HollyFrontier 2013 Annual Report Download - page 48

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40
Operating Expenses
Operating expenses, exclusive of depreciation and amortization increased 33% from $748.1 million for the year ended
December 31, 2011 to $995.0 million for the year ended December 31, 2012, due principally to the inclusion of the legacy Frontier
refinery operations for a full-year period and higher repair and maintenance and environmental remediation costs. In 2012, we
increased certain environmental remediation accruals by $46.1 million to reflect revisions to certain cost estimates and the timeframe
for which certain environmental remediation and monitoring activities are expected to occur. Also contributing to a much lesser
extent were increased payroll costs attributable to the legacy Holly refining operations. For the years ended December 31, 2012
and 2011, operating expenses include $88.9 million and $61.1 million, respectively, in costs attributable to HEP operations.
General and Administrative Expenses
General and administrative expenses increased 7% from $120.1 million for the year ended December 31, 2011 to $128.1 million
for the year ended December 31, 2012, due principally to higher employee benefit and equity-based compensation costs and
increased corporate staffing levels as a result of our July 1, 2011 merger, net of the effects of merger related severance and integration
costs incurred during 2011. For the years ended December 31, 2012 and 2011, general and administrative expenses include $5.3
million and $4.3 million, respectively, in costs attributable to HEP operations.
Depreciation and Amortization Expenses
Depreciation and amortization increased 52% from $159.7 million for the year ended December 31, 2011 to $242.9 million for
the year ended December 31, 2012. The increase was due principally to depreciation and amortization attributable to the legacy
Frontier refinery assets, capitalized improvement projects and HEP's UNEV Pipeline. For the years ended December 31, 2012
and 2011, depreciation and amortization expenses include $57.8 million and $33.3 million, respectively, in costs attributable to
HEP operations.
Interest Income
Interest income for the year ended December 31, 2012 was $4.8 million compared to $1.3 million for the year ended December 31,
2011. This increase was due to interest received on our increased cash position and investments in marketable debt securities.
Interest Expense
Interest expense was $104.2 million for the year ended December 31, 2012 compared to $78.3 million for the year ended
December 31, 2011. This increase principally reflects interest on the senior notes assumed upon our merger with Frontier. For the
years ended December 31, 2012 and 2011, interest expense included $57.2 million and $38.2 million, respectively, in interest costs
attributable to HEP operations.
Merger Transaction Costs
For the year ended December 31, 2011, we recognized merger transaction costs of $15.1 million related to our merger with Frontier
on July 1, 2011. These costs included legal, advisory and other professional fees that were directly attributable to the merger. There
were no such costs incurred for the year ended December 31, 2012.
Income Taxes
For the year ended December 31, 2012, we recorded income tax expense of $1,028.0 million compared to $582.0 million for the
year ended December 31, 2011. This increase is due principally to significantly higher pre-tax earnings for the year ended
December 31, 2012 compared to the same period of 2011. Our effective tax rates, before consideration of earnings attributable to
the noncontrolling interest, were 36.9% and 35.5% for the years ended December 31, 2012 and 2011, respectively. Our effective
tax rate for GAAP disclosure purposes reflects the inclusion of non-taxable earnings attributable to noncontrolling interest holders
in the denominator of our effective tax rate computation.
LIQUIDITY AND CAPITAL RESOURCES
HollyFrontier Credit Agreement
We have a $1 billion senior secured credit agreement that matures in July 2016 (the “HollyFrontier Credit Agreement”) and may
be used to fund working capital requirements, capital expenditures, acquisitions and general corporate purposes. Obligations under
the HollyFrontier Credit Agreement are collateralized by our inventory, accounts receivables and certain deposit accounts and
guaranteed by our material, wholly-owned subsidiaries. At December 31, 2013, we were in compliance with all covenants, had
no outstanding borrowings and had outstanding letters of credit totaling $5.2 million under the HollyFrontier Credit Agreement.
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