||||
Other current assets |
42 | | ||||||
Increase (decrease) in current liabilities |
||||||||
Accounts payable |
(4,177 | ) | 3,528 | |||||
Payable to affiliates |
(677 | ) | 277 | |||||
Deferred revenue |
2,534 | | ||||||
Other |
19 | | ||||||
|
|
|
|
|||||
Net cash (provided by) operating activities: |
(3,733 | ) | 3,420 | |||||
Cash flows from investing activity: |
||||||||
Acquisitions of property and equipment |
(14,367 | ) | (77,768 | ) | ||||
Cash flows from financing activity: |
||||||||
Cash contributions made |
15,000 | 79,500 | ||||||
|
|
|
|
|||||
Increase (decrease) in cash and cash equivalents |
(3,100 | ) | 5,152 | |||||
Cash and cash and equivalents at beginning of year |
3,100 | 7,649 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of year |
$ | | $ | 12,801 | ||||
|
|
|
|
See accompanying notes.
4
UNEV Pipeline, LLC
Notes to Financial Statements (Unaudited)
As of and for the six months ended
June 30, 2012
1. Organization and Nature of Business
UNEV Pipeline, LLC (UNEV), a Delaware limited liability company, recently completed the UNEV Pipeline, a 400 mile, 12-inch refined products pipeline from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal and ethanol blending facilities in the Cedar City, Utah and North Las Vegas areas and storage facilities at the Cedar City terminal. As of December 31, 2011, a subsidiary of HollyFrontier Corporation (HFC) owned 75% of the pipeline with a subsidiary of Sinclair Oil Corporation (Sinclair) owning the remaining 25% interest. The cost of constructing this pipeline including terminals and ethanol blending and storage facilities was approximately $410 million. The pipeline was mechanically complete in November 2011, and initial start-up activities commenced in December 2011.
The financial statements included herein have been prepared without audit. The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (GAAP) have been condensed or omitted, we believe that the disclosures in these financial statements are adequate to make the information presented not misleading. These financial statements should be read in conjunction with annual financials for the year ended December 31, 2011. Results of operations for interim periods are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2012.
In this document, the words we, our, ours and us refer to UNEV unless the context otherwise indicates.
2. Related Parties
HFC was the largest shipper on the pipeline operating under a ten-year transportation agreement as discussed in Note 4 below. Sinclair is the other shipper on the pipeline operating under a ten-year transportation agreement discussed below. All transactions with HFC and Sinclair have been labeled as affiliate transactions on the balance sheets and statements of operations.
In June 2011, a subsidiary of Holly Energy Partners L.P. (HEP) was appointed the operator of UNEV. We paid management fees to HEP totaling $450,000 and $75,000 for the six months ended June 30, 2012 and 2011, respectively, which are included in operating costs.
Employees who provide direct services to us are employed by Holly Logistic Services, L.L.C., a subsidiary of HFC which is the general partner of HEPs general partner. These employees costs, including salaries, bonuses, payroll taxes, benefits, and other direct costs, are charged to us monthly. We paid $991,000 and $100,600 with respect to such costs for the six months ended 2012 and 2011, respectively which are included in operating costs.
5
UNEV Pipeline, LLC
Notes to Financial Statements (continued)
3. Properties and Equipment
June 30, 2012 | December 31, 2011 | |||||||
(in thousands) | (in thousands) | |||||||
Pipelines and terminals |
$ | 375,300 | $ | 229,423 | ||||
Construction in progress |
1,669 | 157,653 | ||||||
Land and right of way |
35,110 | 16,755 | ||||||
Buildings and other |
2,035 | 1,047 | ||||||
|
|
|
|
|||||
414,114 | 404,878 | |||||||
Less accumulated depreciation |
(10,662 | ) | (3,591 | ) | ||||
|
|
|
|
|||||
$ | 403,452 | $ | 401,287 | |||||
|
|
|
|
4. Transportation Agreements
Effective January 1, 2012, we entered into ten-year transportation agreements with HFC and Sinclair, which ten-year term commenced on March 1, 2012, and will result in minimum annualized payments to UNEV of $15.6 million and $7.4 million, respectively.
5. Restricted Cash
The restricted cash consists of $1.0 million held in an escrow account pursuant to an agreement among UNEV, a utility services contractor and the financial institution. The escrow agreement was entered following settlement of certain claims between UNEV and the contractor regarding asset construction work. Funds will be released to UNEV or the contractor upon mutual agreement or pursuant to the determination of a court of competent jurisdiction if UNEV and the contractor are unable to reach an agreement.
6. Subsequent Event
On July 12, 2012, HEP acquired HFCs 75% interest in UNEV. HEP paid consideration consisting of $260.0 million in cash and 1,029,900 of their common units. Under the terms of the transaction, HEP also issued to HFC equity interests in its wholly owned subsidiary that entitles HFC to an interest in HEPs share of future UNEV profits beginning in 2015 through 2032, subject to a cap of approximately $34.0 million and certain other limitations.
We have evaluated subsequent events through September 25, 2012.
6
Exhibit 99.2
FINANCIAL STATEMENTS
UNEV Pipeline, LLC
Year Ended December 31, 2011
UNEV Pipeline, LLC
Financial Statements
Year Ended December 31, 2011
Contents
Report of Independent Auditors |
1 | |||
Audited Financial Statements |
||||
Balance Sheet |
2 | |||
Statement of Operations |
3 | |||
Statement of Changes in Partners Capital |
4 | |||
Statement of Cash Flows |
5 | |||
Notes to Financial Statements |
6 |
Report of Independent Auditors
The Members of UNEV Pipeline, LLC
UNEV Pipeline LLC
We have audited the accompanying balance sheet of UNEV Pipeline, LLC as of December 31, 2011, and the related statements of operations, changes in partners capital and statement of cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the 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. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of UNEV Pipeline, LLC at December 31, 2011 and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
![]() |
Dallas, Texas
September 25, 2012
1
UNEV Pipeline, LLC
Balance Sheet
(In Thousands)
December 31, 2011 | ||||
Cash and cash equivalents |
$ | 3,100 | ||
Restricted cash |
1,000 | |||
Receivable from affiliates |
4,080 | |||
Other current assets |
85 | |||
|
|
|||
Total current assets |
8,265 | |||
Properties and equipment, net |
401,287 | |||
|
|
|||
Total assets |
$ | 409,552 | ||
|
|
|||
Accounts payable |
$ | 12,268 | ||
Payable to affiliates |
1,274 | |||
|
|
|||
Total current liabilities |
13,542 | |||
Partners capital |
396,010 | |||
|
|
|||
Total liabilities & partners capital |
$ | 409,552 | ||
|
|
See accompanying notes.
2
UNEV Pipeline, LLC
Statement of Operations
(In Thousands)
Year Ended | ||||
December 31, 2011 | ||||
Revenues: |
||||
Transportation revenue from affliates |
$ | 313 | ||
Other revenue |
2 | |||
|
|
|||
315 | ||||
Expenses: |
||||
Operating (exclusive of depreciation) |
1,992 | |||
Depreciation |
1,758 | |||
|
|
|||
3,750 | ||||
|
|
|||
Net loss |
$ | (3,435 | ) | |
|
|
See accompanying notes.
3
UNEV Pipeline, LLC
Statement of Changes in Partners Capital
(In Thousands)
Sinclair | HFC | Total | ||||||||||
Balance December 31, 2010 |
$ | 63,361 | $ | 190,084 | $ | 253,445 | ||||||
Contributions made |
36,500 | 109,500 | 146,000 | |||||||||
Net loss |
(859 | ) | (2,576 | ) | (3,435 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance December 31, 2011 |
$ | 99,002 | $ | 297,008 | $ | 396,010 | ||||||
|
|
|
|
|
|
See accompanying notes.
4
UNEV Pipeline, LLC
Statement of Cash Flows
(In Thousands)
Year ended | ||||
December 31, 2011 | ||||
Cash flows from operating activities: |
||||
Net loss |
$ | (3,435 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||
Depreciation and amortization |
1,758 | |||
Increase in current assets |
||||
Receivable from affiliates |
(1,080 | ) | ||
Restricted cash |
(1,000 | ) | ||
Other current assets |
(85 | ) | ||
Increase in current liabilities |
||||
Accounts payable |
4,760 | |||
Payable to affiliates |
728 | |||
|
|
|||
Net cash provided by operating activities |
1,646 | |||
Cash flows from investing activity: |
||||
Acquisitions of property and equipment |
(162,695 | ) | ||
Cash flows from financing activity: |
||||
Cash contributions made |
156,500 | |||
|
|
|||
Decrease in cash and cash equivalents |
(4,549 | ) | ||
Cash and cash equivalents at beginning of year |
7,649 | |||
|
|
|||
Cash and cash equivalents at end of year |
$ | 3,100 | ||
|
|
See accompanying notes.
5
UNEV Pipeline, LLC
Notes to Financial Statements
December 31, 2011
1. Organization and Nature of Business
UNEV Pipeline, LLC (UNEV), a Delaware limited liability company, recently completed the UNEV Pipeline, a 400 mile, 12-inch refined products pipeline from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal and ethanol blending facilities in the Cedar City, Utah and North Las Vegas areas and storage facilities at the Cedar City terminal. As of December 31, 2011, a subsidiary of HollyFrontier Corporation (HFC) owned 75% of the pipeline with a subsidiary of Sinclair Oil Corporation (Sinclair) owning the remaining 25% interest. The cost of constructing this pipeline including terminals and ethanol blending and storage facilities was approximately $410 million. The pipeline was mechanically complete in November 2011, and initial start-up activities commenced in December 2011. In this document, the words we, our, ours and us refer to UNEV unless the context otherwise indicates.
2. Accounting Policies
Uses of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles 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 and cash equivalents For purposes of the statements of cash flows, we consider all highly liquid investments with maturity of three months or less at the time of purchase to be cash equivalents. The carrying amounts reported on the balance sheet approximate fair value due to the short-term maturity of these instruments.
Account Receivable All receivables are due from HFC or Sinclair. Credit is extended based on evaluation of the customers financial condition. Credit losses would be charged to income when accounts are deemed uncollectible.
Long-Lived Assets Properties and equipment are stated at cost. Maintenance, repairs and major replacements are generally expensed as incurred. Costs of replacements constituting improvements are capitalized. 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 assets carrying value exceeds its fair value. No impairments of long-lived assets were recorded during the period included in these financial statements.
Depreciation Depreciation is computed using the straight-line method at annual rates following depreciation over the estimated useful lives of the assets, primarily 25 years for terminal facilities and tankage, 30 years for pipelines, and 5-10 years for corporate and other assets.
Revenue Recognition Revenues are recognized as products are shipped through our pipelines and terminals or other services have been rendered. Billings to customers for obligations under their quarterly minimum revenue commitments are recorded as deferred revenue liabilities if the customer has the right to receive future services for these billings.
Taxes billed and collected from our pipeline and terminal customers are recorded on a net basis with no effect on net income.
6
UNEV Pipeline, LLC
Notes to Financial Statements (continued)
Income Tax We are organized as a pass-through for federal income tax purposes. As a result, our partners are responsible for federal income taxes based on their respective share of taxable income. UNEVs operating jurisdictions are Utah and Nevada both of which conform to the federal pass-through entity tax treatment and do not levy taxes on federal tax partnerships. While UNEV is part of unitary group for Texas Franchise tax purposes which did levy entity level tax with HFC for the calendar year ended December 31, 2011, UNEV has no filing requirement for Texas on a separate entity basis. UNEVs operating agreement provides that its Board of Directors, if it determines UNEV has net cash, is to distribute 40% of its taxable income to its members for their tax liability created by UNEV.
Regulatory Requirements These financial statements are prepared in accordance with accounting principles generally accepted in the United States. The information contained in these financial statements may differ in some respects from the information filed with the Federal Energy Regulatory Commission (FERC).
3. Related Parties
HFC was the largest shipper on the pipeline operating under a ten-year transportation agreement. Sinclair is the other shipper on the pipeline operating under a ten-year transportation agreement. All transactions with HFC and Sinclair have been labeled as affiliate transactions on the balance sheet and statement of operations.
In June 2011, Holly Energy Partners (HEP) was appointed the operator of UNEV. We paid management fees to HEP totaling $525,000 for the year ended December 31, 2011, which are included in operating costs.
Employees who provide direct services to us are employed by Holly Logistic Services, L.L.C., a subsidiary of HFC which is the general partner of HEPs general partner. These employees costs, including salaries, bonuses, payroll taxes, benefits, and other direct costs, are charged to us monthly. We paid $449,000 with respect to such costs for the year ended December 31, 2011, which are included in operating costs.
4. Properties and Equipment
December 31, 2011 | ||||
(in thousands) | ||||
Pipelines and terminals |
$ | 229,423 | ||
Construction in progress |
157,653 | |||
Land and right of way |
16,755 | |||
Buildings and other |
1,047 | |||
|
|
|||
404,878 | ||||
Less accumulated depreciation |
(3,591 | ) | ||
|
|
|||
$ | 401,287 | |||
|
|
7
UNEV Pipeline, LLC
Notes to Financial Statements (continued)
5. Restricted Cash
The restricted cash consists of $1.0 million held in an escrow account pursuant to an agreement among UNEV, a utility services contractor and the financial institution. The escrow agreement was entered following settlement of certain claims between UNEV and the contractor regarding asset construction work. Funds will be released to UNEV or the contractor upon mutual agreement or pursuant to the determination of a court of competent jurisdiction if UNEV and the contractor are unable to reach an agreement.
6. New Accounting Standards
Presentation of Comprehensive Income
In June 2011, an accounting standard update was issued that requires the presentation of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements and eliminates the option to present the components of other comprehensive income in the statement of stockholders equity. This standard is effective January 1, 2012 and will be applied retrospectively. This standard will not have an impact on our financial condition, results of operations and cash flows.
7. Subsequent Events
Effective January 1, 2012, we entered into ten-year transportation agreements with HFC and Sinclair, which ten-year term commenced on March 1, 2012, and will result in minimum annualized payments to UNEV of $15.6 million and $7.4 million, respectively.
On July 12, 2012, HEP acquired HFCs 75% interest in UNEV. HEP paid consideration consisting of $260.0 million in cash and 1,029,900 of their common units. Under the terms of the transaction, HEP also issued to HFC equity interests in its wholly owned subsidiary that entitles HFC to an interest in HEPs share of future UNEV profits beginning in 2015 through 2032, subject to a cap of approximately $34.0 million and certain other limitations.
We have evaluated subsequent events through September 25, 2012.
8
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Balance Sheet combines the historical balance sheets of Holly Energy Partners L.P. and UNEV Pipeline, LLC giving effect to the acquisition as if it had been consummated on June 30, 2012. The Unaudited Pro Forma Condensed Combined Statement of Income for the six months ended June 30, 2012 and the year ended December 31, 2011 combine the historical statements of income of Holly Energy Partners L.P. and UNEV Pipeline, LLC giving the effect to the acquisition as it has been consummated on January 1, 2011.
These pro forma statements have been made solely for the purpose of providing the Unaudited Combined Financial Statements presented below.
These Unaudited Pro Forma Financial Statements have been developed from and should be read in conjunction with the respective audited and unaudited consolidated financial statements of Holly Energy Partners L.P. and UNEV Pipeline, LLC. The Unaudited Pro Forma Condensed Combined Financial Statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of Holly Energy Partners L.P. would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.
Holly Energy Partners L.P.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2012
(In thousands)
HEP | UNEV | Eliminations/ Adjustments |
Adjusted -
HEP Consolidated |
|||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 4,216 | $ | | $ | | $ | 4,216 | ||||||||
Restricted cash |
| 1,000 | | $ | 1,000 | |||||||||||
Accounts receivable: |
||||||||||||||||
Trade |
3,836 | 1,051 | | 4,887 | ||||||||||||
Affiliates |
26,333 | 3,668 | (153 | ) | 29,848 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
30,169 | 4,719 | (153 | ) | 34,735 | ||||||||||||
Prepaid and other current assets |
3,410 | 43 | | 3,453 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
37,795 | 5,762 | (153 | ) | 43,404 | |||||||||||
Properties and equipment, net |
532,548 | 403,452 | 16,818 | 952,818 | ||||||||||||
Transportation agreements, net |
98,070 | | | 98,070 | ||||||||||||
Goodwill |
256,498 | | | 256,498 | ||||||||||||
Investment in SLC Pipeline |
25,427 | | | 25,427 | ||||||||||||
Other assets |
9,360 | | | 9,360 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 959,698 | $ | 409,214 | $ | 16,665 | $ | 1,385,577 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES AND EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable: |
||||||||||||||||
Trade |
$ | 4,983 | $ | 1,952 | $ | | $ | 6,935 | ||||||||
Affiliates |
4,712 | 597 | (153 | ) | 5,156 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
9,695 | 2,549 | (153 | ) | 12,091 | ||||||||||||
Accrued interest |
9,655 | | | 9,655 | ||||||||||||
Deferred revenue |
3,603 | 2,534 | | 6,137 | ||||||||||||
Accrued property taxes |
1,910 | 1,080 | | 2,990 | ||||||||||||
Other current liabilities |
2,581 | | | 2,581 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
27,444 | 6,163 | (153 | ) | 33,454 | |||||||||||
Long-term debt |
613,195 | | 260,000 | 873,195 | ||||||||||||
Other long-term liabilities |
6,195 | | | 6,195 | ||||||||||||
Class B unitholder |
| | 12,200 | 12,200 | ||||||||||||
Equity: |
||||||||||||||||
Partners equity |
312,864 | 302,288 | (255,382 | ) | 359,770 | |||||||||||
Noncontrolling interest |
| 100,763 | | 100,763 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity |
312,864 | 403,051 | (255,382 | ) | 460,533 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and equity |
$ | 959,698 | $ | 409,214 | $ | 16,665 | $ | 1,385,577 | ||||||||
|
|
|
|
|
|
|
|
Holly Energy Partners L.P.
Unaudited Pro Forma Condensed Combined Statement of Income
Six Months Ended June 30, 2012
(In thousands, except per unit data)
HEP | UNEV | Eliminations / Adjustments |
Adjusted -
HEP Consolidated |
|||||||||||||
Revenues: |
||||||||||||||||
Affiliates |
$ | 107,017 | $ | 5,256 | $ | (528 | ) | $ | 111,745 | |||||||
Third parties |
20,190 | 2,557 | | 22,747 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
127,207 | 7,813 | (528 | ) | 134,492 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating costs and expenses: |
||||||||||||||||
Operations |
34,911 | 5,648 | (528 | ) | 40,031 | |||||||||||
Depreciation and amortization |
19,396 | 7,124 | 334 | 26,854 | ||||||||||||
General and administrative |
4,526 | | 4,526 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
58,833 | 12,772 | (194 | ) | 71,411 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
68,374 | (4,959 | ) | (334 | ) | 63,081 | ||||||||||
Other income (expense): |
||||||||||||||||
Equity in earnings of SLC Pipeline |
1,625 | | | 1,625 | ||||||||||||
Interest expense |
(21,729 | ) | | (3,879 | ) | (25,608 | ) | |||||||||
Loss on early extinguishment of debt |
(2,979 | ) | | | (2,979 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
(23,083 | ) | | (3,879 | ) | (26,962 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
45,291 | (4,959 | ) | (4,213 | ) | 36,119 | ||||||||||
State income tax |
(150 | ) | | | (150 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income (loss) |
45,141 | (4,959 | ) | (4,213 | ) | 35,969 | ||||||||||
Noncontrolling interest |
| 1,240 | (454 | ) | 786 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Holly Energy Partners |
45,141 | (3,719 | ) | (4,667 | ) | 36,755 | ||||||||||
Less general partner interest in net income, including incentive distributions |
11,425 | (74 | ) | (93 | ) | 11,258 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Limited partners interest in net income (loss) |
$ | 33,716 | $ | (3,645 | ) | $ | (4,574 | ) | $ | 25,497 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Limited partners per unit interest in earnings basic and diluted: |
$ | 1.23 | $ | 0.90 | ||||||||||||
|
|
|
|
|||||||||||||
Weighted average limited partners units outstanding |
27,361 | 1,030 | 28,391 | |||||||||||||
|
|
|
|
|
|
Holly Energy Partners L.P.
Unaudited Pro Forma Condensed Combined Statement of Income
Year Ended December 31, 2011
(In thousands, except per unit data)
HEP | UNEV | Eliminations / Adjustments |
Adjusted -
HEP Consolidated |
|||||||||||||
Revenues: |
||||||||||||||||
Affiliates |
$ | 167,626 | $ | 313 | $ | (571 | ) | $ | 167,368 | |||||||
Third parties |
45,923 | 2 | | 45,925 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
213,549 | 315 | (571 | ) | 213,293 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating costs and expenses: |
||||||||||||||||
Operations |
62,202 | 1,992 | (571 | ) | 63,623 | |||||||||||
Depreciation and amortization |
33,150 | 1,758 | | 34,908 | ||||||||||||
General and administrative |
6,576 | | | 6,576 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
101,928 | 3,750 | (571 | ) | 105,107 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
111,621 | (3,435 | ) | | 108,186 | |||||||||||
Other income (expense): |
||||||||||||||||
Equity in earnings of SLC Pipeline |
2,552 | | | 2,552 | ||||||||||||
Interest expense |
(35,959 | ) | | (662 | ) | (36,621 | ) | |||||||||
Other income |
17 | | | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(33,390 | ) | | (662 | ) | (34,052 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
78,231 | (3,435 | ) | (662 | ) | 74,134 | ||||||||||
State income tax |
(234 | ) | | | (234 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income (loss) |
77,997 | (3,435 | ) | (662 | ) | 73,900 | ||||||||||
Add net loss applicable to predecessor |
3,775 | | | 3,775 | ||||||||||||
Noncontrolling interest |
| 859 | (854 | ) | 5 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Holly Energy Partners |
81,772 | (2,576 | ) | (1,516 | ) | 77,680 | ||||||||||
Less general partner interest in net income, including incentive distributions |
16,845 | (52 | ) | (30 | ) | 16,763 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Limited partners interest in net income (loss) |
$ | 64,927 | $ | (2,525 | ) | $ | (1,486 | ) | $ | 60,917 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Limited partners per unit interest in earnings basic and diluted: |
$ | 2.84 | $ | 2.55 | ||||||||||||
|
|
|
|
|||||||||||||
Weighted average limited partners units outstanding |
22,836 | 1,030 | 23,866 | |||||||||||||
|
|
|
|
|
|
Note 1. Basis of Presentation
Holly Energy Partners, L.P. (HEP) together with its consolidated subsidiaries, is a publicly held master limited partnership, currently 44% owned (including the 2% general partner interest) by HollyFrontier Corporation (HFC) and its subsidiaries.
UNEV Pipeline, LLC (UNEV), Delaware limited liability company, recently completed the UNEV Pipeline, a 400 mile, 12-inch refined products pipeline from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal and ethanol blending facilities in the Cedar City, Utah and North Las Vegas areas and storage facilities at the Cedar City terminal. HEP, through its wholly-owned subsidiaries, owns 75% of the pipeline with a subsidiary of Sinclair Oil Corporation (Sinclair) owning the remaining 25% interest.
On July 12, 2012, HEP acquired HFCs indirect 75% interest in UNEV. HEP paid consideration consisting of $260.0 million in cash and 1,029,900 of their common units, which as a result, increased HFCs ownership interest in HEP from 42% to 44% (in each case, including the 2% general partner interest). Under the terms of the transaction, HEP also issued to HFC equity interests in its wholly owned subsidiary that entitles HFC to an interest in HEPs share of future UNEV profits beginning in 2015 through 2032, subject to a cap of approximately $34.0 million and certain limitations.
The accompanying Unaudited Pro Forma Condensed Combined Financial Statements present the pro forma consolidated financial position and results of operations of HEP based upon the historical financial statements of HEP and UNEV, after giving effect to the acquisition and adjustments described in these notes, and are intended to reflect the impact of the acquisition on HEPs consolidated financial statements. The accompanying Unaudited Pro Forma Condensed Combined Financial Statements are presented for illustrative purposes only.
HEP has revised the interest in net income attributable to the limited partners from what was originally reported in its historic financial statements in the Form 10-K for the year ended December 31, 2011. HEP acquired on November 9, 2011 from HFC certain tankage, loading rack and crude receiving assets located at HFCs El Dorado and Cheyenne refineries. HEP accounted for this transaction as a business combination between entities under common control and was required to retrospectively adjust the operating results as if HFC had contributed the assets to HEP on July 1, 2011 (the date HFC acquired the assets). Although these assets did not generate revenues prior to November 9, 2011, HEPs operating results included $3.8 million of operating costs and depreciation incurred by HFC prior to the acquisition date. This loss was allocated in the Form 10-K to the partners of HEP based on their respective partnership interests. As the pre-acquisition loss was not attributable to HEP, but rather to the predecessor, it should have been reported as a loss applicable to the predecessor. Limited partners interest in net income was originally reported at $61.2 million or $2.68 per unit. This classification change increased limited partners interest in net income to $64.9 million or $2.84 per unit. This change had no impact on the reported net income or distributable cash flow.
The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the acquisition as if it had been consummated on June 30, 2012 and includes estimated pro forma adjustments. These adjustments are subject to further revision as additional information becomes available and additional analyses are performed. The Unaudited Pro Forma Condensed Combined Statements of Income for the six months ended June 30, 2012 and the year ended December 31, 2011 give effect to the acquisition as if it had been consummated on January 1, 2011, the beginning of the earliest period presented.
HEP is a consolidated variable interest entity of HFC. Therefore, as an entity under common control with HFC, we recorded the assets and liabilities on our balance sheet at HFCs historic basis instead of our purchase price or fair value.
Note 2. Pro Forma Adjustments
The Unaudited Pro Forma Condensed Combined Financial Statements reflect the following adjustments:
(a) | Properties and Equipment Adjustment is to include capitalized interest incurred by HFC relating to its interest in the construction costs of the UNEV fixed assets. Adjustment to depreciation and amortization is for the related depreciation expense. |
(b) | Long-term debt Adjustment is for the cash consideration portion of the acquisition cost that was financed through borrowings under HEPs credit facility. Adjustment to interest expense is for the related interest costs. |
(c) | Class B unitholder Adjustment is for the portion of the acquisition cost relating to HFCs interest in HEPs share of future UNEV profits. |
(d) | Partners equity Adjustment is for elimination of UNEVs acquired equity. Also includes the acquisition cost paid by issuance of common units, with an adjustment for difference between the purchase price and the transferred basis of assets acquired. |
(e) | Noncontrolling interests Adjustments are for the 25% share of UNEV owned by a subsidiary of Sinclair and the accretion related to the Class B unitholders interest. |
(f) | Affiliates account receivables and payables Adjustments are for elimination of related party transactions between HEP and UNEV. |
(g) | Affiliates revenue and operating expenses Adjustments are for elimination of related party transactions between HEP and UNEV. |
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