UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20172020
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)

Delaware75-1056913
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer Identification No.)
2828 N. Harwood, Suite 1300
Dallas, Texas
75201
Dallas
Texas75201
(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 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $0.01 par valueHFCNew 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  ý☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý☒    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,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerý☒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  ý☒
177,273,061162,017,259 shares of Common Stock, par value $.01$.01 per share, were outstanding on October 31, 2017.
30, 2020.


Table of Content

HOLLYFRONTIER CORPORATION
INDEX
 
Page
Forward-Looking Statements
3
Definitions
5
PART I. FINANCIAL INFORMATION
Page
Forward-Looking Statements
3
PART I. FINANCIAL INFORMATION
Definitions
4
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 20172020 (Unaudited) and December 31, 20162019
56
Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 20172020 and 20162019
67
Consolidated Statements of Comprehensive Income (Unaudited)
Three and Nine Months Ended September 30, 20172020 and 20162019
78
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 20172020 and 20162019
89
Consolidated Statements of Equity (Unaudited)
Three and Nine Months Ended September 30, 2020 and 2019
10
Notes to Consolidated Financial Statements (Unaudited)
912
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
3936
Item 3. Quantitative and Qualitative Disclosures About Market Risk
5557
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
5557
Item 4. Controls and Procedures
5859
Item 1. Legal Proceedings
5960
Item 1A. Risk Factors
6062
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
6062
Item 6. Exhibits
6062
Index to Exhibits
6163
Signatures
6264

2
Table of Content

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. 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:


•the extraordinary market environment and effects of the COVID-19 pandemic, including the continuation of a material decline in demand for refined petroleum products in markets we serve;
•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 demand for and supply of crude oil and refined products;
•the spread between market prices for refined products and market prices for crude oil;
•the possibility of constraints on the transportation of refined products or lubricant and specialty products;
•the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines;pipelines, whether due to infection in the workforce or in response to reductions in demand;
•effects of governmental and environmental regulations and policies;policies, including the effects of current 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;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 budget;
•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 recentexisting or future acquired operations, including Petro-Canada Lubricants Inc.;operations;
•the possibility of terrorist attacksor cyberattacks and the consequences of any such attacks;
•general economic conditions;conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
•further deterioration in gross margins or 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.


3
Table of Content
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. This summary discussionWhen considering forward-looking statements, you should be readkeep in conjunction withmind the discussion of the known material risk factors and other cautionary statements set forth under the heading “Risk Factors” included in Item 1A ofin our Annual Report on Form 10-K for the year ended December 31, 20162019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017June 30, 2020 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 headingheadings “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
Table of Content

PART I. FINANCIAL INFORMATION

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.


“Biodiesel” meansBase oil” is a clean alternative fuellubricant grade oil initially produced from renewable biological resources.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.


“Ethanol” means a high octane gasoline blend stock that is used to make various grades of gasoline.

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


“Hydrodesulfurization” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen and a catalyst at relatively high temperatures.

“Hydrogen plant” means a refinery unit that converts natural gas and steam to high purity hydrogen, which is then used in the hydrodesulfurization, hydrocracking and isomerization processes.

“Isomerization” means a refinery process for rearranging the structure of C5/C6 molecules without changing their size or chemical composition and is used to improve the octane of C5/C6 gasoline blendstocks.

“LPG” means liquid petroleum gases.


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


“MSAT2” means Control of Hazardous Air Pollutants from Mobile Sources, a rule issued by the U.S. Environmental Protection Agency to reduce hazardous emissions from motor vehicles and motor vehicle fuels.

“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 product costscost per produced barrel of refined products sold. This does not include the associated depreciation and amortization costs.


“Renewable diesel” means a 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 biodieselrenewable fuel production under the Environmental Protection Agency’s Renewable Fuel Standard 2 (“RFS2”RFS”) regulations, that mandate increased volumes ofwhich require blending renewable fuels blended 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
Table of Content

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements
Item 1. Financial Statements
HOLLYFRONTIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
2020		December 31, 2019
 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (HEP:$18,091 and $13,287, respectively)
$1,524,888 $885,162 
Accounts receivable: Product and transportation (HEP: $13,856 and $18,732, respectively)
525,247 834,771 
Crude oil resales26,667 44,914 
551,914 879,685 
Inventories: Crude oil and refined products933,683 1,282,789 
Materials, supplies and other (HEP: $828 and $833, respectively)
203,981 191,413 
1,137,664 1,474,202 
Income taxes receivable70,008 5,478 
Prepayments and other (HEP: $5,454 and $6,795, respectively)
34,354 61,662 
Total current assets3,318,828 3,306,189 
Properties, plants and equipment, at cost (HEP: $2,067,282 and $2,047,674, respectively)
7,173,262 7,237,297 
Less accumulated depreciation (HEP: $(608,520) and $(552,786), respectively)
(2,645,390)(2,414,585)
4,527,872 4,822,712 
Operating lease right-of-use assets (HEP: $3,164 and $2,652, respectively)
365,045 467,109 
Other assets: Turnaround costs349,185 521,278 
Goodwill (HEP: $312,873 and $312,873, respectively)
2,374,930 2,373,907 
Intangibles and other (HEP: $351,225 and $319,569, respectively)
643,881 673,646 
3,367,996 3,568,831 
Total assets$11,579,741 $12,164,841 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $21,221 and $18,050, respectively)
$825,021 $1,215,555 
Income taxes payable6,698 27,965 
Operating lease liabilities (HEP: $3,787 and $3,608, respectively)
98,790 104,415 
Accrued liabilities (HEP: $28,372 and $30,418, respectively)
306,341 337,993 
Total current liabilities1,236,850 1,685,928 
Long-term debt (HEP: $1,439,874 and $1,462,031, respectively)
3,176,349 2,455,640 
Noncurrent operating lease liabilities (HEP: $68,681 and $72,000, respectively)
300,468 364,420 
Deferred income taxes (HEP: $432 and $424, respectively)
728,899 889,270 
Other long-term liabilities (HEP: $57,638 and $59,021, respectively)
260,606 260,157 
Equity:
HollyFrontier stockholders’ equity:
Preferred stock, $1.00 par value – 5,000,000 shares authorized; NaN issued0 0 
Common stock $.01 par value – 320,000,000 shares authorized; 256,042,554 shares issued as of September 30, 2020 and December 31, 20192,560 2,560 
Additional capital4,217,128 4,204,547 
Retained earnings4,088,816 4,744,120 
Accumulated other comprehensive income10,102 14,774 
Common stock held in treasury, at cost – 94,026,587 and 94,196,029 shares as of September 30, 2020 and December 31, 2019, respectively(2,982,463)(2,987,808)
Total HollyFrontier stockholders’ equity5,336,143 5,978,193 
Noncontrolling interest540,426 531,233 
Total equity5,876,569 6,509,426 
Total liabilities and equity$11,579,741 $12,164,841 
  September 30,
2017		 December 31, 2016
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents (HEP: $7,476 and $3,657, respectively)
 $630,742
 $710,579
Marketable securities —
 424,148
Total cash, cash equivalents and short-term marketable securities 630,742
 1,134,727
Accounts receivable: Product and transportation (HEP: $7,330 and $7,846, respectively)
 644,695
 449,036
Crude oil resales 69,653
 30,163
  714,348
 479,199
Inventories: Crude oil and refined products 1,261,245
 970,361
Materials, supplies and other (HEP: $888 and $1,402, respectively)
 158,597
 165,315
  1,419,842
 1,135,676
Income taxes receivable —
 68,371
Prepayments and other (HEP: $1,407 and $1,486, respectively)
 32,129
 33,036
Total current assets 2,797,061
 2,851,009
     
Properties, plants and equipment, at cost (HEP: $1,730,903 and $1,702,703, respectively)
 6,175,414
 5,546,856
Less accumulated depreciation (HEP: $(389,133) and $(337,135), respectively)
 (1,738,583) (1,538,408)
  4,436,831
 4,008,448
Other assets: Turnaround costs 238,877
 217,340
Goodwill (HEP: $288,991 and $288,991, respectively)
 2,213,805
 2,022,463
Intangibles and other (HEP: $212,692 and $208,975, respectively)
 461,781
 336,401
  2,914,463
 2,576,204
Total assets $10,148,355
 $9,435,661
     
LIABILITIES AND EQUITY    
Current liabilities:    
Accounts payable (HEP: $13,659 and $10,518, respectively)
 $1,101,668
 $935,387
Income taxes payable 64,255
 —
Accrued liabilities (HEP: $31,333 and $37,793, respectively)
 235,092
 147,842
Total current liabilities 1,401,015
 1,083,229
     
Long-term debt (HEP: $1,245,066 and $1,243,912, respectively)
 2,236,514
 2,235,137
Deferred income taxes (HEP: $522 and $509, respectively)
 842,122
 620,414
Other long-term liabilities (HEP: $61,361 and $62,971, respectively)
 202,927
 194,896
     
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; 256,009,012 and 255,962,866 shares issued as of September 30, 2017 and December 31, 2016, respectively 2,560
 2,560
Additional capital 4,067,836
 4,026,805
Retained earnings 2,884,524
 2,776,728
Accumulated other comprehensive income 31,440
 10,612
Common stock held in treasury, at cost – 78,732,977 and 78,617,600 shares as of September 30, 2017 and December 31, 2016, respectively (2,137,496) (2,135,311)
Total HollyFrontier stockholders’ equity 4,848,864
 4,681,394
Noncontrolling interest 616,913
 620,591
Total equity 5,465,777
 5,301,985
Total liabilities and equity $10,148,355
 $9,435,661


Parenthetical amounts represent asset and liability balances attributable to Holly Energy Partners, L.P. (“HEP”) as of September 30, 20172020 and December 31, 2016.2019. HEP is a consolidated variable interest entity.


See accompanying notes.
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Table of Content

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


 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Sales and other revenues$2,819,400 $4,424,828 $8,282,875 $13,104,690 
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)2,377,238 3,403,767 6,647,960 10,307,856 
Lower of cost or market inventory valuation adjustment(62,849)34,062 227,711 (150,483)
2,314,389 3,437,829 6,875,671 10,157,373 
Operating expenses (exclusive of depreciation and amortization)332,496 345,578 964,200 1,010,422 
Selling, general and administrative expenses (exclusive of depreciation and amortization)74,453 87,626 237,559 260,977 
Depreciation and amortization125,280 127,016 396,033 375,345 
Long-lived asset and goodwill impairments0 0 436,908 152,712 
Total operating costs and expenses2,846,618 3,998,049 8,910,371 11,956,829 
Income (loss) from operations(27,218)426,779 (627,496)1,147,861 
Other income (expense):
Earnings of equity method investments1,316 1,334 5,186 5,217 
Interest income1,011 6,164 6,590 17,127 
Interest expense(30,589)(36,027)(85,923)(106,938)
Gain on business interruption insurance settlement81,000 0 81,000 0 
Gain on sales-type leases0 0 33,834 0 
Loss on early extinguishment of debt0 0 (25,915)0 
Gain (loss) on foreign currency transactions1,030 395 (918)4,873 
Other, net1,368 2,356 4,790 3,005 
55,136 (25,778)18,644 (76,716)
Income (loss) before income taxes27,918 401,001 (608,852)1,071,145 
Income tax expense (benefit):
Current35,826 58,255 (41,221)176,903 
Deferred(31,253)44,766 (147,283)102,959 
4,573 103,021 (188,504)279,862 
Net income (loss)23,345 297,980 (420,348)791,283 
Less net income attributable to noncontrolling interest25,746 36,167 63,353 79,500 
Net income (loss) attributable to HollyFrontier stockholders$(2,401)$261,813 $(483,701)$711,783 
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic$(0.01)$1.60 $(2.99)$4.23 
Diluted$(0.01)$1.58 $(2.99)$4.20 
Average number of common shares outstanding:
Basic162,015 163,676 161,927 167,935 
Diluted162,015 165,011 161,927 169,125 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
         
Sales and other revenues $3,719,247
 $2,847,270
 $10,258,594
 $7,580,632
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) 2,888,530
 2,341,837
 8,283,127
 6,215,155
Lower of cost or market inventory valuation adjustment (111,128) 312
 (15,323) (194,282)
  2,777,402
 2,342,149
 8,267,804
 6,020,873
Operating expenses (exclusive of depreciation and amortization) 321,668
 256,232
 944,437
 760,151
Selling, general and administrative expenses (exclusive of depreciation and amortization) 68,013
 32,994
 184,659
 88,270
Depreciation and amortization 102,884
 91,130
 304,206
 269,433
Goodwill and asset impairment —
 —
 19,247
 654,084
Total operating costs and expenses 3,269,967
 2,722,505
 9,720,353
 7,792,811
Income (loss) from operations 449,280
 124,765
 538,241
 (212,179)
Other income (expense):        
Earnings of equity method investments 5,072
 3,767
 10,965
 10,155
Interest income 1,074
 778
 2,069
 1,380
Interest expense (28,731) (19,550) (85,534) (45,888)
Loss on early extinguishment of debt —
 —
 (12,225) (8,718)
Gain on foreign currency swap —
 —
 24,545
 —
Gain on foreign currency transactions 19,122
 —
 19,517
 —
Other, net 286
 107
 23
 300
  (3,177) (14,898) (40,640) (42,771)
Income (loss) before income taxes 446,103
 109,867
 497,601
 (254,950)
Income tax expense (benefit):        
Current 72,307
 10,094
 80,242
 (32,272)
Deferred 86,079
 12,102
 93,351
 38,731
  158,386
 22,196
 173,593
 6,459
Net income (loss) 287,717
 87,671
 324,008
 (261,409)
Less net income attributable to noncontrolling interest 15,703
 13,174
 39,695
 52,209
Net income (loss) attributable to HollyFrontier stockholders $272,014
 $74,497
 $284,313
 $(313,618)
Earnings (loss) per share attributable to HollyFrontier stockholders:        
Basic $1.53
 $0.42
 $1.60
 $(1.78)
Diluted $1.53
 $0.42
 $1.60
 $(1.78)
Cash dividends declared per common share $0.33
 $0.33
 $0.99
 $0.99
Average number of common shares outstanding:        
Basic 176,149
 175,871
 176,143
 176,157
Diluted 176,530
 175,993
 176,616
 176,157


See accompanying notes.
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HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Net income (loss)$23,345 $297,980 $(420,348)$791,283 
Other comprehensive income (loss):
Foreign currency translation adjustment7,727 (9,311)(2,149)4,212 
Hedging instruments:
Change in fair value of cash flow hedging instruments(2,094)(1,989)(7,329)12,909 
Reclassification adjustments to net income (loss) on settlement of cash flow hedging instruments4,586 (5,573)3,411 (12,537)
Net unrealized gain (loss) on hedging instruments2,492 (7,562)(3,918)372 
Pension and other post-retirement benefit obligations:
Actuarial loss on pension plans0 0 (45)0 
Actuarial gain on post-retirement healthcare plans0 0 3 0 
Net change in pension and other post-retirement benefit obligations0 0 (42)0 
Other comprehensive income (loss) before income taxes10,219 (16,873)(6,109)4,584 
Income tax expense (benefit)2,342 (3,888)(1,437)990 
Other comprehensive income (loss)7,877 (12,985)(4,672)3,594 
Total comprehensive income (loss)31,222 284,995 (425,020)794,877 
Less noncontrolling interest in comprehensive income25,746 36,167 63,353 79,500 
Comprehensive income (loss) attributable to HollyFrontier stockholders$5,476 $248,828 $(488,373)$715,377 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
         
Net income (loss) $287,717
 $87,671
 $324,008
 $(261,409)
Other comprehensive income:        
Foreign currency translation adjustment 16,702
 —
 24,287
 —
Securities available-for-sale:        
Unrealized gain (loss) on marketable securities —
 (29) (4) 61
Reclassification adjustments to net income on sale or maturity of marketable securities —
 —
 —
 23
Net unrealized gain (loss) on marketable securities —
 (29) (4) 84
Hedging instruments:        
Change in fair value of cash flow hedging instruments (2,094) (1,310) 2,708
 (19,307)
Reclassification adjustments to net income on settlement of cash flow hedging instruments 5,115
 4,141
 5,049
 37,450
Amortization of unrealized loss attributable to discontinued cash flow hedges 270
 270
 810
 810
Net unrealized gain on hedging instruments 3,291
 3,101
 8,567
 18,953
Other comprehensive income before income taxes 19,993
 3,072
 32,850
 19,037
Income tax expense 7,140
 1,119
 11,841
 7,436
Other comprehensive income 12,853
 1,953
 21,009
 11,601
Total comprehensive income (loss) 300,570
 89,624
 345,017
 (249,808)
Less noncontrolling interest in comprehensive income (loss) 15,663
 13,353
 39,638
 52,028
Comprehensive income (loss) attributable to HollyFrontier stockholders $284,907
 $76,271
 $305,379
 $(301,836)


See accompanying notes.


8
Table of Content

HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Nine Months Ended September 30,
 20202019
Cash flows from operating activities:
Net income (loss)$(420,348)$791,283 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization396,033 375,345 
Long-lived asset and goodwill impairments436,908 152,712 
Lower of cost or market inventory valuation adjustment227,711 (150,483)
Earnings of equity method investments, inclusive of distributions(238)280 
Loss on early extinguishment of debt25,915 0 
Gain on sales-type leases(33,834)0 
(Gain) loss on sale of assets(257)202 
Deferred income taxes(147,283)102,959 
Equity-based compensation expense22,221 30,635 
Change in fair value – derivative instruments(3,727)19,880 
(Increase) decrease in current assets:
Accounts receivable325,796 (116,793)
Inventories104,640 (47,409)
Income taxes receivable(64,162)13,704 
Prepayments and other14,403 17,710 
Increase (decrease) in current liabilities:
Accounts payable(387,259)321,537 
Income taxes payable(21,379)808 
Accrued liabilities(22,037)54,779 
Turnaround expenditures(73,822)(152,431)
Other, net11,769 (3,314)
Net cash provided by operating activities391,050 1,411,404 
Cash flows from investing activities:
Additions to properties, plants and equipment(174,366)(171,229)
Additions to properties, plants and equipment – HEP(38,642)(23,828)
Purchase of Sonneborn, net of cash acquired0 (662,665)
Investment in equity company - HEP(2,438)0 
Other, net1,795 958 
Net cash used for investing activities(213,651)(856,764)
Cash flows from financing activities:
Borrowings under credit agreements219,500 269,500 
Repayments under credit agreements(237,000)(257,000)
Proceeds from issuance of senior notes - HFC748,925 0 
Proceeds from issuance of senior notes - HEP500,000 0 
Redemption of senior notes - HEP(522,500)0 
Purchase of treasury stock(3,350)(471,976)
Dividends(171,603)(168,008)
Distributions to noncontrolling interests(70,941)(100,095)
Contributions from noncontrolling interests15,382 0 
Payments on finance leases(2,149)(1,158)
Deferred financing costs(13,511)0 
Other, net454 (600)
Net cash provided by (used for) financing activities463,207 (729,337)
Effect of exchange rate on cash flow(880)1,801 
Cash and cash equivalents:
Increase (decrease) for the period639,726 (172,896)
Beginning of period885,162 1,154,752 
End of period$1,524,888 $981,856 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$(83,325)$(93,929)
Income taxes, net$(52,270)$(163,232)
  Nine Months Ended September 30,
  2017 2016
Cash flows from operating activities:    
Net income (loss) $324,008
 $(261,409)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 304,206
 269,433
Goodwill and asset impairment 19,247
 654,084
Lower of cost or market inventory valuation adjustment (15,323) (194,282)
Earnings of equity method investments, inclusive of distributions 816
 313
(Gain) loss on sale of assets 540
 (107)
Loss on early extinguishment of debt attributable to unamortized discount 2,475
 8,718
Deferred income taxes 93,351
 38,731
Equity-based compensation expense 26,430
 16,696
Change in fair value – derivative instruments 2,073
 (12,319)
Excess tax expense from equity-based compensation —
 (4,051)
(Increase) decrease in current assets:    
Accounts receivable (116,986) (43,959)
Inventories (43,822) (54,643)
Income taxes receivable 68,371
 (42,683)
Prepayments and other (5,268) 18,236
Increase (decrease) in current liabilities:    
Accounts payable 88,010
 114,771
Income taxes payable 60,661
 (8,142)
Accrued liabilities 83,918
 39,527
Turnaround expenditures (111,513) (104,224)
Other, net 4,219
 9,584
Net cash provided by operating activities 785,413
 444,274
     
Cash flows from investing activities:    
Additions to properties, plants and equipment (162,442) (291,362)
Additions to properties, plants and equipment – HEP (30,675) (96,115)
Purchase of equity method investment - HEP —
 (42,550)
Purchase of PCLI, net of cash acquired (870,627) —
Purchases of marketable securities (41,565) (155,091)
Sales and maturities of marketable securities 465,716
 187,358
Other, net 2,297
 606
Net cash used for investing activities (637,296) (397,154)
     
Cash flows from financing activities:    
Borrowings under credit agreements 654,000
 625,500
Repayments under credit agreements (457,000) (957,500)
Proceeds from issuance of senior notes - HFC —
 246,690
Proceeds from issuance of senior notes - HEP 101,750
 394,000
Proceeds from issuance of term loan - HFC —
 350,000
Redemption of senior notes - HEP (309,750) —
Repayment of financing obligation —
 (39,500)
Proceeds from issuance of common units - HEP 52,285
 22,791
Purchase of treasury stock —
 (133,430)
Dividends (176,519) (175,194)
Distributions to noncontrolling interest (81,797) (66,571)
Other, net (13,421) (14,118)
Net cash provided by (used for) financing activities (230,452) 252,668
     
Effect of exchange rate on cash flow 2,498
 —
     
Cash and cash equivalents:    
Increase (decrease) for the period (79,837) 299,788
Beginning of period 710,579
 66,533
End of period $630,742
 $366,321
     
Supplemental disclosure of cash flow information:    
Cash (paid) received during the period for:    
Interest $(84,380) $(39,671)
Income taxes, net $50,957
 $(23,557)

See accompanying notes.
9

HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands except per share data)
HollyFrontier Stockholders' Equity
Common Stock Additional CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockNon-controlling InterestTotal
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, net of forfeitures— (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, net of forfeitures— (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 
Reclamation of stockholder short-swing profit— 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— — (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 loss, net of tax— — — 7,877 — — 7,877 
Issuance of common stock under incentive compensation plans, net of tax— (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 
10

HollyFrontier Stockholders' Equity
Common Stock Additional CapitalRetained EarningsAccumulated Other Comprehensive IncomeTreasury StockNon-controlling InterestTotal
Equity
 
Balance at December 31, 2018$2,560 $4,196,125 $4,196,902 $13,623 $(2,490,639)$540,488 $6,459,059 
Net income— — 253,055 — — 23,431 276,486 
Dividends ($0.33 declared per common share)— — (56,849)— — — (56,849)
Distributions to noncontrolling interest holders— — — — — (33,673)(33,673)
Other comprehensive income, net of tax— — — 13,775 — — 13,775 
Issuance of common stock under incentive compensation plans, net of forfeitures— 3 — — (3)— — 
Equity-based compensation— 8,713 — — — 661 9,374 
Purchase of treasury stock— — — — (73,225)— (73,225)
Purchase of HEP units for restricted grants— — — — — (373)(373)
Balance at March 31, 2019$2,560 $4,204,841 $4,393,108 $27,398 $(2,563,867)$530,534 $6,594,574 
Net income— — 196,915 — — 19,902 216,817 
Dividends ($0.33 declared per common share)— — (56,659)— — — (56,659)
Distributions to noncontrolling interest holders— — — — — (33,030)(33,030)
Other comprehensive income, net of tax— — — 2,804 — — 2,804 
Equity attributable to HEP common unit issuances, net of tax— — — — — (140)(140)
Issuance of common stock under incentive compensation plans, net of forfeitures— (138)— — 138 — — 
Equity-based compensation— 11,602 — — — 586 12,188 
Purchase of treasury stock————(205,555)—(205,555)
Balance at June 30, 2019$2,560 $4,216,305 $4,533,364 $30,202 $(2,769,284)$517,852 $6,530,999 
Net income— — 261,813 — — 36,167 297,980 
Dividends ($0.33 declared per common share)— — (54,500)— — — (54,500)
Distributions to noncontrolling interest holders— — — — — (33,392)(33,392)
Other comprehensive loss, net of tax— — — (12,985)— — (12,985)
Issuance of common stock under incentive compensation plans, net of tax— (80)— — 80 — — 
Equity-based compensation— 8,545 — — — 528 9,073 
Purchase of treasury stock— — — — (195,812)— (195,812)
Balance at September 30, 2019$2,560 $4,224,770 $4,740,677 $17,217 $(2,965,016)$521,155 $6,541,363 

See accompanying notes.

11
Table of Content

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




NOTE 1:Description of Business and Presentation of Financial Statements

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 principally an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty lubricant products, and specialty and modified asphalt.products. We own and operate petroleum refineries that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. In addition, we ownproduce base oils and operate a lubricant production facilityother specialized lubricants in the United States, Canada and the Netherlands, with retail and wholesale marketing of itsour products through a global sales network with locations in Canada, the United States, Europe, China and China. Latin America.

As of September 30, 2017,2020, we:

•owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”), two2 refinery facilities located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), a refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”), a refinery located in Cheyenne, Wyoming (the “Cheyenne Refinery”) and a refinery in Woods Cross, Utah (the “Woods Cross Refinery”);
•owned anda facility in Cheyenne, Wyoming, which operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”as a petroleum refinery until early August 2020 (the “Cheyenne Refinery”) which operates various asphalt terminals in Arizona, New Mexico and Oklahoma;;
•owned and operated Petro-Canada Lubricants Inc. (“PCLI”) located in Mississauga, Ontario, which produces base oils and other specialized lubricant products;
•owned and operated Sonneborn (as defined below) with manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which produce specialty lubricant products, 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, Kansas, Utah 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 36%57% limited partner interest and a non-economic general partner interest in HEP, a consolidated 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 regions of the United States.

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. This decision was primarily based on a positive outlook in the market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne Refinery would be challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and compressed crude differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating and maintenance costs forecasted for our Cheyenne Refinery and the anticipated loss of the Environmental Protection Agency’s (“EPA”) small refinery exemption.

12

During the second quarter of 2020, we recorded a long-lived asset impairment of $232.2 million related to our Cheyenne Refinery asset group. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we recognized $12.3 million in decommissioning expense during the third quarter of 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 related to the conversion of our Cheyenne Refinery to renewable diesel production. These decommissioning and severance costs were recognized in operating expenses and were reported in our Refining segment.

During the second quarter of 2020, we also initiated and completed a corporate restructuring. As a result of this restructuring, we recorded $3.7 million in employee severance costs, which includeswere recognized primarily as operating expenses in our 2%Refining segment and selling, general partner interest.
and administrative expenses in our Corporate and Other segment.


On October 29, 2016, our wholly-owned subsidiary, 9952110 Canada Inc.,November 12, 2018, we entered into a Share Purchase Agreement (“SPA”) with Suncor Energy Inc. (“Suncor”)an equity purchase agreement to acquire 100% of the issued and outstanding capital stock of PCLI.Sonneborn US Holdings Inc. and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively, “Sonneborn”). The acquisition closed on February 1, 2017. See Note 22019. Aggregate consideration totaled $701.6 million and consisted of $662.7 million in cash paid at acquisition, net of cash acquired. Sonneborn is a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe. This transaction was accounted for additional information.as a business combination using the acquisition method of accounting, with the purchase price allocated to the fair value of the acquired Sonneborn assets and liabilities as of the February 1, 2019 acquisition date, with the excess purchase price recorded as goodwill assigned to our Lubricants and Specialty Products segment. This goodwill is not deductible for income tax purposes. Fair values are as follows: cash and cash equivalents $38.9 million, current assets $139.4 million, properties, plants and equipment $168.2 million, goodwill $282.3 million, intangibles and other noncurrent assets $231.5 million, current liabilities $47.9 million and deferred income tax and other long-term liabilities $110.8 million. We incurred $0.1 million and $3.9 million for the three months ended September 30, 2020 and 2019, respectively, and $2.0 million and $20.1 million for the nine months ended September 30, 2020 and 2019, respectively, in incremental direct integration and regulatory costs that principally relate to legal, advisory and other professional fees and are presented as selling, general and administrative expenses.


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, 2017,2020, the consolidated results of operations, and comprehensive income and statements of equity for the three and nine months ended September 30, 20172020 and 20162019 and consolidated cash flows for the nine months ended September 30, 20172020 and 20162019 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, 20162019 that has been filed with the SEC.


Our results of operations for the nine months ended September 30, 20172020 are not necessarily indicative of the results of operations to be realized for the year ending December 31, 2017.2020.


Accounts Receivable: Our accounts receivable consist of amounts due from customers that are primarily companies in the petroleum industry. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances collateral, such as letters of credit or guarantees, is required. We reserve for doubtful accounts based on our historical loss experience as well as specific accounts identified as high risk, which historically have been minimal.expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for doubtful accounts when an account is deemed uncollectible. Our allowance for doubtful accounts was $4.0 million and $2.3$3.1 million at September 30, 20172020 and $4.5 million at December 31, 2016, respectively.2019.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




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.


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.
13


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.


InventoriesLeases: 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 PCLI operationsleases 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 stated atrecorded 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 lowerlease when it is reasonably certain that we will exercise that option. Leases with a term of cost, using12 months or less are not recorded on our balance sheet. For certain equipment leases, we apply a portfolio approach for the first-in, first-out (“FIFO”) method, oroperating 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 realizable value.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 an operating lease.


Goodwill and Long-lived Assets: As of September 30, 2017,2020, our goodwill balance was $2.2$2.4 billion, with goodwill assigned to our Refining, PCLILubricants and Specialty Products and HEP segments of $1.7 billion, $0.2 billion$1,733.5 million, $328.6 million and $0.3 billion,$312.9 million, respectively. During 2017, we recognized $185.2 million in goodwill as a result of our PCLI acquisition, all of which has been assigned to our PCLI segment. See Note 1615 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 comparisonquantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of oura reporting unit fair values relative to their respectiveis less than its carrying values.amount. If carrying value exceedswe determine that based on the qualitative factors that it is more likely than not that the fair value forof the reporting unit is greater than its carrying amount, 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 goodwill over the impliedrelated fair valuevalue.

For purposes of that goodwill based on estimates of the fair value of all assets and liabilities in the reporting unit. As of September 30, 2017,long-lived asset impairment evaluation, we have a cumulative goodwill impairment of $309.3 million, all of which relates to goodwill assigned togrouped our Cheyenne Refinery reporting unit that was fully impaired in the second quarter of 2016.

Additionally, 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 PCLI segment.

We performed our annual goodwill impairment testing as of July 1, 2017 and determined the fair value of our El Dorado reporting unit exceeded its carrying value by approximately 10%. A reasonable expectation exists that further deterioration in gross margins could result in an impairment of goodwill and the long-lived assets of the El Dorado reporting unit at some point in the futureas follows: (i) our refinery asset groups, which include certain HEP logistics assets, (ii) our Lubricants and such impairment charges could be material. Additionally, testing indicated no impairment of goodwill attributable to our HEP or PCLI reporting units.

Our long-lived assets principally consist of our refining assets that are organized as refiningSpecialty Products asset groups and (iii) our PCLI business. TheHEP asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups also constitute our individual refinery reporting units that are usedrepresent the lowest level for testing and measuring goodwill impairments.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.

Long-lived asset impairment testing
Due to the economic slowdown caused by the COVID-19 pandemic, in the second quarter of 2020 we determined that indicators of potential long-lived asset impairments were present. As a result of our long-lived asset impairment testing, in the second quarter of 2016, we determined that the carrying value of the long-lived assets of theour Cheyenne Refinery had been impaired and PCLI asset groups were not recoverable, and thus recorded long-lived asset impairment charges of $344.8 million.$232.2 million and $204.7 million, respectively, in the second quarter of 2020. Our testing did not result in any other impairments of long-lived assets in the second quarter. There were 0 additional indicators of long-lived asset impairment present in the third quarter of 2020.

14


The estimated fair values of the Cheyenne Refinery and PCLI asset groups were determined using a combination of the income and cost approaches. The income approach was based on management’s best estimates of the expected future cash flows over the remaining useful life of the asset group. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and economic obsolescence. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 4 for further discussion of Level 3 inputs.

Goodwill impairment testing
Due to the economic slowdown caused by the COVID-19 pandemic and a decrease in our market capitalization, we determined that indicators of potential goodwill impairment for our Refining and Lubricants and Specialty Products reporting units were present in the second quarter of 2020. As such, we performed an interim test for goodwill impairment as of May 31, 2020. Our interim goodwill impairment testing indicated that there was 0 impairment of goodwill at our Refining and Lubricants and Specialty Products reporting units as of May 31, 2020.

We performed our annual goodwill impairment testing quantitatively as of July 1, 2020 and determined there was 0 impairment of goodwill attributable to our reporting units. The excess of the fair values of the reporting units over their respective carrying values ranged from 10% to 229%.
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. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 4 for further discussion of Level 3 inputs.

During the second quarter of 2017,2019, we incurredrecorded a goodwill impairment charge of $152.7 million to fully impair the goodwill of the PCLI reporting unit included in our Lubricants and Specialty Products segment.

A reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and / or additional long-lived assetassets impairments at some point in the future. Future impairment charges totaling $23.2 million, including $19.2 millioncould be material to our results of construction-in-progress consisting primarily of engineering work for a planned expansion of our Woods Cross refinery to add lubricants production capabilities. During the second quarter of 2017, we concluded to no longer pursue this expansion for various reasons including our recent acquisition of PCLI. The remaining $4.0 million in charges relate to property, plantoperations and equipment that we expensed in the form of accelerated depreciation in the income statement.financial condition.


Revenue Recognition:Refined Revenue on refined product sales and related cost ofexcess crude oil sales are recognized when products are shippeddelivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title has passed to customers. HEP recognizes pipeline transportation revenues as products are shipped through its pipelines.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 inas cost of products sold.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



For PCLI subsidiaries in CanadaOur lubricants and in the U.S., a portion ofspecialty products business has sales are made toagreements with marketers and distributors under agreements whichthat provide certain rights of return or provisions for PCLIthe repurchase of products previously sold to repurchase product in order to sell directly to end customers. Based on the terms ofthem. Under these agreements, PCLI defers revenues and cost of revenues on sales to Canadian marketersare deferred until the related products have been sold to end customers,customers. Our lubricants and PCLIspecialty 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 for sales to its U.S. distributors whenas 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 distributors, netend of allowances for returns relatedthe 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 inventories PCLI is expected to repurchase fromsatisfy these performance obligations in the distributors to sell directly to end customers.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.


15

Foreign Currency Translation: The functional currency of our PCLI operations consists of the respective local currency of its Assets and liabilities recorded in foreign operations, which includes the Canadian dollar, the euro and Chinese renminbi. Balance sheet accountscurrencies 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.


In connection with our PCLI acquisition, on February 1, 2017, we issued intercompany notes to initially fund certain of PCLI’sour foreign businesses. Remeasurement adjustments resulting from the conversion of such intercompany financing from localamounts to functional currencies to the U.S. dollar are recorded as gains and losses as a component of other income (expense) in the income statement. Such adjustments are not recorded to the PCLILubricants and Specialty Products segment operations, but to corporateCorporate and other.Other. See Note 1615 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.

For the nine months ended September 30, 2017, we recorded an income tax expense of $173.6 million compared to $6.5 million for the nine months ended September 30, 2016. This increase was due principally to pre-tax income during the nine months ended September 30, 2017 compared to a pre-tax loss in the same period of 2016. Our effective tax rates, before consideration of earnings attributable to the noncontrolling interest, were 34.9% and 2.5% for the nine months ended September 30, 2017 and 2016, respectively.


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, 2020, we recorded an income tax benefit of $188.5 million compared to income tax expense of $279.9 million for the nine months ended September 30, 2019. This decrease was due principally to a pre-tax loss during the nine months ended September 30, 2020 compared to pre-tax earnings in the same period of 2019. Our effective tax rates were 31.0% and 26.1% for the nine months ended September 30, 2020 and 2019, respectively. The year-over-year increase 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.

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, 20172020 and 2016,2019, we received proceeds of $36.7$32.7 million and $43.9$13.2 million, respectively, and subsequently repaid $37.9$34.4 million and $44.9$12.5 million, respectively, under these sell / buy transactions.


New Accounting Pronouncements - Recently Adopted


HedgeIncome Tax Accounting
In August 2017,December 2019, Accounting StandardStandards Update (“ASU”) 2017-12, “Derivatives and Hedging: Targeted Improvements to2019-12, “Simplifying the Accounting for Hedging Activities,” was issued amending hedge accounting recognition and presentation requirements, including elimination of the requirement to separately measure and report hedge ineffectiveness, and eases certain documentation and assessment requirements. This standard has an effective date of January 1, 2019. We do not expect adoption of this standard to have a material impact on our financial condition, results of operations or cash flows.

Post-retirement Benefit Cost
In March 2017, ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost,” was issued amending current GAAP related to the income statement presentation of the components of net periodic post-retirement cost (credit). This standard has an effective date of January 1, 2018. We do not expect adoption of this standard to have a material impact on our financial condition, results of operations or cash flows.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




Share-Based Compensation
In March 2016, ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,Income Taxes,” was issued which simplifieseliminates some exceptions to the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeituresgeneral approach in ASC Topic 740 “Income Taxes” and statutory tax withholding requirements, as well as classification in the statementalso provides clarification of cash flows.other aspects of ASC 740. We adopted this standard effective January 1, 20172020 on a prospective basis, with the excessand recognized an income tax expense from stock-based compensation recognized as a discrete item in our provision for income taxes. We had no such excess tax expense for the three and nine months ended September 30, 2017. The new standard also requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the statement of cash flows on a retrospective basis. Previously, this activity was included in operating activities. The impact of this changebenefit for the nine months ended September 30, 2017 and 2016 was $0.3 million and $0.1 million, respectively. Finally, consistent with2020 based upon the application of our existing policy, we have electedestimated annual effective tax rate to account for forfeitures on an estimated basis.our pre-tax loss.


Leases
In February 2016, ASU 2016-02, “Leases,” was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use asset on the balance sheet. This standard has an effective date of January 1, 2019, and we are evaluating the impact of this standard.

InventoriesCredit Losses Measurement
In July 2015,June 2016, ASU 2015-11, “Inventory - Simplifying the Measurement2016-13, “Measurement of Inventory,Credit Losses on Financial Instruments,” was issued requiring measurement of inventories, other than inventories accountedall expected credit losses for using the LIFO method, to be measuredcertain types of financial instruments, including trade receivables, held at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business lessreporting date based on historical experience, current conditions and reasonable predictable cost of completion, disposal and transportation.supportable forecasts. We adopted this standard effective January 1, 20172020, at which time our review of historic and expected credit losses resulted in a decrease of $3.2 million in our reserve for doubtful accounts. Based upon our affected inventories, which is primarily our PCLI inventory valued on a FIFO basis, and it had no material effect on our financial condition, results of operations or cash flows.

Revenue Recognition
In May 2014, ASU 2014-09, “Revenue from Contracts with Customers” was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018, and we anticipate using the modified retrospective implementation method, whereby a cumulative effect adjustment is recorded to retained earnings asassessment of the datepotential impact of initial application. In preparingcurrent and forecasted conditions, we increased our reserve for adoption, we have evaluated the terms conditions and performance obligations under our existing contracts with customers. Furthermore, we have implemented policies to ensure compliance with this new standard, which we do not expect to have a material impact on our financial condition, results of operations or cash flows.


NOTE 2:PCLI Acquisition

On October 29, 2016, our wholly-owned subsidiary, 9952110 Canada Inc., entered into an SPA with Suncor to acquire 100% of the outstanding capital stock of PCLI. The acquisition closed on February 1, 2017. Cash consideration paid at that time was approximately $862.0doubtful accounts by $1.8 million or $1.125 billion in Canadian dollars. PCLI is located in Mississauga, Ontario, Canada and is a producer of lubricant products such as base oils, white oils, specialty products and finished lubricants. PCLI’s operations also include marketing of its products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China.

Aggregate consideration totaled approximately $904.3 million and consists of $862.0 million in cash paid to Suncor at acquisition, a closing date working capital settlement of $30.6 million that was paid to Suncor in the second quarter of 2017, an accrued payable in the amount of $6.5 million and $5.1 million, representing a portion of the fair value of replacement restricted stock unit awards issued to PCLI employees that relate to pre-acquisition services.
This transaction is accounted for as a business combination using the acquisition method of accounting, with the purchase price allocated to the fair value of the acquired PCLI assets and liabilities as of the February 1 acquisition date, with the excess purchase price recorded as goodwill assigned to our PCLI segment. This goodwill is not deductible for income tax purposes.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



The following summarizes our preliminary value estimates of the PCLI assets and liabilities acquired:
  (in millions)
   
Cash and cash equivalents $21.6
Accounts receivable and other current assets 118.5
Inventories 214.9
Properties, plants and equipment 468.8
Goodwill 185.2
Intangibles and precious metals 103.5
Accounts payable and accrued liabilities (88.7)
Deferred income tax liabilities (106.2)
Other long-term liabilities (13.3)
Net assets acquired $904.3

Intangibles include trademarks, patents, technical know-how and customer relationships totaling $100.5 million that are being amortized on a straight-line basis over periods ranging from 10 to 20 years.

These values are preliminary and reflect revisions to our February 1, 2017 fair value estimates that were initially recorded during the first quarter of 2017. These estimated values are not final and may be subject to additional change once all needed information has become available and we complete our valuations.

Our consolidated financial and operating results reflect the PCLI operations beginning February 1, 2017. Our results of operations for the threenine months ended September 30, 2017 included PCLI revenues2020. Assumptions about the potential effects of the COVID-19 pandemic on our estimate of expected credit losses are inherently subjective and net incomedifficult to forecast. However, we believe that our current estimate of $298.1 millionallowance for doubtful accounts to be reasonable based upon current information and $22.6 million, respectively, and $809.6 million and $43.6 million for the period from February 1, 2017 through September 30, 2017.forecasts.
As of September 30, 2017, we have incurred $23.5 million in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as general and administrative expenses.


16

NOTE 3:Holly Energy Partners

NOTE 2:Holly Energy Partners

HEP a consolidated VIE, 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 regions of the United States and Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas.States. Additionally, as of September 30, 2017,2020, 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;terminals, and a 50% ownership interest in Frontier Aspen LLC, the ownereach of a pipeline running from Wyoming to Frontier Station, Utah (the “Frontier Pipeline”); a 50% interest in Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”); a 50% interest in Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the “Cheyenne Pipeline”); and a 25% interest in SLCCushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a to-be-constructed pipeline (the “SLC Pipeline”) that serves refineries in the Salt Lake City, Utah area.will run from Cushing, Oklahoma to our Tulsa Refineries.


As of At September 30, 2017,2020, we owned a 36%57% limited partner interest and a non-economic general partner interest in HEP, including the 2% general partner interest.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 has two2 primary customers (including us) and 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 85%80% of HEP’s total revenues for the nine months ended September 30, 2017.2020. We do not provide financial or equity support through any liquidity arrangements and / or debt guarantees to HEP.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




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 109 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.


SLC PipelineCushing Connect Joint Venture
In October 2019, HEP Cushing LLC (“HEP Cushing”), a wholly-owned subsidiary of HEP, and Frontier Aspen
On October 31, 2017, HEP acquired the remaining 75% interest in SLC Pipeline LLC and the remaining 50% interest in Frontier Aspen LLC from subsidiariesPlains 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 total cash consideration(i) the development and construction of $250.0 million.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 is expected to be placed in service during the first quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Connect assets.


Following closeCushing Connect will contract with an affiliate of HEP to manage the construction and operation of the SLCCushing Connect Pipeline and Frontier Aspen joint venture interest acquisitions, HEP holds a 100% ownership interest in both of these entities and therefore, they shall be consolidated. These acquisitions will be accounted for as business combinations with the purchase price allocated to the acquisition date fair value of the assets and liabilities acquired.

Cheyenne Pipeline
On June 3, 2016, HEP acquired a 50% interest in Cheyenne Pipeline LLC, owner of the Cheyenne Pipeline, in exchange for a contribution of $42.6 million in cash to Cheyenne Pipeline LLC. Cheyenne Pipeline will continue to be operated by an affiliate of Plains which ownsto manage the remaining 50% interest.operation of the Cushing Connect Terminal. The 87-mile crude oil pipeline runs from Fort Laramie, Wyoming to Cheyenne, Wyomingtotal investment in Cushing Connect will be shared proportionately among the partners, and has an 80,000 BPD capacity.

Tulsa Tanks
On March 31, 2016, HEP acquired crude oil tanks located at our Tulsa Refineries from Plains for $39.5 million. Previously in 2009, we sold these tanks toestimates its share of the cost of the Cushing Connect Terminal contributed by Plains and leased them back,Cushing Connect Pipeline construction costs are approximately $65.0 million.

Cushing Connect and dueits two subsidiaries, Cushing Connect Pipeline and Cushing Connect Terminal, are each VIE’s because they do not have sufficient equity at risk to our continuing interest in the tanks, we accounted for the transaction as a financing arrangement. Accordingly, the tanks remained on our balance sheet and were depreciated for accounting purposes, and the proceeds received from Plains were recorded as a financing obligation and presented as a component of outstanding debt.

In accounting for HEP’s March 2016 purchase from Plains, the amount paid was recorded against our outstanding financing obligation balance of $30.8 million, with the excess $8.7 million payment resulting in a loss on early extinguishment of debt.

Magellan Asset Exchange
On February 22, 2016, we acquired a 50% membership interest in Osage Pipe Line Company, LLC (“Osage”) in exchange for a 20-year terminalling services agreement, whereby a subsidiary of Magellan Midstream Partners (“Magellan Midstream”) will provide terminalling services for all of our products originating in Artesia, New Mexico that require terminalling in or through El Paso, Texas. Under the agreement, we will be charged tariffs based on the volumes of refined product processed. Osagefinance their activities without additional financial support. HEP is the ownerprimary beneficiary of two of these entities as HEP is constructing and will operate the OsageCushing Connect Pipeline, a 135-mile pipelineand HEP has more ability to direct the activities that transports crude oil frommost significantly impact the financial performance of Cushing Oklahoma to our El Dorado Refinery in KansasConnect and also has a connection toCushing Connect Pipeline. Therefore, HEP consolidates these two entities. HEP is not the Jayhawk pipeline that services the CHS refinery in McPherson, Kansas. This exchange was accounted for at fair value, whereby the 50% membership interest in the Osage Pipeline was recorded at appraised fair value and an offsetting residual deferred credit in the amountprimary beneficiary of $38.9 million was recorded, which will be amortized to cost of products sold over the 20-year service period. No gain or loss was recorded for this exchange.

Also on February 22, 2016, we contributed the 50% membership interest in Osage to HEP, and in exchange received HEP’s El Paso terminal. Pursuant to this exchange, HEP agreed to build two connections to Magellan Midstream’s El Paso terminal. In addition, HEP agreed to become operator of the Osage Pipeline. This exchange was accounted for at carry-over basis with no resulting gain or loss.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



HEP Common Unit Continuous Offering Program
On May 10, 2016, HEP established a continuous offering program underCushing Connect Terminal, which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amountaccounts for using the equity method of $200 million. During the nine months ended September 30, 2017, HEP issued 1,538,452 units under this program, providing $52.3 million in net proceeds. In connection with this program and to maintain our 2% general partner interest in HEP, we made capital contributions totaling $1.1 million during the nine months ended September 30, 2017. As of September 30, 2017, HEP has issued 2,241,907 units with an aggregate gross sales amount of $77.1 million.accounting.


HEP intends to use the net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. Amounts repaid under HEP’s credit facility may be reborrowed from time to time.
17


As a result of this transaction and resulting HEP ownership changes, we adjusted additional capital and equity attributable to HEP's noncontrolling interest holders to reallocate HEP's equity among its unitholders.

Incentive Distribution Rights Simplification Agreement
On October 31, 2017, HEP Logistics Holdings, L.P., our wholly-owned subsidiary and general partner of HEP, closed the restructuring transaction set forth in a definitive agreement with HEP to cancel its incentive distribution rights and convert our 2% general partner interest in HEP into a non-economic interest in exchange for 37,250,000 newly issued HEP common units. As of October 31, 2017, our ownership represents approximately 59% of outstanding HEP common units.

Transportation Agreements
HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling agreements expiring from 20172021 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, 2017,2020, these agreements result in minimum annualized payments to HEP of $321.3$351.1 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 income reflect lease revenue recognized by HEP for contracts with third parties in which HEP is the lessor.

One of HEP’s throughput agreements with Delek US Holdings, Inc. (“Delek”) was renewed during the three months ended June 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 three months ended June 30, 2020. This sales-type lease transaction, including the related gain, was a non-cash transaction.

Lease income recognized was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$5,080 $8,374 $18,812 $24,840 
Gain on sales-type leases$0 $0 $33,834 $0 
Sales-type lease interest income$645 $0 $1,287 $0 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable$335 $0 $621 $0 

HEP Common Unit Continuous Offering Program
In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the nine months ended September 30, 2020, HEP did not issue any common units under this program. As of September 30, 2020, HEP has issued 2,413,153 common units under this program, providing $82.3 million in gross proceeds.


NOTE 3: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.

18

Disaggregated revenues were as follows:    
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
(In thousands)
Revenues by type
Refined product revenues
Transportation fuels (1)
$1,949,381 $3,354,927 $5,812,974 $9,796,334 
Specialty lubricant products (2)
421,254 461,669 1,232,491 1,413,194 
Asphalt, fuel oil and other products (3)
171,844 299,305 518,485 767,023 
Total refined product revenues2,542,479 4,115,901 7,563,950 11,976,551 
Excess crude oil revenues (4)
243,742 264,675 606,915 997,988 
Transportation and logistic services26,740 29,868 72,410 89,388 
Other revenues (5)
6,439 14,384 39,600 40,763 
Total sales and other revenues$2,819,400 $4,424,828 $8,282,875 $13,104,690 
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
(In thousands)
Refined product revenues by market
United States
Mid-Continent$1,254,828 $2,191,014 $3,655,412 $6,283,488 
Southwest580,818 913,326 1,751,066 2,772,281 
Rocky Mountains343,905 611,003 1,087,657 1,739,401 
Northeast149,855 151,919 420,588 427,926 
Canada150,618 184,784 454,141 536,911 
Europe, Asia and Latin America62,455 63,855 195,086 216,544 
Total refined product revenues$2,542,479 $4,115,901 $7,563,950 $11,976,551 

(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 $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, $231.4 million and $67.9 million, respectively, for the three months ended September 30, 2019, and $612.0 million and $155.0 million, respectively, for the nine months ended September 30, 2019.
(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.

19

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 the acquisition of Sonneborn on February 1, 2019. The following table presents changes to our contract liabilities during the nine months ended September 30, 2020 and 2019.
Nine Months Ended September 30,
20202019
(In thousands)
Balance at January 1$4,652 $132 
Sonneborn acquisition0 6,463 
Increase21,583 19,255 
Recognized as revenue(18,224)(21,135)
Balance at September 30$8,011 $4,715 

As of September 30, 2020, 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 202020212022ThereafterTotal
(In thousands)
Refined product sales volumes (barrels)5,047 16,047 12,799 24,465 58,358 
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, 2020 are presented below:
Remainder of 202020212022ThereafterTotal
(In thousands)
HEP contractual minimum revenues$6,441 $21,942 $10,954 $20,292 $59,629 


NOTE 4:Fair Value Measurements

NOTE 4:Fair Value Measurements

Our financial instruments measured at fair value on a recurring basis consist of investments in marketable securities, 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.


HOLLYFRONTIER CORPORATION
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




The carrying amounts of marketable securities, derivative instruments and RINs credit obligations at September 30, 20172020 and December 31, 20162019 were as follows:
Fair Value by Input Level
Carrying AmountLevel 1Level 2Level 3
(In thousands)
September 30, 2020
Assets:
NYMEX futures contracts$1,530 $1,530 $0 $0 
Commodity price swaps2,820 0 2,820 0 
Commodity forward contracts71 0 71 0 
Total assets$4,421 $1,530 $2,891 $0 
Liabilities:
Commodity price swaps$134 $0 $134 $0 
Commodity forward contracts58 0 58 0 
Foreign currency forward contracts3,589 0 3,589 0 
RINs credit obligations (1)
6,710 0 6,710 0 
Total liabilities$10,491 $0 $10,491 $0 
   Fair Value by Input Level
 Carrying Amount Level 1 Level 2 Level 3
 (In thousands)
September 30, 2017        
December 31, 2019December 31, 2019
Assets:        Assets:
Commodity price swaps $5,556
 $—
 $5,556
 $—
Commodity price swaps$13,455 $0 $13,455 $0 
Commodity forward contracts 1,358
 —
 1,358
 —
Commodity forward contracts4,133 0 4,133 $0 
Total assets $6,914
 $—
 $6,914
 $—
Total assets$17,588 $0 $17,588 $0 
        
Liabilities:        Liabilities:
NYMEX futures contracts $5,881
 $5,881
 $—
 $—
NYMEX futures contracts$2,578 $2,578 $0 $0 
Commodity price swaps 16,030
 —
 12,401
 3,629
Commodity price swaps1,230 0 1,230 0 
Commodity forward contracts 1,611
 —
 1,611
 —
Commodity forward contracts3,685 0 3,685 0 
RINs credit obligations (1)
 22,586
 —
 22,586
 —
Foreign currency forward contractsForeign currency forward contracts6,722 0 6,722 0 
Total liabilities $46,108
 $5,881
 $36,598
 $3,629
Total liabilities$14,215 $2,578 $11,637 $0 

December 31, 2016        
Assets:        
Marketable securities $424,148
 $—
 $424,148
 $—
Commodity price swaps 14,563
 —
 14,358
 205
Commodity forward contracts 5,905
 —
 5,905
 —
HEP interest rate swaps 91
 —
 91
 —
Total assets $444,707
 $—
 $444,502
 $205
         
Liabilities:        
NYMEX futures contracts $1,975
 $1,975
 $—
 $—
Commodity price swaps 26,845
 —
 24,086
 2,759
Commodity forward contracts 8,316
 —
 8,316
 —
Foreign currency forward contracts 6,519
 —
 6,519
 —
Total liabilities $43,655
 $1,975
 $38,921
 $2,759
(1) Represent obligations for RINs credits for which we did not have sufficient quantities at September 30, 2020 to satisfy our EPA regulatory blending requirements.

(1)Represent obligations for RINs credits for which we do not have sufficient quantities at September 30, 2017 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
Investments in marketable securities, derivativeDerivative instruments consisting of foreign currency forward contracts, commodity price swaps and forward sales and purchase contracts and HEP’s interest rate swaps are measured and recorded at fair value using Level 2 inputs. The fair valuesvalue of the commodity price and interest rate swap contracts areis based on the net present value of expected future cash flows related to both variable and fixed rate legs of the respective swap agreements. The measurements are computed using market-based observable inputs,input and quoted forward commodity prices with respect to our commodity price swaps and the forward London Interbank Offered Rate (“LIBOR”) yield curve with respect to HEP’s interest rate swaps. RINs credit obligations are valued based on current market RINs prices. The fair value of the marketable securities isforeign currency forward contracts are based on values provided by a third-party,third party, which were derived using market quotes for similar type instruments, a Level 2 input.


Nonrecurring Fair Value Measurements
During the three months ended June 30, 2020, we recognized long-lived asset impairment charges based on fair value measurements utilized during our goodwill and long-lived asset impairment testing (see Note 1). The fair value measurements were based on a combination of valuation methods including discounted cash flows, the guideline public company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 Instrumentsinputs.
We at times have commodity price swap contracts that relate to forecasted sales of unleaded gasoline and forward commodity sales and purchase contracts for which quoted forward market prices are not readily available. The forward rate used to value these price swaps and forward sales and purchase contracts are derived using a projected forward rate using quoted market rates for similar products, adjusted for regional pricing and grade differentials, a Level 3 input.
HOLLYFRONTIER CORPORATION
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued





During the three months ended June 30, 2020, HEP recognized a gain on sales-type leases (see Note 2). The following table presents the changes inestimated fair value of ourthe underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end of the lease term were used in determining the net investment in leases and related recognized gain on sales-type leases. The asset valuation estimates included Level 3 assets and liabilities (all related to derivative instruments) for the three and nine months ended September 30, 2017:inputs based on a replacement cost valuation method.


  Three Months Ended
September 30, 2017		 Nine Months Ended
September 30, 2017
Level 3 Instruments  
  (In thousands)
Liability balance at beginning of period $—
 $(2,554)
Change in fair value:    
Recognized in other comprehensive income —
 1,625
Recognized in cost of products sold (3,629) (3,630)
Settlement date fair value of contractual maturities:    
Recognized in sales and other revenues —
 (165)
Recognized in cost of products sold —
 1,095
Liability balance at end of period $(3,629) $(3,629)

A hypothetical change of 10% to the estimated future cash flows attributable to our Level 3 commodity price swaps would result in an estimated fair value change of $0.2 million.


NOTE 5:Earnings Per Share

NOTE 5:Earnings Per Share

Basic earnings per share is calculated as net income (loss) attributable to HollyFrontier stockholders divided by the average number of shares of common stock outstanding. Diluted earnings per share assumes, when dilutive, the issuance of the net incremental shares from restricted sharesstock units and performance share units. 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,
 2020201920202019
 (In thousands, except per share data)
Net income (loss) attributable to HollyFrontier stockholders$(2,401)$261,813 $(483,701)$711,783 
Participating securities’ (restricted stock) share in earnings0 385 0 1,033 
Net income (loss) attributable to common shares$(2,401)$261,428 $(483,701)$710,750 
Average number of shares of common stock outstanding162,015 163,676 161,927 167,935 
Effect of dilutive variable restricted stock units and performance share units (1)
0 1,335 0 1,190 
Average number of shares of common stock outstanding assuming dilution162,015 165,011 161,927 169,125 
Basic earnings (loss) per share$(0.01)$1.60 $(2.99)$4.23 
Diluted earnings (loss) per share$(0.01)$1.58 $(2.99)$4.20 
(1) Excludes anti-dilutive restricted and performance share units of:
566 109 550 120 


  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
  (In thousands, except per share data)
Net income (loss) attributable to HollyFrontier stockholders $272,014
 $74,497
 $284,313
 $(313,618)
Participating securities’ (restricted stock) share in earnings 1,735
 275
 1,822
 647
Net income (loss) attributable to common shares $270,279
 $74,222
 $282,491
 $(314,265)
Average number of shares of common stock outstanding 176,149
 175,871
 176,143
 176,157
Effect of dilutive variable restricted shares and performance share units (1)
 381
 122
 473
 —
Average number of shares of common stock outstanding assuming dilution 176,530
 175,993
 176,616
 176,157
Basic earnings (loss) per share $1.53
 $0.42
 $1.60
 $(1.78)
Diluted earnings (loss) per share $1.53
 $0.42
 $1.60
 $(1.78)
(1) Excludes anti-dilutive restricted and performance share units of:
 104
 204
 120
 188


HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



NOTE 6:Stock-Based Compensation

NOTE 6:Stock-Based Compensation
As of September 30, 2017, we
We have twoa principal share-based compensation plans (collectively, the “Long-Termplan (the “2020 Long-Term Incentive Compensation Plan”).

, which allows us to grant new equity awards until February 12, 2030. We also have a long-term incentive compensation plan which expires pursuant to its terms on December 31, 2020 and will continue to govern outstanding equity awards granted thereunder; however, as of February 12, 2020, 0 new awards are being granted under this plan. The compensation cost charged against income for these plans was $9.1$6.9 million and $6.2$9.2 million for the three months ended September 30, 20172020 and 2016,2019, respectively, and $24.5$19.8 million and $14.8$30.0 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting is to expense the costs ratably over the vesting periods.


Additionally, HEP maintains a share-based compensation plan for Holly Logistic Services, L.L.C.’s non-employee directors and certain executives and employees. Compensation cost attributable to HEP’s share-based compensation plan was $0.8$0.6 million and $0.7$0.5 million for the three months ended September 30, 20172020 and 2016,2019, respectively, and $1.9$1.5 million and $1.8 million for each of the nine months ended September 30, 20172020 and 2016.2019, respectively.


Restricted Stock and Restricted Stock Units
Under our Long-Term Incentive Compensation Plan,long-term incentive plan, we grant certain officers and other key employees restricted stock and restricted stock unit awards, with awardswhich are payable in stock or cash and generally vestingvest over a period of two to three years. RestrictedCertain restricted stock unit award recipients are generally entitledhave the right to all thereceive dividends, however, restricted stock units do not have any other rights of absolute ownership of the restricted shares from the date of grant including the right to vote the shares and to receive dividends.ownership. Upon vesting, restrictions on the restricted sharesstock units lapse at which time they convert to common shares.shares or cash. In addition, we grant non-employee directors restricted stock unit awards, which typically vest over a period of one year and are payable in stock. The fair value of each restricted stock and restricted stock unit award is measured based on the grant date market price of our common shares and is amortized over the respective vesting period. We account for forfeitures on an estimated basis.


22

A summary of restricted stock and restricted stock unit activity and changes during the nine months ended September 30, 20172020 is presented below:
Restricted Stock UnitsGrantsWeighted Average Grant Date Fair ValueAggregate Intrinsic Value ($000)
Outstanding at January 1, 20201,101,781 $53.30 
Granted65,041 35.26 
Vested(80,872)44.40 
Forfeited(70,884)53.51 
Converted from performance share units19,450 38.13 
Outstanding at September 30, 20201,034,516 52.41 $20,390 
Restricted Stock and Restricted Stock Units Grants Weighted Average Grant Date Fair Value Aggregate Intrinsic Value ($000)
       
Outstanding at January 1, 2017 (non-vested) 1,188,774
 $28.87
  
Granted (1)
 735,478
 28.19
  
Vesting (transfer/conversion to common stock) (33,177) 32.53
  
Forfeited (49,711) 30.38
  
Outstanding at September 30, 2017 (non-vested) 1,841,364
 $28.82
 $66,234


(1) Includes restricted stock units issued to PCLI employees.

In connection with our February 1, 2017 PCLI acquisition, we issued 472,276 restricted stock units to PCLI employees as replacement units for unvested awards issued under the legacy PCLI plan. The fair value of these awards totaled $13.3 million and is based on a February 1, 2017 grant date value of $28.12 per unit. Of this total, $5.1 million is recognized as an increase to our PCLI purchase price as it represents the value of the awards attributable to pre-acquisition services, and the remaining $8.2 million to be recognized as compensation expense over the two-year vesting period.

For the nine months ended September 30, 2017, restricted stock and2020, restricted stock units vested having a grant date fair value of $1.1$3.6 million. As of September 30, 2017,2020, there was $23.7$16.6 million of total unrecognized compensation cost related to non-vested restricted stock and restricted stock unit grants. That cost is expected to be recognized over a weighted-average period of 1.2 years.1.0 year.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




Performance Share Units
Under our Long-Term Incentive Compensation Plan,long-term incentive plan, we grant certain officers and other key employees performance share units, which are payable in stock or cash upon meeting certain criteria over the service period, and generally vest over a period of three years. Under the terms of our performance share unit grants, awards are subject to “financial performance” and “market performance” criteria. Financial performance is based on our financial performance compared to a peer group of independent refining companies, while market performance is based on the relative standing of total shareholder return achieved by HollyFrontier compared to peer group companies. The number of shares ultimately issued or cash paid under these awards can range from zero0 to 200% of target award amounts. AsHolders of September 30, 2017, estimated share payouts for outstanding non-vested performance share unit awards averaged approximately 60%units have the right to receive dividend equivalents and other distributions with respect to such performance share units based on the target level of target amounts.payout.


A summary of performance share unit activity and changes during the nine months ended September 30, 20172020 is presented below:
Performance Share UnitsGrants
Outstanding at January 1, 2017 (non-vested)2020703,939375,588 
Granted21,923
ForfeitedVested(88,893(12,129))
Forfeited(18,766)
Converted to restricted stock units(19,450)
Outstanding at September 30, 2017 (non-vested)2020636,969325,243 


For the nine months September 30, 2020, we issued 7,889 shares of common stock, representing a 100% payout on vested performance share units having a grant date fair value of $0.5 million. As of September 30, 2017,2020, there was $8.6$7.7 million of total unrecognized compensation cost related to non-vested performance share units having a grant date fair value of $33.37$58.07 per unit. That cost is expected to be recognized over a weighted-average period of 1.51.3 years.



NOTE 7:Cash and Cash Equivalents and Investments in Marketable Securities

Our investment portfolio at September 30, 2017 consisted of cash and cash equivalents.

We periodically invest in marketable debt securities with the maximum maturity or put date of any individual issue generally not greater than one year from the date of purchase, which are usually held until maturity. All of these instruments are classified as available-for-sale and are reported at fair value. Interest income is recorded as earned. Unrealized gains and losses, net of related income taxes, are reported as a component of accumulated other comprehensive income. Upon sale or maturity, realized gains on our marketable debt securities are recognized as interest income. These gains are computed based on the specific identification of the underlying cost of the securities, net of unrealized gains and losses previously reported in other comprehensive income. Unrealized gains and losses on our available-for-sale securities are due to changes in market prices and are considered temporary.

The following is a summary of our marketable securities as of December 31, 2016:
23
  Amortized Cost Gross Unrealized Gain Gross Unrealized Loss 
Fair Value
(Net Carrying Amount)
  (In thousands)
December 31, 2016        
Commercial paper $7,687
 $1
 $(1) $7,687
Corporate debt securities 4,001
 —
 —
 4,001
State and political subdivisions debt securities 412,462
 1
 (3) 412,460
Total marketable securities $424,150
 $2
 $(4) $424,148

Interest income recognized on our marketable securities was zero and $0.2 million for the three months ended September 30, 2017 and 2016 respectively, and $0.3 million and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively.


HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




NOTE 8:Inventories

NOTE 7:Inventories
Inventory consists
Inventories consist of the following components:
 September 30,
2017		 December 31, 2016September 30,
2020		December 31, 2019
 (In thousands)(In thousands)
Crude oil $544,837
 $549,886
Crude oil$477,012 $489,169 
Other raw materials and unfinished products(1)
 363,483
 287,561
Other raw materials and unfinished products(1)
288,006 394,045 
Finished products(2)
 670,120
 465,432
Finished products(2)
636,739 639,938 
Lower of cost or market reserve (317,195) (332,518)Lower of cost or market reserve(468,074)(240,363)
Process chemicals(3)
 26,173
 2,767
Process chemicals(3)
28,615 36,786 
Repair and maintenance supplies and other (4)
 132,424
 162,548
Repair and maintenance supplies and other (4)
175,366 154,627 
Total inventory $1,419,842
 $1,135,676
Total inventory$1,137,664 $1,474,202 

(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.


We acquired $214.9 million of other(1)Other raw materials and unfinished products include feedstocks and finishedblendstocks, other than crude.
(2)Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and repairresidual fuels.
(3)Process chemicals include additives and maintenance supplies in connection with our February 1, 2017 acquisition of PCLI. We value theseother chemicals.
(4)Includes RINs.

Our inventories at the lower of FIFO cost or net realizable value.

Inventories, whichthat are valued at the lower of LIFO cost or market reflect a valuation reserve of $317.2$468.1 million and $332.5$240.4 million at September 30, 20172020 and December 31, 2016,2019, respectively. The December 31, 20162019 market reserve of $332.5$240.4 million was reversed due to the sale of inventory quantities that gave rise to the 20162019 reserve. A new market reserve of $317.2$468.1 million was established as of September 30, 20172020 based on market conditions and prices at that time. The effect of the change in lower of cost or market reserve was a decrease to cost of goodsproducts sold totaling $111.1$62.8 million for the three months ended September 30, 20172020 and an increase to cost of $0.3products sold totaling $34.1 million for the three months ended September 30, 2016, respectively,2019, and a decreasean increase to cost of goodsproducts sold totaling $15.3 million and $194.3$227.7 million for the nine months ended September 30, 20172020 and 2016, respectively.a decrease to cost of products sold totaling $150.5 million for the nine months ended September 30, 2019.


At September 30, 2017,2020, the LIFO value of inventory, net of the lower of cost or market reserve, was equal to current costs.


In May 2017,connection with our announcement of the EPA granted theconversion of our Cheyenne Refinery a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2016 calendar year. As a result, the Cheyenne Refinery’s gasoline andto renewable diesel production, are not subject to we recorded a reserve of $2.9 million and $9.0 million, for the percentage of production that must satisfy a Renewable Volume Obligation (“RVO”) for 2016. Inthree and the nine months September 2017, the EPA reinstated the RINs previously submitted to meet30, 2020, respectively, against our Cheyenne Refinery’s 2016 RVO. The cost of the RINs used earlier to satisfy the Cheyenne Refinery’s 2016 RVO of $30.5 millionrepair and maintenance supplies inventory. This charge was charged to cost of products soldrecorded in 2016. In the second quarter of 2017, we increased our inventory of RINs and reduced our cost of products sold by this amount, representing the cost of the RINs that were reinstated as a result of the RFS exemption received by the Cheyenne Refinery.operating expenses.




HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 8:Environmental
(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 $0.1$2.2 million and $1.8 million for the three months ended September 30, 2017,2020 and reduced expense by $0.82019, respectively, and $4.2 million and $5.5 million for the nine months ended September 30, 2017 for environmental remediation obligations. For the three2020 and the nine months ended September 30, 2016, we incurred expense of $0.6 million and $2.0 million,2019, respectively, for environmental remediation obligations. The accrued environmental liability reflected in our consolidated balance sheets was $93.6$115.5 million and $96.4$117.7 million at September 30, 20172020 and December 31, 2016,2019, respectively, of which $80.4$94.1 million and $82.9$95.6 million,, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time (up to 30 years for certain projects). The amount of our accrued liability includes PCLI environmental obligations of $3.6 million assumed upon our February 1, 2017 acquisition. Estimated liabilities could increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably estimated.




24
NOTE 10:Debt


NOTE 9:Debt

HollyFrontier Credit Agreement
In February 2017, we increased the size of ourWe have a $1.35 billion senior unsecured revolving credit facility from $1 billion to $1.35 billion and extended the maturity date tomaturing in February 2022 (the “HollyFrontier Credit Agreement”). The Holly FrontierHollyFrontier 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. During the nine months endedAt September 30, 2017, we received advances totaling $26.0 million and repaid $26.0 million under the HollyFrontier Credit Agreement. At September 30, 2017,2020, we were in compliance with all covenants, had no0 outstanding borrowings and had outstanding letters of credit totaling $2.8$5.7 million under the HollyFrontier Credit Agreement.


HEP Credit Agreement
In July 2017, HEP increased the size of itshas a $1.4 billion senior secured revolving credit facility from $1.2 billion to $1.4 billion and extended the maturity date tomaturing in July 2022 (the “HEP Credit Agreement”). The HEP Credit Agreement and 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 has a $300 million accordion. During the nine months ended September 30, 2017,2020, HEP received advances totaling $628.0$219.5 million and repaid $431.0$237.0 million under the HEP Credit Agreement. At September 30, 2017,2020, HEP was in compliance with all of its covenants, had outstanding borrowings of $750.0$948.0 million and no0 outstanding letters of credit under the HEP Credit Agreement.


HEP’s obligations under the HEP Credit Agreement are collateralized by substantially all of HEP’s assets and isare 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.


HollyFrontier Senior Notes
OurOn September 28, 2020, we completed a public offering of $350.0 million in aggregate principal amount of 2.625% senior notes maturing October 2023 (the “2.625% Senior Notes”) and $400.0 million in aggregate principal amount of 4.500% senior notes maturing October 2030 (the “4.500% Senior Notes”). We intend to use the net proceeds for general corporate purposes, which may include capital expenditures.

As a result, as of September 30, 2020, our outstanding senior notes consist of $1.0 billion in aggregate principal amount of 5.875% senior notes ($1 billion aggregate principal amount maturing April 2026)2026 (the ��“5.875% Senior Notes”), the 2.625% Senior Notes and the 4.500% Senior Notes (collectively, the “HollyFrontier Senior Notes”). The HollyFrontier Senior Notes”)Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.


HollyFrontier Financing ObligationArrangements
In March 2016,December 2018, 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 total cash received of $32.5 million. 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 leases mature on February 1, 2021. Upon maturity, we extinguished a financingmust either satisfy the obligation at fair market value or refinance to extend the maturity. These financing arrangements are recorded at a cost of $39.5Level 2 fair value totaling $37.2 million and recognized an $8.7$40.0 million lossat September 30, 2020 and December 31, 2019, respectively, and are included in “Accrued liabilities” in our consolidated balance sheets. See Note 4 for additional information on the early termination. The financing obligation related to a sale and lease-back of certain crude oil tankage that we sold to an affiliate of Plains in October 2009 for $40.0 million.Level 2 inputs.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



HollyFrontier Term Loan
In April 2016, we entered into a $350 million senior unsecured term loan (the “HollyFrontier Term Loan”) maturing in April 2019. The HollyFrontier Term Loan was fully repaid with proceeds received upon the November 2016 issuance of the HollyFrontier Senior Notes.


HEP Senior Notes
In September 2017,On February 4, 2020, HEP issued an additional $100closed 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”). On February 5, 2020, HEP redeemed its existing $500.0 million aggregate principal amount of 6.0% HEP senior notes maturing in August 2024 inat a private placement.redemption cost of $522.5 million. HEP usedrecognized 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. HEP funded the net$522.5 million redemption with proceeds from the issuance of $101.8 million to repay indebtednessits 5.0% senior notes and borrowings under the HEP Credit Agreement.


HEP’s 6.0% senior notes ($500 million aggregate principal amount maturing August 2024) (the “HEPThe HEP Senior Notes”)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, 2020. At any time when the HEP Senior Notes are rated investment grade by botheither Moody’s andor 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.


In January 2017, HEP redeemed its $300 million aggregate principal amount of 6.5% senior notes maturing March 2020 at a redemption cost of $309.8 million, at which time HEP recognized a $12.2 million early extinguishment loss consisting of a $9.8 million debt redemption premium and unamortized discount and financing costs of $2.4 million. HEP funded the redemption with borrowings under the HEP Credit Agreement.
25


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.


The carrying amounts of long-term debt are as follows:
September 30,
2020		December 31,
2019
 (In thousands)
HollyFrontier
2.625% Senior Notes$350,000 $0 
5.875% Senior Notes1,000,000 1,000,000 
4.500% Senior Notes400,000 0 
1,750,000 1,000,000 
Unamortized discount and debt issuance costs(13,525)(6,391)
Total HollyFrontier long-term debt1,736,475 993,609 
HEP
HEP Credit Agreement948,000 965,500 
5.0% Senior Notes500,000 0 
6.0% Senior Notes0 500,000 
500,000 500,000 
Unamortized discount and debt issuance costs(8,126)(3,469)
Total HEP long-term debt1,439,874 1,462,031 
Total long-term debt$3,176,349 $2,455,640 
  September 30,
2017		 December 31,
2016
  (In thousands)
HollyFrontier 5.875% Senior Notes    
Principal $1,000,000
 $1,000,000
Unamortized discount and debt issuance costs (8,552) (8,775)
  991,448
 991,225
     
HEP Credit Agreement 750,000
 553,000
     
HEP 6% Senior Notes    
Principal 500,000
 400,000
Unamortized discount and debt issuance costs (4,934) (6,607)
  495,066
 393,393
HEP 6.5% Senior Notes    
Principal —
 300,000
Unamortized discount and debt issuance costs —
 (2,481)
  —
 297,519
     
Total HEP long-term debt 1,245,066
 1,243,912
     
Total long-term debt $2,236,514
 $2,235,137

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




The fair values of the senior notes are as follows:
September 30,
2020		December 31,
2019
(In thousands)
HollyFrontier Senior Notes$1,835,996 $1,127,610 
HEP Senior Notes$490,155 $522,045 
  September 30,
2017		 December 31,
2016
  (In thousands)
     
HollyFrontier senior notes $1,091,470
 $1,022,500
     
HEP senior notes $524,390
 $723,750


These fair values are based on estimates provided by a third party using market quotes for similar type instruments, a Level 2 input. See Note 4 for additional information on Level 2 inputs.


We capitalized interest attributable to construction projects of $1.0$1.1 million and $1.8$0.7 million for the three months ended September 30, 20172020 and 2016,2019, respectively, and $4.2$2.4 million and $6.0$1.8 million for the nine months ended September 30, 20172020 and 2016,2019, respectively.




NOTE 11:10: 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:
to our inventory positions;
positions, natural gas purchases;
costs of crude oil and related grade differentials;
purchases, sales prices of refined products;products and crude oil costs.

26

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 refining margins.foreign subsidiaries that are not denominated in the U.S. dollar.


Accounting Hedges
We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural gas.gas and to lock in basis spread differentials on forecasted purchases of crude oil. We also periodically have forward sales contracts that lock in the prices of future sales of crude oil and refined product and swap contracts serving as cash flow hedges against price risk on forecasted purchases of WTI crude oil and forecasted sales of refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature. On a quarterly basis, hedge ineffectiveness is measured by comparing the change in fair value of the swap contracts against the expected future cash inflows/outflows on the respective transaction being hedged. Any hedge ineffectiveness is also recognized in earnings.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments and maturities of commodity price swaps and forward saleshedging instruments under hedge accounting:
Net Unrealized Gain (Loss) Recognized in OCIGain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging InstrumentsThree Months Ended
September 30,		Income Statement LocationThree Months Ended
September 30,
2020201920202019
(In thousands)
Commodity contracts$2,492 $(7,562)Sales and other revenues$(5,217)$0 
Cost of products sold983 6,027 
Operating expenses(352)(454)
Total$2,492 $(7,562)$(4,586)$5,573 
 Unrealized Gain (Loss) Recognized in OCI Gain (Loss) Recognized in Earnings Due to Settlements Gain (Loss) Attributable to Hedge Ineffectiveness Recognized in Earnings
  Location Amount Location Amount
 (In thousands)
Three Months Ended September 30, 2017         
Change in fair value$(2,095)        
Loss reclassified to earnings due to settlements5,179
 Sales and other revenues $(488)    
Amortization of discontinued hedges reclassified to earnings270
 Operating expenses (4,961) Operating expenses $18
Total$3,354
   $(5,449)   $18
          
Three Months Ended September 30, 2016         
Change in fair value$(1,511)        
Loss reclassified to earnings due to settlements4,046
 Sales and other revenue $228
    
Amortization of discontinued hedges reclassified to earnings270
 Operating expenses (4,544) Operating expenses $—
Total$2,805
   $(4,316)   $—
          
Nine Months Ended September 30, 2017         
Change in fair value$2,620
 Sales and other revenues $7,937
    
Loss reclassified to earnings due to settlements5,228
 Cost of products sold (299)    
Amortization of discontinued hedge reclassified to earnings810
 Operating expenses (13,676) Operating expenses $—
Total$8,658
   $(6,038)   $—
          
Nine Months Ended September 30, 2016         
Change in fair value$(18,570)        
Loss reclassified to earnings due to settlements37,012
 Sales and other revenues $(20,425)    
Amortization of discontinued hedge reclassified to earnings810
 Operating expenses (17,397) Operating expenses $—
Total$19,252
   $(37,822)   $—


Net Unrealized Gain (Loss) Recognized in OCIGain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging InstrumentsNine Months Ended
September 30,		Income Statement LocationNine Months Ended
September 30,
2020201920202019
(In thousands)
Commodity contracts$(3,918)$372 Sales and other revenues$(5,168)$(1,799)
Cost of products sold3,272 15,323 
Operating expenses(1,515)(987)
Total$(3,918)$372 $(3,411)$12,537 
As of September 30, 2017, we have the following notional contract volumes related to outstanding derivative instruments serving as cash flow hedges against price risk on forecasted transactions:
    Notional Contract Volumes by Year of Maturity  
Derivative Instrument Total Outstanding Notional 2017 2018 2019 2020 2021 Unit of Measure
               
Natural gas price swaps - long 9,600,000
 2,400,000
 1,800,000
 1,800,000
 1,800,000
 1,800,000
 MMBTU
Physical crude contracts - short 150,000
 150,000
 —
 —
 —
 —
 Barrels

In 2013, we dedesignated certain commodity price swaps (long positions) that previously received hedge accounting treatment. These contracts now serve as economic hedges against price risk on forecasted natural gas purchases totaling 2,400,000 MMBTU’s to be purchased ratably through 2017. As of September 30, 2017, we have an unrealized loss of $0.3 million classified in accumulated other comprehensive income that relates to the application of hedge accounting prior to dedesignation that is amortized as a charge to operating expenses as the contracts mature.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




Economic Hedges
We also have commodity contracts including contracts to lock in basis spread differentials on forecasted purchases of crude oil, swap contracts to lock in the crack spread of WTI and gasoline, NYMEX futures contracts to lock in prices on forecasted purchases and sales of inventory and forward purchase and sell contracts that serve as economic hedges (derivatives used for risk management, but not designated as accounting hedges) to lock in basis spread differentials on forecasted purchases of crude oil and natural gas. Also, we. We also have commodity forward contracts and NYMEX futurescurrency contracts to lock in prices on forecasted purchasesfix the rate of inventory.foreign currency. In addition, we had Canadian currency swap contracts that effectively fixedour catalyst financing arrangements discussed in Note 9 could require repayment under certain conditions based on the conversion rate on $1.125 billion Canadian dollars (the PCLI purchase price),future pricing of platinum, which were settled on February 1, 2017, in connection with the closing of the PCLI acquisition.is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to income.


27

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 InstrumentsIncome Statement LocationThree Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
(In thousands)
Commodity contractsCost of products sold$2,880 $8,640 $20,789 $1,561 
Interest expense(2,170)(1,720)2,542 (2,995)
Foreign currency contractsGain (loss) on foreign currency transactions(8,177)5,713 10,983 (8,983)
Total$(7,467)$12,633 $34,314 $(10,417)
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
Location of Gain (Loss) Recognized in Earnings 2017 2016 2017 2016
  (In thousands)
Cost of products sold $(10,632) $(2,438) $3,403
 $(1,135)
Operating expenses (629) (2,291) (6,392) 2,322
Gain on foreign currency swap —
 —
 24,545
 —
Total $(11,261) $(4,729) $21,556
 $1,187


As of September 30, 2017,2020, we have the following notional contract volumes related to our outstanding derivative contracts serving as economic hedges:instruments:
Notional Contract Volumes by Year of Maturity
Total Outstanding Notional20202021Unit of Measure
Derivatives Designated as Hedging Instruments
Natural gas price swaps - long2,250,000 450,000 1,800,000 MMBTU
Crude oil price swaps (basis spread) - long1,196,000 1,196,000 0 Barrels
Derivatives Not Designated as Hedging Instruments
NYMEX futures (WTI) - short1,045,000 830,000 215,000 Barrels
Crude oil price swaps (basis spread) - long368,000 368,000 0 Barrels
WTI and gasoline crack spread swaps - short100,000 100,000 0 Barrels
Forward gasoline and diesel contracts - long200,000 200,000 0 Barrels
Foreign currency forward contracts419,278,042 106,910,645 312,367,397 U.S. dollar
Forward commodity contracts (platinum)40,867 0 40,867 Troy ounces

28
    Notional Contract Volumes by Year of Maturity  
Derivative Instrument Total Outstanding Notional 2017 2018 Unit of Measure
         
Crude price swaps (basis spread) - long 918,000
 918,000
 —
 Barrels
WTI and sub-octane gasoline crack spread swaps - short 700,000
 700,000
 —
 Barrels
Natural gas price swaps (basis spread) - long 2,577,000
 2,577,000
 —
 MMBTU
Natural gas price swaps - long 2,400,000
 2,400,000
 —
 MMBTU
Natural gas price swaps - short 2,400,000
 2,400,000
 —
 MMBTU
NYMEX futures (WTI) - short 1,870,000
 955,000
 915,000
 Barrels
Forward gasoline and diesel contracts - long 715,000
 705,000
 10,000
 Barrels

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Interest Rate Risk Management
HEP used interest rate swaps to manage its exposure to interest rate risk. These swap contracts, which matured in July 2017, had been designated as cash flow hedges.

The following table presents the pre-tax effect on other comprehensive income and earnings due to fair value adjustments and maturities of HEP’s interest rate swaps under hedge accounting:

 Unrealized Gain (Loss) Recognized in OCI Gain (Loss) Recognized in Earnings Due to Settlements
  Location Amount
 (In thousands)
Three Months Ended September 30, 2017     
Interest rate swaps     
Change in fair value$1
    
Gain reclassified to earnings due to settlements(64) Interest expense $64
Total$(63)   $64
      
Three Months Ended September 30, 2016     
Interest rate swaps     
Change in fair value$201
    
Loss reclassified to earnings due to settlements95
 Interest expense $(95)
Total$296
   $(95)
      
Nine Months Ended September 30, 2017     
Interest rate swaps     
Change in fair value$88
    
Gain reclassified to earnings due to settlements(179) Interest expense $179
Total$(91)   $179
      
Nine Months Ended September 30, 2016     
Interest rate swaps     
Change in fair value$(737)    
Loss reclassified to earnings due to settlements438
 Interest expense $(438)
Total$(299)   $(438)


HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



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 PositionDerivatives in Net Liability Position
Gross AssetsGross Liabilities Offset in Balance SheetNet Assets Recognized in Balance SheetGross LiabilitiesGross Assets Offset in Balance SheetNet Liabilities Recognized in Balance Sheet
 (In thousands)
September 30, 2020
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts$915 $(263)$652 $58 $0 $58 
$915 $(263)$652 $58 $0 $58 
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts$1,530 $0 $1,530 $0 $0 $0 
Commodity price swap contracts2,168 0 2,168 76 0 76 
Commodity forward contracts71 0 71 58 0 58 
Foreign currency forward contracts0 0 0 5,397 (1,808)3,589 
$3,769 $0 $3,769 $5,531 $(1,808)$3,723 
Total net balance$4,421 $3,781 
Balance sheet classification:Prepayment and other$4,421 Accrued liabilities$3,723 
Other long-term liabilities58 
$4,421 $3,781 

Derivatives in Net Asset PositionDerivatives in Net Liability Position
Gross AssetsGross Liabilities Offset in Balance SheetNet Assets Recognized in Balance SheetGross LiabilitiesGross Assets Offset in Balance SheetNet Liabilities Recognized in Balance Sheet
 (In thousands)
December 31, 2019
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts$7,526 $(1,784)$5,742 $1,230 $0 $1,230 
$7,526 $(1,784)$5,742 $1,230 $0 $1,230 
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts$0 $0 $0 $2,578 $0 $2,578 
Commodity price swap contracts7,713 0 7,713 0 0 0 
Commodity forward contracts4,133 0 4,133 3,685 0 3,685 
Foreign currency forward contracts0 0 0 6,722 0 6,722 
$11,846 $0 $11,846 $12,985 $0 $12,985 
Total net balance$17,588 $14,215 
Balance sheet classification:Prepayment and other$17,588 Accrued liabilities$12,985 
Other long-term liabilities1,230 
$17,588 $14,215 

29

  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, 2017            
Derivatives designated as cash flow hedging instruments:  
Commodity price swap contracts $—
 $—
 $—
 $6,374
 $—
 $6,374
Forward contracts —
 —
 —
 707
 —
 707
  $—
 $—
 $—
 $7,081
 $—
 $7,081
             
Derivatives not designated as cash flow hedging instruments:  
Commodity price swap contracts $—
 $—
 $—
 $8,517
 $(4,417) $4,100
NYMEX futures contracts —
 —
 —
 5,881
 —
 5,881
Forward contracts 1,358
 —
 1,358
 904
 —
 904
  $1,358
 $—
 $1,358
 $15,302
 $(4,417) $10,885
             
Total net balance     $1,358
     $17,966
             
Balance sheet classification:     Accrued liabilities $17,182
      Other long-term liabilities 784
  Prepayment and other $1,358
     $17,966

  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, 2016  
Derivatives designated as cash flow hedging instruments:  
Commodity price swap contracts $—
 $—
 $—
 $13,185
 $(431) $12,754
Commodity forward contracts —
 —
 —
 2,978
 —
 2,978
Interest rate swap contracts 91
 —
 91
 —
 —
 —
  $91
 $—
 $91
 $16,163
 $(431) $15,732
             
Derivatives not designated as cash flow hedging instruments:  
Commodity price swap contracts $4,244
 $(756) $3,488
 $12,903
 $(9,887) $3,016
NYMEX futures contracts —
 —
 —
 1,975
 —
 1,975
Commodity forward contracts 5,905
 —
 5,905
 5,338
 —
 5,338
Foreign currency forward contracts —
 —
 —
 6,519
 —
 6,519
  $10,149
 $(756) $9,393
 $26,735
 $(9,887) $16,848
             
Total net balance     $9,484
     $32,580
             
Balance sheet classification: Prepayment and other $9,484
 Accrued liabilities $32,580
             

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



At September 30, 2017,2020, we had a pre-tax net unrealized lossgain of $7.2$0.6 million classified in accumulated other comprehensive income that relates to all accounting hedges having contractual maturities through 2021. Assuming commodity prices and interest rates remain unchanged, an unrealized lossgain of $6.2$0.7 million will be effectively transferred from accumulated other comprehensive income into the statement of income as the hedging instruments contractually mature over the next twelve-month period.




NOTE 12:Equity

Changes to equity during the nine months ended September 30, 2017 are presented below:NOTE 11:Equity

  
HollyFrontier
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Equity
  (In thousands)
Balance at December 31, 2016 $4,681,394
 $620,591
 $5,301,985
Net income 284,313
 39,695
 324,008
Dividends (176,519) —
 (176,519)
Distributions to noncontrolling interest holders —
 (81,797) (81,797)
Other comprehensive income (loss), net of tax 21,066
 (57) 21,009
Allocated equity on HEP common unit issuances, net of tax 9,360
 37,015
 46,375
Equity awards issued in PCLI acquisition 5,056
 —
 5,056
Equity-based compensation 24,484
 1,946
 26,430
Purchase of treasury stock (1)
 (290) —
 (290)
Purchase of HEP units for restricted grants —
 (35) (35)
Other —
 (445) (445)
Balance at September 30, 2017 $4,848,864
 $616,913
 $5,465,777

(1) Includes 9,885 shares withheld under the terms of stock-based compensation agreements to provide funds for the payment of payroll and income taxes due at the vesting of share-based awards.

In May 2015,November 2019, our Board of Directors approved a $1$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, 2017,2020, we had remaining authorization to repurchase up to $178.8 millionnot 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, 2020 and 2019, we withheld 105,787 and 5,359, 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.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



NOTE 13:Other Comprehensive Income

NOTE 12:Other Comprehensive Income

The components and allocated tax effects of other comprehensive income are as follows:
Before-TaxTax Expense
(Benefit)		After-Tax
 (In thousands)
Three Months Ended September 30, 2020
Net change in foreign currency translation adjustment$7,727 $1,705 $6,022 
Net unrealized gain on hedging instruments2,492 636 1,856 
Net change in pension and other post-retirement benefit obligations0 1 (1)
Other comprehensive income attributable to HollyFrontier stockholders$10,219 $2,342 $7,877 
Three Months Ended September 30, 2019
Net change in foreign currency translation adjustment$(9,311)$(1,959)$(7,352)
Net unrealized loss on hedging instruments(7,562)(1,929)(5,633)
Other comprehensive loss attributable to HollyFrontier stockholders$(16,873)$(3,888)$(12,985)
Nine Months Ended September 30, 2020
Net change in foreign currency translation adjustment$(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)
Nine Months Ended September 30, 2019
Net change in foreign currency translation adjustment$4,212 $896 $3,316 
Net unrealized gain on hedging instruments372 94 278 
Other comprehensive income attributable to HollyFrontier stockholders$4,584 $990 $3,594 
30

  Before-Tax 
Tax Expense
(Benefit)
 After-Tax
  (In thousands)
Three Months Ended September 30, 2017      
Net change in foreign currency translation adjustment $16,702
 $5,851
 $10,851
Net unrealized gain on hedging instruments 3,291
 1,289
 2,002
Other comprehensive income 19,993
 7,140
 12,853
Less other comprehensive loss attributable to noncontrolling interest (40) —
 (40)
Other comprehensive income attributable to HollyFrontier stockholders $20,033
 $7,140
 $12,893
       
Three Months Ended September 30, 2016      
Net unrealized loss on marketable securities $(29) $(12) $(17)
Net unrealized gain on hedging instruments 3,101
 1,131
 1,970
Other comprehensive income 3,072
 1,119
 1,953
Less other comprehensive income attributable to noncontrolling interest 179
 —
 179
Other comprehensive income attributable to HollyFrontier stockholders $2,893
 $1,119
 $1,774
       
Nine Months Ended September 30, 2017      
Net change in foreign currency translation adjustment $24,287
 $8,505
 $15,782
Net unrealized loss on marketable securities (4) (1) (3)
Net unrealized gain on hedging instruments 8,567
 3,337
 5,230
Other comprehensive income 32,850
 11,841
 21,009
Less other comprehensive loss attributable to noncontrolling interest (57) —
 (57)
Other comprehensive income attributable to HollyFrontier stockholders $32,907
 $11,841
 $21,066
       
Nine Months Ended September 30, 2016      
Net unrealized gain on marketable securities $84
 $32
 $52
Net unrealized gain on hedging instruments 18,953
 7,404
 11,549
Other comprehensive income 19,037
 7,436
 11,601
Less other comprehensive loss attributable to noncontrolling interest (181) —
 (181)
Other comprehensive income attributable to HollyFrontier stockholders $19,218
 $7,436
 $11,782
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued





The following table presents the income statement line item effects for reclassifications out of accumulated other comprehensive income (“AOCI”):
AOCI ComponentGain (Loss) Reclassified From AOCIIncome Statement Line Item
Three Months Ended September 30,
20202019
(In thousands)
Hedging instruments:
Commodity price swaps$(5,217)$0 Sales and other revenues
983 6,027 Cost of products sold
(352)(454)Operating expenses
(4,586)5,573 
(1,169)1,421 Income tax expense (benefit)
Total reclassifications for the period$(3,417)$4,152 Net of tax
Nine Months Ended September 30,
20202019
Hedging instruments:
Commodity price swaps$(5,168)$(1,799)Sales and other revenues
3,272 15,323 Cost of products sold
(1,515)(987)Operating expenses
(3,411)12,537 
(870)3,197 Income tax expense (benefit)
Total reclassifications for the period$(2,541)$9,340 Net of tax
AOCI Component Gain (Loss) Reclassified From AOCI Income Statement Line Item
  (In thousands)  
  Three Months Ended September 30,  
  2017 2016  
       
Hedging instruments:      
Commodity price swaps $(488) $228
 Sales and other revenues
  (4,961) (4,544) Operating expenses
Interest rate swaps 64
 (95) Interest expense
  (5,385) (4,411)  
  (2,100) (1,685) Income tax benefit
  (3,285) (2,726) Net of tax
  (41) 58
 Noncontrolling interest
  (3,326) (2,668) Net of tax and noncontrolling interest
       
Total reclassifications for the period $(3,326) $(2,668)  
       
  Nine Months Ended September 30,  
  2017 2016  
       
Marketable securities $—
 $(23) Interest income
  —
 (9) Income tax benefit
  —
 (14) Net of tax
       
Hedging instruments:      
Commodity price swaps 7,937
 (20,425) Sales and other revenues
  (299) —
 Cost of products sold
  (13,676) (17,397) Operating expenses
Interest rate swaps 179
 (438) Interest expense
  (5,859) (38,260)  
  (2,312) (14,704) Income tax benefit
  (3,547) (23,556) Net of tax
  (114) 267
 Noncontrolling interest
  (3,661) (23,289) Net of tax and noncontrolling interest
       
Total reclassifications for the period $(3,661) $(23,303)  


Accumulated other comprehensive income in the equity section of our consolidated balance sheets includes:
September 30,
2020		December 31,
2019
 (In thousands)
Foreign currency translation adjustment$(3,902)$(2,187)
Unrealized loss on pension obligation(1,798)(1,733)
Unrealized gain on post-retirement benefit obligations15,359 15,333 
Unrealized gain on hedging instruments443 3,361 
Accumulated other comprehensive income$10,102 $14,774 


  September 30,
2017		 December 31,
2016
  (In thousands)
Foreign currency translation adjustment $15,782
 $—
Unrealized gain on post-retirement benefit obligations 20,055
 20,055
Unrealized gain on marketable securities —
 3
Unrealized loss on hedging instruments, net of noncontrolling interest (4,397) (9,446)
Accumulated other comprehensive income $31,440
 $10,612


NOTE 14:Post-retirement Plans

NOTE 13:Post-retirement Plans
In connection with our
PCLI acquisition, we agreed to establish employee benefit plans includinghas union and non-union pension plans and a post-retirement plan for PCLIwhich are closed to new entrants. In addition, Sonneborn employees that were previously covered under legacy Suncor plans.

Our agreement with Suncor also provides that pension assets related to the union and non-union pension plans will be transferred to a pension trust which will be established by us. The amount of assets to be transferred will be agreed by Suncor and us based on actuarial valuations and a formula specified in the SPA.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Our purchase price allocation as of February 1, 2017 included estimates of the amount ofNetherlands have a defined benefit pension benefit obligationplan which was frozen and the pension assets to be transferred based on actuarial estimates and are as follows:
 February 1, 2017
 (in thousands)
Projected benefit obligation$52,851
Estimated pension assets54,156
Estimated funded status$1,305

Theall plan participants became inactive in 2016. Our net periodic pension expense of these plans consisted of the following components:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
(In thousands)
Service cost - benefit earned during the period$1,117 $1,209 $3,321 $3,605 
Interest cost on projected benefit obligations428 450 1,287 1,325 
Expected return on plan assets(1,016)(822)(3,029)(2,441)
Amortization of loss0 15 0 45 
Net periodic pension expense$529 $852 $1,579 $2,534 

The expected long-term annual rates of return on plan assets are 5.75% and 1.50% for the PCLI and Sonneborn plans, respectively. These rates were used in measuring 2020 net periodic benefit costs.

31
  Three Months Ended
September 30, 2017		 February 1, 2017 to September 30, 2017
  (in thousands)
Service cost - benefit earned during the period $1,013
 $2,596
Interest cost on projected benefit obligations 556
 1,424
Expected return on plan assets (802) (2,053)
Net periodic pension expense $767
 $1,967


We have a post-retirement healthcare and other benefits plan that isare available to certain of our non-PCLI employees who satisfy certain age and service requirements. The net periodic benefit credit of this plan consisted of the following components:
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
  (In thousands)
Service cost – benefit earned during the period $300
 $324
 $901
 $972
Interest cost on projected benefit obligations 170
 197
 509
 591
Amortization of prior service credit (870) (871) (2,610) (2,613)
Net periodic post-retirement credit $(400) $(350) $(1,200) $(1,050)

In addition, we established aour post-retirement healthcare and other benefits plan for our PCLI employees. Our purchase price allocation as of February 1, 2017 included estimatesplans consisted of the amountfollowing components
 Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
 (In thousands)
Service cost – benefit earned during the period$451 $387 $1,352 $1,161 
Interest cost on projected benefit obligations237 267 710 801 
Amortization of prior service credit(870)(870)(2,611)(2,611)
Amortization of (gain) loss13 (22)38 (66)
Net periodic post-retirement credit$(169)$(238)$(511)$(715)

The components, other than service cost, of projected benefit obligations of $8.6 million. Theour net periodic benefitpension expense related to this plan was $0.2 million and $0.4 million for the three and the eight months ended September 30, 2017, respectively.net periodic post-retirement credit are recorded in Other, net in our consolidated statements of income.




NOTE 15:Contingencies

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 materialmaterially adverse effect on our financial condition, results of operations or cash flows.


We havefiled a crude oil supply contractbusiness interruption claim with our insurance carriers related to a loss at our Woods Cross Refinery that requiresoccurred in the supplierfirst quarter 2018. During the three months ended September 30, 2020, we reached a final settlement agreement regarding the amounts owed to deliverus pursuant to our business interruption coverage, and we recognized a specified volumegain of crude oil or pay$81.0 million, which is reflected in our Corporate and Other segment.

During 2017, 2018 and 2019, the EPA granted the Cheyenne Refinery and Woods Cross Refinery each a shortfall feeone-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the difference2016, 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.

In 2019, various subsidiaries of HollyFrontier moved to intervene in four 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 U.S. Court of Appeals for the DC Circuit dismissed one of these four lawsuits on November 12, 2019 for lack of jurisdiction. On January 24, 2020, in a second of these lawsuits, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to two of our refineries for 2016 and remanded the case to the EPA for further proceedings. On March 24, 2020, various subsidiaries of HollyFrontier filed a Petition for Rehearing with the U.S. Court of Appeals for the Tenth Circuit. On April 7, 2020, the Tenth Circuit denied our request to reconsider its decision, and on April 15, 2020, the Tenth Circuit entered its mandate, remanding the matter back to the EPA. It is not clear at this time what steps the EPA will take with respect to our 2016 small refinery exemptions, or how the case will impact future small refinery exemptions. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court appealing the Tenth Circuit decision. The third lawsuit is before the U.S. Court of Appeals for the Tenth Circuit, and the matter is fully briefed and remains pending before that court. The fourth lawsuit is before the U.S. Court of Appeals for the DC Circuit, and we anticipate briefing of the issues before the court to commence in the actual barrels deliveredfourth quarter of 2020. We are unable to us less the specified barrels per the supply contract. For the contract year ended August 31, 2017, the actual number of barrels delivered to us was substantially less than the specified barrels, and we recorded a reduction to cost of goods sold and accumulated a shortfall fee receivable of $26.0 million during this period. In September 2017, the supplier notified us they are disputing the shortfall fee owed and in October 2017 notified us of their demand for arbitration. We believe the receivable is realizable by offsetting invoices for deliveries of crude oil received subsequent to August 31, 2017, which is permitted under the supply contract. We believe the disputes and claims made by the supplier are without merit.

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



In March, 2006, a subsidiary of ours sold the assets of Montana Refining Company under an Asset Purchase Agreement (“APA”). Calumet Montana Refining LLC, the current owner of the assets, has submitted requests for reimbursement pursuant to contractual indemnity provisions under the APA for various costs incurred, as well as additional claims related to environmental matters. This matter is scheduled for arbitration beginning in January 2018. We have accruedestimate the costs we believe are owed pursuantmay incur, if any, at this time. It is too early to assess how the matter currently on appeal to the APA, and we estimate thatU.S. Supreme Court will impact future small refinery exemptions or whether the remaining two cases are expected to have any reasonably possible losses beyond the amounts accrued are not material.impact on us.



32

NOTE 16:Segment Information

NOTE 15:Segment Information

Our operations are organized into three3 reportable segments, Refining, PCLILubricants and Specialty Products and HEP. Our operations that are not included in the Refining, PCLILubricants 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 ConsolidationsEliminations. Corporate and Eliminations.Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column.


The Refining segment represents the operations of the El Dorado, Tulsa, Navajo, Cheyenne 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 regions of the United States. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma.

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 RefiningLubricants 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. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma.

OnAlso, effective with our acquisition that closed February 1, 2017, we acquired PCLI,2019, the Lubricants and Specialty Products segment includes Sonneborn, a Canadian-based producer of lubricant productsspecialty hydrocarbon chemicals such as base oils, white oils, specialty productspetrolatums and finished lubricants. The PCLI segment involves production operations, locatedwaxes with manufacturing facilities in Mississauga, Ontario, and marketing of its products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States Europe and China.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 regions of the United States. TheAs of September 30, 2020, the HEP segment also includes a 75% ownership interest in UNEV (a consolidated subsidiary of HEP); a and 50% ownership interestinterests in each of the Frontier Pipeline, Osage Pipeline, and the Cheyenne Pipeline and a 25% ownership interest in the SLC Pipeline.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, 2016.2019.
HOLLYFRONTIER CORPORATION
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




RefiningLubricants and Specialty ProductsHEP
Corporate, Other
and Eliminations (2)
Consolidated
Total
(In thousands)
Three Months Ended September 30, 2020
Sales and other revenues:
Revenues from external customers$2,339,782 $452,878 $26,740 $0 $2,819,400 
Intersegment revenues56,331 2,164 100,991 (159,486)0 
$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 $0 $(136,807)$2,377,238 
Lower of cost or market inventory valuation adjustment$(62,849)$0 $0 $0 $(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$0 $0 $1,316 $0 $1,316 
Capital expenditures$41,740 $6,995 $7,902 $26,635 $83,272 
Three Months Ended September 30, 2019
Sales and other revenues:
Revenues from external customers$3,865,399 $529,561 $29,868 $0 $4,424,828 
Intersegment revenues81,571 8,157 106,027 (195,755)0 
$3,946,970 $537,718 $135,895 $(195,755)$4,424,828 
Cost of products sold (exclusive of lower of cost or market inventory)$3,177,167 $397,926 $0 $(171,326)$3,403,767 
Lower of cost or market inventory valuation adjustment$34,062 $0 $0 $0 $34,062 
Operating expenses$276,869 $57,974 $44,924 $(34,189)$345,578 
Selling, general and administrative expenses$31,707 $43,875 $2,714 $9,330 $87,626 
Depreciation and amortization$76,765 $22,700 $24,121 $3,430 $127,016 
Income (loss) from operations$350,400 $15,243 $64,136 $(3,000)$426,779 
Earnings of equity method investments$0 $0 $1,334 $0 $1,334 
Capital expenditures$53,506 $8,697 $6,076 $6,310 $74,589 
34

RefiningLubricants and Specialty ProductsHEP
Corporate, Other
and Eliminations (2)
Consolidated
Total
 
Refining (1)
 PCLI 
HEP (2)
 
Corporate
and Other
 
Consolidations
and Eliminations
 
Consolidated
Total
(In thousands)
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2020
Sales and other revenues:Sales and other revenues:
Revenues from external customersRevenues from external customers$6,880,444 $1,330,021 $72,410 $0 $8,282,875 
Intersegment revenuesIntersegment revenues178,039 8,911 297,982 (484,932)0 
 (In thousands)$7,058,483 $1,338,932 $370,392 $(484,932)$8,282,875 
Three Months Ended September 30, 2017          
Sales and other revenues $3,409,795
 $298,137
 $110,364
 $(325) $(98,724) $3,719,247
Cost of products sold (exclusive of lower of cost or market inventory)Cost of products sold (exclusive of lower of cost or market inventory)$6,113,530 $952,430 $0 $(418,000)$6,647,960 
Lower of cost or market inventory valuation adjustmentLower of cost or market inventory valuation adjustment$227,711 $0 $0 $0 $227,711 
Operating expenses $249,478
 $56,111
 $35,998
 $817
 $(20,736) $321,668
Operating expenses$754,612 $156,459 $109,721 $(56,592)$964,200 
Selling, general and administrative expensesSelling, general and administrative expenses$94,677 $121,654 $7,569 $13,659 $237,559 
Depreciation and amortization $74,312
 $7,492
 $18,601
 $2,686
 $(207) $102,884
Depreciation and amortization$251,019 $59,260 $72,095 $13,659 $396,033 
Long-lived asset impairment (1)
Long-lived asset impairment (1)
$215,242 $204,708 $16,958 $0 $436,908 
Income (loss) from operations $408,739
 $28,511
 $52,142
 $(39,549) $(563) $449,280
Income (loss) from operations$(598,308)$(155,579)$164,049 $(37,658)$(627,496)
Earnings of equity method investments $—
 $—
 $5,072
 $—
 $—
 $5,072
Earnings of equity method investments$0 $0 $5,186 $0 $5,186 
Capital expenditures $31,152
 $9,643
 $10,151
 $5,121
 $—
 $56,067
Capital expenditures$106,856 $20,387 $38,642 $47,123 $213,008 
            
Three Months Ended September 30, 2016          
Sales and other revenues $2,832,195
 $—
 $92,611
 $11
 $(77,547) $2,847,270
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019
Sales and other revenues:Sales and other revenues:
Revenues from external customersRevenues from external customers$11,446,841 $1,568,241 $89,388 $220 $13,104,690 
Intersegment revenuesIntersegment revenues244,799 8,157 311,755 (564,711)0 
$11,691,640 $1,576,398 $401,143 $(564,491)$13,104,690 
Cost of products sold (exclusive of lower of cost or market inventory)Cost of products sold (exclusive of lower of cost or market inventory)$9,598,539 $1,202,296 $0 $(492,979)$10,307,856 
Lower of cost or market inventory valuation adjustmentLower of cost or market inventory valuation adjustment$(150,483)$0 $0 $0 $(150,483)
Operating expenses $227,079
 $—
 $32,099
 $1,390
 $(4,336) $256,232
Operating expenses$794,081 $170,655 $123,045 $(77,359)$1,010,422 
Selling, general and administrative expensesSelling, general and administrative expenses$88,322 $125,681 $7,322 $39,652 $260,977 
Depreciation and amortization $69,565
 $—
 $18,515
 $3,257
 $(207) $91,130
Depreciation and amortization$227,405 $65,891 $72,192 $9,857 $375,345 
Goodwill impairmentGoodwill impairment$0 $152,712 $0 $0 $152,712 
Income (loss) from operations $120,985
 $—
 $39,332
 $(34,965) $(587) $124,765
Income (loss) from operations$1,133,776 $(140,837)$198,584 $(43,662)$1,147,861 
Earnings of equity method investments $—
 $—
 $3,767
 $—
 $—
 $3,767
Earnings of equity method investments$0 $0 $5,217 $0 $5,217 
Capital expenditures $74,173
 $—
 $20,730
 $2,529
 $—
 $97,432
Capital expenditures$129,167 $25,887 $23,828 $16,175 $195,057 
            
Nine Months Ended September 30, 2017          
Sales and other revenues $9,413,008
 $809,643
 $325,141
 $(283) $(288,915) $10,258,594
Operating expenses $751,858
 $144,792
 $102,584
 $3,152
 $(57,949) $944,437
Depreciation and amortization $219,636
 $19,868
 $56,515
 $8,808
 $(621) $304,206
Income (loss) from operations $445,087
 $58,416
 $157,170
 $(120,730) $(1,702) $538,241
Earnings of equity method investments $—
 $—
 $10,965
 $—
 $—
 $10,965
Capital expenditures $131,016
 $19,995
 $30,675
 $11,431
 $—
 $193,117
            
Nine Months Ended September 30, 2016          
Sales and other revenues $7,530,804
 $—
 $289,517
 $168
 $(239,857) $7,580,632
Operating expenses $680,591
 $—
 $89,067
 $3,797
 $(13,304) $760,151
Depreciation and amortization $210,466
 $—
 $49,852
 $9,736
 $(621) $269,433
Income (loss) from operations $(259,296) $—
 $141,980
 $(93,017) $(1,846) $(212,179)
Earnings of equity method investments $—
 $—
 $10,155
 $—
 $—
 $10,155
Capital expenditures $284,755
 $—
 $96,115
 $6,607
 $—
 $387,477
September 30, 2017            
Cash, cash equivalents and investments in marketable securities $10,713
 $91,485
 $7,476
 $521,068
 $—
 $630,742
Total assets $6,637,119
 $1,282,396
 $1,903,307
 $610,341
 $(284,808) $10,148,355
Long-term debt $—
 $—
 $1,245,066
 $991,448
 $—
 $2,236,514
             
December 31, 2016            
Cash, cash equivalents and investments in marketable securities $49
 $—
 $3,657
 $1,131,021
 $—
 $1,134,727
Total assets $6,513,806
 $—
 $1,920,487
 $1,306,169
 $(304,801) $9,435,661
Long-term debt $—
 $—
 $1,243,912
 $991,225
 $—
 $2,235,137

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




(1) For the nine months ended September 30, 2017, we recorded a long-lived asset impairment chargeThe results of $19.2 million that related to our Woods Cross Refinery, which is included in our Refining segment. For the nine months ended September 30, 2016, we recorded goodwill and long-lived asset impairment charges of $309.3 million and $344.8 million, respectively, that relate to our Cheyenne Refinery, which is included in our Refining segment.

(2) HEP acquired a newly constructed crude unit, FCCU and polymerization unit at our Woods Cross Refinery in October 2016. As a result, we have recast our 2016 HEPreportable segment information to include these asset-related capital expenditures and certain operating expenses that were previously presented under the Refining segment.

HEP segment revenues from external customers were $15.2 million and $15.2 million for the three months ended September 30, 2017 and 2016, respectively, and $47.8 million and $50.1 million for the nine months ended September 30, 20172020 include a long-lived asset impairment charge attributed to HEP’s logistics assets at our Cheyenne Refinery.

(2) For the three and 2016, respectively.


NOTE 17:Additional Financial Information

Borrowings pursuantnine 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 HollyFrontier Credit Agreement are recourse to HollyFrontier, but not HEP. Furthermore, borrowings under the HEP Credit Agreement are recourse to HEP, but not to the assetsconstruction of HFC with the exception of HEP Logistics Holdings, L.P., HEP’s general partner. Other than its investment in HEP, the assets of the general partner are insignificant.our renewable diesel units.

The following condensed financial information is provided for HollyFrontier Corporation (on a standalone basis, before consolidation of HEP), and for HEP and its consolidated subsidiaries (on a standalone basis, exclusive of HFC). Due to certain basis differences, our reported amounts for HEP may not agree to amounts reported in HEP’s periodic public filings.


RefiningLubricants and Specialty ProductsHEPCorporate, Other
and Eliminations		Consolidated
Total
(In thousands)
September 30, 2020
Cash and cash equivalents$6,085 $211,646 $18,091 $1,289,066 $1,524,888 
Total assets$6,197,301 $1,933,482 $2,193,770 $1,255,188 $11,579,741 
Long-term debt$0 $0 $1,439,874 $1,736,475 $3,176,349 
December 31, 2019
Cash and cash equivalents$9,755 $169,277 $13,287 $692,843 $885,162 
Total assets$7,189,094 $2,223,418 $2,205,437 $546,892 $12,164,841 
Long-term debt$0 $0 $1,462,031 $993,609 $2,455,640 
35
Condensed Consolidating Balance Sheet       
September 30, 2017 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
  (In thousands)
ASSETS        
Current assets:        
Cash and cash equivalents $623,266
 $7,476
 $—
 $630,742
Accounts receivable, net 713,580
 50,083
 (49,315) 714,348
Inventories 1,418,954
 888
 —
 1,419,842
Income taxes receivable —
 —
 —
 —
Prepayments and other 36,810
 1,407
 (6,088) 32,129
Total current assets 2,792,610
 59,854
 (55,403) 2,797,061
         
Properties, plants and equipment, net 3,315,512
 1,341,770
 (220,451) 4,436,831
Intangibles and other assets 2,412,156
 501,683
 624
 2,914,463
Total assets $8,520,278
 $1,903,307
 $(275,230) $10,148,355
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable $1,127,840
 $23,143
 $(49,315) $1,101,668
Income tax payable 64,255
 —
 —
 64,255
Accrued liabilities 209,847
 31,333
 (6,088) 235,092
Total current liabilities 1,401,942
 54,476
 (55,403) 1,401,015
         
Long-term debt 991,448
 1,245,066
 —
 2,236,514
Liability to HEP 199,210
 —
 (199,210) —
Deferred income taxes 841,600
 522
 —
 842,122
Other long-term liabilities 142,087
 61,361
 (521) 202,927
         
Investment in HEP 158,016
 —
 (158,016) —
Equity – HollyFrontier 4,785,975
 450,591
 (387,702) 4,848,864
Equity – noncontrolling interest —
 91,291
 525,622
 616,913
Total liabilities and equity $8,520,278
 $1,903,307
 $(275,230) $10,148,355
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Balance Sheet       
December 31, 2016 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
  (In thousands)
ASSETS        
Current assets:        
Cash and cash equivalents $706,922
 $3,657
 $—
 $710,579
Marketable securities 424,148
 —
 —
 424,148
Accounts receivable, net 487,693
 50,408
 (58,902) 479,199
Inventories 1,134,274
 1,402
 —
 1,135,676
Income taxes receivable 68,371
 —
 —
 68,371
Prepayments and other 37,379
 1,486
 (5,829) 33,036
Total current assets 2,858,787
 56,953
 (64,731) 2,851,009
         
Properties, plants and equipment, net 2,874,041
 1,365,568
 (231,161) 4,008,448
Intangibles and other assets 2,077,683
 497,966
 555
 2,576,204
Total assets $7,810,511
 $1,920,487
 $(295,337) $9,435,661
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable $967,347
 $26,942
 $(58,902) $935,387
Accrued liabilities 115,878
 37,793
 (5,829) 147,842
Total current liabilities 1,083,225
 64,735
 (64,731) 1,083,229
         
Long-term debt 991,225
 1,243,912
 —
 2,235,137
Liability to HEP 208,603
 —
 (208,603) —
Deferred income taxes 619,905
 509
 —
 620,414
Other long-term liabilities 132,515
 62,971
 (590) 194,896
         
Investment in HEP 136,435
 —
 (136,435) —
Equity – HollyFrontier 4,638,603
 454,803
 (412,012) 4,681,394
Equity – noncontrolling interest —
 93,557
 527,034
 620,591
Total liabilities and equity $7,810,511
 $1,920,487
 $(295,337) $9,435,661


Condensed Consolidating Statement of Income and Comprehensive Income    
Three Months Ended September 30, 2017 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
  (In thousands)
Sales and other revenues $3,704,166
 $110,364
 $(95,283) $3,719,247
Operating costs and expenses:        
Cost of products sold 2,962,306
 —
 (73,776) 2,888,530
Lower of cost or market inventory valuation adjustment (111,128) —
 —
 (111,128)
Operating expenses 306,407
 35,998
 (20,737) 321,668
Selling, general and administrative 64,390
 3,623
 —
 68,013
Depreciation and amortization 87,889
 18,601
 (3,606) 102,884
Total operating costs and expenses 3,309,864
 58,222
 (98,119) 3,269,967
Income from operations 394,302
 52,142
 2,836
 449,280
Other income (expense): 
      
Earnings of equity method investments 28,099
 5,072
 (28,099) 5,072
Interest expense (11,295) (13,970) (2,392) (27,657)
Other, net 19,255
 153
 —
 19,408
  36,059
 (8,745) (30,491) (3,177)
Income before income taxes 430,361
 43,397
 (27,655) 446,103
Income tax expense 158,456
 (70) —
 158,386
Net income 271,905
 43,467
 (27,655) 287,717
Less net income (loss) attributable to noncontrolling interest —
 990
 14,713
 15,703
Net income attributable to HollyFrontier stockholders $271,905
 $42,477
 $(42,368) $272,014
Comprehensive income attributable to HollyFrontier stockholders $284,832
 $42,454
 $(42,379) $284,907


HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Statement of Income and Comprehensive Income      
Three Months Ended September 30, 2016 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
 (In thousands)
Sales and other revenues $2,832,206
 $92,611
 $(77,547) $2,847,270
Operating costs and expenses:        
Cost of products sold 2,414,254
 —
 (72,417) 2,341,837
Lower of cost or market inventory valuation adjustment 312
 —
 —
 312
Operating expenses 228,469
 32,099
 (4,336) 256,232
Selling, general and administrative 30,329
 2,665
 —
 32,994
Depreciation and amortization 76,225
 18,515
 (3,610) 91,130
Total operating costs and expenses 2,749,589
 53,279
 (80,363) 2,722,505
Income from operations 82,617
 39,332
 2,816
 124,765
Other income (expense):        
Earnings of equity method investments 23,414
 3,767
 (23,414) 3,767
Interest expense (2,042) (14,339) (2,391) (18,772)
Other, net (3) 110
 —
 107
  21,369
 (10,462) (25,805) (14,898)
Income before income taxes 103,986
 28,870
 (22,989) 109,867
Income tax expense 22,135
 61
 —
 22,196
Net income 81,851
 28,809
 (22,989) 87,671
Less net income (loss) attributable to noncontrolling interest (8) 1,166
 12,016
 13,174
Net income attributable to HollyFrontier stockholders $81,859
 $27,643
 $(35,005) $74,497
Comprehensive income attributable to HollyFrontier stockholders $83,632
 $27,760
 $(35,121) $76,271


Condensed Consolidating Statement of Income and Comprehensive Income    
Nine Months Ended September 30, 2017 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
 (In thousands)
Sales and other revenues $10,211,208
 $325,141
 $(277,755) $10,258,594
Operating costs and expenses:   —
    
Cost of products sold 8,500,609
 —
 (217,482) 8,283,127
Lower of cost or market inventory valuation adjustment (15,323) —
 —
 (15,323)
Operating expenses 899,803
 102,584
 (57,950) 944,437
Selling, general and administrative 175,787
 8,872
 —
 184,659
Depreciation and amortization 258,400
 56,515
 (10,709) 304,206
Goodwill and asset impairment 19,247
 —
 —
 19,247
Total operating costs and expenses 9,838,523
—
167,971
—
(286,141)—
9,720,353
Income (loss) from operations 372,685
 157,170
 8,386
 538,241
Other income (expense):        
Earnings of equity method investments 75,636
 10,965
 (75,636) 10,965
Interest expense (35,272) (41,052) (7,141) (83,465)
Loss on early extinguishment of debt —
 (12,225) —
 (12,225)
Other, net 43,769
 316
 —
 44,085
  84,133
 (41,996) (82,777) (40,640)
Income before income taxes 456,818
 115,174
 (74,391) 497,601
Income tax expense 173,429
 164
 —
 173,593
Net income 283,389
 115,010
 (74,391) 324,008
Less net income (loss) attributable to noncontrolling interest (14) 4,827
 34,882
 39,695
Net income attributable to HollyFrontier stockholders $283,403
 $110,183
 $(109,273) $284,313
Comprehensive income attributable to HollyFrontier stockholders $304,503
 $110,149
 $(109,273) $305,379

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued



Condensed Consolidating Statement of Income and Comprehensive Income      
Nine Months Ended September 30, 2016 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
 (In thousands)
Sales and other revenues $7,530,972
 $289,517
 $(239,857) $7,580,632
Operating costs and expenses:        
Cost of products sold 6,439,241
 —
 (224,086) 6,215,155
Lower of cost or market inventory valuation adjustment (194,282) —
 —
 (194,282)
Operating expenses 684,388
 89,067
 (13,304) 760,151
Selling, general and administrative 79,652
 8,618
 —
 88,270
Depreciation and amortization 230,332
 49,852
 (10,751) 269,433
Goodwill and asset impairment 654,084
 —
 —
 654,084
Total operating costs and expenses 7,893,415
 147,537
 (248,141) 7,792,811
Income (loss) from operations (362,443) 141,980
 8,284
 (212,179)
Other income (expense):        
Earnings of equity method investments 74,307
 10,155
 (74,307) 10,155
Interest expense (1,673) (35,926) (6,909) (44,508)
Loss on early extinguishment of debt (8,718) —
 —
 (8,718)
Other, net 197
 103
 —
 300
  64,113
 (25,668) (81,216) (42,771)
Income (loss) before income taxes (298,330) 116,312
 (72,932) (254,950)
Income tax expense 6,249
 210
 —
 6,459
Net income (loss) (304,579) 116,102
 (72,932) (261,409)
Less net income (loss) attributable to noncontrolling interest (24) 8,448
 43,785
 52,209
Net income (loss) attributable to HollyFrontier stockholders $(304,555) $107,654
 $(116,717) $(313,618)
Comprehensive income (loss) attributable to HollyFrontier stockholders $(292,773) $107,537
 $(116,600) $(301,836)



Condensed Consolidating Statement of Cash Flows       
Nine Months Ended September 30, 2017 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
  (In thousands)
Cash flows from operating activities $701,021
 $177,762
 $(93,370) $785,413
         
Cash flows from investing activities        
Additions to properties, plants and equipment (162,442) —
 —
 (162,442)
Additions to properties, plants and equipment – HEP —
 (30,675) —
 (30,675)
Purchase of PCLI, net of cash acquired (870,627) —
 —
 (870,627)
Purchases of marketable securities (41,565) —
 —
 (41,565)
Sales and maturities of marketable securities 465,716
 —
 —
 465,716
Other, net 1,006
 1,715
 (424) 2,297
  (607,912) (28,960) (424) (637,296)
Cash flows from financing activities        
Net borrowings under credit agreements —
 197,000
 —
 197,000
Proceeds from issuance of senior notes - HEP —
 101,750
 —
 101,750
Redemption of senior notes - HEP —
 (309,750) —
 (309,750)
Proceeds from issuance of common units - HEP —
 52,285
 —
 52,285
Dividends (176,519) —
 —
 (176,519)
Distributions to noncontrolling interest —
 (176,560) 94,763
 (81,797)
Other, net (2,744) (9,708) (969) (13,421)
  (179,263) (144,983) 93,794
 (230,452)
         
Effect of exchange rates on cash flows 2,498
 —
 —
 2,498
         
Cash and cash equivalents        
Increase (decrease) for the period (83,656) 3,819
 —
 (79,837)
Beginning of period 706,922
 3,657
 —
 710,579
End of period $623,266
 $7,476
 $—
 $630,742

HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued




Condensed Consolidating Statement of Cash Flows       
Nine Months Ended September 30, 2016 
HollyFrontier
Corp. Before
Consolidation
of HEP
 HEP Segment Consolidations and Eliminations Consolidated
  (In thousands)
Cash flows from operating activities $335,983
 $184,268
 $(75,977) $444,274
         
Cash flows from investing activities:        
Additions to properties, plants and equipment (291,362) —
 —
 (291,362)
Additions to properties, plants and equipment – HEP —
 (96,115) —
 (96,115)
Purchase of equity method investment - HEP —
 (42,550) —
 (42,550)
Purchases of marketable securities (155,091) —
 —
 (155,091)
Sales and maturities of marketable securities 187,358
 —
 —
 187,358
Other, net 396
 210
 —
 606
  (258,699) (138,455) —
 (397,154)
Cash flows from financing activities:        
Net repayments under credit agreements —
 (332,000) —
 (332,000)
Proceeds from issuance of senior notes - HFC 246,690
 —
 —
 246,690
Proceeds from issuance of senior notes - HEP —
 394,000
 —
 394,000
Proceeds from issuance of term loan 350,000
 —
 —
 350,000
Proceeds from issuance of common units - HEP —
 22,791
 —
 22,791
Repayment of financing obligation —
 (39,500) —
 (39,500)
Purchase of treasury stock (133,430) —
 —
 (133,430)
Dividends (175,194) —
 —
 (175,194)
Distributions to noncontrolling interest —
 (142,548) 75,977
 (66,571)
Contribution from general partner (55,027) 55,027
 —
 —
Other, net (2,730) (11,388) —
 (14,118)
  230,309
 (53,618) 75,977
 252,668
         
Cash and cash equivalents        
Increase (decrease) for the period: 307,593
 (7,805) —
 299,788
Beginning of period 51,520
 15,013
 —
 66,533
End of period $359,113
 $7,208
 $—
 $366,321



Table of Content



Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. 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 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 principally an independent petroleum refiner that produces high-value refinedlight products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modified asphalt. We ownAs of September 30, 2020, we owned and operateoperated refineries having a combined nameplate crude oil processing capacity of 457,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. Our refineries are located in El Dorado, Kansas (the “El Dorado Refinery”), Tulsa, Oklahoma (the “Tulsa Refineries”), which comprise two production facilities, the Tulsa West and East facilities, 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”), Cheyenne, Wyoming (the “Cheyenne Refinery”) and Woods Cross, Utah (the “Woods Cross Refinery”). As of September 30, 2020, we owned a facility in Cheyenne, Wyoming, which operated as a petroleum refinery until early August 2020 (the “Cheyenne 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.

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. This decision was primarily based on a positive outlook in the market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne Refinery would be challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and compressed crude differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating and maintenance costs forecasted for our Cheyenne Refinery and the anticipated loss of the Environmental Protection Agency’s (“EPA”) small refinery exemption. The renewable diesel units are expected to be completed in the first quarter of 2022 with an expected capital budget between $125-$175 million.
During the second quarter of 2020, we recorded a long-lived asset impairment of $232.2 million related to our Cheyenne Refinery asset group. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we recognized $12.3 million in decommissioning expense during the third quarter of 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 related to the conversion of our Cheyenne Refinery to renewable diesel production. These decommissioning and severance costs were recognized in operating expenses and were reported in our Refining segment.

During the second quarter of 2020, we also initiated and completed a corporate restructuring, which is expected to save approximately $30 million per year of ongoing cash expenses. 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.

On October 29, 2016, our wholly-owned subsidiary, 9952110 Canada Inc.,November 12, 2018, we entered into a sharean equity purchase agreement with Suncor to acquire 100% of the issued and outstanding capital stock of Petro-Canada LubricantsSonneborn US Holdings Inc. (“PCLI”and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively, “Sonneborn”). The acquisition closed on February 1, 2017.2019. Cash consideration paid was $862.0 million, or $1.125 billion in Canadian dollars.

PCLI$662.7 million. Sonneborn is Canadian-baseda producer of base oils with a plant having 15,600 BPD of lubricant production capacity that is located in Mississauga, Ontario. The facility is downstream integrated from base oils to finished lubricants and produces a broad spectrum of specialty lubricants andhydrocarbon chemicals such as white oils, that are distributed to end customers worldwide through a global sales networkpetrolatums and waxes with locationsmanufacturing facilities in Canada, the United States Europe and China.Europe.


36
Table of Content
For the three months ended September 30, 2017,2020, net incomeloss attributable to HollyFrontier stockholders was $272.0$(2.4) million compared to $74.5net income of $261.8 million for the three months ended September 30, 2016.2019. For the nine months ended September 30, 2017,2020, net incomeloss attributable to HollyFrontier stockholders was $284.3$(483.7) million compared to a net lossincome of $(313.6)$711.8 million for the nine months ended September 30, 2016.2019. Included in our financial results for the three months ended September 30, 2017 were non-cash lowerthird quarter of cost or market2020 was an inventory reserve adjustmentsadjustment that increased pre-tax earnings by $111.1resulted in a benefit of $62.8 million compared toand an $81.0 million gain recognized upon settlement of a charge $0.3 million for the same period of 2016.business interruption insurance claim. Third quarter 2017 earnings reflect improved refining margins relative to prior period levels, with overall grosscontinued weak demand for transportation fuels across the industry, offset by an increase in global demand for finished lubricants and base oils. Gross refining margin per produced barrel increasing 48% compared tosold in our Refining segment decreased 71% for the three months ended September 30, 2016. Additionally, our third quarter results reflect $22.6 million in earnings attributable to our recently acquired PCLI operations.2020 over the same period of 2019.


Pursuant to the 2007 Energy Independence and Security Act, the Environmental Protection Agency (“EPA”)EPA promulgated the Renewable Fuel Standard 2 (“RFS2”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 RFS2RFS regulations significantly increases our cost of products sold, with RINs costs totaling $89.3$33.8 million for the three months ended September 30, 2017.2020.



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. Over the course of the third quarter of 2020, demand for transportation fuels continued to be weak compared to the third quarter of 2019, but showed incremental improvement over the second quarter of 2020. In response to this level of demand, during the third quarter of 2020, we operated our Refining segment refineries at an average crude charge of 390,580 BPD.

In our Lubricants and Specialty Products segment, the Rack Forward portion saw improvement in industrial and transportation-related end markets, which drove higher demand and unit margins during the third quarter of 2020. Within the Rack Back portion, demand for base oils increased to fourth quarter 2019 levels while supply was limited due to a number of factors, which drove higher margins and utilization at our facilities in the third quarter.

The stabilization of demand drove a broad increase in commodity prices, resulting in values for our inventories held at September 30, 2020 above the costs of these inventories using the last-in, first-out (“LIFO”) method and in a lower of cost or market valuation gain of $62.8 million for the three months ended September 30, 2020.

Our standalone (excluding HEP) liquidity was approximately $2.9 billion at September 30, 2020, consisting of cash and cash equivalents of $1,506.8 million and an undrawn $1.35 billion credit facility maturing in 2022. Our standalone (excluding HEP) long-term debt was $1.75 billion as of September 30, 2020, which consists of $350.0 million in 2.625% senior notes due in 2023, $1.0 billion of 5.875% senior notes due in 2026 and $400.0 million in 4.500% senior notes due in 2030.


OUTLOOK


Our profitability is largely driven by our operational reliabilityThe impact of the COVID-19 pandemic on the global macroeconomy has created an unprecedented reduction in demand, as well as a lack of forward visibility, for many of the transportation fuels, lubricants and crack spreads (the price difference between refinedspecialty products and inputs suchthe associated transportation and terminal services we provide. While we have seen continued improvement in demand during the third quarter and expect to see a recovery in demand for all of these essential products in the long term, there is limited visibility on the timing or level of the recovery in the near term.

In response to the COVID-19 pandemic, and with the health and safety of our employees as crude oil). Crack spreads are drivena top priority, we have continued several initiatives, including limiting onsite staff at all of our facilities, implementing a work-from-home policy for certain employees and restricting travel unless approved by senior leadership. We will continue to monitor COVID-19 developments and the supply and demanddynamic environment to properly address these policies going forward.

Within our Refining segment, for the fourth quarter of refined product markets. We believe 2016 represented a cyclical low driven by large additions of refining capacity around the world. Based on continued demand growth and limited capacity additions,2020, we expect crack spreads to be higher in 2017 than 2016.run between 360,000-380,000 barrels per day of crude oil based on market demand for transportation fuels. Currently, the primary determinants of demand are the various government orders and guidance restricting or discouraging travel. We expect to adjust refinery production levels commensurate with market demand.


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Within our Lubricants and Specialty Products segment, while we have withdrawn formal 2020 guidance, we expect the improved market conditions and increased demand that we experienced in the third quarter of 2020 to continue up until the normal seasonal decline in demand at year-end. Similar to our Refining segment, we expect to adjust production levels commensurate with market demand.
Our RINs costs are material
At HEP, we continued to see incremental improvement in demand for transportation and representterminal services during the third quarter of 2020, particularly in HEP’s assets around the Salt Lake City area, and we expect this trend to continue through the fourth quarter of 2020. HEP maintained its quarterly distribution to $0.35 per unit, representative of a costdistribution policy focused on funding all capital expenditures and distributions within its operating cash flow and improving distributable cash flow coverage to 1.3x or greater with the goal of products sold. The pricereducing leverage to 3.0-3.5x.

During the third quarter of RINs2020, we increased our liquidity by $750.0 million with the issuance of $350.0 million in 2.625% senior notes due in 2023 and $400.0 million in 4.500% senior notes due in 2030. This additional liquidity may be extremely volatile dueused for general corporate purposes and is expected to real or perceived future shortages in RINs. As of September 30, 2017, we are purchasing RINs in order to meet approximately halfsupport the planned growth of our renewable fuel requirements.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 commodity prices and demand for our products normalize.


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 includes 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, 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, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. 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, 20172020 and 20162019 is presented in the following sections.



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RESULTS OF OPERATIONS


Financial Data
 Three Months Ended September 30, Change from 2016 Three Months Ended
September 30,		Change from 2019
 2017 2016 Change Percent 20202019ChangePercent
 (In thousands, except per share data) (In thousands, except per share data)
Sales and other revenues $3,719,247
 $2,847,270
 $871,977
 31 %Sales and other revenues$2,819,400 $4,424,828 $(1,605,428)(36)%
Operating costs and expenses:        Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):        Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 2,888,530
 2,341,837
 546,693
 23
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)2,377,238 3,403,767 (1,026,529)(30)
Lower of cost or market inventory valuation adjustment (111,128) 312
 (111,440) (35,718)Lower of cost or market inventory valuation adjustment(62,849)34,062 (96,911)(285)
 2,777,402
 2,342,149
 435,253
 19
2,314,389 3,437,829 (1,123,440)(33)
Operating expenses (exclusive of depreciation and amortization) 321,668
 256,232
 65,436
 26
Operating expenses (exclusive of depreciation and amortization)332,496 345,578 (13,082)(4)
Selling, general and administrative expenses (exclusive of depreciation and amortization) 68,013
 32,994
 35,019
 106
Selling, general and administrative expenses (exclusive of depreciation and amortization)74,453 87,626 (13,173)(15)
Depreciation and amortization 102,884
 91,130
 11,754
 13
Depreciation and amortization125,280 127,016 (1,736)(1)
Total operating costs and expenses 3,269,967
 2,722,505
 547,462
 20
Total operating costs and expenses2,846,618 3,998,049 (1,151,431)(29)
Income from operations 449,280
 124,765
 324,515
 260
Income (loss) from operationsIncome (loss) from operations(27,218)426,779 (453,997)(106)
Other income (expense):        Other income (expense):
Earnings of equity method investments 5,072
 3,767
 1,305
 35
Earnings of equity method investments1,316 1,334 (18)(1)
Interest income 1,074
 778
 296
 38
Interest income1,011 6,164 (5,153)(84)
Interest expense (28,731) (19,550) (9,181) 47
Interest expense(30,589)(36,027)5,438 (15)
Gain on business interruption insurance settlementGain on business interruption insurance settlement81,000 — 81,000 — 
Gain on foreign currency transactions 19,122
 —
 19,122
 —
Gain on foreign currency transactions1,030 395 635 161 
Other, net 286
 107
 179
 167
Other, net1,368 2,356 (988)(42)
 (3,177) (14,898) 11,721
 (79)55,136 (25,778)80,914 (314)
Income before income taxes 446,103
 109,867
 336,236
 306
Income before income taxes27,918 401,001 (373,083)(93)
Income tax expense 158,386
 22,196
 136,190
 614
Income tax expense4,573 103,021 (98,448)(96)
Net income 287,717
 87,671
 200,046
 228
Net income23,345 297,980 (274,635)(92)
Less net income attributable to noncontrolling interest 15,703
 13,174
 2,529
 19
Less net income attributable to noncontrolling interest25,746 36,167 (10,421)(29)
Net income attributable to HollyFrontier stockholders $272,014
 $74,497
 $197,517
 265 %
Earnings per share attributable to HollyFrontier stockholders:        
Net income (loss) attributable to HollyFrontier stockholdersNet income (loss) attributable to HollyFrontier stockholders$(2,401)$261,813 $(264,214)(101)%
Earnings (loss) per share attributable to HollyFrontier stockholders:Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic $1.53
 $0.42
 $1.11
 264 %Basic$(0.01)$1.60 $(1.61)(101)%
Diluted $1.53
 $0.42
 $1.11
 264 %Diluted$(0.01)$1.58 $(1.59)(101)%
Cash dividends declared per common share $0.33
 $0.33
 $—
 — %Cash dividends declared per common share$0.35 $0.33 $0.02 6 %
Average number of common shares outstanding:        Average number of common shares outstanding:
Basic 176,149
 175,871
 278
 — %Basic162,015 163,676 (1,661)(1)%
Diluted 176,530
 175,993
 537
 — %Diluted162,015 165,011 (2,996)(2)%
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 Nine Months Ended
September 30,		Change from 2019
 20202019ChangePercent
 (In thousands, except per share data)
Sales and other revenues$8,282,875 $13,104,690 $(4,821,815)(37)%
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)6,647,960 10,307,856 (3,659,896)(36)
Lower of cost or market inventory valuation adjustment227,711 (150,483)378,194 (251)
6,875,671 10,157,373 (3,281,702)(32)
Operating expenses (exclusive of depreciation and amortization)964,200 1,010,422 (46,222)(5)
Selling, general and administrative expenses (exclusive of depreciation and amortization)237,559 260,977 (23,418)(9)
Depreciation and amortization396,033 375,345 20,688 6 
Long-lived asset and goodwill impairments436,908 152,712 284,196 186 
Total operating costs and expenses8,910,371 11,956,829 (3,046,458)(25)
Income (loss) from operations(627,496)1,147,861 (1,775,357)(155)
Other income (expense):
Earnings of equity method investments5,186 5,217 (31)(1)
Interest income6,590 17,127 (10,537)(62)
Interest expense(85,923)(106,938)21,015 (20)
Gain on business interruption insurance settlement81,000 — 81,000 — 
Gain on sales-type leases33,834 — 33,834 — 
Loss on early extinguishment of debt(25,915)— (25,915)— 
Gain (loss) on foreign currency transactions(918)4,873 (5,791)(119)
Other, net4,790 3,005 1,785 59 
18,644 (76,716)95,360 (124)
Income (loss) before income taxes(608,852)1,071,145 (1,679,997)(157)
Income tax expense (benefit)(188,504)279,862 (468,366)(167)
Net income (loss)(420,348)791,283 (1,211,631)(153)
Less net income attributable to noncontrolling interest63,353 79,500 (16,147)(20)
Net income (loss) attributable to HollyFrontier stockholders$(483,701)$711,783 $(1,195,484)(168)%
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic$(2.99)$4.23 $(7.22)(171)%
Diluted$(2.99)$4.20 $(7.19)(171)%
Cash dividends declared per common share$1.05 $0.99 $0.06 6 %
Average number of common shares outstanding:
Basic161,927 167,935 (6,008)(4)%
Diluted161,927 169,125 (7,198)(4)%

  Nine Months Ended
September 30,		 Change from 2016
  2017 2016 Change Percent
  (In thousands, except per share data)
Sales and other revenues $10,258,594

$7,580,632
 $2,677,962
 35 %
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) 8,283,127
 6,215,155
 2,067,972
 33
Lower of cost or market inventory valuation adjustment (15,323) (194,282) 178,959
 (92)
  8,267,804
 6,020,873
 2,246,931
 37
Operating expenses (exclusive of depreciation and amortization) 944,437
 760,151
 184,286
 24
Selling, general and administrative expenses (exclusive of depreciation and amortization) 184,659
 88,270
 96,389
 109
Depreciation and amortization 304,206
 269,433
 34,773
 13
Goodwill and asset impairment 19,247
 654,084
 (634,837) (97)
Total operating costs and expenses 9,720,353
 7,792,811
 1,927,542
 25
Income (loss) from operations 538,241
 (212,179) 750,420
 (354)
Other income (expense):        
Earnings of equity method investments 10,965
 10,155
 810
 8
Interest income 2,069
 1,380
 689
 50
Interest expense (85,534) (45,888) (39,646) 86
Loss on early extinguishment of debt (12,225) (8,718) (3,507) 40
Gain on foreign currency swaps 24,545
 —
 24,545
 —
Gain on foreign currency transactions 19,517
 —
 19,517
 —
Other, net 23
 300
 (277) (92)
  (40,640) (42,771) 2,131
 (5)
Income (loss) before income taxes 497,601
 (254,950) 752,551
 (295)
Income tax expense 173,593
 6,459
 167,134
 2,588
Net income (loss) 324,008
 (261,409) 585,417
 (224)
Less net income attributable to noncontrolling interest 39,695
 52,209
 (12,514) (24)
Net income (loss) attributable to HollyFrontier stockholders $284,313
 $(313,618) $597,931
 (191)%
Earnings (loss) per share attributable to HollyFrontier stockholders:        
Basic $1.60
 $(1.78) $3.38
 (190)%
Diluted $1.60
 $(1.78) $3.38
 (190)%
Cash dividends declared per common share $0.99
 $0.99
 $—
 — %
Average number of common shares outstanding:        
Basic 176,143
 176,157
 (14) — %
Diluted 176,616
 176,157
 459
 — %



Balance Sheet Data
September 30, 2020December 31, 2019
 September 30, 2017 December 31, 2016(Unaudited)
 (Unaudited)   (In thousands)
 (In thousands)
Cash, cash equivalents and total investments in marketable securities $630,742
 $1,134,727
Cash and cash equivalentsCash and cash equivalents$1,524,888 $885,162 
Working capital $1,396,046
 $1,767,780
Working capital$2,081,978 $1,620,261 
Total assets $10,148,355
 $9,435,661
Total assets$11,579,741 $12,164,841 
Long-term debt $2,236,514
 $2,235,137
Long-term debt$3,176,349 $2,455,640 
Total equity $5,465,777
 $5,301,985
Total equity$5,876,569 $6,509,426 

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Other Financial Data
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (In thousands)
Net cash provided by operating activities$81,748 $441,854 $391,050 $1,411,404 
Net cash used for investing activities$(81,985)$(74,455)$(213,651)$(856,764)
Net cash provided by (used for) financing activities$618,726 $(299,473)$463,207 $(729,337)
Capital expenditures$83,272 $74,588 $213,008 $195,057 
EBITDA (1)
$157,030 $521,713 $(196,839)$1,456,801 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
  (In thousands)
Net cash provided by operating activities $312,015
 $133,948
 $785,413
 $444,274
Net cash used for investing activities $(56,787) $(127,818) $(637,296) $(397,154)
Net cash provided by (used for) financing activities $(86,986) $(91,799) $(230,452) $252,668
Capital expenditures $56,067
 $97,432
 $193,117
 $387,477
EBITDA (1)
 $560,941
 $206,595
 $857,802
 $15,500


(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.
(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. 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, PCLILubricants and Specialty Products and HEP. See Note 1615 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments.


Refining Segment Operating Data
Our
As of September 30, 2020, our refinery operations includeincluded the El Dorado, Tulsa, Navajo Cheyenne and Woods Cross Refineries.TheRefineries. In early August 2020, the Cheyenne Refinery permanently ceased petroleum refining operations thus, the refining operating data for the three and nine months ended September 30, 2020 included the Cheyenne Refinery for the portion of the period it was in operation. 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 long-lived asset impairment charges, lower of cost or market inventory valuation adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.

Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1)
244,200 294,380 234,550 257,590 
Refinery throughput (BPD) (2)
257,280 307,720 249,430 272,440 
Sales of produced refined products (BPD) (3)
243,830 290,930 239,800 260,780 
Refinery utilization (4)
93.9 %113.2 %90.2 %99.1 %
Average per produced barrel (5)
Refinery gross margin$3.21 $14.61 $6.41 $14.55 
Refinery operating expenses (6)
5.47 5.05 5.47 5.48 
Net operating margin$(2.26)$9.56 $0.94 $9.07 
Refinery operating expenses per throughput barrel (7)
$5.19 $4.77 $5.26 $5.25 
Feedstocks:
Sweet crude oil62 %59 %58 %56 %
Sour crude oil18 %21 %19 %23 %
Heavy sour crude oil15 %16 %17 %16 %
Other feedstocks and blends5 %4 %6 %5 %
Total100 %100 %100 %100 %
41
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Mid-Continent Region (El Dorado and Tulsa Refineries)        
Crude charge (BPD) (1)
 262,470
 271,780
 258,420
 258,680
Refinery throughput (BPD) (2)
 275,270
 289,010
 274,200
 277,870
Refinery production (BPD) (3)
 263,760
 276,720
 263,520
 266,510
Sales of produced refined products (BPD) 252,350
 262,060
 254,000
 253,390
Sales of refined products (BPD) (4)
 270,720
 292,310
 278,180
 280,150
Refinery utilization (5)
 101.0% 104.5% 99.4% 99.5%
         
Average per produced barrel (6)
        
Net sales $69.81
 $61.71
 $67.12
 $56.61
Cost of products (7)
 56.40
 52.08
 57.19
 48.19
Refinery gross margin (8)
 13.41
 9.63
 9.93
 8.42
Refinery operating expenses (9)
 4.98
 4.70
 5.14
 4.87
Net operating margin (8)
 $8.43
 $4.93
 $4.79
 $3.55
         
Refinery operating expenses per throughput barrel (10)
 $4.57
 $4.26
 $4.76
 $4.44
Table of Content

 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Mid-Continent Region (El Dorado and Tulsa Refineries)
Sales of produced refined products:
Gasolines53 %49 %52 %51 %
Diesel fuels35 %34 %34 %32 %
Jet fuels3 %6 %4 %7 %
Fuel oil1 %1 %1 %1 %
Asphalt2 %4 %3 %3 %
Base oils4 %4 %4 %4 %
LPG and other2 %2 %2 %2 %
Total100 %100 %100 %100 %
Southwest Region (Navajo Refinery) (8)
Crude charge (BPD) (1)
96,660 106,860 94,320 107,330 
Refinery throughput (BPD) (2)
106,780 117,250 104,570 117,660 
Sales of produced refined products (BPD) (3)
106,350 116,890 107,270 120,760 
Refinery utilization (4)
96.7 %106.9 %94.3 %107.3 %
Average per produced barrel (5)
Refinery gross margin$9.70 $18.61 $11.16 $19.35 
Refinery operating expenses (6)
5.07 5.25 5.17 4.90 
Net operating margin$4.63 $13.36 $5.99 $14.45 
Refinery operating expenses per throughput barrel (7)
$5.05 $5.23 $5.31 $5.03 
Feedstocks:
Sweet crude oil25 %22 %24 %21 %
Sour crude oil66 %69 %66 %70 %
Other feedstocks and blends9 %9 %10 %9 %
Total100 %100 %100 %100 %
Sales of produced refined products:
Gasolines55 %50 %54 %51 %
Diesel fuels34 %40 %36 %39 %
Fuel oil2 %3 %2 %3 %
Asphalt8 %5 %6 %5 %
LPG and other1 %2 %2 %2 %
Total100 %100 %100 %100 %
Rocky Mountain Region (Cheyenne and Woods Cross Refineries) (8)
Crude charge (BPD) (1)
49,720 74,790 63,300 78,530 
Refinery throughput (BPD) (2)
57,040 81,830 69,370 85,300 
Sales of produced refined products (BPD) (3)
57,110 77,680 67,070 77,890 
Refinery utilization (4)
51.3 %77.1 %65.3 %81.0 %
Average per produced barrel (5)
Refinery gross margin$3.39 $24.97 $10.63 $19.73 
Refinery operating expenses (6)
15.94 11.95 13.25 11.39 
Net operating margin$(12.55)$13.02 $(2.62)$8.34 
Refinery operating expenses per throughput barrel (7)
$15.96 $11.34 $12.81 $10.40 
42
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Mid-Continent Region (El Dorado and Tulsa Refineries)        
Feedstocks:        
Sweet crude oil 65% 62% 62% 58%
Sour crude oil 14% 15% 17% 17%
Heavy sour crude oil 16% 17% 15% 18%
Other feedstocks and blends 5% 6% 6% 7%
Total 100% 100% 100% 100%
         
Sales of produced refined products:        
Gasolines 50% 51% 50% 49%
Diesel fuels 34% 33% 33% 34%
Jet fuels 6% 6% 7% 6%
Fuel oil 1% 1% 1% 1%
Asphalt 3% 3% 3% 3%
Lubricants 4% 5% 4% 5%
LPG and other 2% 1% 2% 2%
Total 100% 100% 100% 100%
Southwest Region (Navajo Refinery)        
Crude charge (BPD) (1)
 112,060
 100,180
 96,350
 99,990
Refinery throughput (BPD) (2)
 122,890
 109,350
 105,190
 110,020
Refinery production (BPD) (3)
 121,040
 107,940
 103,620
 108,660
Sales of produced refined products (BPD) 125,770
 107,010
 103,680
 110,240
Sales of refined products (BPD) (4)
 125,790
 110,270
 109,070
 111,850
Refinery utilization (5)
 112.1% 100.2% 96.4% 100.0%
         
Average per produced barrel (6)
        
Net sales $70.21
 $60.24
 $67.99
 $55.81
Cost of products (7)
 55.38
 50.74
 55.94
 46.64
Refinery gross margin (8)
 14.83
 9.50
 12.05
 9.17
Refinery operating expenses (9)
 4.04
 4.86
 5.05
 4.62
Net operating margin (8)
 $10.79
 $4.64
 $7.00
 $4.55
         
Refinery operating expenses per throughput barrel (10)
 $4.13
 $4.76
 $4.98
 $4.63
         
Feedstocks:        
Sweet crude oil 25% 26% 23% 29%
Sour crude oil 66% 66% 68% 62%
Other feedstocks and blends 9% 8% 9% 9%
Total 100% 100% 100% 100%
         
Sales of produced refined products:        
Gasolines 51% 52% 52% 54%
Diesel fuels 42% 42% 41% 41%
Fuel oil 4% 3% 3% 2%
Asphalt 1% 1% 1% 1%
LPG and other 2% 2% 3% 2%
Total 100% 100% 100% 100%
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)        
Crude charge (BPD) (1)
 80,260
 71,600
 76,510
 62,490
Refinery throughput (BPD) (2)
 87,620
 75,470
 84,050
 66,490
Refinery production (BPD) (3)
 84,800
 72,080
 81,370
 63,320
Sales of produced refined products (BPD) 77,840
 68,630
 78,140
 63,800
Sales of refined products (BPD) (4)
 78,230
 71,450
 78,570
 67,800
Refinery utilization (5)
 82.7% 73.8% 78.9% 71.3%
Table of Content

 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Rocky Mountain Region (Cheyenne and Woods Cross Refineries) (8)
Feedstocks:
Sweet crude oil38 %38 %36 %36 %
Heavy sour crude oil19 %30 %33 %33 %
Black wax crude oil30 %23 %22 %23 %
Other feedstocks and blends13 %9 %9 %8 %
Total100 %100 %100 %100 %
Sales of produced refined products:
Gasolines57 %54 %56 %53 %
Diesel fuels31 %32 %33 %34 %
Fuel oil3 %4 %3 %4 %
Asphalt5 %5 %5 %5 %
LPG and other4 %5 %3 %4 %
Total100 %100 %100 %100 %
Consolidated
Crude charge (BPD) (1)
390,580 476,030 392,170 443,450 
Refinery throughput (BPD) (2)
421,100 506,800 423,370 475,400 
Sales of produced refined products (BPD) (3)
407,280 485,500 414,140 459,440 
Refinery utilization (4)
85.5 %104.2 %85.8 %97.0 %
Average per produced barrel (5)
Refinery gross margin$4.93 $17.23 $8.33 $16.69 
Refinery operating expenses (6)
6.83 6.20 6.65 6.33 
Net operating margin$(1.90)$11.03 $1.68 $10.36 
Refinery operating expenses per throughput barrel (7)
$6.61 $5.94 $6.50 $6.12 
Feedstocks:
Sweet crude oil50 %47 %46 %44 %
Sour crude oil27 %29 %27 %30 %
Heavy sour crude oil12 %14 %16 %15 %
Black wax crude oil4 %4 %4 %4 %
Other feedstocks and blends7 %6 %7 %7 %
Total100 %100 %100 %100 %
Sales of produced refined products:
Gasolines54 %50 %54 %51 %
Diesel fuels34 %35 %34 %35 %
Jet fuels2 %4 %2 %4 %
Fuel oil1 %2 %1 %2 %
Asphalt4 %4 %4 %4 %
Base oils3 %2 %2 %2 %
LPG and other2 %3 %3 %2 %
Total100 %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 457,000 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, divided by sales volumes
of refined products produced at our refineries.
(7)Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.
43
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)        
Average per produced barrel (6)
        
Net sales $72.43
 $61.89
 $68.91
 $56.76
Cost of products (7)
 54.65
 50.83
 53.20
 47.13
Refinery gross margin (8)
 17.78
 11.06
 15.71
 9.63
Refinery operating expenses (9)
 10.50
 9.48
 10.30
 10.14
Net operating margin (8)
 $7.28
 $1.58
 $5.41
 $(0.51)
         
Refinery operating expenses per throughput barrel (10)
 $9.33
 $8.62
 $9.58
 $9.73
         
Feedstocks:        
Sweet crude oil 32% 33% 34% 39%
Heavy sour crude oil 37% 42% 36% 37%
Black wax crude oil 23% 20% 21% 18%
Other feedstocks and blends 8% 5% 9% 6%
Total 100% 100% 100% 100%
         
Sales of produced refined products:        
Gasolines 59% 58% 59% 59%
Diesel fuels 33% 34% 33% 34%
Fuel oil 3% 2% 2% 2%
Asphalt 2% 3% 4% 2%
LPG and other 3% 3% 2% 3%
Total 100% 100% 100% 100%
Consolidated        
Crude charge (BPD) (1)
 454,790
 443,560
 431,280
 421,160
Refinery throughput (BPD) (2)
 485,780
 473,830
 463,440
 454,380
Refinery production (BPD) (3)
 469,600
 456,740
 448,510
 438,490
Sales of produced refined products (BPD) 455,960
 437,700
 435,820
 427,430
Sales of refined products (BPD) (4)
 474,740
 474,030
 465,820
 459,800
Refinery utilization (5)
 99.5% 97.1% 94.4% 94.1%
         
Average per produced barrel (6)
        
Net sales $70.37
 $61.38
 $67.65
 $56.43
Cost of products (7)
 55.82
 51.55
 56.18
 47.64
Refinery gross margin (8)
 14.55
 9.83
 11.47
 8.79
Refinery operating expenses (9)
 5.67
 5.49
 6.04
 5.59
Net operating margin (8)
 $8.88
 $4.34
 $5.43
 $3.20
         
Refinery operating expenses per throughput barrel (10)
 $5.32
 $5.07
 $5.69
 $5.26
         
Feedstocks:        
Sweet crude oil 49% 49% 48% 48%
Sour crude oil 25% 25% 25% 26%
Heavy sour crude oil 16% 17% 16% 16%
Black wax crude oil 4% 3% 4% 3%
Other feedstocks and blends 6% 6% 7% 7%
Total 100% 100% 100% 100%
Table of Content

(8)As previously disclosed, our Cheyenne Refinery ceased petroleum refining operations in the third quarter of 2020. Beginning with the fourth quarter of 2020, activities associated with the conversion of our Cheyenne Refinery to renewable diesel production will be reported in the Corporate and Other segment, and the disaggregation of our refining geographic operating data will be presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region will continue to be comprised of our El Dorado and Tulsa Refineries, and the new West region will be comprised of our Navajo and Woods Cross Refineries.

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Consolidated        
Sales of produced refined products:        
Gasolines 52% 52% 52% 52%
Diesel fuels 36% 35% 35% 36%
Jet fuels 4% 4% 4% 4%
Fuel oil 2% 2% 2% 1%
Asphalt 2% 2% 2% 2%
Lubricants 2% 3% 3% 3%
LPG and other 2% 2% 2% 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)Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries.
(4)Includes refined products purchased for resale.
(5)Represents crude charge divided by total crude capacity (BPSD). Effective July 1, 2016, our consolidated crude capacity increased from 443,000 BPSD to 457,000 BPSD upon completion of our Woods Cross Refinery expansion project.
(6)Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.
(7)Transportation, terminal and refinery storage costs billed from HEP are included in cost of products.
(8)
Excludes lower of cost or market inventory valuation adjustments that increased gross margin by $111.1 million and decreased gross margin by $0.3 million for the three months ended September 30, 2017 and 2016, respectively and increased gross margin by $15.3 million and $194.3 million for the nine months ended September 30, 2017 and 2016, respectively.
(9)Represents operating expenses of our refineries, exclusive of depreciation and amortization.
(10)Represents refinery operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.


PCLILubricants and Specialty Products Operating Data

The following table sets forth information about our lubricants and specialty products operations. For the nine months ended September 30, 2019, our PCLIlubricants and specialty products operating results reflect the operations of our Sonneborn business for the period from February 1, 20172019 (date of acquisition) through September 30, 2017.2019.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Lubricants and Specialty Products
Throughput (BPD)19,020 23,190 19,050 19,920 
Sales of produced refined products (BPD)33,560 36,160 32,460 34,740 
Sales of produced refined products:
Finished products50 %50 %51 %50 %
Base oils27 %24 %24 %27 %
Other23 %26 %25 %23 %
Total100 %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, 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 
Three months ended September 30, 2019
Sales and other revenues$196,355 $477,261 $(135,898)$537,718 
Cost of products sold$175,976 $357,848 $(135,898)$397,926 
Operating expenses$27,825 $30,149 $— $57,974 
Selling, general and administrative expenses$5,862 $38,013 $— $43,875 
Depreciation and amortization$11,390 $11,310 $— $22,700 
Income (loss) from operations$(24,698)$39,941 $— $15,243 
44
  Three months ended September 30, 2017 Period from February 1, 2017 through September 30, 2017
PCLI    
Throughput (BPD) (1)
 22,356
 21,978
Production (BPD) (2)
 21,666
 21,393
Sales of produced refined products (BPD) 20,599
 20,655

(1)Throughput represents the barrels per day of feedstocks (principally vacuum gas oil and hydrocracker bottoms) input into our PCLI production facilities.
(2)Production represents the barrels per day of products yielded from our PCLI production facilities.




Rack Back (1)
Rack Forward (2)
Eliminations (3)
Total Lubricants and Specialty Products
(In thousands)
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)
Nine months ended September 30, 2019
Sales and other revenues$486,035 $1,428,786 $(338,423)$1,576,398 
Cost of products sold$453,519 $1,087,200 $(338,423)$1,202,296 
Operating expenses$87,970 $82,685 $— $170,655 
Selling, general and administrative expenses$25,707 $99,974 $— $125,681 
Depreciation and amortization$32,991 $32,900 $— $65,891 
Goodwill impairment (4)
$152,712 $— $— $152,712 
Income (loss) from operations$(266,864)$126,027 $— $(140,837)

(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.
(4) During the three months ended June 30, 2019, a goodwill impairment charge of $152.7 million was recorded in the PCLI reporting unit within the Lubricants and Specialty Products segment. We separately allocated this goodwill impairment charge for purposes of management’s discussion and analysis presentation of Rack Back and Rack Forward results entirely to Rack Back.


Results of Operations – Three Months Ended September 30, 20172020 Compared to Three Months Ended September 30, 20162019


Summary
Net incomeloss attributable to HollyFrontier stockholders for the three months ended September 30, 20172020 was $272.0$(2.4) million ($1.53 ($(0.01) per basic and diluted share), a $197.5$264.2 million increase decrease compared to $74.5net income of $261.8 million ($0.421.60 per basic and $1.58 per diluted share) for the three months ended September 30, 2016. Current year third quarter earnings reflect an increase in2019. Net income decreased due principally to lower gross refining margins and lower refining segment sales volumes and margins and $22.6 million in earnings attributable to our recently acquired PCLI operations.volumes. For the three months ended September 30, 2017,2020, lower of cost or market inventory reserve adjustments increased pre-tax earnings by $111.1$62.8 million compared to a decrease to pre-tax earnings of $0.3$34.1 million for the three months ended September 30, 2016.2019. Refinery gross margins for the three months ended September 30, 2017 increased2020 decreased to $14.55$4.93 per produced barrel sold from $9.83$17.23 for the three months ended September 30, 2016.2019. The three months ended September 30, 2020 included an $81.0 million gain recognized upon the settlement of a business interruption insurance claim. During the three months ended September 30, 2019, our Cheyenne Refinery and Woods Cross Refinery were each granted a one-year small refinery exemption from the EPA for the 2018 calendar year, at which time we recorded a total $36.6 million reduction to cost of products sold.


Sales and Other Revenues
Sales and other revenues increased 31%decreased 36% from $2,847.3$4,424.8 million for the three months ended September 30, 20162019 to $3,719.2$2,819.4 million for the three months ended September 30, 20172020 due to a year-over-year increasedecrease in third quarter sales prices and higherlower refined product sales volumes. The average sales price we received per produced barrel sold was $61.38 for the three months ended September 30, 2016 compared to $70.37 for the three months ended September 30, 2017. Sales and other revenues for the three months ended September 30, 20172020 and 2016 include $15.22019 included $26.7 million and $15.2$29.9 million, respectively, in HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. PCLI contributed $298.1 million inAdditionally, sales and other revenues included $452.9 million and $529.6 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the three months ended September 30, 2017.2020 and 2019, respectively.


45
Cost of Products Sold
Total cost of products sold increased 19%decreased 33% from $2,342.1$3,437.8 million for the three months ended September 30, 20162019 to $2,777.4$2,314.4 million for the three months ended September 30, 2017,2020 due principally to higherlower crude oil costs and higherlower refined product sales volumes of refined products.volumes. Additionally, during the third quarter of 2017,2020, we recognized an $111.1 milliona lower of cost or market inventory valuation adjustment benefit a $111.4of $62.8 million increase compared to a charge of $0.3$34.1 million for the same period of 2016,2019, resulting in a new $317.2$468.1 million inventory lower of cost or market reserve at September 30, 2017.2020. The lower of cost or market reserve at September 30, 20172020 is based on market conditions and prices at that time. Excluding this non-cash adjustment,During the average pricethird quarter of 2019, we paid per barrel for crude oilrecorded a $36.6 million RINs cost reduction as a result of our Cheyenne Refinery and feedstocks and the transportation costs of moving finished products to market increased 8% from $51.55 for the three months ended September 30, 2016 to $55.82 for the three months ended September 30, 2017. Cost of products sold includes $177.3 million in costs attributable to our PCLI operations.Woods Cross Refinery small refinery exemptions.


Gross Refinery Margins
Gross refinery margin per produced barrel increased 48%sold decreased 71% from $9.83$17.23 for the three months ended September 30, 20162019 to $14.55$4.93 for the three months ended September 30, 2017.2020. This was due to the effects of an increasea decrease in the average per barrel sold sales price for refined products sold,during the third quarter of 2020, partially offset by increaseddecreased crude oil and feedstock prices during the current year quarter.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 refined products sold and cost of products purchased.


Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 26%decreased 4% from $256.2$345.6 million for the three months ended September 30, 20162019 to $321.7$332.5 million for the three months ended September 30, 20172020 due principally to $56.1 million in costs attributable to our recently acquired PCLI operationslower repair and higher purchased fuelmaintenance costs compared to the same periodthird quarter of 2016.2019, partially offset by decommissioning costs for our Cheyenne Refinery recorded in the three months ended September 30, 2020.


Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 106%expenses decreased 15% from $33.0$87.6 million for the three months ended September 30, 20162019 to $68.0$74.5 million for the three months ended September 30, 20172020 due principally to $28.7lower incentive compensation costs and employee travel-related expenses. We incurred $0.1 million in costs attributable to our recently acquired PCLI operations and $4.2$3.9 million in incremental direct acquisition and integration costs offor our PCLI business.Sonneborn business during the three months ended September 30, 2020 and 2019, respectively.


Depreciation and Amortization Expenses
Depreciation and amortization increased 13%decreased 1% from $91.1$127.0 million for the three months ended September 30, 20162019 to $102.9$125.3 million for the three months ended September 30, 2017.2020. This increasedecrease was due principally to lower depreciation expense resulting from the assets impaired in the second quarter of 2020, offset by depreciation and amortization attributable to capitalized improvement projects and capitalized refinery turnaround costs. Depreciation and amortization expenses include $7.5 million in costs attributable to our PCLI operations.

Table of Content


Interest Income
Interest income for the three months ended September 30, 20172020 was $1.1$1.0 million compared to $0.8$6.2 million for the three months ended September 30, 2016.2019. This increasedecrease was primarily due to higherlower interest rates received on cash balances and marketable debt securitiesinvestments during the current year quarter.


Interest Expense
Interest expense was $28.7$30.6 million for the three months ended September 30, 20172020 compared to $19.6$36.0 million for the three months ended September 30, 2016.2019. This increase isdecrease was primarily due to lower market interest attributable to higher debt levelsrates on HEP’s credit facility and HEP’s refinancing of its 6.0% senior notes due 2024, partially offset by an unrealized loss on the mark-to-market change of the fair value of the embedded derivative in our catalyst financing arrangements during the current year quarter relative to the same period of 2016.quarter. For the three months ended September 30, 20172020 and 2016,2019, interest expense included $14.1$12.5 million and $14.4$18.8 million, respectively, in interest costs attributable to limited recourse debtHEP operations.

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 finances HEP operations.occurred in the first quarter of 2018.


46
Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing structurenotes payable by PCLI net of mark-to-market valuations on our PCLI acquisition from local currencies toforeign exchange forward contracts with banks which hedge the U.S. dollar resulted in a $19.1foreign currency exposure on these intercompany notes were net gains of $1.0 million gain for the three months ended September 30, 2017.

Income Taxes
For the three months ended September 30, 2017, we recorded income tax expense of $158.4 million compared to $22.2and $0.4 million for the three months ended September 30, 2016. This increase was due principally to higher pre-tax income during2020 and 2019, respectively. For the three months ended September 30, 20172020 and 2019, gain on foreign currency transactions included a loss of $8.2 million and a gain of $5.7 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Income Taxes
For the three months ended September 30, 2020, we recorded an income tax expense of $4.6 million compared to $103.0 million for the three months ended September 30, 2019. This decrease was due principally to the decrease in pre-tax earnings during the three months ended September 30, 2020 compared to pre-tax earnings in the same period of 2016.2019. Our effective tax rates before consideration ofwere 16.4% and 25.7% for the three months ended September 30, 2020 and 2019, 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 were 35.5% and 20.2%that is not included in income for the three months ended September 30, 2017 and 2016, respectively.tax purposes.




Results of Operations – Nine Months Ended September 30, 20172020 Compared to Nine Months Ended September 30, 20162019


Summary
Net incomeloss attributable to HollyFrontier stockholders for the nine months ended September 30, 20172020 was $284.3$(483.7) million ($1.60 ($(2.99) per basic and diluted share), a $597.9$1,195.5 million increase decrease compared to a net loss attributable to HollyFrontier stockholdersincome of $(313.6)$711.8 million ($(1.78)4.23 per basic and $4.20 per diluted share) for the nine months ended September 30, 2016.2019. Net income increaseddecreased due principally to an increase in refining segment sales volumes andlong-lived asset impairment charges of $436.9 million, lower gross refining margins and lower refining segment sales volumes. For the inclusionnine months ended September 30, 2020, lower of $43.6cost or market inventory reserve adjustments decreased pre-tax earnings by $227.7 million incompared to an increase to pre-tax earnings attributable to our recently acquired PCLI operations. Additionally, we recorded long-lived asset impairment charges totaling $23.2of $150.5 million for the nine months ended September 30, 2017 compared to goodwill and long-lived asset impairment charges totaling $654.1 million for the same period of last year. For the nine months ended September 30, 2017, lower of cost or market inventory reserve adjustments increased pre-tax earnings by $15.3 million compared to $194.3 million for the nine months ended September 30, 2016.2019. Refinery gross margins for the nine months ended September 30, 2017 increased2020 decreased to $11.47$8.33 per produced barrel sold from $8.79$16.69 for the nine months ended September 30, 2016. During2019. The nine months ended September 30, 2020 included an $81.0 million gain recognized upon the second quartersettlement of 2017,a business interruption insurance claim. The nine months ended September 30, 2019 included a goodwill impairment charge of $152.7 million. Also, during the nine months ended September 30, 2019, our Cheyenne Refinery wasand Woods Cross Refinery were each granted a one-year small refinery exemption from the EPA for the 2018 calendar year, at which time we recorded a $30.5total $36.6 million decreasereduction to our RINs costs, reflecting the reinstatementcost of RINs previously expensed in 2016.products sold.


Sales and Other Revenues
Sales and other revenues increased 35%decreased 37% from $7,580.6$13,104.7 million for the nine months ended September 30, 20162019 to $10,258.6$8,282.9 million for the nine months ended September 30, 20172020 due to a year-over-year increasedecrease in sales prices and higherlower refined product sales volumes. The average sales price we received per produced barrel sold was $56.43 for the nine months ended September 30, 2016 compared to $67.65 for the nine months ended September 30, 2017. Sales and other revenues for the nine months ended September 30, 20172020 and 20162019 include $47.8$72.4 million and $50.1$89.4 million,, respectively, in HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. PCLI contributed $809.6 million inAdditionally, sales and other revenues included $1,330.0 million and $1,568.2 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the nine months ended September 30, 2017.2020 and 2019, respectively.


Cost of Products Sold
Total cost of products sold increased 37%decreased 32% from $6,020.9$10,157.4 million for the nine months ended September 30, 20162019 to $8,267.8$6,875.7 million for the nine months ended September 30, 2017,2020 due principally to higherlower crude oil costs and higherlower refined product sales volumesvolumes. Additionally, we recognized a lower of refined products. Additionally, cost or market inventory valuation charge of products sold reflects a $15.3$227.7 million benefit that is attributablefor the nine months ended September 30, 2020 compared to a decreasebenefit of $150.5 million for the same period of 2019, resulting in thea new $468.1 million lower of cost or market reserve for the nine months endedat September 30, 2017, a $179.0 million decrease compared to $194.3 million for the same period2020. The lower of last year. Thecost or market reserve at September 30, 20172020 is based on market conditions and prices at that time. Excluding this non-cash adjustment,During the average pricenine months ended September 30, 2019, we paidrecorded a $36.6 million RINs cost reduction as a result of our Cheyenne Refinery and Woods Cross Refinery small refinery exemptions.

Gross Refinery Margins
Gross refinery margin per barrel for crude oil and feedstocks and the transportation costs of moving the finished products to the marketplace increased 18%sold decreased 50% from $47.64$16.69 for the nine months ended September 30, 20162019 to $56.18$8.33 for the nine months ended September 30, 2017. Additionally, we recorded a $30.5 million RINs cost reduction during the second quarter of 2017 as a result of our Cheyenne small refinery exemption. Cost of products sold includes $519.2 million in costs attributable to our PCLI operations.

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Gross Refinery Margins
Gross refinery margin per produced barrel increased 30% from $8.79 for the nine months ended September 30, 2016 to $11.47 for the nine months ended September 30, 2017.2020. This was due to the effects of an increasea decrease in the average per barrel sold sales price for refined products sold,during the current year-to-date period, partially offset by increaseddecreased crude oil and feedstock prices during the current year-to-date period.prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments goodwill and asset impairment charges 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 refined products sold and cost of products purchased.


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Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 24%decreased 5% from $760.2 million for the nine months ended September 30, 2016 to $944.4 million for the nine months ended September 30, 2017 due principally to $144.8 million in costs attributable to our recently acquired PCLI operations and higher purchased fuel costs compared to the same period of 2016.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 109% from $88.3 million for the nine months ended September 30, 2016 to $184.7 million for the nine months ended September 30, 2017 due principally to $67.4 million in costs attributable to our recently acquired PCLI operations and $23.5 million in incremental direct acquisition and integration costs of our PCLI business.

Depreciation and Amortization Expenses
Depreciation and amortization increased 13% from $269.4$1,010.4 million for the nine months ended September 30, 20162019 to $304.2$964.2 million for the nine months ended September 30, 2017.2020 due principally to lower repair and maintenance costs compared to nine months ended September 30, 2019, partially offset by decommissioning costs for our Cheyenne Refinery recorded in the nine months ended September 30, 2020. Prior year period operating expenses included higher repair and maintenance costs related to a February 2019 fire in an FCC unit at our El Dorado Refinery.

Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 9% from $261.0 million for the nine months ended September 30, 2019 to $237.6 million for the nine months ended September 30, 2020 due principally to lower incentive compensation costs and employee travel-related expenses. We incurred $2.0 million and $20.1 million in direct acquisition and integration costs for our Sonneborn business during the nine months ended September 30, 2020 and 2019, respectively.

Depreciation and Amortization Expenses
Depreciation and amortization increased 6% from $375.3 million for the nine months ended September 30, 2019 to $396.0 million for the nine months ended September 30, 2020. This increase was due principally to depreciation and amortization attributable to capitalized improvement projects and capitalized refinery turnaround costs. Depreciationcosts, partially offset by lower depreciation expense resulting from the assets impaired in the current year-to-date period.

Long-lived Asset and amortization expenses include $19.9 million in costs attributable to our PCLI operations.Goodwill Impairments

Goodwill and Asset Impairment
During the nine months ended September 30, 2017,2020, we recorded a $19.2 million long-lived asset impairment charge resulting from management’s plan to cease further expansion of our Woods Cross Refinery to add lubricants production compared to goodwill and long-lived asset impairment charges of $309.3$232.2 million that related to our Cheyenne Refinery and $344.8$204.7 million respectively, forrelated to PCLI. During the nine months ended September 30, 2016.2019, we recorded a goodwill impairment charge of $152.7 million that 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 the Cheyenne refinery impairment during the second quarter of 2016.these impairments.


Interest Income
Interest income for the nine months ended September 30, 20172020 was $2.1$6.6 million compared to $1.4$17.1 million for the nine months ended September 30, 2016.2019. This increasedecrease was primarily due to higher interest rates received onlower average cash balances and marketable debt securities during the current year-to-date period.lower interest rates on cash investments.


Interest Expense
Interest expense was $85.5$85.9 million for the nine months ended September 30, 20172020 compared to $45.9$106.9 million for the nine months ended September 30, 2016.2019. This increasedecrease was primarily due to lower market interest attributablerates on HEP’s credit facility and HEP’s refinancing of its 6.0% senior notes due 2024. Additionally, we recorded an unrealized gain on the mark-to-market change in the fair value of the embedded derivative in our catalyst financing arrangements of $2.5 million for the nine months ended September 30, 2020 compared to higher debt levels during the current year relative toan unrealized loss of $3.0 million for the same period of 2016.in 2019. For the nine months ended September 30, 20172020 and 2016,2019, interest expense included $41.4$40.7 million and $36.3$57.1 million, respectively, in interest costs attributable to limited recourse debtHEP operations.

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 financesoccurred in the first quarter of 2018.

Gain on Sales-type Leases
During the second quarter of 2020, HEP operations.and Delek US Holdings, Inc. renewed the original throughput agreement on specific HEP assets. Portions of the new throughput agreement meet 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, 2017, a $12.2 million loss was recorded upon HEP’s redemption of its $300 million aggregate principal amount of 6.5% senior notes maturing March 2020 at a cost of $309.8 million.

For the nine months ended September 30, 2016, we recognized an $8.7 million loss on the early retirement of a financing obligation, a component of outstanding debt, upon HEP's purchase of crude oil tanks from an affiliate of Plains All American Pipeline L.P. (“Plains”). See Note 10 “Debt” in the Notes to Consolidated Financial Statements for additional information on this financing obligation.

Gain on Foreign Currency Swaps
During the nine months ended September 30, 2017, we2020, HEP recorded a $24.5$25.9 million gainloss on currency swap contracts that effectively fixed the conversion rate on $1.125 billion Canadian dollars (the PCLI purchase price), which were settled on February 1, 2017, in connection with the closingredemption of the PCLI acquisition.its $500 million aggregate principal amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million.


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Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing structurenotes payable by PCLI net of mark-to-market valuations on our PCLI acquisition from local currencies toforeign exchange forward contracts with banks which hedge the U.S. dollar resulted inforeign currency exposure on these intercompany notes were a $19.5net loss of $0.9 million gain for the nine months ended September 30, 2017.

Income Taxes
For2020 compared to a net gain of $4.9 million for the nine months ended September 30, 2017,2019. For the nine months ended September 30, 2020 and 2019, gain / loss on foreign currency transactions included a net gain of $11.0 million and a net loss of $9.0 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Income Taxes
For the nine months ended September 30, 2020, we recorded an income tax benefit of $188.5 million compared to income tax expense of $173.6 million compared to $6.5$279.9 million for the nine months ended September 30, 2016. Our effective tax rates, before consideration of earnings attributable to the noncontrolling interest, were 34.9% and 2.5% for the nine months ended September 30, 2017 and 2016, respectively. The increase in tax expense and the effective tax rate year-over-year is2019. This decrease was due principally to highera pre-tax incomeloss during the nine months ended September 30, 20172020 compared to a pre-tax loss forearnings in the same period of 20162019. Our effective tax rates were 31.0% and the effects of the second quarter 2016 $309.3 million goodwill impairment charge, a significant driver of our $255.0 million loss before income taxes26.1% for the nine months ended September 30, 2016,2020 and 2019, respectively. The year-over-year increase 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 deductibleincluded in income for income tax purposes.




LIQUIDITY AND CAPITAL RESOURCES


HollyFrontier Credit Agreement
In February 2017, we increased the size of ourWe have a $1.35 billion senior unsecured revolving credit facility from $1 billion to $1.35 billion and extended the maturity date tomaturing in February 2022 (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. During the nine months endedAt September 30, 2017, we received advances totaling $26.0 million and repaid $26.0 million under the HollyFrontier Credit Agreement. At September 30, 2017,2020, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling $2.8$5.7 million under the HollyFrontier Credit Agreement.


HollyFrontier Senior Notes
On September 28, 2020, we completed a public offering of $350.0 million in aggregate principal amount of 2.625% senior notes maturing October 2023 and $400.0 million in aggregate principal amount of 4.500% senior notes maturing October 2030. We intend to use the net proceeds for general corporate purposes, which may include capital expenditures. These senior notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.

HollyFrontier Financing Arrangements
In December 2018, 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 total cash received of $32.5 million. 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 leases mature on February 1, 2021. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity.

HEP Credit Agreement
In July 2017, HEP increased the size of itshas a $1.4 billion senior secured revolving credit facility from $1.2 billion to $1.4 billion and extended the maturity date tomaturing in July 2022 (the “HEP Credit Agreement”). The HEP Credit Agreement and is available to fund capital expenditures, investments, acquisitions, distribution payments, and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and has a $300 million accordion. During the nine months ended September 30, 2017,2020, HEP received advances totaling $628.0$219.5 million and repaid $431.0$237.0 million under the HEP Credit Agreement. At September 30, 2017,2020, HEP was in compliance with all of its covenants, had outstanding borrowings of $750.0$948.0 million and no outstanding letters of credit under the HEP Credit Agreement.


HEP Senior Notes
In September, 2017,On February 4, 2020, HEP issued an additional $100closed a private placement of $500.0 million in aggregate principal amount of 6.0%5.0% HEP senior unsecured notes maturing in August 2024 in a private placement. HEP used the net proceeds of $101.8 million to repay indebtedness under the HEP Credit Agreement.

In January 2017,February 2028. On February 5, 2020, HEP redeemed its $300existing $500.0 million aggregate principal amount of 6.5%6.0% senior notes maturing March 2020August 2024 at a redemption cost of $309.8 million, at which time$522.5 million. HEP recognized a $12.2$25.9 million early extinguishment loss consisting of a $9.8$22.5 million debt redemption premium and unamortized discount and financing costs of $2.4$3.4 million. HEP funded the $522.5 million redemption with proceeds from the issuance of its 5.0% senior notes and borrowings under the HEP Credit Agreement.


See Note 109 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments.

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HEP Common Unit Continuous Offering Program
In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the nine months ended September 30, 2017,2020, HEP did not issue any common units under this program. As of September 30, 2020, HEP has issued 1,538,4522,413,153 units under this program, providing $52.3$82.3 million in netgross proceeds. In connection with this program and to maintain the 2% general partner interest, we made capital contributions totaling $1.1 million during the nine months ended September 30, 2017. As of September 30, 2017, HEP has issued 2,241,907 units with an aggregate gross sales amount of $77.1 million.

HEP intends to use the net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. Amounts repaid under HEP’s credit facility may be reborrowed from time to time.
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Liquidity
We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. 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, subject to our current cash conservation strategies as discussed above in “Outlook,” components of our growth strategy include construction of new refinery processing units and the expansion of existing units at our facilities and selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow. We also expect to use cash for payment of cash dividends, which are at the discretion of our Board of Directors, and, once commodity prices and demand for products normalize, for the repurchases of our common stock under our share repurchase program.


As of Our standalone (excluding HEP) liquidity was approximately $2.9 billion at September 30, 2017, our2020, consisting of cash and cash equivalents totaled $630.7of $1,506.8 million. and an undrawn $1.35 billion credit facility maturing in 2022.

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

On October 29, 2016, our wholly-owned subsidiary, 9952110 Canada Inc., entered into a share purchase agreement with Suncor to acquire 100% of the outstanding capital stock of PCLI that closed on February 1, 2017. Cash consideration paid was $862.0 million, or $1.125 billion in Canadian dollars.


In May 2015,November 2019, our Board of Directors approved a $1$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, 2017,2020, we had remaining authorization to repurchase up to $178.8 millionnot 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. In order to preserve liquidity, we do not intend to repurchase common stock under our $1.0 billion share repurchase program until commodity prices and demand for products normalize.


Cash and cash equivalents decreased $79.8equivalents increased $639.7 million for the nine months ended September 30, 2020. Net cash provided by operating and financing activities of $391.1 million and $463.2 million, respectively, exceeded net cash used by investing activities of $213.7 million.
Cash Flows – Operating Activities

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
Net cash flows provided by operating activities were $391.1 million for the nine months ended September 30, 2017. Working capital decreased by $371.7 million during the nine months ended September 30, 2017, which is principally due2020 compared to our cash purchase of PCLI, net of working capital acquired.

Cash Flows – Operating Activities

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net cash flows provided by operating activities were $785.4$1,411.4 million for the nine months ended September 30, 20172019, a decrease of $1,020.4 million. Net loss for the nine months ended September 30, 2020 of $(420.3) million was a decrease of $1,211.6 million compared to $444.3net income of $791.3 million for the nine months ended September 30, 2016, an increase of $341.1 million. Net income for the nine months ended September 30, 2017 was $324.0 million, an increase of $585.4 million compared to net loss of $261.4 million for the nine months ended September 30, 2016.2019. Non-cash adjustments to net income consisting of depreciation and amortization, long-lived asset and goodwill and asset impairment,impairments, lower of cost or market inventory valuation adjustment, earnings of equity method investments, inclusive of distributions, loss on early extinguishment of debt, gain oron sales-type leases, gain / loss on sale of assets, loss on extinguishment of debt, deferred income taxes, equity-based compensation expense and fair value changes to derivative instruments and excess tax expense from equity-based compensation totaled $433.8 million for the nine months ended September 30, 2017 compared to $777.2 million for the same period in 2016. Changes in working capital items increased cash flows by $134.9 million and $23.1$923.4 million for the nine months ended September 30, 20172020 compared to $531.5 million for the same period in 2019. Adjusted for non-cash items, changes in working capital decreased operating cash flows by $50.0 million and 2016,increased operating cash flows by $244.3 million, for the nine months ended September 30, 2020 and 2019, respectively. Additionally, for the nine months ended September 30, 2017,2020, turnaround expenditures increaseddecreased to $111.5$73.8 million from $104.2$152.4 million for the same period of 2016.2019.


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Cash Flows – Investing Activities and Planned Capital Expenditures


Nine Months Ended September 30, 20172020 Compared to Nine Months Ended September 30, 20162019
Net cash flows used for investing activities were $637.3$213.7 million for the nine months ended September 30, 2017 compared to $397.2 million for the nine months ended September 30, 2016, an increase2020 compared to $856.8 million for the nine months ended September 30, 2019, a decrease of $240.1$643.1 million. Current year investing activities reflect a net cash outflow of $870.6 million upon the acquisition of PCLI. Cash expenditures for properties, plants and equipment for the first nine months of 2017 decreased to $193.12020 increased to $213.0 million from $387.5$195.1 million for the same period in 2016.2019. These include HEP capital expenditures of $30.7$38.6 million and $96.1$23.8 million for the nine months ended September 30, 2017 and 2016, respectively. In addition, in 2016, HEP purchased a 50% interest in Cheyenne Pipeline for $42.6 million. Also for the nine months ended September 30, 20172020 and 2016, we2019, respectively. Additionally, HEP invested $41.6$2.4 million and $155.1 in the Cushing Connect Pipeline & Terminal LLC joint venture. Prior year investing activities reflected a net cash outflow of $662.7 million, respectively, in marketable securities and received proceeds upon the acquisition of $465.7 million and $187.4 million, respectively, from the sale or maturity of marketable securities.Sonneborn.

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Planned Capital Expenditures


HollyFrontier Corporation
Each year our Board of Directors approves our annual capital budget, which includes specific projects that management is authorized to undertake. Additionally, when conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. During 2017, we expect to spend approximately $200.0 million to $250.0 million in cash for capital projects appropriated in 2017 and prior years. In addition, we expect to spend approximately $135.0 million to $150.0 million on refinery turnarounds. 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 environmental, health and safety compliance and include initiatives as a result of federal and state mandates.


A significant portion of our current capital spending is associated with compliance-oriented capital improvements. This spending is required due to existing consent decrees (for projects including FCC unit flue gas scrubbers and tail gas treatment units), federal fuels regulations (particularly Tier3, which mandates a reduction in the sulfur content of blended gasoline), refinery waste water treatment improvements and other similar initiatives. Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and / or yields of associated refining processes.

We have completed construction on our existing Woods Cross expansion project, increasing crude processing capacity to 45,000 BPSD, and providing greater crude slate flexibility, which we believe will increase capacity utilization and improve overall economic returns during periods when wax crudes are in short supply. The project also included construction of new refining facilities and a new rail loading rack for intermediates and finished products associated with refining waxy crude oil.

On November 18, 2013, the Utah Division of Air Quality issued a revised air quality permit (the “Approval Order”) authorizing the expansion. On December 18, 2013, two local environmental groups filed an administrative appeal challenging the issuance of the Approval Order and seeking a stay of the Approval Order. Following an extended appeal process, the Executive Director of the Utah Department of Environmental Quality issued a final order in favor of Woods Cross on all claims on March 31, 2015, and dismissed the project opponents’ arguments with prejudice. On April 27, 2015, the opponents filed a petition for review and notice of appeal with the Utah Court of Appeals challenging the agency’s decision to uphold the permit and dismiss the project opponents’ arguments. On August 4, 2016, the Utah Court of Appeals transferred the case to the Utah Supreme Court. The Utah Supreme Court established a supplemental briefing schedule, which ran through October 2016. Oral argument took place on December 14, 2016 and focused primarily on alleged procedural defects in the Petitioner’s appeal. The Utah Supreme Court took the matter under advisement and, on June 19, 2017, issued a 4-1 decision in favor of the State of Utah and HollyFrontier in a brief four-page opinion. This matter is now closed unless Petitioners file a motion for reconsideration, which appears unlikely at this point in time.


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 several years,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. The 2017 HEP expects the majority of the expansion capital budget is comprisedin 2020 to be invested in the Cushing Connect joint venture. 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 $9.0 million for maintenance capital expenditures and $30.0 million for expansion capital expenditures.the related service agreements.


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Due to the COVID-19 pandemic and resulting decline in U.S. and global economic activities, we have reduced our 2020 expected total consolidated capital expenditures by approximately 25% from our approved annual capital budget. Expected capital and turnaround cash spending for 2020 is as follows:    
Expected Cash Spending Range
(In millions)
HollyFrontier Capital Expenditures
Refining$187.0 $212.0 
Renewable Diesel Unit130.0 145.0 
Lubricants and Specialty Products30.0 35.0 
Turnarounds and catalyst85.0 100.0 
Total HollyFrontier432.0 492.0 
HEP
Maintenance8.0 12.0 
Expansion and joint venture investment35.0 45.0 
Refining unit turnarounds— 1.0 
Total HEP43.0 58.0 
Total$475.0 $550.0 

Cash Flows – Financing Activities


Nine Months Ended September 30, 20172020 Compared to Nine Months Ended September 30, 20162019
Net cash flows provided by financing activities were $463.2 million for the nine months ended September 30, 2020 compared to net cash flows used for financing activities were $230.5of $729.3 million for the nine months ended September 30, 2017 compared to cash flows provided by financing activities2019, an increase of $252.7 million for$1,192.5 million. During the nine months ended September 30, 2016, an increase of $483.1 million. During the nine months ended September 30, 2017,2020, we received $26.0$744.1 million in net proceeds from the issuance of HFC’s 2.625% and repaid $26.04.500% senior notes, purchased $3.4 million under the Holly Frontier Credit Agreementof treasury stock and paid $176.5$171.6 million in dividends. Also during this period, HEP received $628.0$219.5 million and repaid $431.0$237.0 million under the HEP Credit Agreement, received $101.8 million in net proceeds from issuance of HEP 6.0% senior notes, paid $309.8$522.5 million upon the redemption of HEP’s 6.5%6.0% senior notes and received $52.3$491.3 million in net proceeds from the issuance of its common units andHEP 5.0% senior notes, paid distributions of $81.8$70.9 million to noncontrolling interests.interests and received contributions from noncontrolling interests of $15.4 million. During the nine months ended September 30, 2016,2019, we received $246.7purchased $472.0 million in net proceeds upon issuance of our 5.875% senior notes, received $350.0 million in net proceeds from issuance of a term loan, received $315.0 million and repaid $315.0 million under the HollyFrontier Credit Agreement, purchased $133.4 million in commontreasury stock and paid $175.2$168.0 million in dividends. In addition, we extinguished our financing obligation with Plains for $39.5 million. Also during this period, HEP received $310.5$269.5 million and repaid $642.5$257.0 million under the HEP Credit Agreement received $394.0 million in net proceeds from issuance of HEP 6.0% senior notes, received $22.8 million in proceeds from the issuance of common units and paid distributions of $66.6$100.1 million to noncontrolling interests.


Contractual Obligations and Commitments


HollyFrontier Corporation


In February 2017,September 2020, we amended the HollyFrontier Credit Agreement, increasing the sizeissued $350.0 million in aggregate principal amount of the credit facility from $1.0 billion to $1.35 billion2.625% senior notes maturing October 2023 and extended the maturity to February 2022.$400.0 million in aggregate principal amount of 4.500% senior notes maturing October 2030.


There were no other significant changes to our long-term contractual obligations during the nine months ended September 30, 2017.2020.


HEP


In January 2017,February 2020, HEP redeemed its $300issued $500.0 million in aggregate principal amount of 6.5%5.0% HEP senior notes maturing March 2020.February 2028 and redeemed its existing $500.0 million 6.0% senior notes maturing August 2024.


In July 2017, HEP amended its credit agreement increasing the size of the credit facility from $1.2 billion to $1.4 billion and extending its maturity to July 2022. During the nine months ended September 30, 2017,2020, HEP receivedhad net borrowingsrepayments of $197.0$17.5 million resulting in $750.0$948.0 million of outstanding borrowings inunder the HEP Credit Agreement at September 30, 2017.2020.

In September, 2017, HEP issued an additional $100 million aggregate principal amount of 6.0% HEP senior notes maturing August 2024.


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




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CRITICAL ACCOUNTING POLICIES


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


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, 2016.2019. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include the assessment and consolidation of variable interest entities, the use of the last-in, first-out (“LIFO”) method of valuing certain inventories, the amortization of deferred costs for regular major maintenance and repairs at our refineries, assessing the possible impairment of certain long-lived assets and goodwill, accounting for derivative instruments and assessing contingent liabilities for probable losses.


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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.


At September 30, 2017,2020, our lower of cost or market inventory valuation reserve was $317.2$468.1 million. This amount, or a portion thereof, is subject to reversal as a reduction to cost of products sold in subsequent periods as inventories giving rise to the reserve are sold, and a new reserve is established. Such a reduction to cost of products sold could be significant if inventory values return to historical cost price levels. Additionally, further decreases in overall inventory values could result in additional charges to cost of products sold should the lower of cost or market inventory valuation reserve be increased.


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 PCLI operationsPetro-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, 2017,2020, our goodwill balance was $2.2$2.4 billion, with goodwill assigned to our refining, PCLIRefining, Lubricants and Specialty Products and HEP segments of $1.7 billion, $0.2 billion$1,733.5 million, $328.6 million and $0.3 billion,$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 comparisonquantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of oura reporting unit fair values relative to their respectiveis less than its carrying values.amount. If carrying value exceedswe determine that based on the qualitative factors that it is more likely than not that the fair value forof the reporting unit is greater than its carrying amount, 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 goodwill over the impliedrelated fair valuevalue.

For purposes of that goodwill based on estimates of the fair value of all assets and liabilities in the reporting unit.

Ourlong-lived asset impairment evaluation, we have grouped our long-lived assets principally consist ofas follows: (i) our refiningrefinery asset groups, which include certain HEP logistics assets, that are organized as refining(ii) our Lubricants and Specialty Products asset groups and (iii) our PCLI business. TheHEP asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups also constitute our individual refinery reporting units that are usedrepresent the lowest level for testing and measuring goodwill impairments.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.


Goodwill and long-lived asset impairments
Due to the economic slowdown caused by the COVID-19 pandemic, we determined that indicators of potential long-lived asset impairments were present in the second quarter of 2020. As a result of our long-lived asset impairment testing, we determined that the carrying value of the long-lived assets of our Cheyenne Refinery and PCLI asset groups were not recoverable, and thus recorded long-lived asset impairment charges of $232.2 million and $204.7 million, respectively, in the second quarter of 2020. Our testing did not result in any other impairments of long-lived assets in the second quarter. There were no additional indicators of long-lived asset impairment present in the third quarter of 2020.

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Due to the economic slowdown caused by the COVID-19 pandemic and a decrease in our market capitalization, we determined that indicators of potential goodwill impairment for our Refining and Lubricants and Specialty Products reporting units were present in the second quarter of 2020. As such, we performed an interim test for goodwill impairment as of May 31, 2020. Our interim goodwill impairment testing indicated that there was no impairment of goodwill at our Refining and Lubricants and Specialty Products reporting units as of May 31, 2020.

We performed our annual goodwill impairment testing quantitatively as of July 1, 20172020 and determined there was no impairment of goodwill attributable to our reporting units. The excess of the fair values of the reporting units over their respective carrying values ranged from 10% to 229%. 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 interim or annual goodwill impairment testing.

In performing our impairment tests of goodwill and long-lived assets we developed cash flow forecasts for each of our reporting units and asset groups. 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 our El Doradoa reporting unit exceeded its carryingor an asset group 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. Assumptions about the effects of the COVID-19 pandemic on future demand and market conditions are inherently subjective and difficult to forecast. Our fair value by approximately 10%. estimates are based on projected cash flows, which we believe to be reasonable.

A reasonable expectation exists that further deterioration in gross marginsour operating results or overall economic conditions could result in an impairment of goodwill and the/ or additional long-lived assets of the El Dorado reporting unitasset impairments at some point in the future and suchfuture. Future impairment charges could be material.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.


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:
to our inventory positions;
positions, natural gas purchases;
costs of crude oil and related grade differentials;
purchases, sales prices of refined products;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 refining margins.foreign subsidiaries that are not denominated in the U.S. dollar.


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As of September 30, 2017,2020, we have the following notional contract volumes related to all outstanding derivative contractsinstruments used to mitigate commodity price and foreign currency risk:
Notional Contract Volumes by Year of Maturity
Derivative InstrumentTotal Outstanding Notional20202021Unit of Measure
Natural gas price swaps - long2,250,000 450,000 1,800,000 MMBTU
Crude oil price swaps (basis spread) - long1,564,000 1,564,000 — Barrels
WTI and gasoline crack spread swaps - short100,000 100,000 — Barrels
NYMEX futures (WTI) - short1,045,000 830,000 215,000 Barrels
Forward gasoline and diesel contracts - long200,000 200,000 — Barrels
Foreign currency forward contracts419,278,042 106,910,645 312,367,397 U.S. dollar
Forward commodity contracts (platinum) (1)
40,867 — 40,867 Troy ounces
    Notional Contract Volumes by Year of Maturity  
Contract Description Total Outstanding Notional 2017 2018 2019 2020 2021 Unit of Measure
               
Natural gas price swaps - long 12,000,000
 4,800,000
 1,800,000
 1,800,000
 1,800,000
 1,800,000
 MMBTU
Natural gas price swaps - short 2,400,000
 2,400,000
 —
 —
 —
 ��
 MMBTU
Natural gas price swaps (basis spread) - long 2,577,000
 2,577,000
 —
 —
 —
 —
 MMBTU
Crude price swaps (basis spread) - long 918,000
 918,000
 —
 —
 —
 —
 Barrels
WTI and sub-octane gasoline crack spread swaps - short 700,000
 700,000
 —
 —
 —
 —
 Barrels
NYMEX futures (WTI) - short 1,870,000
 955,000
 915,000
 —
 —
 —
 Barrels
Forward gasoline and diesel contracts - long 715,000
 705,000
 10,000
 —
 —
 —
 Barrels
Physical crude contracts -short 150,000
 150,000
 —
 —
 —
 —
 Barrels


(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 9 “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 positions hedged under our derivative contracts:
Estimated Change in Fair Value at September 30,
Commodity-based Derivative Contracts20202019
(In thousands)
Hypothetical 10% change in underlying commodity prices$3,659 $8,432 
  Estimated Change in Fair Value at June 30,
Commodity-based Derivative Contracts 2017 2016
  (In thousands)
Hypothetical 10% change in underlying commodity prices $7,360
 $1,064


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.


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, 20172020 is presented below:
Outstanding
Principal		Estimated
Fair Value		Estimated
Change in
Fair Value
 (In thousands)
HollyFrontier Senior Notes$1,750,000 $1,835,996 $38,225 
HEP Senior Notes$500,000 $490,155 $16,094 
  
Outstanding
Principal
 
Estimated
Fair Value
 
Estimated
Change in
Fair Value
  (In thousands)
HollyFrontier Senior Notes $1,000,000
 $1,091,470
 $33,555
HEP Senior Notes $500,000
 $524,390
 $15,158


For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2017,2020, outstanding borrowings under the HEP Credit Agreement were $750.0 million.$948.0 million. A hypothetical 10% change in applicable 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 fire, explosion and weather-related perils. We maintain various insurance coverages, including business interruption insurance, subject to certain deductibles. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures.


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


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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.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

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 the United States (“GAAP”) 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 these calculationsthe 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.analysis and as a basis for financial covenants.


Set forth below is our calculation of EBITDA.
Three Months Ended September 30,Nine Months Ended September 30,
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016 2020201920202019
(In thousands) (In thousands)
Net income (loss) attributable to HollyFrontier stockholders$272,014
 $74,497
 $284,313
 $(313,618)Net income (loss) attributable to HollyFrontier stockholders$(2,401)$261,813 $(483,701)$711,783 
Add income tax expense158,386
 22,196
 173,593
 6,459
Add interest expense (1)
28,731
 19,550
 97,759
 54,606
Add interest expenseAdd interest expense30,589 36,027 85,923 106,938 
Subtract interest income(1,074) (778) (2,069) (1,380)Subtract interest income(1,011)(6,164)(6,590)(17,127)
Add income tax expense (benefit)Add income tax expense (benefit)4,573 103,021 (188,504)279,862 
Add depreciation and amortization102,884
 91,130
 304,206
 269,433
Add depreciation and amortization125,280 127,016 396,033 375,345 
EBITDA$560,941
 $206,595
 $857,802
 $15,500
EBITDA$157,030 $521,713 $(196,839)$1,456,801 

(1) Includes loss on early extinguishment of debt of $12.2 million and $8.7 million for the nine months ended September 30, 2017 and 2016, respectively.


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


Refinery gross margin and net operating margin are non-GAAP performance measures that are used by our management and others to compare our refining performance to that of other companies in our industry. We believe these margin measures are helpful to investors in evaluating our refining performance on a relative and absolute basis.

Refinery gross margin per produced barrel sold is the difference between average net sales price and averagetotal refining segment revenues less total refining segment cost of products per barrelsold, exclusive of lower of cost or market inventory valuation adjustments, divided by sales volumes of produced refined products.products sold. Net operating margin per barrel sold is the difference between refinery gross margin and refinery operating expenses per produced barrel of produced refined products.sold. These two margins do not include the non-cash effects of long-lived asset impairment charges, lower of cost or market inventory valuation adjustments goodwill and asset impairment charges or depreciation and amortization. Each of these component performance measures can be reconciled directly to our consolidated statements of income. Other companies in our industry may not calculate these performance measures in the same manner.

Refinery Gross and Net Operating Margins


Below are reconciliations to our consolidated statements of income for (i)refinery net sales, cost of products (exclusive of lower of cost or market inventory valuation adjustment)operating and gross margin and operating expenses, in each case averaged per produced barrel sold, and (ii) net operating margin and refinery gross margin.sold. Due to rounding of reported numbers, some amounts may not calculate exactly.


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Reconciliation of produced product sales to total sales and other revenues

 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in thousands, except per barrel amounts)
Consolidated       
Average sales price per produced barrel sold$70.37
 $61.38
 $67.65
 $56.43
Times sales of produced refined products (BPD)455,960
 437,700
 435,820
 427,430
Times number of days in period92
 92
 273
 274
Produced refined product sales$2,951,903
 $2,471,674
 $8,048,920
 $6,608,846
        
Total produced refined products sales$2,951,903
 $2,471,674
 $8,048,920
 $6,608,846
Add refined product sales from purchased products and rounding (1)
125,519
 207,698
 558,786
 500,509
Total refined product sales3,077,422
 2,679,372
 8,607,706
 7,109,355
Add direct sales of excess crude oil (2)
277,810
 103,145
 658,117
 294,845
Add other refining segment revenue (3)
54,563
 49,678
 147,185
 126,604
Total refining segment revenue3,409,795
 2,832,195
 9,413,008
 7,530,804
Add PCLI segment sales and other revenues298,137
 —
 809,643
 —
Add HEP segment sales and other revenues110,364
 92,611
 325,141
 289,517
Add corporate and other revenues(325) 11
 (283) 168
Subtract consolidations and eliminations(98,724) (77,547) (288,915) (239,857)
Sales and other revenues$3,719,247
 $2,847,270
 $10,258,594
 $7,580,632

Reconciliation of average cost of productsrefining segment net operating margin per produced barrel sold to refinery gross margin to total cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)sales

and other revenues
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per produced barrel sold$(1.90)$11.03 $1.68 $10.36 
Add average refinery operating expenses per produced barrel sold6.83 6.20 6.65 6.33 
Refinery gross margin per produced barrel sold4.93 17.23 8.33 16.69 
Times produced barrels sold (BPD)407,280 485,500 414,140 459,440 
Times number of days in period92 92 274 273 
Refining segment gross margin184,726 769,595 945,241 2,093,379 
Add (subtract) rounding45 208 (288)(278)
Total refining segment gross margin184,771 769,803 944,953 2,093,101 
Add refining segment cost of products sold2,211,342 3,177,167 6,113,530 9,598,539 
Refining segment sales and other revenues2,396,113 3,946,970 7,058,483 11,691,640 
Add lubricants and specialty products segment sales and other revenues455,042 537,718 1,338,932 1,576,398 
Add HEP segment sales and other revenues127,731 135,895 370,392 401,143 
Subtract corporate, other and eliminations(159,486)(195,755)(484,932)(564,491)
Sales and other revenues$2,819,400 $4,424,828 $8,282,875 $13,104,690 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in thousands, except per barrel amounts)
Consolidated       
Average cost of products per produced barrel sold$55.82
 $51.55
 $56.18
 $47.64
Times sales of produced refined products (BPD)455,960
 437,700
 435,820
 427,430
Times number of days in period92
 92
 273
 274
Cost of products for produced products sold$2,341,555
 $2,075,836
 $6,684,232
 $5,579,398
        
Total cost of products for produced products sold$2,341,555
 $2,075,836
 $6,684,232
 $5,579,398
Add refined product costs from purchased products and rounding(1)
126,739
 211,309
 560,313
 508,127
Total cost of refined products sold2,468,294
 2,287,145
 7,244,545
 6,087,525
Add crude oil cost of direct sales of excess crude oil (2)
282,751
 104,187
 664,035
 297,494
Add other refining segment cost of products sold (4)
37,349
 22,922
 83,923
 54,222
Total refining segment cost of products sold2,788,394
 2,414,254
 7,992,503
 6,439,241
Add PCLI segment cost of products sold177,324
 —
 519,187
 —
Subtract consolidations and eliminations(77,188) (72,417) (228,563) (224,086)
Costs of products sold (exclusive of lower of cost or market inventory valuation adjustment and depreciation and amortization)$2,888,530
 $2,341,837
 $8,283,127
 $6,215,155



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Reconciliation of average refineryrefining segment operating expenses per produced barrel sold to total operating expenses
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in thousands, except per barrel amounts)
Consolidated
Average refinery operating expenses per produced barrel sold$6.83 $6.20 $6.65 $6.33 
Times produced barrels sold (BPD)407,280 485,500 414,140 459,440 
Times number of days in period92 92 274 273 
Refinery operating expenses255,918 276,929 754,604 793,954 
Add (subtract) rounding161 (60)8 127 
Total refining segment operating expenses256,079 276,869 754,612 794,081 
Add lubricants and specialty products segment operating expenses54,488 57,974 156,459 170,655 
Add HEP segment operating expenses40,003 44,924 109,721 123,045 
Subtract corporate, other and eliminations(18,074)(34,189)(56,592)(77,359)
Operating expenses (exclusive of depreciation and amortization)$332,496 $345,578 $964,200 $1,010,422 


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 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in thousands, except per barrel amounts)
Consolidated       
Average refinery operating expenses per produced barrel sold$5.67
 $5.49
 $6.04
 $5.59
Times sales of produced refined products (BPD)455,960
 437,700
 435,820
 427,430
Times number of days in period92
 92
 273
 274
Refinery operating expenses for produced products sold$237,847
 $221,074
 $718,632
 $654,677
        
Total refinery operating expenses for produced products sold$237,847
 $221,074
 $718,632
 $654,677
Add other refining segment operating expenses and rounding (5)
11,631
 6,005
 33,226
 25,914
Total refining segment operating expenses249,478
 227,079
 751,858
 680,591
Add PCLI segment operating expenses56,111
 —
 144,792
 —
Add HEP segment operating expenses35,998
 32,099
 102,584
 89,067
Add corporate and other costs817
 1,390
 3,152
 3,797
Subtract consolidations and eliminations(20,736) (4,336) (57,949) (13,304)
Operating expenses (exclusive of depreciation and amortization)$321,668
 $256,232
 $944,437
 $760,151


Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in thousands, except per barrel amounts)
Consolidated       
Net operating margin per barrel$8.88
 $4.34
 $5.43
 $3.20
Add average refinery operating expenses per produced barrel5.67
 5.49
 6.04
 5.59
Refinery gross margin per barrel14.55
 9.83
 11.47
 8.79
Add average cost of products per produced barrel sold55.82
 51.55
 56.18
 47.64
Average sales price per produced barrel sold$70.37
 $61.38
 $67.65
 $56.43
Times sales of produced refined products (BPD)455,960
 437,700
 435,820
 427,430
Times number of days in period92
 92
 273
 274
Produced refined products sales$2,951,903
 $2,471,674
 $8,048,920
 $6,608,846
        
Total produced refined products sales$2,951,903
 $2,471,674
 $8,048,920
 $6,608,846
Add refined product sales from purchased products and rounding (1)
125,519
 207,698
 558,786
 500,509
Total refined product sales3,077,422
 2,679,372
 8,607,706
 7,109,355
Add direct sales of excess crude oil (2)
277,810
 103,145
 658,117
 294,845
Add other refining segment revenue (3)
54,563
 49,678
 147,185
 126,604
Total refining segment revenue3,409,795
 2,832,195
 9,413,008
 7,530,804
Add PCLI segment sales and other revenues298,137
 —
 809,643
 —
Add HEP segment sales and other revenues110,364
 92,611
 325,141
 289,517
Add corporate and other revenues(325) 11
 (283) 168
Subtract consolidations and eliminations(98,724) (77,547) (288,915) (239,857)
Sales and other revenues$3,719,247
 $2,847,270
 $10,258,594
 $7,580,632

(1)We purchase finished products to facilitate delivery to certain locations or to meet delivery commitments.
(2)We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, at times we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at cost.
(3)Other refining segment revenue includes the incremental revenues associated with HFC Asphalt, product purchased and sold forward for profit as market conditions and available storage capacity allows and miscellaneous revenue.
(4)Other refining segment cost of products sold includes the incremental cost of products for HFC Asphalt, the incremental cost associated with storing product purchased and sold forward as market conditions and available storage capacity allows and miscellaneous costs.
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(5)Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of HFC Asphalt.


Item 4.Controls and Procedures

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)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, 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, 2017.2020.


Changes in internal control over financial reporting. We acquired PCLI from Suncor effective February 1, 2017 and have included PCLI’s operating results, assets and liabilities in our consolidated financial statements as of September 30, 2017 and for the eight months then ended. Pursuant to a Transition Service Agreement with Suncor, Suncor provides accounting support services for PCLI including month end close process and other accounting services. Other than internal controls for PCLI, there 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

Item 1.Legal Proceedings
Commitment
In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and Contingency Reserves

We periodically establish reserves forother matters. Damages or penalties may be sought from us in some matters and certain legal proceedings. The establishment of a reserve involves an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reservesmatters may require years to be adequate, future changes in the facts and circumstances could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.

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.


Environmental Matters

WeThe environmental proceedings are reporting the following proceedingsreported to comply with SEC regulations which require us to disclose proceedings arising under federal, state or local provisions regulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such proceedings may result in monetary sanctions of $100,000 or more. Our respective subsidiaries have or will develop corrective action plans regarding these disclosures that will be implemented in consultation with the respective federal and state agencies. It is not possible to predict the ultimate outcome of these proceedings, although none are currently expected to have a material effect on our financial condition, results of operations or cash flows.


Environmental Matters

Cheyenne
HollyFrontier Cheyenne Refining LLC (“HFCR”) has been engaged in discussions with the Wyoming Department of Environmental Quality (“WDEQ”) and the United States Environmental Protection Agency (“EPA”) relating to a Notice of Violation issued in late 2016 for possiblealleged violations of air quality standardsemission limitations and requirements related to operation of certain refinery units at the Cheyenne Refinery.

Notices of Violations were issued by the WDEQ in late 2016 and 2018. On July 18, 2019, HFCR and WDEQ entered into a consent decree, and on August 9, 2019, HFCR paid penalties in the amount of $117,000 related to alleged violations of air quality limits that occurred during the second quarter of 2016 through the second quarter of 2017. Separately, on October 23, 2019, HFCR received a Notice of Violation from the WDEQ for possible violations of air quality standards during the first and second quarters of 2019. No penalty demand has yet been made by the WDEQ relating to such possible violations. HFCR and WDEQ have been in discussions to resolve WDEQ’s alleged violations of air quality limits that occurred during the third quarter of 2017 through calendar year 2019. Recently, the WDEQ and HFCR agreed that the discussions will also include exceedances that occurred during the first quarter of 2020 through the cessation of petroleum refining operations at the Cheyenne Refinery in 2016the third quarter of 2020.

Separately, on August 19, 2019 and 2017.October 30, 2019, HFCR received letters from the EPA providing a preliminary estimate of stipulated penalties related to the alleged violations that occurred during the third quarter of 2017 through the second quarter of 2019, pursuant to HFCR’s federal consent decree. HFCR responded to the EPA preliminary estimate of stipulated penalties related to the alleged violations that occurred during the third quarter of 2017 through calendar year 2018 in a letter dated September 18, 2019, followed by meetings with the EPA and the WDEQ are working towardson November 14, 2019 and December 4, 2019, to discuss an appropriate resolution of all alleged violations. HFCR settled the allegations in the EPA's August 19, 2019 and October 30, 2019 letters, and pursuant to a settlementdemand letter dated January 9, 2020, HFCR was assessed stipulated penalties totaling $700,000 pursuant to HFCR's federal consent decree. HFCR remitted payment of this matter.amount to resolve the alleged violations.


El Dorado
TheHollyFrontier El Dorado RefineryRefining 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 potentialalleged Clean Air Act civil violations relating to flaring devices and other equipment at the refinery. TheTopics of the discussions included(a) three information requests for activities beginning in January 2009, (b) Risk Management Program compliance issues 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 has responded to two separate information requests covering air emissions forin September 2017, October 2018 and March 2019. An employee fatality occurred during the September 2017 event. On May 28, 2020, HFEDR reached a time frame from January 1, 2009 through May 31, 2014. Thesettlement in the form of a proposed consent decree with the EPA, also conducted an on-sitethe DOJ, and the State of Kansas regarding the alleged Clean Air Act - Sec. 112rcivil violations relating to flaring devices and other equipment at the refinery, as well as compliance with the Clean Air Act’s Risk Management Program (“RMP”) compliance.

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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 atof certain of its processes. In addition, HFEDR is required to pay a civil penalty of $2 million to the El Dorado RefineryUnited States and notified$2 million to the El Dorado RefineryState of 20Kansas 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. The initial payment of $1 million each was paid to the EPA on September 18, 2020 and the State of Kansas on September 22, 2020. The consent decree resolves the alleged “deficiencies”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.

The Occupational Safety and Health Administration (“OSHA”) conducted investigations into both the September 2017 and March 2019 events identified above, and HFEDR settled the OSHA claims related to that inspection.those investigations in 2018 and 2019, respectively. In August 2017,April 2019, HFEDR became aware that the EPA issuedalso initiated a Noticecriminal investigation into one or more of Violation alleging thatthe foregoing events. HFEDR has received a grand jury subpoena requesting certain flaring events violated air emission regulations. Discussions withdocuments be provided to the EPA andwith respect to the U.S. Department of JusticeSeptember 2017 event. We are ongoing.cooperating with this investigation.


Tulsa
HollyFrontier Tulsa Refining LLC (“HFTR”) manufactures paraffin and hydrocarbon waxes at its Tulsa West facility. On March 11, 2014,operates under two Consent Decrees with the EPA and the Oklahoma Department of Environmental Quality (“ODEQ”) for the East and West Refineries. On December 13, 2017, during a meeting between the parties, ODEQ proposed stipulated penalties related to violations of the two Consent Decrees. The violations concern Clean Air Act regulated fuel gas and flare operations. On July 1, 2019, ODEQ issued a noticedemand letter for stipulated penalties under the East Refinery Consent Decree as proposed in the 2017 meeting. In August 2019, HFTR paid the penalties set forth in the demand letter to HFTR of possible violations of certain provisions of the federal Toxic Substances Control Act in connection with the manufacture of certain of these products. HFTRODEQ and the EPA metsatisfying the requirements of the East Refinery Consent Decree. On September 16, 2019, ODEQ issued a demand letter for stipulated penalties under the West Refinery Consent Decree. Following discussions with ODEQ, in a letter dated April 17, 2020, ODEQ reduced its September 2019 demand for stipulated penalties. In May 2020, HFTR paid to ODEQ and the EPA the penalty set forth in the April 17, 2020 demand letter, which satisfied the requirements of the West Refinery Consent Decree. Separately, on April 3, 2019, during a meeting between the parties, the EPA notified HFTR of potential monitoring violations of the Consent Decrees. EPA has not issued a demand for penalties with respect to the alleged monitoring violations.

Woods Cross
HollyFrontier Woods Cross Refining LLC (“HFWCR”) operates under a federal consent decree with the EPA and the Utah Department of Environmental Quality. On November 3, 2020, HFWCR received a letter from the EPA identifying potential violations of HFWCR’s federal consent decree that occurred from calendar year 2015 through the present. HFWCR is evaluating the details of the EPA’s letter and will provide a response to the EPA within 30 days of its receipt of the letter as requested by the EPA.

Federal Trade Commission

On July 23, 2019, the Federal Trade Commission (“FTC”) issued a Civil Investigative Demand and a related Subpoena Duces Tecum requesting we provide specified information relating to the Sonneborn acquisition that closed on February 1, 2019. We are working productively towards a settlementin the process of responding to the FTC request. Based on the limited information that we have at this time, we are unable to predict the outcome of this matter.request. On December 14, 2018, we received early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act from the FTC and Department of Justice with respect to the Sonneborn acquisition. On January 17, 2019, we received early termination of the applicable waiting period under the German antitrust laws with respect to the Sonneborn acquisition. Early termination is granted to transactions that the antitrust agencies determine raise no substantive competition concerns.

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Renewable Fuel Standard

Various subsidiaries of HollyFrontier moved to intervene in four 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 U.S. Court of Appeals for the DC Circuit dismissed one of these four lawsuits on November 12, 2019 for lack of jurisdiction. On January 24, 2020, in a second of these lawsuits, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to two of our refineries for 2016 and remanded the case to the EPA for further proceedings. On March 24, 2020, various subsidiaries of HollyFrontier filed a Petition for Rehearing with the U.S. Court of Appeals for the Tenth Circuit. On April 7, 2020, the Tenth Circuit denied our request to reconsider its decision, and on April 15, 2020, the Tenth Circuit entered its mandate, remanding the matter back to the EPA. It is not clear at this time what steps the EPA will take with respect to our 2016 small refinery exemptions, or how the case will impact future small refinery exemptions. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court appealing the Tenth Circuit decision. The third lawsuit is before the U.S. Court of Appeals for the Tenth Circuit, and the matter is fully briefed and remains pending before that court. The fourth lawsuit is before the U.S. Court of Appeals for the DC Circuit, and we anticipate briefing of the issues before the court to commence in the fourth quarter of 2020.

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.



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Item 1A.Risk Factors

Item 1A.Risk Factors

There have been no material changes in our risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 and in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.June 30, 2020. You should carefully consider the risk factors discussed in our 20162019 Form 10-K and March 31, 2017June 30, 2020 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.




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

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 2017.2020.

PeriodTotal 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 2020— $— — $1,000,000,000 
August 2020— $— — $1,000,000,000 
September 2020— $— — $1,000,000,000 
Total for July to September 2020— — 


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 2017 —
 $—
 —
 $178,811,213
August 2017 —
 $—
 —
 $178,811,213
September 2017 —
 $—
 —
 $178,811,213
Total for July to September 2017 —
   —
  


Item 6.Exhibits

Item 6.Exhibits

The Exhibit Index on page 6263 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of the Quarterly Report on Form 10-Q.


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Exhibit Index

Exhibit NumberDescription
Exhibit Number3.1Description
2.1Equity Restructuring Agreement, dated as of October 18, 2017, by and between HEP Logistics Holdings, L.P. and Holly Energy Partners, L.P. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed October 19, 2017, File No. 1-03876).
3.1
Amended and Restated Certificate of Incorporation of HollyFrontier Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed July 8, 2011, File No. 1-03876).
3.2
Amended and Restated By-Laws of HollyFrontier Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed February 20, 2014, File No. 1-03876).
4.1
10.1*4.2
4.3
10.1
First Amendment to FourthFifth Amended and Restated Master Lease and Access Agreement dated as of October 13, 2017,August 4, 2020, effective as of January 23, 2020, by and among certain subsidiaries of Holly Energy Partners, L.P. and certain subsidiaries of HollyFrontier Corporation.Corporation (incorporated by reference to Exhibit 10.5 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, File No. 1-03876).
31.1*
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101++The following financial information from HollyFrontier Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2020, formatted inas inline XBRL (Extensible(Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, 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.
104Cover page Interactive Data File (formatted as inline XBRL and contained in exhibit 101).


* Filed herewith.
** Furnished herewith.
++Filed electronically herewith.


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SIGNATURES


Pursuant to the requirements of the Securities and 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
HOLLYFRONTIER CORPORATION(Registrant)
(Registrant)
Date: November 2, 20175, 2020/s/ Richard L. Voliva III
Richard L.Voliva III
Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)
Date: November 2, 20175, 2020/s/ J. W. Gann, Jr.Indira Agarwal
J. W. Gann, Jr.Indira Agarwal
Vice President, Controller and

Chief Accounting Officer

(Principal Accounting Officer)

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