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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________
FORM 10-Q
_________________________________________________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from    __________   to   ____________         
Commission File Number 1-3876
_________________________________________________________________
HOLLYFRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1056913
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer Identification No.)
2828 N. Harwood, Suite 1300
Dallas, Texas
75201
(Address of principal executive offices) (Zip Code)
(214) 871-3555
(Registrant’s telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock $0.01 par value HFC New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒
162,496,235 shares of Common Stock, par value $.01 per share, were outstanding on October 29, 2021.

HOLLYFRONTIER CORPORATION
INDEX
 
  Page
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5
PART I. FINANCIAL INFORMATION
September 30, 2021 (Unaudited) and December 31, 2020
6
Three and Nine Months Ended September 30, 2021 and 2020
7
Three and Nine Months Ended September 30, 2021 and 2020
8
Nine Months Ended September 30, 2021 and 2020
9
Three and Nine Months Ended September 30, 2021 and 2020
10
12
39
58
58
61
62
64
67
68
Signatures
69
2
FORWARD-LOOKING STATEMENTS

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

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, those under “Results of Operations,” “Liquidity and Capital Resources” and “Risk Management” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those in Part II, Item 1 “Legal Proceedings” are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. Unless specifically noted, all statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to:

•our ability to successfully integrate the operation of the Puget Sound refinery with our existing operations;
•(i) our ability to successfully close the Sinclair acquisition, which requires receipt of approval from our stockholders and certain regulatory approvals (including clearance by antitrust authorities necessary to complete the Sinclair acquisition on the terms and timeline desired); (ii) disruption the Sinclair acquisition may cause to customers, vendors, business partners and our ongoing business; (iii) once closed, our ability to integrate the operations of Sinclair with our existing operations and fully realize the expected synergies of the Sinclair acquisition on the expected timeline; and (iv) the cost and potential for a delay in closing as a result of litigation challenging the Sinclair transactions;
•the demand for and supply of crude oil and refined products, including uncertainty regarding the effects of the continuing COVID-19 pandemic on future demand;
•risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in our markets;
•the spread between market prices for refined products and market prices for crude oil;
•the possibility of constraints on the transportation of refined products or lubricant and specialty products;
•the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand;
•the effects of current and/or future governmental and environmental regulations and policies, including the effects of current and/or future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;
•the availability and cost of our financing;
•the effectiveness of our capital investments and marketing strategies;
•our efficiency in carrying out and consummating construction projects, including our ability to complete announced capital projects, such as the conversion of the Cheyenne Refinery to a renewable diesel facility and the construction of the Artesia renewable diesel unit and pretreatment unit, on time and within capital guidance;
•our ability to timely obtain or maintain permits, including those necessary for operations or capital projects;
•our ability to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any existing or future acquired operations;
•the possibility of terrorist or cyberattacks and the consequences of any such attacks;
•general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
3
•a prolonged economic slowdown due to the COVID-19 pandemic which could result in an impairment of goodwill and/or additional long-lived asset impairments; and
•other financial, operational and legal risks and uncertainties detailed from time to time in our SEC filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including without limitation the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth under the heading “Risk Factors” included in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 and in this Quarterly Report on Form 10-Q, and in conjunction with the discussion in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Outlook” and “Liquidity and Capital Resources.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
4
DEFINITIONS

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

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

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

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

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

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

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

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

“LPG” means liquid petroleum gases.

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

“MMBTU” means one million British thermal units.

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

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

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

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

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

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

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

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

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


5
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
HOLLYFRONTIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
2021 		December 31, 2020
  (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (HEP:$12,816 and $21,990, respectively)
$ 1,481,562  $ 1,368,318 
Accounts receivable: Product and transportation (HEP: $12,121 and $14,543, respectively)
772,769  590,526 
Crude oil resales
76,392  39,510 
849,161  630,036 
Inventories: Crude oil and refined products 1,698,706  989,296 
Materials, supplies and other (HEP: $1,054 and $895, respectively)
188,374  184,180 
1,887,080  1,173,476 
Income taxes receivable 98,404  91,348 
Prepayments and other (HEP: $2,571 and $8,591, respectively)
38,816  47,583 
Total current assets 4,355,023  3,310,761 
Properties, plants and equipment, at cost (HEP: $2,194,659 and $2,119,295, respectively)
7,812,670  7,299,517 
Less accumulated depreciation (HEP: $(695,124) and $(644,149), respectively)
(2,946,119) (2,726,378)
4,866,551  4,573,139 
Operating lease right-of-use assets (HEP: $70,034 and $72,480, respectively)
395,947  350,548 
Other assets: Turnaround costs
345,314  314,816 
Goodwill (HEP: $312,873 and $312,873, respectively)
2,293,305  2,293,935 
Intangibles and other (HEP: $218,012 and $224,430, respectively)
641,041  663,665 
3,279,660  3,272,416 
Total assets $ 12,897,181  $ 11,506,864 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $26,008 and $28,565, respectively)
$ 1,460,769  $ 1,000,959 
Income taxes payable 19,887  1,801 
Operating lease liabilities (HEP: $3,761 and $3,827, respectively)
106,686  97,937 
Accrued liabilities (HEP: $16,931 and $29,518, respectively)
456,866  274,459 
Total current liabilities 2,044,208  1,375,156 
Long-term debt (HEP: $1,333,309 and $1,405,603, respectively)
3,072,352  3,142,718 
Noncurrent operating lease liabilities (HEP: $66,648 and $68,454, respectively)
314,650  285,785 
Deferred income taxes (HEP: $397 and $449, respectively)
870,610  713,703 
Other long-term liabilities (HEP: $44,277 and $55,105, respectively)
265,822  267,299 
Equity:
HollyFrontier stockholders’ equity:
Preferred stock, $1.00 par value – 5,000,000 shares authorized; none issued
—  — 
Common stock $.01 par value – 320,000,000 shares authorized; 256,046,051 shares issued as of September 30, 2021 and December 31, 2020
2,560  2,560 
Additional capital 4,232,504  4,207,672 
Retained earnings 4,453,366  3,913,179 
Accumulated other comprehensive income 4,460  13,462 
Common stock held in treasury, at cost – 93,553,647 and 93,632,391 shares as of September 30, 2021 and December 31, 2020, respectively
(2,966,150) (2,968,512)
Total HollyFrontier stockholders’ equity 5,726,740  5,168,361 
Noncontrolling interest 602,799  553,842 
Total equity 6,329,539  5,722,203 
Total liabilities and equity $ 12,897,181  $ 11,506,864 

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

See accompanying notes.
6
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

  Three Months Ended
September 30, 		Nine Months Ended
September 30,
  2021 2020 2021 2020
Sales and other revenues $ 4,685,059  $ 2,819,400  $ 12,766,475  $ 8,282,875 
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
3,822,858  2,377,238  10,608,892  6,647,960 
Lower of cost or market inventory valuation adjustment
—  (62,849) (318,862) 227,711 
3,822,858  2,314,389  10,290,030  6,875,671 
Operating expenses (exclusive of depreciation and amortization)
352,520  332,496  1,086,620  964,200 
Selling, general and administrative expenses (exclusive of depreciation and amortization)
91,056  74,453  250,785  237,559 
Depreciation and amortization 121,220  125,280  369,341  396,033 
Long-lived asset impairment —  —  —  436,908 
Total operating costs and expenses 4,387,654  2,846,618  11,996,776  8,910,371 
Income (loss) from operations 297,405  (27,218) 769,699  (627,496)
Other income (expense):
Earnings of equity method investments 3,689  1,316  8,875  5,186 
Interest income 1,018  1,011  3,078  6,590 
Interest expense (26,892) (30,589) (94,220) (85,923)
Gain on business interruption insurance settlement —  81,000  —  81,000 
Gain on tariff settlement —  —  51,500  — 
Gain on sales-type leases —  —  —  33,834 
Loss on early extinguishment of debt —  —  —  (25,915)
Gain (loss) on foreign currency transactions (3,492) 1,030  (4,226) (918)
Gain on sale of assets and other 85,779  1,368  95,596  4,790 
60,102  55,136  60,603  18,644 
Income (loss) before income taxes 357,507  27,918  830,302  (608,852)
Income tax expense (benefit):
Current (12,784) 35,826  (10,794) (41,221)
Deferred 67,550  (31,253) 160,738  (147,283)
54,766  4,573  149,944  (188,504)
Net income (loss) 302,741  23,345  680,358  (420,348)
Less net income attributable to noncontrolling interest 21,954  25,746  82,504  63,353 
Net income (loss) attributable to HollyFrontier stockholders
$ 280,787  $ (2,401) $ 597,854  $ (483,701)
Earnings (loss) per share:
Basic $ 1.71  $ (0.01) $ 3.63  $ (2.99)
Diluted $ 1.71  $ (0.01) $ 3.63  $ (2.99)
Average number of common shares outstanding:
Basic 162,551  162,015  162,518  161,927 
Diluted 162,551  162,015  162,518  161,927 

See accompanying notes.
7
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
  Three Months Ended
September 30, 		Nine Months Ended
September 30,
  2021 2020 2021 2020
Net income (loss) $ 302,741  $ 23,345  $ 680,358  $ (420,348)
Other comprehensive income (loss):
Foreign currency translation adjustment (6,636) 7,727  (10,411) (2,149)
Hedging instruments:
Change in fair value of cash flow hedging instruments
1,012  (2,094) (17,030) (7,329)
Reclassification adjustments to net income (loss) on settlement of cash flow hedging instruments
(52) 4,586  18,772  3,411 
Net unrealized gain (loss) on hedging instruments 960  2,492  1,742  (3,918)
Pension and other post-retirement benefit obligations:
Actuarial loss on pension plans —  —  —  (45)
Pension plans gain reclassified to net income (101) —  (306) — 
Actuarial gain on post-retirement healthcare plans —  —  —  3 
Post-retirement healthcare plans gain reclassified to net income (838) —  (2,513) — 
Retirement restoration plan loss reclassified to net income 9  —  27  — 
Net change in pension and other post-retirement benefit obligations (930) —  (2,792) (42)
Other comprehensive income (loss) before income taxes (6,606) 10,219  (11,461) (6,109)
Income tax expense (benefit) (1,413) 2,342  (2,459) (1,437)
Other comprehensive income (loss) (5,193) 7,877  (9,002) (4,672)
Total comprehensive income (loss) 297,548  31,222  671,356  (425,020)
Less noncontrolling interest in comprehensive income 21,954  25,746  82,504  63,353 
Comprehensive income (loss) attributable to HollyFrontier stockholders
$ 275,594  $ 5,476  $ 588,852  $ (488,373)

See accompanying notes.

8
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
  Nine Months Ended September 30,
  2021 2020
Cash flows from operating activities:
Net income (loss) $ 680,358  $ (420,348)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 369,341  396,033 
Long-lived asset impairment —  436,908 
Lower of cost or market inventory valuation adjustment (318,862) 227,711 
Earnings of equity method investments, inclusive of distributions —  (238)
Loss on early extinguishment of debt —  25,915 
Gain on sales-type leases —  (33,834)
Gain on sale of assets (89,831) (257)
Deferred income taxes 160,738  (147,283)
Equity-based compensation expense 29,663  22,221 
Change in fair value – derivative instruments (19,483) (3,727)
(Increase) decrease in current assets:
Accounts receivable (220,645) 325,796 
Inventories (399,630) 104,640 
Income taxes receivable (7,336) (64,162)
Prepayments and other 10,369  14,403 
Increase (decrease) in current liabilities:
Accounts payable 438,541  (387,259)
Income taxes payable 18,164  (21,379)
Accrued liabilities 215,817  (22,037)
Turnaround expenditures (116,646) (73,822)
Other, net (11,064) 11,769 
Net cash provided by operating activities 739,494  391,050 
Cash flows from investing activities:
Additions to properties, plants and equipment (471,412) (174,366)
Additions to properties, plants and equipment – HEP (76,933) (38,642)
Proceeds from sale of assets 106,352  1,094 
Investment in equity company - HEP —  (2,438)
Distributions from equity method investments in excess of equity earnings 3,517  701 
Net cash used for investing activities (438,476) (213,651)
Cash flows from financing activities:
Borrowings under credit agreements 210,500  219,500 
Repayments under credit agreements (283,500) (237,000)
Proceeds from issuance of senior notes - HFC —  748,925 
Proceeds from issuance of senior notes - HEP —  500,000 
Redemption of senior notes - HEP —  (522,500)
Purchase of treasury stock (613) (3,350)
Dividends (57,663) (171,603)
Distributions to noncontrolling interests (57,217) (70,941)
Contributions from noncontrolling interests 21,285  15,382 
Payments on finance leases (2,047) (2,149)
Deferred financing costs (14,500) (13,511)
Other, net (414) 454 
Net cash provided by (used for) financing activities (184,169) 463,207 
Effect of exchange rate on cash flow (3,605) (880)
Cash and cash equivalents:
Increase for the period 113,244  639,726 
Beginning of period 1,368,318  885,162 
End of period $ 1,481,562  $ 1,524,888 
Supplemental disclosure of cash flow information:
Cash (paid) received during the period for:
Interest $ (87,229) $ (83,325)
Income taxes, net $ 20,959  $ (52,270)
Increase in accrued and unpaid capital expenditures $ 4,339  $ 19,533 

See accompanying notes.
9

HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands except per share data)

HollyFrontier Stockholders' Equity
Common Stock  Additional Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total
Equity
 
Balance at December 31, 2020 $ 2,560  $ 4,207,672  $ 3,913,179  $ 13,462  $ (2,968,512) $ 553,842  $ 5,722,203 
Net income —  —  148,217  —  —  34,633  182,850 
Dividends ($0.35 declared per common share)
—  —  (57,663) —  —  —  (57,663)
Distributions to noncontrolling interest holders
—  —  —  —  —  (19,977) (19,977)
Other comprehensive loss, net of tax
—  —  —  (8,804) —  —  (8,804)
Issuance of common stock under incentive compensation plans —  56  —  —  (56) —  — 
Equity-based compensation —  9,088  —  —  —  682  9,770 
Purchase of treasury stock
—  —  —  —  (12) —  (12)
Purchase of HEP units for restricted grants
—  —  —  —  —  (68) (68)
Contributions from noncontrolling interests
—  —  —  —  —  9,747  9,747 
Balance at March 31, 2021 $ 2,560  $ 4,216,816  $ 4,003,733  $ 4,658  $ (2,968,580) $ 578,859  $ 5,838,046 
Net income —  —  168,850  —  —  25,917  194,767 
Distributions to noncontrolling interest holders
—  —  —  —  —  (18,211) (18,211)
Other comprehensive income, net of tax
—  —  —  4,995  —  —  4,995 
Issuance of common stock under incentive compensation plans —  (2,629) —  —  2,629  —  — 
Equity-based compensation —  10,845  —  —  —  527  11,372 
Purchase of treasury stock
—  —  —  —  (479) —  (479)
Purchase of HEP units for restricted grants
—  —  —  —  —  (2) (2)
Contributions from noncontrolling interests
—  —  —  —  —  9,779  9,779 
Other —  —  (23) —  —  —  (23)
Balance at June 30, 2021 $ 2,560  $ 4,225,032  $ 4,172,560  $ 9,653  $ (2,966,430) $ 596,869  $ 6,040,244 
Net income —  —  280,787  —  —  21,954  302,741 
Distributions to noncontrolling interest holders
—  —  —  —  —  (19,029) (19,029)
Other comprehensive loss, net of tax
—  —  —  (5,193) —  —  (5,193)
Issuance of common stock under incentive compensation plans —  (402) —  —  402  —  — 
Equity-based compensation —  7,874  —  —  —  647  8,521 
Purchase of treasury stock
—  —  —  —  (122) —  (122)
Contributions from noncontrolling interests —  —  —  —  —  2,358  2,358 
Other —  —  19  —  —  —  19 
Balance at September 30, 2021 $ 2,560  $ 4,232,504  $ 4,453,366  $ 4,460  $ (2,966,150) $ 602,799  $ 6,329,539 

10

HollyFrontier Stockholders' Equity
Common Stock  Additional Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total
Equity
 
Balance at December 31, 2019 $ 2,560  $ 4,204,547  $ 4,744,120  $ 14,774  $ (2,987,808) $ 531,233  $ 6,509,426 
Net income (loss) —  —  (304,623) —  —  11,337  (293,286)
Dividends ($0.35 declared per common share)
—  —  (57,248) —  —  —  (57,248)
Distributions to noncontrolling interest holders
—  —  —  —  —  (33,918) (33,918)
Other comprehensive loss, net of tax —  —  —  (26,923) —  —  (26,923)
Issuance of common stock under incentive compensation plans —  (2,037) —  —  2,037  —  — 
Equity-based compensation —  5,824  —  —  —  506  6,330 
Purchase of treasury stock —  —  —  —  (1,062) —  (1,062)
Purchase of HEP units for restricted grants
—  —  —  —  —  (145) (145)
Contributions from noncontrolling interests —  —  —  —  —  7,304  7,304 
Balance at March 31, 2020 $ 2,560  $ 4,208,334  $ 4,382,249  $ (12,149) $ (2,986,833) $ 516,317  $ 6,110,478 
Net income (loss) —  —  (176,677) —  —  26,270  (150,407)
Dividends ($0.35 declared per common share)
—  —  (57,182) —  —  —  (57,182)
Distributions to noncontrolling interest holders
—  —  —  —  —  (17,090) (17,090)
Other comprehensive income, net of tax
—  —  —  14,374  —  —  14,374 
Issuance of common stock under incentive compensation plans —  (527) —  —  527  —  — 
Equity-based compensation —  7,484  —  —  —  475  7,959 
Purchase of treasury stock — — — — (181) — (181)
Purchase of HEP units for restricted grants — — — — — (2) (2)
Contributions from noncontrolling interests — — — — — 5,959 5,959
Other — 603 — — — — 603
Balance at June 30, 2020 $ 2,560  $ 4,215,894  $ 4,148,390  $ 2,225  $ (2,986,487) $ 531,929  $ 5,914,511 
Net income (loss) —  —  (2,401) —  —  25,746  23,345 
Dividends ($0.35 declared per common share)
—  —  (57,173) —  —  —  (57,173)
Distributions to noncontrolling interest holders
—  —  —  —  —  (19,933) (19,933)
Other comprehensive income, net of tax —  —  —  7,877  —  —  7,877 
Issuance of common stock under incentive compensation plans —  (6,131) —  —  6,131  —  — 
Equity-based compensation —  7,365  —  —  —  567  7,932 
Purchase of treasury stock —  —  —  —  (2,107) —  (2,107)
Purchase of HEP units for restricted grants —  —  —  —  —  (2) (2)
Contributions from noncontrolling interests —  —  —  —  —  2,119  2,119 
Balance at September 30, 2020 $ 2,560  $ 4,217,128  $ 4,088,816  $ 10,102  $ (2,982,463) $ 540,426  $ 5,876,569 

See accompanying notes.
11
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1:Description of Business and Presentation of Financial Statements

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

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

As of September 30, 2021, 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”) and a refinery in Woods Cross, Utah (the “Woods Cross Refinery”);
•owned a facility in Cheyenne, Wyoming, which operated as a petroleum refinery until early August 2020, at which time its assets began to be converted to renewable diesel production (the “Cheyenne Refinery”);
•owned and operated Petro-Canada Lubricants Inc. (“PCLI”) located in Mississauga, Ontario, which produces base oils and other specialized lubricant products;
•owned and operated manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which produce specialty lubricant products for our Sonneborn business, such as white oils, petrolatums and waxes;
•owned and operated Red Giant Oil Company LLC (“Red Giant Oil”), which supplies locomotive engine oil and has storage and distribution facilities in Iowa and Wyoming, along with a blending and packaging facility in Texas;
•owned and operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”), which operates various asphalt terminals in Arizona, New Mexico and Oklahoma; and
•owned a 57% limited partner interest and a non-economic general partner interest in HEP, a variable interest entity (“VIE”). HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States.

On August 2, 2021, HollyFrontier, Hippo Parent Corporation, a wholly owned subsidiary of HollyFrontier (“New Parent”), Hippo Merger Sub, Inc., a wholly owned subsidiary of New Parent, The Sinclair Companies (“Sinclair”), and Hippo Holding LLC, a wholly owned subsidiary of Sinclair (the “Target Company”), entered into a business combination agreement, pursuant to which HollyFrontier will acquire the Target Company.

On May 4, 2021, HollyFrontier Puget Sound Refining LLC, a wholly owned subsidiary of HollyFrontier Corporation, entered into a sale and purchase agreement with Equilon Enterprises LLC d/b/a Shell Oil Products US (“Shell”) to acquire Shell’s Puget Sound refinery and related assets, including the on-site cogeneration facility and related logistics assets (the “Puget Sound Refinery”). The acquisition closed on November 1, 2021.

See Note 2 for additional information on these acquisitions.

12
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
On April 27, 2021, our wholly owned subsidiary, 7037619 Canada Inc., entered into a contract for sale of real property in Mississauga, Ontario for base consideration of $98.8 million, or CAD 125 million. The transaction closed on September 15, 2021, and we recorded a gain on sale of assets totaling $86.0 million for the three months ended September 30, 2021, which was recognized in “Gain on sale of assets and other” in our consolidated statements of operations.

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

In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we recognized $6.7 million and $23.1 million, in decommissioning expense and $0.2 million and $0.9 million, in employee severance costs for the three and nine months ended September 30, 2021, respectively, which were recognized in operating expenses in our Corporate and Other segment.

We recognized $12.3 million in decommissioning expense during the three and nine months ended September 30, 2020. In addition, during the three and nine months ended September 30, 2020, we recorded $2.4 million and $3.5 million, respectively, in employee severance costs. These decommissioning and severance costs were recognized in operating expenses and were reported in our Refining segment. Also, during the second quarter of 2020, we recorded a long-lived asset impairment charge of $232.2 million related to our Cheyenne Refinery asset group.

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

We have prepared these consolidated financial statements without audit. In management’s opinion, these consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our consolidated financial position as of September 30, 2021, the consolidated results of operations, comprehensive income and statements of equity for the three and nine months ended September 30, 2021 and 2020 and consolidated cash flows for the nine months ended September 30, 2021 and 2020 in accordance with the rules and regulations of the SEC. Although certain notes and other information required by generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 that has been filed with the SEC.

Our results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results of operations to be realized for the year ending December 31, 2021.

Accounts Receivable: Our accounts receivable consist of amounts due from customers that are primarily companies in the petroleum industry. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances collateral, such as letters of credit or guarantees, is required. We reserve for expected credit losses based on our historical loss experience as well as expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for expected credit losses when an account is deemed uncollectible. Our allowance for expected credit losses was $5.1 million at September 30, 2021 and $3.4 million at December 31, 2020.

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

13
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or net realizable value.

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

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

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

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

Goodwill and Long-lived Assets: As of September 30, 2021, our goodwill balance was $2.3 billion, with goodwill assigned to our Refining, Lubricants and Specialty Products and HEP segments of $1,733.5 million, $247.0 million and $312.9 million, respectively. See Note 15 for additional information on our segments. The carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our Lubricants and Specialty Products segment. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value.

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

We performed our annual goodwill impairment testing quantitatively as of July 1, 2021 and determined there was no impairment of goodwill attributable to our reporting units.

During the second quarter of 2020, we recorded long-lived asset impairment charges of $232.2 million and $204.7 million related to our Cheyenne Refinery and PCLI asset groups, respectively.

14
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Revenue Recognition: Revenue on refined product and excess crude oil sales are recognized when delivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported as cost of products sold.

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

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

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

We have intercompany notes that were issued to fund certain of our foreign businesses. Remeasurement adjustments resulting from the conversion of intercompany financing amounts to functional currencies are recorded as gains and losses as a component of other income (expense) in the consolidated statements of operations. Such adjustments are not recorded to the Lubricants and Specialty Products segment operations, but to Corporate and Other. See Note 15 for additional information on our segments.

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

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

For the nine months ended September 30, 2021, we recorded income tax expense of $149.9 million compared to an income tax benefit of $188.5 million for the nine months ended September 30, 2020. This increase was due principally to pre-tax income during the nine months ended September 30, 2021 compared to a pre-tax loss in the same period of 2020. Our effective tax rates were 18.1% and 31.0% for the nine months ended September 30, 2021 and 2020, respectively. The year-over-year decrease in the effective tax rate is due principally to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the nine months ended September 30, 2021 was primarily due to the net operating loss carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act and federal tax credits.

15
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Inventory Repurchase Obligations: We periodically enter into same-party sell / buy transactions, whereby we sell certain refined product inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations. Such sell / buy transactions are accounted for as inventory repurchase obligations under which proceeds received under the initial sell is recognized as an inventory repurchase obligation that is subsequently reversed when the inventory is repurchased. For the nine months ended September 30, 2021 and 2020, we received proceeds of $32.7 million and $32.7 million, respectively, and subsequently repaid $34.1 million and $34.4 million, respectively, under these sell / buy transactions.


NOTE 2:Acquisitions

Puget Sound Refinery
On May 4, 2021, our wholly owned subsidiary, HollyFrontier Puget Sound Refining LLC, entered into a sale and purchase agreement with Shell to acquire the Puget Sound Refinery. The acquisition closed on November 1, 2021 for aggregate cash consideration of $613.6 million, which consists of a base cash purchase price of $350 million, hydrocarbon inventory with an estimated closing value of $266.2 million and other closing adjustments and accrued liabilities of $2.6 million (the “Puget Sound Acquisition”). The Puget Sound Refinery is strategically located on approximately 850 acres in Anacortes, Washington, approximately 80 miles north of Seattle and 90 miles south of Vancouver. The 149,000 barrel per day facility is a large, high quality and complex refinery with catalytic cracking and delayed coking units and is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes. In addition to refining assets and an on-site cogeneration facility, the transaction includes a deep-water marine dock, a light product loading rack, a rail terminal and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity.

The Puget Sound Acquisition will be accounted for as a business combination, with the cash purchase price allocated to the acquisition date fair value of assets and liabilities acquired.

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

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

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

16
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Consummation of the HFC Transactions is subject to satisfaction or waiver of certain customary conditions, including, among others, receipt of approval for the issuance of New Parent common stock from HollyFrontier’s stockholders; the satisfaction of certain required regulatory consents and approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”); and the consummation of the HEP Transactions (as defined below), which will occur immediately prior to the HFC Transactions (the HEP Transactions, together with the HFC Transactions, the “Sinclair Transactions”). On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HollyFrontier and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review.

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

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

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

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

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

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

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

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

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


NOTE 3:Holly Energy Partners

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

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

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

HEP has outstanding debt under a senior secured revolving credit agreement and its senior notes. HEP’s creditors have no recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries. See Note 10 for a description of HEP’s debt obligations.

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

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

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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Cushing Connect entered into a contract with an affiliate of HEP to manage the operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in Cushing Connect will be shared equally among the partners. However, HEP is solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $70 million to $75 million.

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

Transportation Agreements
HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling agreements expiring from 2022 through 2036. Under these agreements, we pay HEP fees to transport, store and process throughput volumes of refined products, crude oil and feedstocks on HEP’s pipeline, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to HEP including UNEV (a consolidated subsidiary of HEP). Under these agreements, the agreed upon tariff rates are subject to annual tariff rate adjustments on July 1 at a rate based upon the percentage change in Producer Price Index or Federal Energy Regulatory Commission index. As of September 30, 2021, these agreements require minimum annualized payments to HEP of $352.9 million.

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

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

Lease income recognized was as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Operating lease revenues $ 3,539  $ 5,080  $ 11,717  $ 18,812 
Gain on sales-type leases $ —  $ —  $ —  $ 33,834 
Sales-type lease interest income $ 636  $ 645  $ 1,912  $ 1,287 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable $ 648  $ 335  $ 1,505  $ 621 
One of HEP’s throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed during the nine months ended September 30, 2020. Certain components of this agreement met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, HEP recognized a gain on sales-type leases totaling $33.8 million during the nine months ended September 30, 2020. This sales-type lease transaction, including the related gain, was a non-cash transaction.


19
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 4:Revenues

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

Disaggregated revenues were as follows:                        
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Revenues by type
Refined product revenues
Transportation fuels (1)
$ 3,428,501  $ 1,949,381  $ 9,224,169  $ 5,812,974 
Specialty lubricant products (2)
618,310  421,254  1,704,930  1,232,491 
Asphalt, fuel oil and other products (3)
260,788  171,844  641,117  518,485 
Total refined product revenues 4,307,599  2,542,479  11,570,216  7,563,950 
Excess crude oil revenues (4)
343,500  243,742  1,089,075  606,915 
Transportation and logistic services 25,459  26,740  77,809  72,410 
Other revenues (5)
8,501  6,439  29,375  39,600 
Total sales and other revenues $ 4,685,059  $ 2,819,400  $ 12,766,475  $ 8,282,875 
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Refined product revenues by market
United States
Mid-Continent $ 2,467,792  $ 1,254,828  $ 6,470,231  $ 3,655,412 
Southwest 923,319  580,818  2,632,833  1,751,066 
Rocky Mountains 414,334  343,905  1,025,389  1,087,657 
Northeast 221,488  149,855  593,741  420,588 
Canada 199,924  150,618  595,208  454,141 
Europe, Asia and Latin America 80,742  62,455  252,814  195,086 
Total refined product revenues $ 4,307,599  $ 2,542,479  $ 11,570,216  $ 7,563,950 

(1)Transportation fuels consist of gasoline, diesel and jet fuel.
(2)Specialty lubricant products consist of base oil, waxes, finished lubricants and other specialty fluids.
(3)Asphalt, fuel oil and other products revenue include revenues attributable to our Refining and Lubricants and Specialty Products segments of $213.7 million and $47.1 million, respectively, for the three months ended September 30, 2021, $496.9 million and $144.2 million, respectively, for the nine months ended September 30, 2021, $140.2 million and $31.6 million, respectively, for the three months ended September 30, 2020, $421.0 million and $97.5 million respectively, for the nine months ended September 30, 2020.
(4)Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of our refineries.
(5)Other revenues are principally attributable to our Refining segment.

20
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Our consolidated balance sheet reflects contract liabilities related to unearned revenues attributable to future service obligations under HEP’s third-party transportation agreements and production agreements from our Sonneborn operations. The following table presents changes to our contract liabilities during the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,
2021 2020
(In thousands)
Balance at January 1 $ 6,738  $ 4,652 
Increase 24,745  21,583 
Recognized as revenue (22,224) (18,224)
Balance at September 30 $ 9,259  $ 8,011 

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

Remainder of 2021 2022 2023 Thereafter Total
(In thousands)
Refined product sales volumes (barrels)
4,654  14,543  12,795  11,698  43,690 

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

Remainder of 2021 2022 2023 Thereafter Total
(In thousands)
HEP contractual minimum revenues
$ 5,400  $ 11,770  $ 9,676  $ 12,357  $ 39,203 


NOTE 5:Fair Value Measurements

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

Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability, including assumptions about risk). GAAP categorizes inputs used in fair value measurements into three broad levels as follows:

•(Level 1) Quoted prices in active markets for identical assets or liabilities.
•(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.
•(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.

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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The carrying amounts of derivative instruments and RINs credit obligations at September 30, 2021 and December 31, 2020 were as follows:
Fair Value by Input Level
Carrying Amount Level 1 Level 2 Level 3
(In thousands)
September 30, 2021
Assets:
Commodity price swaps $ 1,451  $ —  $ 1,451  $ — 
Commodity forward contracts 516  —  516  — 
Total assets $ 1,967  $ —  $ 1,967  $ — 
Liabilities:
NYMEX futures contracts $ 8,781  $ 8,781  $ —  $ — 
Commodity forward contracts 537  —  537  — 
Foreign currency forward contracts 1,113  —  1,113  — 
RINs credit obligations (1)
119,583  —  119,583  — 
Total liabilities $ 130,014  $ 8,781  $ 121,233  $ — 
December 31, 2020
Assets:
Commodity forward contracts $ 275  $ —  $ 275  $ — 
Total assets $ 275  $ —  $ 275  $ — 
Liabilities:
NYMEX futures contracts $ 418  $ 418  $ —  $ — 
Commodity price swaps 359  —  359  — 
Commodity forward contracts 196  —  196  — 
Foreign currency forward contracts 23,005  —  23,005  — 
Total liabilities $ 23,978  $ 418  $ 23,560  $ — 

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

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

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


22
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 6:Earnings Per Share

Basic earnings per share is calculated as net income (loss) attributable to HollyFrontier stockholders, adjusted for participating securities’ share in earnings divided by the average number of shares of common stock outstanding. Diluted earnings per share includes the incremental shares resulting from certain share-based awards. The following is a reconciliation of the denominators of the basic and diluted per share computations for net income (loss) attributable to HollyFrontier stockholders:
  Three Months Ended
September 30, 		Nine Months Ended
September 30,
  2021 2020 2021 2020
  (In thousands, except per share data)
Net income (loss) attributable to HollyFrontier stockholders
$ 280,787  $ (2,401) $ 597,854  $ (483,701)
Participating securities’ share in earnings (1)
3,553  —  7,888  — 
Net income (loss) attributable to common shares $ 277,234  $ (2,401) $ 589,966  $ (483,701)
Average number of shares of common stock outstanding
162,551  162,015  162,518  161,927 
Average number of shares of common stock outstanding assuming dilution
162,551  162,015  162,518  161,927 
Basic earnings (loss) per share $ 1.71  $ (0.01) $ 3.63  $ (2.99)
Diluted earnings (loss) per share $ 1.71  $ (0.01) $ 3.63  $ (2.99)

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


NOTE 7:Stock-Based Compensation

We have a principal share-based compensation plan (the “2020 Long-Term Incentive Plan”), which allows us to grant new equity awards to certain officers, non-employee directors and other key employees of HollyFrontier. The restricted stock unit awards generally vest over a period of one to three years. Upon vesting, restrictions on the restricted stock units lapse at which time they convert to common shares or cash. The performance share units generally vest over a period of three years and are payable in stock or cash upon meeting certain financial and performance criteria. The number of shares ultimately issued or cash paid for the performance share units can range from zero to 200% of target award amounts. The holders of unvested restricted stock units and performance share units have the right to receive dividends.

The compensation cost for these plans was $9.2 million and $6.9 million for the three months ended September 30, 2021 and 2020, respectively, and $32.0 million and $19.8 million, for the nine months ended September 30, 2021 and 2020, respectively.

Additionally, HEP maintains a share-based compensation plan for Holly Logistic Services, L.L.C.’s non-employee directors and certain executives and employees. Compensation cost attributable to HEP’s share-based compensation plan was $0.6 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $1.9 million and $1.5 million, for the nine months ended September 30, 2021 and 2020, respectively.

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

23
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
A summary of restricted stock unit and performance share unit activity during the nine months ended September 30, 2021 is presented below:
Restricted Stock Units Performance Share Units
Outstanding at January 1, 2021 2,057,045  635,204 
Granted (1)
9,983  — 
Vested (95,476) (5,894)
Forfeited (153,453) (29,204)
Outstanding at September 30, 2021 1,818,099  600,106 
(1) Weighted average grant date fair value per unit $ 34.98  $ — 


NOTE 8:Inventories

Inventories consist of the following components:
September 30,
2021 		December 31, 2020
(In thousands)
Crude oil $ 506,545  $ 451,967 
Other raw materials and unfinished products (1)
396,745  260,495 
Finished products (2)
795,416  595,696 
Lower of cost or market reserve —  (318,862)
Process chemicals (3)
44,904  35,006 
Repair and maintenance supplies and other (4)
143,470  149,174 
Total inventory $ 1,887,080  $ 1,173,476 

(1)Other raw materials and unfinished products include feedstocks and blendstocks, other than crude.
(2)Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and residual fuels.
(3)Process chemicals include additives and other chemicals.
(4)Includes RINs.

Our inventories that are valued at the lower of LIFO cost or market reflected a valuation reserve of $318.9 million at December 31, 2020. The December 31, 2020 market reserve of $318.9 million was reversed during the six months ended June 30, 2021 due to the sale of inventory quantities that gave rise to the 2020 reserve. The effect of the change in lower of cost or market reserve was a decrease to cost of products sold totaling $318.9 million for the nine months ended September 30, 2021, a decrease to cost of products sold totaling $62.8 million for the three months ended September 30, 2020, and an increase to cost of products sold of $227.7 million for the nine months ended September 30, 2020.

At September 30, 2021, the LIFO value of inventory was equal to cost.


24
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 9:Environmental

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

We incurred expense of $0.5 million and $2.2 million for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million and $4.2 million for the nine months ended September 30, 2021 and 2020, for environmental remediation obligations. The accrued environmental liability reflected in our consolidated balance sheets was $111.9 million and $115.0 million at September 30, 2021 and December 31, 2020, respectively, of which $93.2 million and $94.0 million, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time (up to 30 years for certain projects). Estimated liabilities could increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably estimated.


NOTE 10:Debt

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

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

HEP Credit Agreement
On April 30, 2021, HEP amended its $1.4 billion senior secured revolving credit facility decreasing the commitments under the facility to $1.2 billion and extending the maturity to July 27, 2025 (the “HEP Credit Agreement”). The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and continues to provide for an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a maximum amount of $1.7 billion. During the nine months ended September 30, 2021, HEP received advances totaling $210.5 million and repaid $283.5 million under the HEP Credit Agreement. At September 30, 2021, HEP was in compliance with all of its covenants, had outstanding borrowings of $840.5 million and no outstanding letters of credit under the HEP Credit Agreement.

Prior to the Investment Grade Date (as defined in the HEP Credit Agreement), indebtedness under the HEP Credit Agreement bears interest, at HEP’s option, at either (a) the alternate base rate (as defined in the HEP Credit Agreement) plus an applicable margin or (b) the Eurodollar Rate (as defined in the HEP Credit Agreement) plus an applicable margin. In each case, the applicable margin is based upon HEP’s Total Leverage Ratio (as defined in the HEP Credit Agreement). The weighted average interest rate in effect under the HEP Credit Agreement on HEP’s borrowings was 2.32% as of September 30, 2021.

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

25
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
HollyFrontier Senior Notes
At September 30, 2021, our senior notes consisted of the following:

•$350.0 million in aggregate principal amount of 2.625% senior notes maturing October 2023 (the “2.625% Senior Notes”);
•$1.0 billion in aggregate principal amount of 5.875% senior notes maturing April 2026 (the “5.875% Senior Notes”); and
•$400.0 million in aggregate principal amount of 4.500% senior notes maturing October 2030 (the “4.500% Senior Notes”).

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

HollyFrontier Financing Arrangements
Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature on February 1, 2022. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity. These financing arrangements are recorded at a Level 2 fair value totaling $37.3 million and $43.9 million at September 30, 2021 and December 31, 2020, respectively, and are included in “Accrued liabilities” in our consolidated balance sheets. See Note 5 for additional information on Level 2 inputs.

HEP Senior Notes
In February 2020, HEP closed a private placement of $500.0 million in aggregate principal amount of 5.0% HEP senior unsecured notes maturing February 2028 (the “HEP Senior Notes”). Subsequently, in February 2020, HEP redeemed its existing $500.0 million aggregate principal amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million. HEP recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized discount and financing costs of $3.4 million during the three months ended March 31, 2020.

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

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

26
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The carrying amounts of long-term debt are as follows:
September 30,
2021 		December 31,
2020
  (In thousands)
HollyFrontier
2.625% Senior Notes
$ 350,000  $ 350,000 
5.875% Senior Notes
1,000,000  1,000,000 
4.500% Senior Notes
400,000  400,000 
1,750,000  1,750,000 
Unamortized discount and debt issuance costs (10,957) (12,885)
Total HollyFrontier long-term debt 1,739,043  1,737,115 
HEP Credit Agreement 840,500  913,500 
HEP 5.000% Senior Notes
Principal 500,000  500,000 
Unamortized discount and debt issuance costs (7,191) (7,897)
Total HEP long-term debt 1,333,309  1,405,603 
Total long-term debt $ 3,072,352  $ 3,142,718 

The fair values of the senior notes are as follows:
September 30,
2021 		December 31,
2020
(In thousands)
HollyFrontier Senior Notes $ 1,946,420  $ 1,903,867 
HEP Senior Notes $ 506,770  $ 506,540 

These fair values are based on a Level 2 input. See Note 5 for additional information on Level 2 inputs.

We capitalized interest attributable to construction projects of $4.8 million and $1.1 million for the three months ended September 30, 2021 and 2020, respectively, and $9.5 million and $2.4 million, for the nine months ended September 30, 2021 and 2020, respectively.


NOTE 11: Derivative Instruments and Hedging Activities

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

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

27
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Accounting Hedges
We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural gas. We also periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude oil and forward sales contracts that lock in the prices of future sales of crude oil and refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature.

The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments and maturities of hedging instruments under hedge accounting:
Net Unrealized Gain (Loss) Recognized in OCI Gain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging Instruments Three Months Ended
September 30, 		Income Statement Location Three Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Commodity contracts $ 960  $ 2,492  Sales and other revenues $ (468) $ (5,217)
Cost of products sold —  983 
Operating expenses 520  (352)
Total $ 960  $ 2,492  $ 52  $ (4,586)

Derivatives Designated as Cash Flow Hedging Instruments Nine Months Ended
September 30, 		Income Statement Location Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Commodity contracts $ 1,742  $ (3,918) Sales and other revenues $ (19,239) $ (5,168)
Cost of products sold —  3,272 
Operating expenses 467  (1,515)
Total $ 1,742  $ (3,918) $ (18,772) $ (3,411)

Economic Hedges
We have commodity contracts including NYMEX futures contracts to lock in prices on forecasted purchases and sales of inventory, swap contracts to lock in the crack spread of WTI and gasoline and forward purchase and sell contracts, as well as periodically have contracts to lock in basis spread differentials on forecasted purchases of crude oil, that serve as economic hedges (derivatives used for risk management, but not designated as accounting hedges). We also have forward currency contracts to fix the rate of foreign currency. In addition, our catalyst financing arrangements discussed in Note 10 could require repayment under certain conditions based on the future pricing of platinum, which is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to earnings.

The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:
Gain (Loss) Recognized in Earnings
Derivatives Not Designated as Hedging Instruments Income Statement Location Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Commodity contracts Cost of products sold $ (7,035) $ 2,880  $ (19,114) $ 20,789 
Interest expense 4,411  (2,170) 11,917  2,542 
Foreign currency contracts Gain (loss) on foreign currency transactions 9,678  (8,177) (3,151) 10,983 
Total $ 7,054  $ (7,467) $ (10,348) $ 34,314 

28
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
As of September 30, 2021, we have the following notional contract volumes related to outstanding derivative instruments:
Notional Contract Volumes by Year of Maturity
Total Outstanding Notional 2021 2022 Unit of Measure
Derivatives Designated as Hedging Instruments
Natural gas price swaps - long 450,000  450,000  —  MMBTU
Derivatives Not Designated as Hedging Instruments
NYMEX futures (WTI) - short 1,880,000  1,440,000  440,000  Barrels
WTI and gasoline crack spread swaps - short 150,000  150,000  —  Barrels
Forward gasoline and diesel contracts - long 165,000  165,000  —  Barrels
Foreign currency forward contracts 443,112,746  105,825,135  337,287,611  U.S. dollar
Forward commodity contracts (platinum) 38,723  —  38,723  Troy ounces

The following table presents the fair value and balance sheet locations of our outstanding derivative instruments. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position in our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements.
Derivatives in Net Asset Position Derivatives in Net Liability Position
Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet
  (In thousands)
September 30, 2021
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts
$ 1,384  $ —  $ 1,384  $ —  $ —  $ — 
$ 1,384  $ —  $ 1,384  $ —  $ —  $ — 
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts
$ —  $ —  $ —  $ 8,781  $ —  $ 8,781 
Commodity price swap contracts
67  —  67  —  —  — 
Commodity forward contracts
516  —  516  537  —  537 
Foreign currency forward contracts
—  —  —  6,439  (5,326) 1,113 
$ 583  $ —  $ 583  $ 15,757  $ (5,326) $ 10,431 
Total net balance $ 1,967  $ 10,431 
Balance sheet classification: Prepayment and other $ 1,967  Accrued liabilities $ 10,431 

29
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Derivatives in Net Asset Position Derivatives in Net Liability Position
Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet
  (In thousands)
December 31, 2020
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts
$ —  $ —  $ —  $ 359  $ —  $ 359 
$ —  $ —  $ —  $ 359  $ —  $ 359 
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts
$ —  $ —  $ —  $ 418  $ —  $ 418 
Commodity forward contracts
275  —  275  196  —  196 
Foreign currency forward contracts
—  —  —  23,005  —  23,005 
$ 275  $ —  $ 275  $ 23,619  $ —  $ 23,619 
Total net balance $ 275  $ 23,978 
Balance sheet classification: Prepayment and other $ 275  Accrued liabilities $ 23,978 

At September 30, 2021, we had a pre-tax net unrealized gain of $1.4 million classified in accumulated other comprehensive income that relates to all accounting hedges having contractual maturities through 2021, which, assuming commodity prices remain unchanged, will be effectively transferred from accumulated other comprehensive income into the statement of operations as the hedging instruments contractually mature over the next three-month period.


NOTE 12:Equity

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

During the nine months ended September 30, 2021 and 2020, we withheld 18,581 and 105,787, respectively, shares of our common stock from certain employees. These withholdings were made under the terms of restricted stock unit and performance share unit agreements upon vesting, at which time, we concurrently made cash payments to fund payroll and income taxes on behalf of officers and employees who elected to have shares withheld from vested amounts to pay such taxes.


30
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 13:Other Comprehensive Income

The components and allocated tax effects of other comprehensive income are as follows:
Before-Tax Tax Expense
(Benefit) 		After-Tax
  (In thousands)
Three Months Ended September 30, 2021
Net change in foreign currency translation adjustment $ (6,636) $ (1,417) $ (5,219)
Net unrealized gain on hedging instruments 960  237  723 
Net change in pension and other post-retirement benefit obligations (930) (233) (697)
Other comprehensive loss attributable to HollyFrontier stockholders $ (6,606) $ (1,413) $ (5,193)
Three Months Ended September 30, 2020
Net change in foreign currency translation adjustment $ 7,727  $ 1,705  $ 6,022 
Net unrealized gain on hedging instruments 2,492  636  1,856 
Net change in pension and other post-retirement benefit obligations —  1  (1)
Other comprehensive income attributable to HollyFrontier stockholders $ 10,219  $ 2,342  $ 7,877 
Nine Months Ended September 30, 2021
Net change in foreign currency translation adjustment
$ (10,411) $ (2,192) $ (8,219)
Net unrealized gain on hedging instruments 1,742  431  1,311 
Net change in pension and other post-retirement benefit obligations (2,792) (698) (2,094)
Other comprehensive loss attributable to HollyFrontier stockholders $ (11,461) $ (2,459) $ (9,002)
Nine Months Ended September 30, 2020
Net change in foreign currency translation adjustment $ (2,149) $ (434) $ (1,715)
Net unrealized loss on hedging instruments (3,918) (1,000) (2,918)
Net change in pension and other post-retirement benefit obligations (42) (3) (39)
Other comprehensive loss attributable to HollyFrontier stockholders $ (6,109) $ (1,437) $ (4,672)
31
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued

The following table presents the statements of operations line item effects for reclassifications out of accumulated other comprehensive income (“AOCI”):
AOCI Component Gain (Loss) Reclassified From AOCI Statement of Operations Line Item
Three Months Ended September 30,
2021 2020
(In thousands)
Hedging instruments:
Commodity price swaps $ (468) $ (5,217) Sales and other revenues
—  983  Cost of products sold
520  (352) Operating expenses
52  (4,586)
13  (1,169) Income tax expense (benefit)
39  (3,417) Net of tax
Other post-retirement benefit obligations:
Pension obligations 101  —  Other, net
25  —  Income tax expense
76  —  Net of tax
Post-retirement healthcare obligations 838  — 
Other, net
211  —  Income tax expense
627  —  Net of tax
Retirement restoration plan (9) — 
Other, net
(2) —  Income tax benefit
(7) —  Net of tax
Total reclassifications for the period $ 735  $ (3,417)

32
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
AOCI Component Gain (Loss) Reclassified From AOCI Statement of Operations Line Item
Nine Months Ended September 30,
2021 2020
(In thousands)
Hedging instruments:
Commodity price swaps $ (19,239) $ (5,168) Sales and other revenues
—  3,272  Cost of products sold
467  (1,515) Operating expenses
(18,772) (3,411)
(4,731) (870) Income tax benefit
(14,041) (2,541) Net of tax
Other post-retirement benefit obligations:
Pension obligations 306  —  Other, net
77  —  Income tax expense
229  —  Net of tax
Post-retirement healthcare obligations 2,513  — 
Other, net
633  —  Income tax expense
1,880  —  Net of tax
Retirement restoration plan (27) — 
Other, net
(7) —  Income tax benefit
(20) —  Net of tax
Total reclassifications for the period $ (11,952) $ (2,541)

Accumulated other comprehensive income in the equity section of our consolidated balance sheets includes:
September 30,
2021 		December 31,
2020
  (In thousands)
Foreign currency translation adjustment $ (5,537) $ 2,682 
Unrealized loss on pension obligation (554) (248)
Unrealized gain on post-retirement benefit obligations 9,522  11,310 
Unrealized gain (loss) on hedging instruments 1,029  (282)
Accumulated other comprehensive income $ 4,460  $ 13,462 


NOTE 14:Contingencies

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.

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

33
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Various subsidiaries of HollyFrontier are currently intervenors in two lawsuits brought by renewable fuel interest groups against the EPA in federal courts alleging violations of the RFS under the Clean Air Act and challenging the EPA’s handling of small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery exemptions because we believe the EPA correctly applied applicable law to the matters at issue. The first lawsuit is before the U.S. Court of Appeals for the Tenth Circuit and challenges the relief the EPA afforded to the Cheyenne and Woods Cross refineries following the grant of small refinery exemptions. The matter is fully briefed and remains pending before that court. The second lawsuit is currently pending before the U.S. Court of Appeals for the DC Circuit. However, on August 25, 2021, the EPA filed a motion to voluntarily remand the matter to the EPA. We did not oppose this motion. A decision on this motion by the DC Circuit is expected in the near future. HollyFrontier was also recently an intervenor in another lawsuit filed in the Tenth Circuit challenging the grant of small refinery exemptions to the Cheyenne and Woods Cross refineries for the 2016 compliance year. On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to the Cheyenne and Woods Cross refineries for 2016 and remanded the case to the EPA for further proceedings. On April 15, 2020, the Tenth Circuit issued its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court seeking review of the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted HollyFrontier’s petition. The oral argument occurred on April 27, 2021. The U.S. Supreme Court issued its opinion in this matter on June 25, 2021 and reversed the Tenth Circuit. On July 27, 2021, the Tenth Circuit recalled the mandate it issued to the EPA on April 15, 2020, and vacated its January 24, 2020 judgment. On July 29, 2021, the Tenth Circuit issued an order and judgment confirming that it recalled its mandate and vacated its previous judgment in this case, and returned jurisdiction to the EPA without vacating the exemption decisions. On August 19, 2021, the EPA filed a motion for clarification of the Tenth Circuit’s mandate. The Tenth Circuit denied the EPA’s motion on August 26, 2021, and therefore the matter is now solely before the EPA. We are unable to estimate the costs we may incur, if any, at this time. It is too early to assess how the U.S. Supreme Court decision will impact future small refinery exemptions or whether the remaining cases are expected to have any impact on us.

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


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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 15:Segment Information

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

As of September 30, 2021, the Refining segment represents the operations of the El Dorado, Tulsa, Navajo and Woods Cross Refineries and HFC Asphalt (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma. The Refining segment also included the operations of the Cheyenne Refinery through the third quarter of 2020, at which time it permanently ceased petroleum refining operations.

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

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

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

35
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Refining Lubricants and Specialty Products HEP
Corporate, Other
and Eliminations (1)
Consolidated
Total
(In thousands)
Three Months Ended September 30, 2021
Sales and other revenues:
Revenues from external customers $ 3,993,570  $ 666,033  $ 25,459  $ (3) $ 4,685,059 
Intersegment revenues 189,441  501  97,125  (287,067) — 
$ 4,183,011  $ 666,534  $ 122,584  $ (287,070) $ 4,685,059 
Cost of products sold (exclusive of lower of cost or market inventory) $ 3,605,600  $ 482,533  $ —  $ (265,275) $ 3,822,858 
Operating expenses $ 248,316  $ 60,940  $ 42,793  $ 471  $ 352,520 
Selling, general and administrative expenses $ 32,345  $ 41,476  $ 3,849  $ 13,386  $ 91,056 
Depreciation and amortization $ 77,890  $ 19,226  $ 21,627  $ 2,477  $ 121,220 
Income (loss) from operations $ 218,860  $ 62,359  $ 54,315  $ (38,129) $ 297,405 
Earnings of equity method investments $ —  $ —  $ 3,689  $ —  $ 3,689 
Capital expenditures $ 40,814  $ 7,833  $ 19,217  $ 147,640  $ 215,504 
Three Months Ended September 30, 2020
Sales and other revenues:
Revenues from external customers $ 2,339,782  $ 452,878  $ 26,740  $ —  $ 2,819,400 
Intersegment revenues 56,331  2,164  100,991  (159,486) — 
$ 2,396,113  $ 455,042  $ 127,731  $ (159,486) $ 2,819,400 
Cost of products sold (exclusive of lower of cost or market inventory) $ 2,211,342  $ 302,703  $ —  $ (136,807) $ 2,377,238 
Lower of cost or market inventory valuation adjustment $ (62,849) $ —  $ —  $ —  $ (62,849)
Operating expenses $ 256,079  $ 54,488  $ 40,003  $ (18,074) $ 332,496 
Selling, general and administrative expenses $ 30,866  $ 36,773  $ 2,332  $ 4,482  $ 74,453 
Depreciation and amortization $ 79,146  $ 17,432  $ 24,109  $ 4,593  $ 125,280 
Income (loss) from operations $ (118,471) $ 43,646  $ 61,287  $ (13,680) $ (27,218)
Earnings of equity method investments $ —  $ —  $ 1,316  $ —  $ 1,316 
Capital expenditures $ 41,740  $ 6,995  $ 7,902  $ 26,635  $ 83,272 

36
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Refining Lubricants and Specialty Products HEP
Corporate, Other
and Eliminations (1)
Consolidated
Total
(In thousands)
Nine Months Ended September 30, 2021
Sales and other revenues:
Revenues from external customers $ 10,837,876  $ 1,850,786  $ 77,809  $ 4  $ 12,766,475 
Intersegment revenues 455,089  9,500  298,193  (762,782) — 
$ 11,292,965  $ 1,860,286  $ 376,002  $ (762,778) $ 12,766,475 
Cost of products sold (exclusive of lower of cost or market inventory) $ 9,986,862  $ 1,305,274  $ —  $ (683,244) $ 10,608,892 
Lower of cost or market inventory valuation adjustment $ (318,353) $ —  $ —  $ (509) $ (318,862)
Operating expenses $ 772,593  $ 183,003  $ 126,226  $ 4,798  $ 1,086,620 
Selling, general and administrative expenses $ 90,977  $ 124,612  $ 9,664  $ 25,532  $ 250,785 
Depreciation and amortization $ 245,910  $ 58,499  $ 66,908  $ (1,976) $ 369,341 
Income (loss) from operations $ 514,976  $ 188,898  $ 173,204  $ (107,379) $ 769,699 
Earnings of equity method investments $ —  $ —  $ 8,875  $ —  $ 8,875 
Capital expenditures $ 114,325  $ 17,534  $ 76,933  $ 339,553  $ 548,345 
Nine Months Ended September 30, 2020
Sales and other revenues:
Revenues from external customers $ 6,880,444  $ 1,330,021  $ 72,410  $ —  $ 8,282,875 
Intersegment revenues 178,039  8,911  297,982  (484,932) — 
$ 7,058,483  $ 1,338,932  $ 370,392  $ (484,932) $ 8,282,875 
Cost of products sold (exclusive of lower of cost or market inventory) $ 6,113,530  $ 952,430  $ —  $ (418,000) $ 6,647,960 
Lower of cost or market inventory valuation adjustment $ 227,711  $ —  $ —  $ —  $ 227,711 
Operating expenses $ 754,612  $ 156,459  $ 109,721  $ (56,592) $ 964,200 
Selling, general and administrative expenses $ 94,677  $ 121,654  $ 7,569  $ 13,659  $ 237,559 
Depreciation and amortization $ 251,019  $ 59,260  $ 72,095  $ 13,659  $ 396,033 
Long-lived asset impairment (2)
$ 215,242  $ 204,708  $ 16,958  $ —  $ 436,908 
Income (loss) from operations $ (598,308) $ (155,579) $ 164,049  $ (37,658) $ (627,496)
Earnings of equity method investments $ —  $ —  $ 5,186  $ —  $ 5,186 
Capital expenditures $ 106,856  $ 20,387  $ 38,642  $ 47,123  $ 213,008 

(1) For the three and the nine months ended September 30, 2021, Corporate and Other includes $13.1 million and $37.2 million, respectively, of operating expenses and $141.3 million and $325.3 million, respectively, of capital expenditures related to the construction of our renewable diesel units. For the three and nine months ended September 30, 2020, Corporate and Other includes $1.8 million and $2.7 million, respectively, of operating expenses and $20.5 million and $33.1 million, respectively, of capital expenditures related to the construction of our renewable diesel units.
(2) The results of our HEP reportable segment for the nine months ended September 30, 2020 include a long-lived asset impairment charge attributed to HEP’s logistics assets at our Cheyenne Refinery.

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HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Refining Lubricants and Specialty Products HEP Corporate, Other
and Eliminations 		Consolidated
Total
(In thousands)
September 30, 2021
Cash and cash equivalents
$ 18,056  $ 218,970  $ 12,816  $ 1,231,720  $ 1,481,562 
Total assets $ 7,266,496  $ 2,119,076  $ 2,236,091  $ 1,275,518  $ 12,897,181 
Long-term debt $ —  $ —  $ 1,333,309  $ 1,739,043  $ 3,072,352 
December 31, 2020
Cash and cash equivalents
$ 3,106  $ 163,729  $ 21,990  $ 1,179,493  $ 1,368,318 
Total assets $ 6,203,847  $ 1,864,313  $ 2,198,478  $ 1,240,226  $ 11,506,864 
Long-term debt $ —  $ —  $ 1,405,603  $ 1,737,115  $ 3,142,718 
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

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


OVERVIEW

We are an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modified asphalt. As of September 30, 2021, we owned and operated refineries located in El Dorado, Kansas (the “El Dorado Refinery”), Tulsa, Oklahoma (the “Tulsa Refineries”), which comprise two production facilities, the Tulsa West and East facilities, Artesia, New Mexico, which operates in conjunction with crude, vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”) and Woods Cross, Utah (the “Woods Cross Refinery”). We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, we produce base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. We also own a 57% limited partner interest and a non-economic general partner interest in HEP, a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries.

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

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

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

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The Sinclair Transactions are expected to close in mid-2022, subject to customary closing conditions and regulatory clearance, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) and the receipt of required approvals of HFC’s stockholders. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HollyFrontier and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review. In addition, the HFC Transactions and the HEP Transactions are cross-conditioned on each other. See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information.

On May 4, 2021, our wholly owned subsidiary, HollyFrontier Puget Sound Refining LLC, entered into a sale and purchase agreement with Equilon Enterprises LLC d/b/a Shell Oil Products US (“Shell”) to acquire Shell’s refinery and related assets, including the on-site cogeneration facility and related logistics assets (the “Puget Sound Refinery”). The acquisition closed on November 1, 2021 for aggregate cash consideration of $613.6 million, which consists of a base cash purchase price of $350 million, hydrocarbon inventory with an estimated closing value of $266.2 million and other closing adjustments and accrued liabilities of $2.6 million (the “Puget Sound Acquisition”). The Puget Sound Refinery is strategically located on approximately 850 acres in Anacortes, Washington, approximately 80 miles north of Seattle and 90 miles south of Vancouver. The 149,000 barrel per day facility is a large, high quality and complex refinery with catalytic cracking and delayed coking units and is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes. In addition to refining assets and an on-site cogeneration facility, the transaction includes a deep-water marine dock, a light product loading rack, a rail terminal, and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity.

On April 27, 2021, our wholly owned subsidiary, 7037619 Canada Inc., entered into a contract for sale of real property in Mississauga, Ontario for base consideration of $98.8 million, or CAD 125 million. The transaction closed on September 15, 2021, and we recorded a gain on sale of assets totaling $86.0 million for the three months ended September 30, 2021, which was recognized in “Gain on sale of assets and other” in our consolidated statements of operations.

In the third quarter of 2020, we permanently ceased petroleum refining operations at our facility in Cheyenne, Wyoming (the “Cheyenne Refinery”) and subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we recognized $6.7 million and $23.1 million, respectively, in decommissioning expense and $0.2 million and $0.9 million, respectively, in employee severance costs for the three and nine months ended September 30, 2021 which were recognized in operating expenses in our Corporate and Other segment.

During the first quarter of 2021, we initiated a restructuring within our Lubricants and Specialty Products segment, which is expected to save approximately $15 million per year of ongoing cash expenses. We recorded $7.8 million in employee severance costs for the nine months ended September 30, 2021, which were recognized primarily as selling, general and administrative expenses in our Lubricants and Specialty Products segment.

For the three months ended September 30, 2021, net income attributable to HollyFrontier stockholders was $280.8 million compared to net loss of $2.4 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, net income attributable to HollyFrontier stockholders was $597.9 million compared to net loss of $483.7 million for the nine months ended September 30, 2020. Included in our financial results for the third quarter of 2021 was a gain on sale of assets totaling $86.0 million related to sale of real property in Mississauga, Ontario. Gross refining margin per produced barrel sold in our Refining segment increased 140% for the three months ended September 30, 2021 over the same period of 2020. Included in the three months ended September 30, 2020 was an $81.0 million gain recognized upon settlement of a business interruption insurance claim.

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Pursuant to the 2007 Energy Independence and Security Act, the Environmental Protection Agency (“EPA”) promulgated the Renewable Fuel Standard (“RFS”) regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as renewable identification numbers (“RINs”), in lieu of such blending. Compliance with RFS regulations significantly increases our cost of products sold, with RINs costs totaling $143.5 million for the three months ended September 30, 2021. At September 30, 2021, our open RINs credit obligations were $119.6 million. We will continue to monitor and adjust our RINs position commensurate with our production levels, market conditions and RFS regulations.

Impact of COVID-19 on Our Business
The COVID-19 pandemic caused a decline in U.S. and global economic activity starting in the first quarter of 2020. This decrease reduced both volumes and unit margins across our businesses, resulting in lower gross margins and earnings. Global demand for transportation fuels began to improve beginning late in the second quarter of 2020, but remains below pre-pandemic levels as of the third quarter of 2021. In response to this demand and margin environment, as well as both planned and unplanned maintenance, we operated our Refining segment refineries at an average crude charge of 416,430 BPD during the third quarter of 2021.

In our Lubricants and Specialty Products segment, the Rack Back portion continues to see a combination of strong demand as well as limited supply due to a number of factors, which are driving strong margins and earnings. In the Rack Forward portion, despite strong sales volumes and price increases, the continued rise in base oil prices through the quarter compressed margins in the third quarter of 2021.

Our standalone (excluding HEP) liquidity was approximately $2.8 billion at September 30, 2021, consisting of cash and cash equivalents of $1.5 billion and an undrawn $1.35 billion credit facility maturing in 2026. Our standalone (excluding HEP) principal amount of long-term debt was $1.75 billion as of September 30, 2021, which consists of $350.0 million in aggregate principal amount of 2.625% senior notes due in 2023, $1.0 billion in aggregate principal amount of 5.875% senior notes due in 2026 and $400.0 million in aggregate principal amount of 4.500% senior notes due in 2030.


OUTLOOK

The impact of the COVID-19 pandemic on the global macroeconomy created an unprecedented reduction in demand, as well as a lack of forward visibility, for many of the transportation fuels, lubricants and specialty products and the associated transportation and terminal services we provide. Since the declines in demand at the beginning of the COVID-19 pandemic, we began to see improvement in demand for these products and services beginning late in the second quarter of 2020 and demand has largely recovered in the markets we serve but remains below pre-pandemic levels.

With increasing vaccination rates, most of our employees have returned to work at our locations, and we continue to follow Centers for Disease Control and local government guidance. We will continue to monitor developments in the COVID-19 pandemic and the dynamic environment it has created to properly address these policies going forward.

Within our Refining segment, for the fourth quarter of 2021, we expect to run between 450,000-470,000 barrels per day of crude oil, which includes expected volumes from the Puget Sound Refinery in November and December. We expect to adjust refinery production levels commensurate with market demand and planned turnarounds at our Tulsa and Navajo refineries.

Within our Lubricants and Specialty Products segment, for the full year 2021, we expect to earn between $65 million to $85 million in income from operations and $115 million to $135 million of EBITDA, which excludes estimated annual depreciation of $50 million, in the Rack Forward portion of the segment. Within the Rack Back portion, for the fourth quarter of 2021, we expect base oil margins to remain relatively stable compared to the second and third quarters due to record strength in base oil prices, which is driving strong margins and earnings. Similar to our Refining segment, we expect to adjust production levels commensurate with market demand.

In the fourth quarter of 2021, HEP expects to hold the quarterly distribution constant at $0.35 per unit, or $1.40 on an annualized basis. HEP remains committed to its distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and improving distributable cash flow coverage to 1.3x or greater with the goal of reducing leverage to 3.0-3.5x.

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During the third quarter of 2020, we increased our liquidity by $750.0 million with the issuance of $350.0 million in aggregate principal amount of 2.625% senior notes due in 2023 and $400.0 million in aggregate principal amount of 4.500% senior notes due in 2030. This additional liquidity may be used for general corporate purposes and is expected to support the planned growth of our renewables business and the unexpected economic impact of COVID-19, as needed. We do not intend to repurchase common stock under our $1.0 billion share repurchase program until completion of our ongoing renewables capital projects at the earliest. In addition, we announced the Puget Sound Acquisition, which closed on November 1, 2021. We funded the Puget Sound Acquisition with a one-year suspension of our regular quarterly dividend and cash on hand. Our Board of Directors approved the one-year suspension of the regular quarterly dividend effective with the dividend to be declared for the first quarter of 2021 and is expected to resume the dividend after such time.

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

The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, the effects of any new variant strains of the underlying virus, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus. The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from it, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 and in this Form 10-Q. The COVID-19 pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.

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

42

RESULTS OF OPERATIONS

Financial Data
  Three Months Ended
September 30, 		Change from 2020
  2021 2020 Change Percent
  (In thousands, except per share data)
Sales and other revenues $ 4,685,059  $ 2,819,400  $ 1,865,659  66  %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
3,822,858  2,377,238  1,445,620  61 
Lower of cost or market inventory valuation adjustment —  (62,849) 62,849  (100)
3,822,858  2,314,389  1,508,469  65 
Operating expenses (exclusive of depreciation and amortization) 352,520  332,496  20,024  6 
Selling, general and administrative expenses (exclusive of depreciation and amortization)
91,056  74,453  16,603  22 
Depreciation and amortization 121,220  125,280  (4,060) (3)
Total operating costs and expenses 4,387,654  2,846,618  1,541,036  54 
Income (loss) from operations 297,405  (27,218) 324,623  (1,193)
Other income (expense):
Earnings of equity method investments 3,689  1,316  2,373  180 
Interest income 1,018  1,011  7  1 
Interest expense (26,892) (30,589) 3,697  (12)
Gain on business interruption insurance settlement —  81,000  (81,000) (100)
Gain (loss) on foreign currency transactions (3,492) 1,030  (4,522) (439)
Gain on sale of assets and other 85,779  1,368  84,411  6,170 
60,102  55,136  4,966  9 
Income before income taxes 357,507  27,918  329,589  1,181 
Income tax expense 54,766  4,573  50,193  1,098 
Net income 302,741  23,345  279,396  1,197 
Less net income attributable to noncontrolling interest 21,954  25,746  (3,792) (15)
Net income (loss) attributable to HollyFrontier stockholders $ 280,787  $ (2,401) $ 283,188  (11,795) %
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic $ 1.71  $ (0.01) $ 1.72  (17,200) %
Diluted $ 1.71  $ (0.01) $ 1.72  (17,200) %
Cash dividends declared per common share $ —  $ 0.35  $ (0.35) (100) %
Average number of common shares outstanding:
Basic 162,551  162,015  536  —  %
Diluted 162,551  162,015  536  —  %


43


  Nine Months Ended
September 30, 		Change from 2020
  2021 2020 Change Percent
  (In thousands, except per share data)
Sales and other revenues $ 12,766,475  $ 8,282,875  4,483,600  54  %
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)
10,608,892  6,647,960  3,960,932  60 
Lower of cost or market inventory valuation adjustment (318,862) 227,711  (546,573) (240)
10,290,030  6,875,671  3,414,359  50 
Operating expenses (exclusive of depreciation and amortization) 1,086,620  964,200  122,420  13 
Selling, general and administrative expenses (exclusive of depreciation and amortization)
250,785  237,559  13,226  6 
Depreciation and amortization 369,341  396,033  (26,692) (7)
Long-lived asset impairment —  436,908  (436,908) (100)
Total operating costs and expenses 11,996,776  8,910,371  3,086,405  35 
Income (loss) from operations 769,699  (627,496) 1,397,195  (223)
Other income (expense):
Earnings of equity method investments 8,875  5,186  3,689  71 
Interest income 3,078  6,590  (3,512) (53)
Interest expense (94,220) (85,923) (8,297) 10 
Gain on business interruption insurance settlement —  81,000  (81,000) (100)
Gain on tariff settlement 51,500  —  51,500  — 
Gain on sales-type leases —  33,834  (33,834) (100)
Loss on early extinguishment of debt —  (25,915) 25,915  (100)
Loss on foreign currency transactions (4,226) (918) (3,308) 360 
Gain on sale of assets and other 95,596  4,790  90,806  1,896 
60,603  18,644  41,959  225 
Income (loss) before income taxes 830,302  (608,852) 1,439,154  (236)
Income tax expense (benefit) 149,944  (188,504) 338,448  (180)
Net income (loss) 680,358  (420,348) 1,100,706  (262)
Less net income attributable to noncontrolling interest 82,504  63,353  19,151  30 
Net income (loss) attributable to HollyFrontier stockholders $ 597,854  $ (483,701) $ 1,081,555  (224) %
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic $ 3.63  $ (2.99) $ 6.62  (221) %
Diluted $ 3.63  $ (2.99) $ 6.62  (221) %
Cash dividends declared per common share $ 0.35  $ 1.05  $ (0.70) (67) %
Average number of common shares outstanding:
Basic 162,518  161,927  591  —  %
Diluted 162,518  161,927  591  —  %


Balance Sheet Data
September 30, 2021 December 31, 2020
(Unaudited)
  (In thousands)
Cash and cash equivalents $ 1,481,562  $ 1,368,318 
Working capital $ 2,310,815  $ 1,935,605 
Total assets $ 12,897,181  $ 11,506,864 
Long-term debt $ 3,072,352  $ 3,142,718 
Total equity $ 6,329,539  $ 5,722,203 

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Other Financial Data 
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Net cash provided by operating activities $ 249,413  $ 81,748  $ 739,494  $ 391,050 
Net cash used for investing activities $ (116,164) $ (81,985) $ (438,476) $ (213,651)
Net cash provided by (used for) financing activities $ (45,691) $ 618,726  $ (184,169) $ 463,207 
Capital expenditures $ 215,504  $ 83,272  $ 548,345  $ 213,008 
EBITDA (1)
$ 482,647  $ 157,030  $ 1,208,281  $ (196,839)

(1)Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.

Segment Operating Data

Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. See Note 15 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments.

Refining Segment Operating Data

As of September 30, 2021, our refinery operations include the El Dorado, Tulsa, Navajo 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, depreciation and amortization and long-lived asset impairments. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q. 

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

45
Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1)
280,220  244,200  258,530  234,550 
Refinery throughput (BPD) (2)
294,970  257,280  272,770  249,430 
Sales of produced refined products (BPD) (3)
277,310  243,830  258,800  239,800 
Refinery utilization (4)
107.8  % 93.9  % 99.4  % 90.2  %
Average per produced barrel (5)
Refinery gross margin $ 13.59  $ 3.21  $ 10.65  $ 6.41 
Refinery operating expenses (6)
5.72  5.47  6.68  5.47 
Net operating margin $ 7.87  $ (2.26) $ 3.97  $ 0.94 
Refinery operating expenses per throughput barrel (7)
$ 5.37  $ 5.19  $ 6.33  $ 5.26 
Feedstocks:
Sweet crude oil 66  % 62  % 63  % 58  %
Sour crude oil 13  % 18  % 14  % 19  %
Heavy sour crude oil 16  % 15  % 18  % 17  %
Other feedstocks and blends 5  % 5  % 5  % 6  %
Total 100  % 100  % 100  % 100  %
Sales of produced refined products:
Gasolines 52  % 53  % 51  % 52  %
Diesel fuels 32  % 35  % 33  % 34  %
Jet fuels 5  % 3  % 5  % 4  %
Fuel oil 1  % 1  % 1  % 1  %
Asphalt 4  % 2  % 3  % 3  %
Base oils 4  % 4  % 4  % 4  %
LPG and other 2  % 2  % 3  % 2  %
Total 100  % 100  % 100  % 100  %
West Region (Navajo and Woods Cross Refineries)
Crude charge (BPD) (1)
136,210  131,680  135,370  125,710 
Refinery throughput (BPD) (2)
149,760  146,860  148,700  139,710 
Sales of produced refined products (BPD) (3)
144,710  144,970  148,410  142,740 
Refinery utilization (4)
93.9  % 90.8  % 93.4  % 86.7  %
Average per produced barrel (5)
Refinery gross margin $ 17.33  $ 11.24  $ 13.67  $ 12.01 
Refinery operating expenses (6)
7.70  6.88  7.43  7.01 
Net operating margin $ 9.63  $ 4.36  $ 6.24  $ 5.00 
Refinery operating expenses per throughput barrel (7)
$ 7.44  $ 6.79  $ 7.41  $ 7.16 
Feedstocks:
Sweet crude oil 22  % 30  % 22  % 30  %
Sour crude oil 58  % 48  % 59  % 49  %
Black wax crude oil 11  % 12  % 10  % 11  %
Other feedstocks and blends 9  % 10  % 9  % 10  %
Total 100  % 100  % 100  % 100  %
Sales of produced refined products:
Gasolines 51  % 57  % 52  % 56  %
Diesel fuels 39  % 34  % 38  % 35  %
Fuel oil 3  % 2  % 3  % 2  %
Asphalt 5  % 6  % 4  % 5  %
LPG and other 2  % 1  % 3  % 2  %
Total 100  % 100  % 100  % 100  %
46
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Consolidated
Crude charge (BPD) (1)
416,430  375,880  393,900  360,260 
Refinery throughput (BPD) (2)
444,730  404,140  421,470  389,140 
Sales of produced refined products (BPD) (3)
422,020  388,800  407,210  382,540 
Refinery utilization (4)
102.8  % 92.8  % 97.3  % 89.0  %
Average per produced barrel (5)
Refinery gross margin $ 14.87  $ 6.20  $ 11.75  $ 8.50 
Refinery operating expenses (6)
6.40  6.00  6.95  6.04 
Net operating margin $ 8.47  $ 0.20  $ 4.80  $ 2.46 
Refinery operating expenses per throughput barrel (7)
$ 6.07  $ 5.77  $ 6.71  $ 5.94 
Feedstocks:
Sweet crude oil 51  % 51  % 49  % 48  %
Sour crude oil 28  % 28  % 29  % 30  %
Heavy sour crude oil 11  % 10  % 12  % 11  %
Black wax crude oil 4  % 4  % 4  % 4  %
Other feedstocks and blends 6  % 7  % 6  % 7  %
Total 100  % 100  % 100  % 100  %
Sales of produced refined products:
Gasolines 51  % 54  % 52  % 54  %
Diesel fuels 35  % 35  % 35  % 34  %
Jet fuels 3  % 2  % 3  % 2  %
Fuel oil 2  % 1  % 1  % 1  %
Asphalt 4  % 4  % 4  % 4  %
Base oils 3  % 2  % 2  % 3  %
LPG and other 2  % 2  % 3  % 2  %
Total 100  % 100  % 100  % 100  %
 
(1)Crude charge represents the barrels per day of crude oil processed at our refineries.
(2)Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.
(3)Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold.
(4)Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 405,000 BPSD.
(5)Represents average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.
(6)Represents total refining segment operating expenses, exclusive of depreciation and amortization and Cheyenne Refinery operating expenses, divided by sales volumes of refined products produced at our refineries.
(7)Represents total refining segment operating expenses, exclusive of depreciation and amortization and Cheyenne Refinery operating expenses, divided by refinery throughput.


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Lubricants and Specialty Products Operating Data

The following table sets forth information about our lubricants and specialty products operations.
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Lubricants and Specialty Products
Throughput (BPD) 18,260  19,020  29,140  19,050 
Sales of produced refined products (BPD) 31,700  33,560  33,640  32,460 
Sales of produced refined products:
Finished products 53  % 50  % 52  % 51  %
Base oils 28  % 27  % 28  % 24  %
Other 19  % 23  % 20  % 25  %
Total 100  % 100  % 100  % 100  %

Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below.
Rack Back (1)
Rack Forward (2)
Eliminations (3)
Total Lubricants and Specialty Products
(In thousands)
Three months ended September 30, 2021
Sales and other revenues $ 270,207  $ 634,654  $ (238,327) $ 666,534 
Cost of products sold $ 148,171  $ 572,689  $ (238,327) $ 482,533 
Operating expenses $ 29,046  $ 31,894  $ —  $ 60,940 
Selling, general and administrative expenses $ 7,058  $ 34,418  $ —  $ 41,476 
Depreciation and amortization $ 6,375  $ 12,851  $ —  $ 19,226 
Income (loss) from operations $ 79,557  $ (17,198) $ —  $ 62,359 
Three months ended September 30, 2020
Sales and other revenues $ 110,952  $ 423,418  $ (79,328) $ 455,042 
Cost of products sold $ 98,033  $ 283,998  $ (79,328) $ 302,703 
Operating expenses $ 25,400  $ 29,088  $ —  $ 54,488 
Selling, general and administrative expenses $ 5,616  $ 31,157  $ —  $ 36,773 
Depreciation and amortization $ 5,419  $ 12,013  $ —  $ 17,432 
Income (loss) from operations $ (23,516) $ 67,162  $ —  $ 43,646 
Nine months ended September 30, 2021
Sales and other revenues $ 698,134  $ 1,747,111  $ (584,959) $ 1,860,286 
Cost of products sold $ 443,983  $ 1,446,250  $ (584,959) $ 1,305,274 
Operating expenses $ 86,773  $ 96,230  $ —  $ 183,003 
Selling, general and administrative expenses $ 19,711  $ 104,901  $ —  $ 124,612 
Depreciation and amortization $ 19,910  $ 38,589  $ —  $ 58,499 
Income from operations $ 127,757  $ 61,141  $ —  $ 188,898 
Nine months ended September 30, 2020
Sales and other revenues $ 361,638  $ 1,241,402  $ (264,108) $ 1,338,932 
Cost of products sold $ 345,843  $ 870,695  $ (264,108) $ 952,430 
Operating expenses $ 69,703  $ 86,756  $ —  $ 156,459 
Selling, general and administrative expenses $ 16,596  $ 105,058  $ —  $ 121,654 
Depreciation and amortization $ 22,163  $ 37,097  $ —  $ 59,260 
Long-lived asset impairment $ 167,017  $ 37,691  $ —  $ 204,708 
Income (loss) from operations $ (259,684) $ 104,105  $ —  $ (155,579)
(1) Rack Back consists of our PCLI base oil production activities, by-product sales to third parties and intra-segment base oil sales to Rack Forward.
(2) Rack Forward activities include the purchase of base oils from Rack Back and the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties.
(3) Intra-segment sales of Rack Back produced base oils to Rack Forward are eliminated under the “Eliminations” column.

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Results of Operations – Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Summary
Net income attributable to HollyFrontier stockholders for the three months ended September 30, 2021 was $280.8 million ($1.71 per basic and diluted share), a $283.2 million increase from a net loss of $2.4 million ($(0.01) per basic and diluted share) for the three months ended September 30, 2020. The increase in net income was principally driven by stronger product demand, which resulted in an increase in refinery gross margins and higher refined product sales volumes. Refinery gross margins for the three months ended September 30, 2021 increased to $14.87 per produced barrel sold from $6.20 for the three months ended September 30, 2020. This increase was partially offset by the lower of cost or market inventory reserve adjustment that increased pre-tax earnings by $62.8 million for the three months ended September 30, 2020.

Sales and Other Revenues
Sales and other revenues increased 66% from $2,819.4 million for the three months ended September 30, 2020 to $4,685.1 million for the three months ended September 30, 2021 principally due to the increase in sales prices and higher refined product sales volumes. Sales and other revenues for the three months ended September 30, 2021 and 2020 included $25.5 million and $26.7 million, respectively, of HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. Additionally, sales and other revenues included $666.0 million and $452.9 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the three months ended September 30, 2021 and 2020, respectively.

Cost of Products Sold
Total cost of products sold increased 65% from $2,314.4 million for the three months ended September 30, 2020 to $3,822.9 million for the three months ended September 30, 2021 principally due to higher crude oil costs and higher refined product sales volumes. During the third quarter of 2020, we recognized a lower of cost or market inventory valuation adjustment benefit of $62.8 million.

Gross Refinery Margins
Gross refinery margin per produced barrel sold increased 140% from $6.20 for the three months ended September 30, 2020 to $14.87 for the three months ended September 30, 2021. The increase was due to the effects of an increase in the average per barrel sold sales price during the current year quarter, partially offset by increased crude oil and feedstock prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sale prices of products sold and cost of products purchased.

Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 6% from $332.5 million for the three months ended September 30, 2020 to $352.5 million for the three months ended September 30, 2021 primarily due to an increase in natural gas prices.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 22% from $74.5 million for the three months ended September 30, 2020 to $91.1 million for the three months ended September 30, 2021 primarily due to higher professional services and legal costs incurred in connection with the recently announced acquisitions, including $4.3 million in pre-close acquisition integration costs related to the Puget Sound Acquisition during the three months ended September 30, 2021. See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on these acquisitions.

Depreciation and Amortization Expenses
Depreciation and amortization decreased 3% from $125.3 million for the three months ended September 30, 2020 to $121.2 million for the three months ended September 30, 2021. This decrease was primarily due to lower capitalized refinery turnaround costs during 2020.

49
Interest Expense
Interest expense was $26.9 million for the three months ended September 30, 2021 compared to $30.6 million for the three months ended September 30, 2020. This decrease was primarily due to net gains related to our catalyst financing arrangement during the three months ended September 30, 2021 as compared to net losses during the same period in the prior year and higher capitalized interest during the three months ended September 30, 2021 due to the capital expenditures related to the construction of our renewable diesel units. This decrease was partially offset by interest expense on our senior notes issued in September 2020.

For the three months ended September 30, 2021 and 2020, interest expense attributable to our HEP segment was $13.4 million and $12.5 million, respectively.

Gain on Business Interruption Insurance Settlement
During the third quarter of 2020, we recorded a gain of $81.0 million upon the settlement of our business interruption claim with our insurance carrier related to a loss at our Woods Cross Refinery that occurred in the first quarter of 2018.

Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes was a net loss of $3.5 million and a net gain of $1.0 million for the three months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, gain (loss) on foreign currency transactions included a gain of $9.7 million and a loss of $8.2 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Gain on Sale of Assets and Other
For the three months ended September 30, 2021, we recorded an $86.0 million gain related to the sale of real property in Mississauga, Ontario. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information.

Income Taxes
For the three months ended September 30, 2021, we recorded an income tax expense of $54.8 million compared to $4.6 million for the three months ended September 30, 2020. This increase was principally due to higher pre-tax income during the three months ended September 30, 2021 compared to the same period of 2020. Our effective tax rates were 15.3% and 16.4% for the three months ended September 30, 2021 and 2020, respectively. The decrease in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the three months ended September 30, 2021 was primarily due to the net operating loss carryback provisions of the CARES Act and federal tax credits.


Results of Operations – Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Summary
Net income attributable to HollyFrontier stockholders for the nine months ended September 30, 2021 was $597.9 million ($3.63 per basic and diluted share), a $1,081.6 million increase compared to a net loss of $483.7 million ($(2.99) per basic and diluted share) for the nine months ended September 30, 2020. The increase in net income was principally driven by stronger product demand, which resulted in an increase in refinery gross margins and higher refined product sales volumes. Net income also increased due to lower of cost or market inventory reserve adjustments that increased pre-tax earnings by $318.9 million for the nine months ended September 30, 2021 and decreased pre-tax earnings by $227.7 million for the nine months ended September 30, 2020. In addition, we recorded long-lived asset impairment charges of $436.9 million for the nine months ended September 30, 2020. The increase in net income for the nine months ended September 30, 2021 was partially offset by the impact of winter storm Uri, which increased natural gas costs by approximately $65 million across our refining system. Refinery gross margins for the nine months ended September 30, 2021 increased to $11.75 per barrel sold from $8.50 for the nine months ended September 30, 2020.

50
Sales and Other Revenues
Sales and other revenues increased 54% from $8,282.9 million for the nine months ended September 30, 2020 to $12,766.5 million for the nine months ended September 30, 2021 due to a year-over-year increase in sales prices and higher refined product sales volumes. Sales and other revenues for the nine months ended September 30, 2021 and 2020 include $77.8 million and $72.4 million, respectively, in HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. Additionally, sales and other revenues included $1,850.8 million and $1,330.0 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the nine months ended September 30, 2021 and 2020, respectively.

Cost of Products Sold
Total cost of products sold increased 50% from $6,875.7 million for the nine months ended September 30, 2020 to $10,290.0 million for the nine months ended September 30, 2021 principally due to the increase in crude oil and feedstock prices and refined product sales volumes. We recognized a lower of cost or market inventory valuation benefit of $318.9 million for the nine months ended September 30, 2021 compared to a charge of $227.7 million for the same period of 2020, resulting in no lower of cost or market reserve at September 30, 2021.

Gross Refinery Margins
Gross refinery margin per barrel sold increased 38% from $8.50 for the nine months ended September 30, 2020 to $11.75 for the nine months ended September 30, 2021 principally due to the increase in the average per barrel sold sales prices, partially offset by the increase in crude oil and feedstock prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sales prices of products sold and cost of products purchased.

Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 13% from $964.2 million for the nine months ended September 30, 2020 to $1,086.6 million for the nine months ended September 30, 2021 primarily due to the increase in natural gas prices and higher planned and unplanned repair and maintenance costs. The increase in natural gas prices was due in part to winter storm Uri during the first quarter of 2021.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 6% from $237.6 million for the nine months ended September 30, 2020 to $250.8 million for the nine months ended September 30, 2021 primarily due to higher professional services and legal costs incurred in connection with the recently announced acquisitions, including $5.0 million in pre-close acquisition integration costs related to the Puget Sound Acquisition during the nine months ended September 30, 2021. See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on these acquisitions.

Depreciation and Amortization Expenses
Depreciation and amortization decreased 7% from $396.0 million for the nine months ended September 30, 2020 to $369.3 million for the nine months ended September 30, 2021. This decrease was principally due to lower capitalized refinery turnaround costs during 2020 and lower depreciation expense resulting from the assets impaired in the second quarter of 2020.

Long-lived Asset Impairment
During the nine months ended September 30, 2020, we recorded long-lived asset impairment charges of $232.2 million that related to our Cheyenne Refinery and $204.7 million related to PCLI. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information on these impairments.

Interest Expense
Interest expense was $94.2 million for the nine months ended September 30, 2021 compared to $85.9 million for the nine months ended September 30, 2020. This increase was primarily due to interest expense on our senior notes issued in September 2020. This increase was partially offset by higher capitalized interest during the nine months ended September 30, 2020 due to the capital expenditures related to the construction of our renewable diesel units and lower weighted average balance on HEP’s credit facility during the nine months ended September 30, 2021.

For the nine months ended September 30, 2021 and 2020, interest expense attributable to our HEP Segment was $40.6 million and $40.7 million, respectively.

Gain on Business Interruption Insurance Settlement
During the third quarter of 2020, we recorded a gain of $81.0 million upon the settlement of our business interruption claim with our insurance carrier related to a loss at our Woods Cross Refinery that occurred in the first quarter of 2018.
51

Gain on Tariff Settlement
For the nine months ended September 30, 2021, we recorded a gain of $51.5 million upon the settlement of a tariff rate case. See Note 14 “Contingencies” in the Notes to Consolidated Financial Statements for additional information on this case and settlement.

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

Loss on Early Extinguishment of Debt
For the nine months ended September 30, 2020, HEP recorded a $25.9 million loss on the redemption of its $500 million aggregate principal amount of 6.0% senior notes maturing August 2024 for $522.5 million.

Loss on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes were net losses of $4.2 million and $0.9 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, loss on foreign currency transactions included a net loss of $3.2 million and a gain of $11.0 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Gain on Sale of Assets and Other
For the nine months ended September 30, 2021, we recorded an $86.0 million gain related to the sale of real property in Mississauga, Ontario, and HEP recorded a $5.3 million gain related to the sale of certain pipeline assets. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information.

Income Taxes
For the nine months ended September 30, 2021, we recorded an income tax expense of $149.9 million compared to a benefit of $188.5 million for the nine months ended September 30, 2020. This change to income tax expense in 2021 from income tax benefit in 2020 was principally due to pre-tax income during the nine months ended September 30, 2021 as compared to a pre-tax loss in the same period of 2020. Our effective tax rates were 18.1% and 31.0% for the nine months ended September 30, 2021 and 2020, respectively. The year-over-year decrease in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the nine months ended September 30, 2021 was primarily due to the net operating loss carryback provisions of the CARES Act and federal tax credits.


LIQUIDITY AND CAPITAL RESOURCES

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

HollyFrontier Financing Arrangements
Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature on February 1, 2022. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity.

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HEP Credit Agreement
On April 30, 2021, HEP amended its $1.4 billion senior secured revolving credit facility decreasing the commitments under the facility to $1.2 billion and extending the maturity to July 27, 2025 (the “HEP Credit Agreement”). The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and continues to provide for an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a maximum amount of $1.7 billion. During the nine months ended September 30, 2021, HEP received advances totaling $210.5 million and repaid $283.5 million under the HEP Credit Agreement. At September 30, 2021, HEP was in compliance with all of its covenants, had outstanding borrowings of $840.5 million and no outstanding letters of credit under the HEP Credit Agreement.

See Note 10 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments.

Liquidity
We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. In addition, components of our long-term growth strategy include the expansion of existing units at our facilities and selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow. In connection with the Puget Sound Acquisition, our Board of Directors approved a one-year suspension of the regular quarterly dividend effective with the dividend to be declared for the first quarter of 2021 and is expected to resume the dividend after such time.

Our standalone (excluding HEP) liquidity was approximately $2.8 billion at September 30, 2021, consisting of cash and cash equivalents of $1.5 billion and an undrawn $1.35 billion credit facility.

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

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

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net cash flows provided by operating activities were $739.5 million for the nine months ended September 30, 2021 compared to $391.1 million for the nine months ended September 30, 2020, an increase of $348.4 million. The increase in operating cash flows was primarily due to the increase in gross refinery margins and $51.5 million received upon settlement of a tariff rate case, partially offset by higher operating expenses.

Changes in working capital increased operating cash flows by $55.3 million and decreased operating cash flows by $50.0 million, for the nine months ended September 30, 2021 and 2020, respectively. Changes in working capital items adjust for the timing of receipts and payments of actual cash.

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Cash Flows – Investing Activities and Planned Capital Expenditures

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net cash flows used for investing activities were $438.5 million for the nine months ended September 30, 2021 compared to $213.7 million for the nine months ended September 30, 2020, an increase of $224.8 million. Cash expenditures for properties, plants and equipment for the nine months of 2021 increased to $548.3 million from $213.0 million for the same period in 2020, primarily due to expenditures related to our renewable diesel units that are expected to be completed in the first half of 2022. Cash expenditures for properties, plants and equipment include HEP capital expenditures of $76.9 million and $38.6 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2020, HEP also invested $2.4 million in the Cushing Connect Pipeline & Terminal LLC joint venture.

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

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

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

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

Expected capital and turnaround cash spending for 2021 is as follows and primarily reflects a change in the timing of spend between 2021 and 2022 on the renewable diesel units.    
Expected Cash Spending Range
(In millions)
HollyFrontier Capital Expenditures
Refining $ 190.0  $ 220.0 
Renewables 550.0  600.0 
Lubricants and Specialty Products
40.0  50.0 
Turnarounds and catalyst
290.0  320.0 
Total HollyFrontier
1,070.0  1,190.0 
HEP
Maintenance
15.0  20.0 
Expansion and joint venture investment
40.0  45.0 
Refining unit turnarounds
2.0  4.0 
Total HEP
57.0  69.0 
Total $ 1,127.0  $ 1,259.0 

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Cash Flows – Financing Activities

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
For the nine months ended September 30, 2021, our net cash flows used for financing activities were $184.2 million. During the nine months ended September 30, 2021, we paid $57.7 million in dividends and $7.9 million of deferred financing costs in connection with the amendment of the HollyFrontier Credit Agreement in April 2021. During the nine months ended September 30, 2021, HEP had net repayments of $73.0 million under the HEP Credit Agreement and paid $6.6 million of deferred financing costs in connection with the amendment of the HEP Credit Agreement in April 2021. In addition, HEP paid distributions of $57.2 million to noncontrolling interests and received contributions from noncontrolling interests of $21.3 million.

For the nine months ended September 30, 2020, our net cash flows provided by financing activities were $463.2 million. During the nine months ended September 30, 2020, we received $744.1 million in net proceeds from the issuance of HFC’s 2.625% and 4.500% senior notes, purchased $3.4 million of treasury stock and paid $171.6 million in dividends. Also during the period, HEP received $219.5 million and repaid $237.0 million under the HEP Credit Agreement, paid $522.5 million upon the redemption of HEP’s 6.0% senior notes and received $491.3 million in net proceeds from the issuance of HEP 5.0% senior notes, paid distributions of $70.9 million to noncontrolling interests and received contributions from noncontrolling interests of $15.4 million.

Contractual Obligations and Commitments

HollyFrontier Corporation

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

HEP

During the nine months ended September 30, 2021, HEP had net repayments of $73.0 million resulting in $840.5 million of outstanding borrowings under the HEP Credit Agreement at September 30, 2021.

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


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

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

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

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At September 30, 2021, the LIFO value of inventory was equal to cost. Future decreases in overall inventory values could result in an establishment of a lower of cost or market inventory valuation reserve and additional charges to cost of products sold.

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

Goodwill and Long-lived Assets: As of September 30, 2021, our goodwill balance was $2.3 billion, with goodwill assigned to our Refining, Lubricants and Specialty Products and HEP segments of $1,733.5 million, $247.0 million and $312.9 million, respectively. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of reporting unit over the related fair value.

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

We performed our annual goodwill impairment testing quantitatively as of July 1, 2021 and determined there was no impairment of goodwill attributable to our reporting units. The estimated fair values of our reporting units were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like kind assets. The excess of the fair values of the reporting units over their respective carrying values ranged from 12% to 162%. Increasing the discount rate by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have changed the results of our annual goodwill testing.

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

We continually monitor and evaluate various factors for potential indicators of goodwill and long-lived asset impairment. A reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and / or long-lived asset impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition.

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.


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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, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs.

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

As of September 30, 2021, we have the following notional contract volumes related to all outstanding derivative instruments used to mitigate commodity price and foreign currency risk:
Notional Contract Volumes by Year of Maturity
Derivative Instrument Total Outstanding Notional 2021 2022 Unit of Measure
Natural gas price swaps - long 450,000  450,000  —  MMBTU
WTI and gasoline crack spread swaps - short 150,000  150,000  —  Barrels
NYMEX futures (WTI) - short 1,880,000  1,440,000  440,000  Barrels
Forward gasoline and diesel contracts - long
165,000  165,000  —  Barrels
Foreign currency forward contracts 443,112,746  105,825,135  337,287,611  U.S. dollar
Forward commodity contracts (platinum) (1)
38,723  —  38,723  Troy ounces

(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 10 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing arrangements.

The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity hedged under our derivative contracts:
Estimated Change in Fair Value at September 30,
Commodity-based Derivative Contracts 2021 2020
(In thousands)
Hypothetical 10% change in underlying commodity prices $ 13,569  $ 3,659 

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

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For the fixed rate HollyFrontier Senior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of September 30, 2021 is presented below:
Outstanding
Principal 		Estimated
Fair Value 		Estimated
Change in
Fair Value
  (In thousands)
HollyFrontier Senior Notes $ 1,750,000  $ 1,946,420  $ 22,243 
HEP Senior Notes $ 500,000  $ 506,770  $ 13,123 

For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2021, outstanding borrowings under the HEP Credit Agreement were $840.5 million. A hypothetical 10% change in interest rates applicable to the HEP Credit Agreement would not materially affect cash flows.

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

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

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 3.Quantitative and Qualitative Disclosures About Market Risk

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


Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

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

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

Set forth below is our calculation of EBITDA.
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  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Net income (loss) attributable to HollyFrontier stockholders
$ 280,787  $ (2,401) $ 597,854  $ (483,701)
Add interest expense 26,892  30,589  94,220  85,923 
Subtract interest income (1,018) (1,011) (3,078) (6,590)
Add (subtract) income tax expense (benefit) 54,766  4,573  149,944  (188,504)
Add depreciation and amortization 121,220  125,280  369,341  396,033 
EBITDA $ 482,647  $ 157,030  $ 1,208,281  $ (196,839)

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

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

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

Reconciliation of average refining segment net operating margin per produced barrel sold to refinery gross margin to total sales
and other revenues
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per produced barrel sold $ 8.47  $ 0.20  $ 4.80  $ 2.46 
Add average refinery operating expenses per produced barrel sold
6.40  6.00  6.95  6.04 
Refinery gross margin per produced barrel sold 14.87  6.20  11.75  8.50 
Times produced barrels sold (BPD) 422,020  388,800  407,210  382,540 
Times number of days in period 92  92  273  274 
Refining gross margin 577,340  221,772  1,306,228  890,936 
Add (subtract) rounding 71  164  (125) 61 
West and Mid-Continent regions gross margin 577,411  221,936  1,306,103  890,997 
Add West and Mid-Continent regions cost of products sold 3,605,600  2,043,361  9,986,862  5,665,897 
Add Cheyenne Refinery sales and other revenues —  130,816  —  501,589 
Refining segment sales and other revenues 4,183,011  2,396,113  11,292,965  7,058,483 
Add Lubricants and Specialty Products segment sales and other revenues 666,534  455,042  1,860,286  1,338,932 
Add HEP segment sales and other revenues 122,584  127,731  376,002  370,392 
Subtract corporate, other and eliminations (287,070) (159,486) (762,778) (484,932)
Sales and other revenues $ 4,685,059  $ 2,819,400  $ 12,766,475  $ 8,282,875 

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Reconciliation of average refining segment operating expenses per produced barrel sold to total operating expenses
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (Dollars in thousands, except per barrel amounts)
Consolidated
Average refinery operating expenses per produced barrel sold
$ 6.40  $ 6.00  $ 6.95  $ 6.04 
Times produced barrels sold (BPD) 422,020  388,800  407,210  382,540 
Times number of days in period 92  92  273  274 
Refinery operating expenses 248,485  214,618  772,620  633,088 
Add (subtract) rounding (169) (97) (27) 373 
West and Mid-Continent regions operating expenses 248,316  214,521  772,593  633,461 
Add Cheyenne Refinery operating expenses —  41,558  —  121,151 
Refining segment operating expenses 248,316  256,079  772,593  754,612 
Add Lubricants and Specialty Products segment operating expenses 60,940  54,488  183,003  156,459 
Add HEP segment operating expenses 42,793  40,003  126,226  109,721 
Add (subtract) corporate, other and eliminations 471  (18,074) 4,798  (56,592)
Operating expenses (exclusive of depreciation and amortization)
$ 352,520  $ 332,496  $ 1,086,620  $ 964,200 


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Item 4.Controls and Procedures

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

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

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PART II. OTHER INFORMATION
 
Item 1.Legal Proceedings

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

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

Environmental Matters

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

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

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

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Tulsa
HollyFrontier Tulsa Refining LLC (“HFTR”) operates under two Consent Decrees with the EPA and the Oklahoma Department of Environmental Quality (“ODEQ”) for the East and West Refineries. On April 3, 2019, the EPA notified HFTR of potential violations of the Consent Decrees. On December 1, 2020, ODEQ, on behalf of ODEQ and the EPA, issued two demand letters alleging violations under the Consent Decrees, which stemmed from inspections conducted by the EPA at the refineries from May 1 through 5, 2017, as well as from a review of the refineries’ records. The alleged violations included the failure to comply with applicable continuous emissions monitoring system (CEMS) requirements and exceedances of the hydrogen sulfide (H2S) emission limits. During a follow-up conference call with ODEQ, on January 6, 2021, ODEQ shared its stipulated penalty amounts for alleged violations pursuant to the two Consent Decrees. HFTR submitted timely responses to the ODEQ demand letters on February 8, 2021. Based on HFTR’s responses, during a follow-up conference call on April 9, 2021, ODEQ confirmed both ODEQ and EPA had reduced the stipulated penalties for the alleged violations of the two Consent Decrees and was seeking total stipulated penalties of $93,500. On April 9, 2021, HFTR confirmed acceptance of the above-referenced penalties. This matter will be resolved once HFTR pays the penalty following its receipt of the revised demand letter from ODEQ. HFTR has not yet received a demand letter.

Navajo
HollyFrontier Navajo Refining LLC (“HFNR”) has been engaged in discussions with, and has responded to document requests from, the EPA, the DOJ and the New Mexico Environment Department (“NMED”) (collectively, the “Agencies”) regarding HFNR’s compliance with the Clean Air Act (“CAA”) and related regulations, and similar New Mexico laws and regulations, at its Artesia and Lovington, New Mexico refineries. The discussions have included the following topics: (a) alleged noncompliance with CAA’s National Emission Standards for Hazardous Air Pollutants (“NESHAP”) and New Source Performance Standards (“NSPS”) at the Artesia refinery, which were set forth in a Notice of Violation (“May 2020 NOV”) issued by the EPA in May 2020; (b) a Post Inspection Notice issued in June 2020 by the NMED, alleging noncompliance issues similar to those alleged by the EPA in its May 2020 NOV; (c) an information request issued in September 2020 by the EPA, pursuant to CAA Section 114, related to benzene fenceline monitoring, flare fuel gas, storage vessels and tanks, and other information regarding the Artesia refinery; and (d) an information request issued by the EPA in May 2021, pursuant to CAA Section 114, requesting additional information and testing related to certain tanks at the Artesia refinery.

Beginning in the spring of 2021, HFNR and the Agencies began monthly meetings to discuss potential injunctive relief measures to address the alleged noncompliance at the Artesia refinery. In September 2021, the EPA presented to HFNR potential claims for stipulated penalties for alleged noncompliance with a 2002 consent decree.

HFNR continues to work with the Agencies to resolve these issues. At this time, no penalties have been demanded, and it is too early to predict the outcome of this matter.

Renewable Fuel Standard

Various subsidiaries of HollyFrontier are currently intervenors in two lawsuits brought by renewable fuel interest groups against the EPA in federal courts alleging violations of the Renewable Fuel Standard under the Clean Air Act and challenging the EPA’s handling of small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery exemptions because we believe the EPA correctly applied applicable law to the matters at issue.

The first lawsuit is before the Tenth Circuit and challenges the relief the EPA afforded to the Cheyenne and Woods Cross refineries following the grant of small refinery exemptions. The matter is fully briefed and remains pending before that court.

The second lawsuit is currently pending before the DC Circuit. However, on August 25, 2021, the EPA filed a motion to voluntarily remand the matter to the EPA. We did not oppose this motion. A decision on this motion by the DC Circuit is expected in the near future.

HollyFrontier was also recently an intervenor in another lawsuit filed in the Tenth Circuit challenging the grant of small refinery exemptions to the Cheyenne and Woods Cross refineries for the 2016 compliance year. On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to the Cheyenne and Woods Cross refineries for 2016 and remanded the case to the EPA for further proceedings. On April 15, 2020, the Tenth Circuit issued its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court seeking review of the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted HollyFrontier’s petition. The oral argument occurred on April 27, 2021. The U.S. Supreme Court issued its opinion in this matter on June 25, 2021 and reversed the Tenth Circuit. On July 27, 2021, the Tenth Circuit recalled the mandate it issued to the EPA on April 15, 2020, and vacated its January 24, 2020 judgment. On July 29, 2021, the Tenth Circuit issued an order and judgment confirming that it recalled its mandate and vacated its previous judgment in this case, and
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returned jurisdiction to the EPA without vacating the exemption decisions. On August 19, 2021, the EPA filed a motion for clarification of the Tenth Circuit’s mandate. The Tenth Circuit denied the EPA’s motion on August 26, 2021, and therefore the matter is now solely before the EPA.

Shareholder Litigation Related to Acquisition of Sinclair Oil Corporation

A shareholder action has been filed in the District Court of Harris County, Texas captioned: Garfield v. Myers, Franklin (filed October 11, 2021) by an alleged shareholder of HollyFrontier challenging our proposed acquisition of certain refining, marketing and other businesses of Sinclair Oil Corporation (the “Acquisition”) and naming as defendants HollyFrontier and its board of directors. The complaint alleges, among other things, that the Acquisition involves unfair dilution of existing HollyFrontier stockholders, overpayment for Sinclair’s downstream business, and improper diversion of Sinclair’s midstream business to HEP; that certain conflicts of interest exist between HollyFrontier, its insiders, and its financial advisor; and that the proxy statement is materially misleading and incomplete. The complaint asserts claims against the director defendants for alleged breach of fiduciary duties, failure to disclose under Delaware law, and diversion of corporate opportunity under Delaware law.

An additional shareholder action has been filed in the United States District Court for the Southern District of New York captioned: Lovoi v. HollyFrontier Corporation et. al. (filed October 28, 2021) by an alleged shareholder of HollyFrontier asserting claims under Section 14(a) of the Exchange Act and SEC Rule 14a-9 and claims under Section 20(a) of the Exchange Act against HollyFrontier and members of HollyFrontier’s board of directors, based on the allegation that the preliminary proxy statement for the Acquisition omitted material information about HollyFrontier’s financial projections and the analyses conducted by its financial advisor.

The shareholder actions seek various remedies, including enjoining and/or rescinding the Acquisition agreement and requiring defendants to amend the proxy statement, declaring a breach of fiduciary duties, correcting and completing disclosures or enjoining or unwinding the Acquisition and share issuance if they do not, rescissory and compensatory damages, and interest, attorney’s fees and other costs.

The defendants intend to vigorously defend these and any future lawsuits, as they believe that they have valid defenses to all claims and that the lawsuits are entirely without merit.

Other

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


Item 1A.Risk Factors

Except for the risk factors below, there have been no material changes in our risk factors as previously disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021. You should carefully consider the risk factors discussed below and in our 2020 Form 10-K, March 31, 2021 Form 10-Q and June 30, 2021 Form 10-Q, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The pending Sinclair Transactions may not be consummated on a timely basis or at all. Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business and financial results.

On August 2, 2021, we entered into the Business Combination Agreement with Sinclair and certain other parties thereto in connection with the Sinclair Transactions and HEP entered into the Contribution Agreement with Sinclair and certain other parties thereto in connection with the Sinclair Transactions. The transactions under the Contribution Agreement will be consummated immediately prior to the transactions contemplated under the Business Combination Agreement. We expect the Sinclair Transactions to close in mid-2022. The Sinclair Transactions are subject to closing conditions. If these conditions are not satisfied or waived, the Sinclair Transactions will not be consummated. If the closing of the Sinclair Transactions is substantially delayed or does not occur at all, or if the terms of the Sinclair Transactions are required to be modified substantially, we may not realize the anticipated benefits of the transactions fully or at all or they may take longer to realize than expected. The closing conditions include, among others, the affirmative vote of the majority of the votes cast and entitled to be
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voted on the issuance of New Parent Common Stock to Sinclair in the Sinclair Transactions, the absence of a law or order prohibiting the transactions contemplated by the Business Combination Agreement and the termination or expiration of any waiting periods under the Hart-Scott Rodino Act, as amended (the “HSR Act”), with respect to the Sinclair Transactions. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, we and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both we and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review. We have incurred and will continue to incur substantial transaction costs whether or not the Sinclair Transactions are completed. Any failure to complete the Sinclair Transactions could have a material adverse effect on our stock price, our competitiveness and reputation in the marketplace, and our future business and financial results, including our ability to execute on our strategy to return capital to our stockholders.

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

Under the Business Combination Agreement, the number of shares of common stock we will issue to Sinclair at the closing of the Sinclair Transactions is fixed at 60,230,036, which represents approximately 26.75% of HollyFrontier’s outstanding common stock as of July 30, 2021, and there will be no adjustment for changes in the market price of our common stock. Neither we nor the Sinclair stockholders are permitted to “walk away” from the transaction solely because of changes in the market price of our common stock between the signing of the Business Combination Agreement and the closing. Our common stock has historically experienced volatility. Stock price changes may result from a variety of factors that are beyond our control, including changes in our business, operations and prospects, regulatory considerations and general market and economic conditions. The closing price of our common stock on the New York Stock Exchange on July 30, 2021, was $29.40; and on October 20, 2021, the closing price of our common stock was $37.39. The value of the common stock we issue in connection with the closing of the Sinclair Transactions may be significantly higher at the closing than when we entered into the Business Combination Agreement.

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

•the inability to successfully integrate the acquired Sinclair business into the HollyFrontier business in a manner that permits us to achieve the revenue and cost savings that we announced as anticipated from the Sinclair Transactions, including approximately $100 million in run-rate synergies that we have communicated we expect the combined company to realize, as well as another $100 to $200 million in estimated one-time savings from working capital benefits during the first two years after closing of the Sinclair Transactions, as previously announced;
•the inability to successfully close and integrate multiple acquisitions simultaneously or within a short timeframe of each other, including the Sinclair Transactions and the Puget Sound Acquisition;
•complexities associated with managing the larger, integrated business;
•potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Sinclair Transactions;
•integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services;
•loss of key employees;
•integrating relationships with customers, vendors and business partners;
•performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Sinclair Transactions and integrating acquired Sinclair operations into HollyFrontier; or
•the disruption of, or loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame.
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The Sinclair Transactions will expand our branded marketing and licensing business, and we could face a variety of risks as a result of this business expansion.

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

Litigation relating to the Sinclair Transactions could result in substantial costs to HollyFrontier or an injunction preventing the completion of the Sinclair Transactions.

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

Lawsuits that have been or may be brought against us and/or our directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the acquisition agreement already implemented, issue additional disclosures and to otherwise enjoin the parties from consummating the Sinclair Transactions. We and the members of our Board of Directors were named as defendants in a lawsuit filed in Harris County, Texas, brought by an alleged HollyFrontier shareholder challenging the Sinclair Transactions and seeking, among other things, injunctive relief to enjoin and/or rescind the acquisition agreement and require defendants to amend the related proxy statement, declare a breach of fiduciary duties, provide correct and complete disclosures or enjoin or unwind the acquisition and share issuance if they do not, rescissory and compensatory damages, and interest, attorney’s fees and other costs. An additional lawsuit filed by an alleged HollyFrontier shareholder in the United States District Court for the Southern District of New York asserts claims under Section 14(a) of the Exchange Act and SEC Rule 14a-9 and claims under Section 20(a) of the Exchange Act against HollyFrontier and members of HollyFrontier’s board of directors, and seeks, among other things, to enjoin and/or rescind the acquisition agreement and require defendants to amend the related proxy statement, and, if they do not, to recover damages. Additional lawsuits in connection with the Sinclair Transactions may be filed in the future in federal or state courts.

The outcome of these lawsuits or any other lawsuit that may be filed challenging the Sinclair Transactions is uncertain. One of the conditions to the closing of the Sinclair Transactions is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case, that prohibits or makes illegal the closing of the Sinclair Transactions. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Sinclair Transactions or delaying the shareholder vote, that injunction may delay or prevent the Sinclair Transactions from being completed within the expected timeframe or at all, which could result in substantial costs to us and may adversely affect our business, financial position, results of operation and cash flows. Relatedly, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Sinclair Transactions are completed may adversely affect our business, financial condition, results of operations and cash flows and result in substantial costs to us. See Item 1, “Legal Proceedings” for more information about litigation related to the Sinclair Transactions.



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

(c) Common Stock Repurchases Made in the Quarter

Under our common stock repurchase programs, repurchases are being made from time to time in the open market or privately negotiated transactions based on market conditions, securities law limitations and other factors. The following table includes repurchases made under these programs during the third quarter of 2021.
Period Total Number of
Shares Purchased 		Average Price
Paid per Share 		Total Number of
Shares Purchased
as Part of Publicly Announced Plans or Programs 		Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under the Plans or Programs
July 2021 —  $ —  —  $ 1,000,000,000 
August 2021 —  $ —  —  $ 1,000,000,000 
September 2021 —  $ —  —  $ 1,000,000,000 
Total for July to September 2021 —  — 


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Item 6.Exhibits

Exhibit Number Description
2.1†
2.2*†
3.1
3.2*
10.1+
HollyFrontier Corporation Director’s Stock Compensation Deferral Plan (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, File No. 1-03876).
10.2
10.3†
10.4
31.1*
31.2*
32.1**
32.2**
101++ The following financial information from HollyFrontier Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted as inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104++ Cover page Interactive Data File (formatted as inline XBRL and contained in exhibit 101).

* Filed herewith.
** Furnished herewith.
+ Constitutes management contracts or compensatory plans or arrangements.
++ Filed electronically herewith.
† Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request.

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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 thereunto duly authorized.
 
HOLLYFRONTIER CORPORATION
(Registrant)
Date: November 3, 2021 /s/ Richard L. Voliva III
Richard L.Voliva III
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 3, 2021 /s/ Indira Agarwal
Indira Agarwal
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
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