Acquisitions

2012 UNEV Acquisition

On July 12, 2012, we acquired HFC's 75% interest in UNEV. We paid consideration consisting of $260.0 million in cash and 2,059,800 of our common units (adjusted to reflect the unit split). We paid an additional $0.9 million to HFC for a post-closing working capital adjustment as provided for by the acquisition agreement. As a result of the common units issued to HFC, HFC's ownership interest in us increased from 42% to 44% (including the 2% general partner interest). Also under the terms of the transaction, we issued to HFC a Class B unit comprising a noncontrolling equity interest in a wholly-owned subsidiary subject to redemption to the extent that HFC is entitled to a 50% interest in our share of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30 million beginning July 1, 2016 and ending in June 2032, subject to certain limitations. Such contingent redemption payments are limited to a maximum payment amount calculated as described below. However, to the extent earnings thresholds are not achieved, no redemption payments are required. Contemporaneously with this transaction, HFC (our general partner) agreed to forego its right to incentive distributions of up to $1.25 million per quarter over the next twelve consecutive quarterly periods and up to an additional four quarters in certain circumstances. The Class B unit has an initial value of $12.2 million which will increase with each foregone incentive distribution as described above and by a 7% factor compounded annually on the outstanding unredeemed balance through its expiration date. At our option, we may redeem, in whole or in part, the Class B unit at the current unredeemed value based on the calculation described. Noncontrolling interests reported in the Consolidated Statements of Income include the minority partner's 25% interest in UNEV and income attributable to the Class B unit representing foregone incentive distribution rights and the 7% accretion factor, which collectively amounted to $1.2 million for the period July 12, 2012 to December 31, 2012.

We are a consolidated variable interest entity of HFC. Therefore, this transaction was recorded as a transfer between entities under common control and reflects HFC's carrying basis in UNEV's assets and liabilities. We have retrospectively adjusted our financial position and operating results as if UNEV were a consolidated subsidiary for all periods while we were under common control of HFC. For the year ended December 31, 2012 and 2011, our consolidated statement of income includes revenues from UNEV of $18.7 million and $0.3 million, respectively, net losses of $7.2 million and $3.4 million, respectively. Predecessor revenues for the years ended December 31, 2012 and 2011 are $8.1 million and $0.3 million, respectively, and Predecessor net losses are $4.2 million and $2.6 million, respectively. For the year ended December 31, 2010, there were no Predecessor revenues as UNEV was not yet operational and Predecessor net losses were $0.1 million. At December 31, 2012, UNEV had transportation agreements with shippers that provide minimum annualized revenues of $25.0 million, of which $16.9 million relates to a transportation agreement with HFC.

The following table provides HFC's carrying basis related to UNEV on July 12, 2012, immediately prior to the acquisition, and at December 31, 2011.



	July 12, 2012		December 31, 2011 ⁽¹⁾
	(In thousands)
Current assets	$	7,083	$	8,265
Properties and equipment, net	418,764		418,439
Total assets	$	425,847	$	426,704

Current liabilities	$	7,040	$	13,542
General partner interest related to Predecessor	318,310		314,160
Noncontrolling interest	100,497		99,002
Total liabilities and equity	$	425,847	$	426,704

⁽¹⁾ Our previously reported balance sheet as of December 31, 2011 has been recast to include such balances.

2011 Legacy Frontier Pipeline and Tankage Asset Transaction

On November 9, 2011, we acquired from HFC certain tankage, loading rack and crude receiving assets located at HFC’s El Dorado and Cheyenne refineries. We paid non-cash consideration consisting of promissory notes with an aggregate principal amount of $150.0 million and 7,615,230 of our common units. As an entity under common control with HFC, we recorded this transfer at HFC's carrying basis. We recorded properties and equipment of $88.1 million, goodwill of $207.4 million and a non-cash capital contribution of $295.5 million, representing HFC's cost basis in the acquired assets. On November 9, 2011, we recorded a $150.0 million liability representing the promissory notes issued to HFC at the time of the closing of this transaction. In 2012, we recorded additional properties and equipment of $7.6 million, and a related non-cash capital contribution of $7.6 million for newly constructed tankage conveyed in 2012 as part of the November 9, 2011 transaction.

Summary Pro Forma Information

Assuming both acquisitions had occurred on January 1, 2010 and our throughput agreements with HFC were in effect at that time, pro forma revenues, net income and earnings per unit are presented below:



	Years Ended December 31,
		2011		2010
		(In thousands, except per share amounts)
		(unaudited)
Revenues		$	214,268	$	182,137
Net income		71,145		47,669
Earnings per unit		$	1.19	$	0.81

2010 Tulsa East / Lovington Storage Asset Transaction

On March 31, 2010, we acquired from HFC certain storage assets for $88.6 million consisting of hydrocarbon storage tanks having approximately 2 million barrels of storage capacity, a rail loading rack and a truck unloading rack located at HFC's Tulsa refinery east facility. Also, as part of this same transaction, we acquired HFC's asphalt loading rack facility located at its Navajo refinery facility in Lovington, New Mexico for $4.4 million. In accounting for the 2010 acquisition from HFC, we recorded total property and equipment at HFC's historical basis of $35.5 million and the purchase price in excess of HFC's basis in the assets of $57.6 million as a decrease to our partners' equity.