Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries (“Guarantor Subsidiaries”). These guarantees are full and unconditional, subject to certain customary release provisions. These circumstances include (i) when a Guarantor Subsidiary is sold or sells all or substantially all of its assets, (ii) when a Guarantor Subsidiary is declared “unrestricted” for covenant purposes, (iii) when a Guarantor Subsidiary’s guarantee of other indebtedness is terminated or released and (iv) when the requirements for legal defeasance or covenant defeasance or to discharge the Senior Notes have been satisfied.

The following financial information presents condensed consolidating balance sheets, statements of comprehensive income, and statements of cash flows of the Parent, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.

In conjunction with the preparation of our September 30, 2016 Condensed Consolidating Balance Sheet and Statements of Comprehensive Income included below, we identified and corrected the presentation of noncontrolling interests previously presented in the eliminations column in prior periods to reflect such balances and activity within the respective guarantor and non-guarantor subsidiaries columns. This immaterial correction has been reflected in our current period Condensed Consolidating Financial Statements.

Condensed Consolidating Balance Sheet



September 30, 2016	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	—	$	7,206	$	—		$	7,208
Accounts receivable	—		33,045		3,713		(175		)	36,583
Prepaid and other current assets	46		2,924		1,268		—			4,238
Total current assets	48		35,969		12,187		(175		)	48,029

Properties and equipment, net	—		679,082		375,076		—			1,054,158
Investment in subsidiaries	986,828		284,041		—		(1,270,869		)	—
Transportation agreements, net	—		68,593		—		—			68,593
Goodwill	—		256,498		—		—			256,498
Equity method investments	—		166,531		—		—			166,531
Other assets	694		9,994		—		—			10,688
Total assets	$	987,570	$	1,500,708	$	387,263	$	(1,271,044	)	$	1,604,497

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	15,892	$	2,535	$	(175	)	$	18,252
Accrued interest	6,425		768		—		—			7,193
Deferred revenue	—		9,664		2,263		—			11,927
Accrued property taxes	—		3,411		3,552		—			6,963
Other current liabilities	7		2,774		10		—			2,791
Total current liabilities	6,432		32,509		8,360		(175		)	47,126

Long-term debt	690,615		380,000		—		—			1,070,615
Other long-term liabilities	267		16,294		181		—			16,742
Deferred revenue	—		45,440		—		—			45,440
Class B unit	—		39,637		—		—			39,637
Equity - partners	290,256		986,828		284,041		(1,270,869		)	290,256
Equity - noncontrolling interest	—		—		94,681		—			94,681
Total liabilities and equity	$	987,570	$	1,500,708	$	387,263	$	(1,271,044	)	$	1,604,497

Condensed Consolidating Balance Sheet



December 31, 2015 ⁽¹⁾	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	5,452	$	9,559	$	—		$	15,013
Accounts receivable	—		35,558		5,715		(198		)	41,075
Prepaid and other current assets	174		3,634		1,246		—			5,054
Total current assets	176		44,644		16,520		(198		)	61,142

Properties and equipment, net	—		687,336		371,843		—			1,059,179
Investment in subsidiaries	600,563		283,287		—		(883,850		)	—
Transportation agreements, net	—		73,805		—		—			73,805
Goodwill	—		256,498		—		—			256,498
Equity method investments	—		79,438		—		—			79,438
Other assets	642		13,061		—		—			13,703
Total assets	$	601,381	$	1,438,069	$	388,363	$	(884,048	)	$	1,543,765

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	19,448	$	3,333	$	(198	)	$	22,583
Accrued interest	6,500		252		—		—			6,752
Deferred revenue	—		6,010		6,006		—			12,016
Accrued property taxes	—		2,627		1,137		—			3,764
Other current liabilities	7		3,802		—		—			3,809
Total current liabilities	6,507		32,139		10,476		(198		)	48,924

Long-term debt	296,752		712,000		—		—			1,008,752
Other long-term liabilities	210		20,363		171		—			20,744
Deferred revenue	—		39,063		—		—			39,063
Class B unit	—		33,941		—		—			33,941
Equity - partners	297,912		600,563		283,287		(883,850		)	297,912
Equity - noncontrolling interest	—		—		94,429		—			94,429
Total liabilities and equity	$	601,381	$	1,438,069	$	388,363	$	(884,048	)	$	1,543,765

(1) Retrospectively adjusted as described in Note 1.

Condensed Consolidating Statement of Comprehensive Income



Three Months Ended September 30, 2016	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	72,389		$	5,009		$	—		$	77,398
Third parties	—			11,360			3,852			—			15,212
	—			83,749			8,861			—			92,610
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			24,876			3,078			—			27,954
Depreciation and amortization				11,693			3,827			—			15,520
General and administrative	813			1,851			—			—			2,664
	813			38,420			6,905			—			46,138
Operating income (loss)	(813		)	45,329			1,956			—			46,472

Other income (expense):
Equity in earnings of subsidiaries	44,359			1,451			—			(45,810		)	—
Equity in earnings of equity method investments	—			3,767			—			—			3,767
Interest expense	(10,011		)	(4,436		)	—			—			(14,447		)
Interest income	—			103			5			—			108
Gain (loss) on sale of assets and other	—			138			(26		)	—			112
	34,348			1,023			(21		)	(45,810		)	(10,460		)
Income (loss) before income taxes	33,535			46,352			1,935			(45,810		)	36,012
State income tax expense	—			(61		)	—			—			(61		)
Net income (loss)	33,535			46,291			1,935			(45,810		)	35,951
Allocation of net (income) attributable to noncontrolling interests	—			(682		)	(484		)	—			(1,166		)
Net income (loss) attributable to Holly Energy Partners	33,535			45,609			1,451			(45,810		)	34,785
Other comprehensive income (loss)	296			296			—			(296		)	296
Comprehensive income (loss) attributable to Holly Energy Partners	$	33,831		$	45,905		$	1,451		$	(46,106	)	$	35,081

Condensed Consolidating Statement of Comprehensive Income



Three Months Ended September 30, 2015 ⁽¹⁾	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	68,989		$	4,727		$	—		$	73,716
Third parties	—			11,183			3,490			—			14,673
	—			80,172			8,217			—			88,389
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			20,867			3,329			—			24,196
Depreciation and amortization	—			12,674			3,770			—			16,444
General and administrative	792			2,881			—			—			3,673
	792			36,422			7,099			—			44,313
Operating income (loss)	(792		)	43,750			1,118			—			44,076

Other income (expense):
Equity in earnings of subsidiaries	40,125			838			—			(40,963		)	—
Equity in earnings of equity method investments	—			1,269			—			—			1,269
Interest expense	(5,066		)	(4,420		)	—			—			(9,486		)
Interest income	—			381			—			—			381
Gain on sale of assets and other	—			176			—			—			176
	35,059			(1,756		)	—			(40,963		)	(7,660		)
Income (loss) before income taxes	34,267			41,994			1,118			(40,963		)	36,416
State income tax expense	—			(69		)	—			—			(69		)
Net income (loss)	34,267			41,925			1,118			(40,963		)	36,347
Allocation of net (income) attributable to noncontrolling interests	—			(1,802		)	(279		)	—			(2,081		)
Net income (loss) attributable to Holly Energy Partners	34,267			40,123			839			(40,963		)	34,266
Other comprehensive income (loss)	(261		)	(261		)	—			261			(261		)
Comprehensive income (loss) attributable to Holly Energy Partners	$	34,006		$	39,862		$	839		$	(40,702	)	$	34,005

(1) Retrospectively adjusted as described in Note 1.

Condensed Consolidating Statement of Comprehensive Income



Nine Months Ended September 30, 2016	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	219,428		$	19,995		$	—		$	239,423
Third parties	—			33,783			16,311			—			50,094
	—			253,211			36,306			—			289,517
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			73,211			8,920			—			82,131
Depreciation and amortization	—			36,408			11,372			—			47,780
General and administrative	2,949			5,669			—			—			8,618
	2,949			115,288			20,292			—			138,529
Operating income (loss)	(2,949		)	137,923			16,014			—			150,988

Other income (expense):
Equity in earnings (loss) of subsidiaries	138,513			12,004			—			(150,517		)	—
Equity in earnings of equity method investments	—			10,155			—			—			10,155
Interest expense	(20,151		)	(16,107		)	—			—			(36,258		)
Interest income	—			315			17			—			332
Gain (loss) on sale of assets and other	—			129			(25		)	—			104
	118,362			6,496			(8		)	(150,517		)	(25,667		)
Income (loss) before income taxes	115,413			144,419			16,006			(150,517		)	125,321
State income tax expense	—			(210		)	—			—			(210		)
Net income (loss)	115,413			144,209			16,006			(150,517		)	125,111
Allocation of net income attributable to noncontrolling interests	—			(4,446		)	(4,002		)	—			(8,448		)
Net income (loss) attributable to Holly Energy Partners	115,413			139,763			12,004			(150,517		)	116,663
Other comprehensive income (loss)	(299		)	(299		)	—			299			(299		)
Comprehensive income (loss)	$	115,114		$	139,464		$	12,004		$	(150,218	)	$	116,364

Condensed Consolidating Statement of Comprehensive Income



Nine Months Ended September 30, 2015 ⁽¹⁾	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	196,772		$	17,496		$	—		$	214,268
Third parties	—			34,465			12,891			—			47,356
	—			231,237			30,387			—			261,624
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			68,719			8,942			—			77,661
Depreciation and amortization	—			35,172			11,249			—			46,421
General and administrative	2,492			7,167			—			—			9,659
	2,492			111,058			20,191			—			133,741
Operating income (loss)	(2,492		)	120,179			10,196			—			127,883

Other income (expense):
Equity in earnings (loss) of subsidiaries	113,739			7,610			—			(121,349		)	—
Equity in earnings of equity method investments	—			2,634			—			—			2,634
Interest expense	(15,206		)	(12,104		)	—			—			(27,310		)
Interest income	—			384			—			—			384
Gain (loss) on sale of assets and other	—			455			(49		)	—			406
	98,533			(1,021		)	(49		)	(121,349		)	(23,886		)
Income (loss) before income taxes	96,041			119,158			10,147			(121,349		)	103,997
State income tax expense	—			(106		)	—			—			(106		)
Net income (loss)	96,041			119,052			10,147			(121,349		)	103,891
Allocation of net income attributable to noncontrolling interests	—			(5,314		)	(2,537		)	—			(7,851		)
Net income (loss) attributable to Holly Energy Partners	96,041			113,738			7,610			(121,349		)	96,040
Other comprehensive income (loss)	(788		)	(788		)	—			788			(788		)
Comprehensive income (loss)	$	95,253		$	112,950		$	7,610		$	(120,561	)	$	95,252

(1) Retrospectively adjusted as described in Note 1.

Condensed Consolidating Statement of Cash Flows



Nine Months Ended September 30, 2016	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(20,467	)	$	189,004		$	27,724		$	(11,250	)	$	185,011

Cash flows from investing activities
Additions to properties and equipment	—			(33,147		)	(15,077		)	—			(48,224		)
Purchase of interest in Cheyenne Pipeline	—			(42,550		)	—			—			(42,550		)
Proceeds from sale of assets	—			210			—			—			210
Distributions in excess of equity in earnings of equity investments	—			1,685			—			—			1,685
Other	—			(351		)	—			—			(351		)
	—			(74,153		)	(15,077		)	—			(89,230		)

Cash flows from financing activities
Net borrowings under credit agreement	—			(332,000		)	—			—			(332,000		)
Net intercompany financing activities	(257,172		)	257,172			—			—			—
Proceeds from issuance of senior notes	394,000			—			—			—			394,000
Proceeds from issuance of common units	22,591			200			—			—			22,791
Contribution from general partner	470			—			—			—			470
Contribution from general partner for Osage	31,285			(31,285		)	—			—			—
Distributions to HEP unitholders	(138,798		)	—			—			—			(138,798		)
Distribution to HFC for Osage	—			(1,245		)	—			—			(1,245		)
Distributions to HFC for Tulsa tank acquisition	(30,378		)	(9,122		)	—			—			(39,500		)
Contributions from HFC for Tulsa tank expenditures	99			—			—			—			99
Distributions to noncontrolling interests	—			—			(15,000		)	11,250			(3,750		)
Purchase of units for incentive grants	(784		)	—			—			—			(784		)
Deferred financing cost	(846		)	(3,084		)	—			—			(3,930		)
Other	—			(939		)	—			—			(939		)
	20,467			(120,303		)	(15,000		)	11,250			(103,586		)

Cash and cash equivalents
Increase (decrease) for the period	—			(5,452		)	(2,353		)	—			(7,805		)
Beginning of period	2			5,452			9,559			—			15,013
End of period	$	2		$	—		$	7,206		$	—		$	7,208

Condensed Consolidating Statement of Cash Flows



Nine Months Ended September 30, 2015 ⁽¹⁾	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(19,047	)	$	169,051		$	23,201		$	(7,610	)	$	165,595

Cash flows from investing activities
Additions to properties and equipment	—			(54,923		)	(889		)	—			(55,812		)
Purchase of El Dorado crude tanks	—			(27,500		)	—			—			(27,500		)
Purchase of investment in Frontier Pipeline	—			(54,641		)	—			—			(54,641		)
Proceeds from sale of assets	—			1,244			—			—			1,244
Distributions from noncontrolling interest	—			1,015			—			(1,015		)	—
Distributions in excess of equity in earnings of equity investments	—			158			—			—			158
	—			(134,647		)	(889		)	(1,015		)	(136,551		)

Cash flows from financing activities
Net repayments under credit agreement	—			83,000			—			—			83,000
Net intercompany financing activities	144,536			(144,536		)	—			—			—
Contributions from HFC for El Dorado Operating acquisition	—			24,376			—			—			24,376
Distributions to HEP unitholders	(125,242		)	—			—			—			(125,242		)
Contribution from HFC for Tulsa tank expenditures	—			824			—			—			824
Distributions to noncontrolling interests	—			—			(11,500		)	8,625			(2,875		)
Purchase of units for incentive grants	(247		)	—			—			—			(247		)
Other	—			(854		)	—			—			(854		)
	19,047			(37,190		)	(11,500		)	8,625			(21,018		)

Cash and cash equivalents
Increase (decrease) for the period	—			(2,786		)	10,812			—			8,026
Beginning of period	2			2,828			—			—			2,830
End of period	$	2		$	42		$	10,812		$	—		$	10,856

(1) Retrospectively adjusted as described in Note 1.