##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDEDSeptember 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO.
 Commission File Number 1-32225
 HOLLY ENERGY PARTNERS, L.P.
  Delaware
    
    20-0833098(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 
 
   
  
   þ o
  o þ
  o þ




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PART I. FINANCIAL INFORMATION
    
    
    3FORWARD-LOOKING STATEMENTS
    
    
    3Item 1. Financial Statements (Unaudited, except December 31, 2004 Balance Sheet)
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statement of Partners Equity (Deficit)
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    41Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATION
    
    
    42Item 1. Legal proceedings
    
    
    42Item 6. Exhibits
    
    
    42SIGNATURES
    
    
    43Amendment to Long-Term Incentive PlanComputation of Ratio of Earnings to Fixed ChargesCertification of CEO Under Section 302Certification of CFO Under Section 302Certification of CEO Under Section 906Certification of CFO Under Section 906
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FORWARD-LOOKING STATEMENTS
  
    
    Risks and uncertainties with respect to the actual quantities of refined petroleum
products shipped on our pipelines and/or terminalled in our terminals;
    
    The future performance of the intermediate pipelines acquired from Holly Corporation in
July 2005 and of the pipelines and terminals acquired from Alon USA, Inc. in February 2005;
    
    The economic viability of Holly Corporation, Alon USA, Inc. and our other customers;
    
    The demand for refined petroleum products in markets we serve;
    
    Our ability to successfully purchase and integrate any future acquired operations;
    
    The availability and cost of our financing;
    
    The possibility of inefficiencies or shutdowns of refineries utilizing our pipeline and
terminal facilities;
    
    The effects of current and future government regulations and policies;
    
    Our operational efficiency in carrying out routine operations and capital construction projects;
    
    The possibility of terrorist attacks and the consequences of any such attacks;
    
    General economic conditions; and
    
    Other financial, operations and legal risks and uncertainties detailed from time to time
in our Securities and Exchange Commission filings.
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Item 1.
    
    Financial Statements
 Holly Energy Partners, L.P.
 
 Consolidated Balance Sheets
 September 30, 2005
    
    
    December 31,(Unaudited)
    
    
    2004(In thousands, except unit data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,524
    
    
    $
    19,104Accounts receivable:Trade
    
    
    3,362
    
    
    
    807Affiliates
    
    
    928
    
    
    
    2,0524,290
    
    
    
    2,859Prepaid and other current assets
    
    
    1,111
    
    
    
    570Total current assets
    
    
    25,925
    
    
    
    22,533Properties and equipment, net
    
    
    163,508
    
    
    
    74,626Transportation agreements, net
    
    
    61,923
    
    
    
    4,718Other assets
    
    
    2,906
    
    
    
    1,881Total assets
    
    $
    254,262
    
    
    $
    103,758LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,407
    
    
    $
    1,716Accrued interest
    
    
    911
    
    
    
    51Other current liabilities
    
    
    2,719
    
    
    
    1,646Total current liabilities
    
    
    6,037
    
    
    
    3,413Commitments and contingencies
    
    
    
    
    
    
    Long-term debt
    
    
    181,349
    
    
    
    25,000Other long-term liabilities
    
    
    364
    
    
    
    585Minority interest
    
    
    11,681
    
    
    
    13,232Partners equity (deficit):Common unitholders (8,170,000 and
7,000,000 units issued and outstanding as
of September 30, 2005 and December 31,
2004, respectively)
    
    
    185,955
    
    
    
    144,318Subordinated unitholder (7,000,000 units
issued and outstanding as of September
30, 2005 and December 31, 2004)
    
    
    (61,987
    )
    
    
    (59,470
    )Class B subordinated unitholder (937,500
units issued and outstanding as of
September 30, 2005)
    
    
    24,549
    
    
    
    General partner (2% interest)
    
    
    (93,686
    )
    
    
    (23,320
    )Total partners equity
    
    
    54,831
    
    
    
    61,528Total liabilities and partners equity
    
    $
    254,262
    
    
    $
    103,758
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Holly Energy Partners, L.P.
 
 Consolidated
Statements of Income
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per unit data)Revenues:Affiliates
    
    $
    12,507
    
    
    $
    9,650
    
    
    $
    31,878
    
    
    $
    35,433Third parties
    
    
    9,010
    
    
    
    4,832
    
    
    
    25,673
    
    
    
    16,34121,517
    
    
    
    14,482
    
    
    
    57,551
    
    
    
    51,774Operating costs and expenses:Operations
    
    
    6,333
    
    
    
    5,245
    
    
    
    18,169
    
    
    
    17,905Depreciation and amortization
    
    
    3,924
    
    
    
    1,749
    
    
    
    10,136
    
    
    
    5,486General and administrative
    
    
    1,075
    
    
    
    888
    
    
    
    3,042
    
    
    
    88811,332
    
    
    
    7,882
    
    
    
    31,347
    
    
    
    24,279Operating income
    
    
    10,185
    
    
    
    6,600
    
    
    
    26,204
    
    
    
    27,495Other income (expense):Interest income
    
    
    201
    
    
    
    16
    
    
    
    434
    
    
    
    88Interest expense
    
    
    (3,038
    )
    
    
    (301
    )
    
    
    (6,521
    )
    
    
    (301
    )(2,837
    )
    
    
    (285
    )
    
    
    (6,087
    )
    
    
    (213
    )Income before minority interest
    
    
    7,348
    
    
    
    6,315
    
    
    
    20,117
    
    
    
    27,282Minority interest in Rio Grande Pipeline
Company
    
    
    (56
    )
    
    
    (324
    )
    
    
    (458
    )
    
    
    (1,319
    )Net income
    
    
    7,292
    
    
    
    5,991
    
    
    
    19,659
    
    
    
    25,963Less:Net income attributable to Predecessor
    
    
    
    
    
    
    1,132
    
    
    
    
    
    
    
    21,104General partner interest in net income
    
    
    208
    
    
    
    97
    
    
    
    455
    
    
    
    97Limited partners interest in net income
    
    $
    7,084
    
    
    $
    4,762
    
    
    $
    19,204
    
    
    $
    4,762Net income per limited partner unit -
Basic and diluted
    
    $
    0.44
    
    
    $
    0.34
    
    
    $
    1.27
    
    
    $
    0.34Weighted average limited partners units
outstanding
    
    
    16,018
    
    
    
    14,000
    
    
    
    15,103
    
    
    
    14,000
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Holly Energy Partners, L.P.
 
 Consolidated
Statements of Cash Flows
(Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004(In thousands)Cash flows from operating activitiesNet income
    
    $
    19,659
    
    
    $
    25,963Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    10,136
    
    
    
    5,486Minority interest in Rio Grande Pipeline Company
    
    
    458
    
    
    
    1,319Amortization of restricted units
    
    
    144
    
    
    
    (Increase) decrease in current assets:Accounts receivable  trade
    
    
    (2,624
    )
    
    
    65Accounts receivable  affiliates
    
    
    1,124
    
    
    
    (24,665
    )Prepaid and other current assets
    
    
    (986
    )
    
    
    (542
    )Increase (decrease) in current liabilities:Accounts payable
    
    
    691
    
    
    
    (499
    )Accounts payable  affiliates
    
    
    
    
    
    
    (2,506
    )Accrued interest
    
    
    860
    
    
    
    Other current liabilities
    
    
    1,073
    
    
    
    328Other, net
    
    
    203
    
    
    
    Net cash provided by operating activities
    
    
    30,738
    
    
    
    4,949Cash flows from investing activitiesAcquisitions of pipeline and terminal assets
    
    
    (127,791
    )
    
    
    Additions to properties and equipment
    
    
    (2,394
    )
    
    
    (2,824
    )Net cash used for investing activities
    
    
    (130,185
    )
    
    
    (2,824
    )Cash flows from financing activitiesProceeds from issuance of senior notes, net of discount
    
    
    181,238
    
    
    
    Proceeds from issuance of common units, net of underwriter discount
    
    
    45,100
    
    
    
    145,460Proceeds from borrowings
    
    
    
    
    
    
    25,000Distributions to partners
    
    
    (25,035
    )
    
    
    (125,612
    )Deemed distribution related to intermediate pipeline acquisition
    
    
    (71,850
    )
    
    
    Repayment of debt
    
    
    (25,000
    )
    
    
    (30,082
    )Additional capital contribution from general partner
    
    
    612
    
    
    
    Costs of issuing common units
    
    
    (345
    )
    
    
    (3,476
    )Deferred debt issuance costs
    
    
    (1,208
    )
    
    
    (1,409
    )Cash distributions to minority interest
    
    
    (2,010
    )
    
    
    (2,820
    )Purchase of restricted units
    
    
    (635
    )
    
    
    Net cash provided by financing activities
    
    
    100,867
    
    
    
    7,061Cash and cash equivalentsIncrease for period
    
    
    1,420
    
    
    
    9,186Beginning of period
    
    
    19,104
    
    
    
    6,694End of period
    
    $
    20,524
    
    
    $
    15,880
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Holly Energy Partners, L.P.
 
 Consolidated Statement
of Partners Equity (Deficit)
(Unaudited)
 Common
    
    
    Subordinated
    
    
    Class B
    
    
    General PartnerUnits
    
    
    Units
    
    
    Subordinated Units
    
    
    Interest
    
    
    Total(In thousands)Balance December 31, 2004
    
    $
    144,318
    
    
    $
    (59,470
    )
    
    $
    
    
    
    $
    (23,320
    )
    
    $
    61,528Issuance of common units
    
    
    45,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,100Issuance of Class B
subordinated units
    
    
    
    
    
    
    
    
    
    
    24,674
    
    
    
    
    
    
    
    24,674Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,591
    
    
    
    1,591Distributions
    
    
    (12,003
    )
    
    
    (11,415
    )
    
    
    (1,055
    )
    
    
    (562
    )
    
    
    (25,035
    )Deemed distribution
related to asset
acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,850
    )
    
    
    (71,850
    )Purchase of restricted
units
    
    
    (635
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (635
    )Amortization of
restricted units
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Cost of issuance of
common units
    
    
    (345
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345
    )Net income
    
    
    9,376
    
    
    
    8,898
    
    
    
    930
    
    
    
    455
    
    
    
    19,659Balance September 30, 2005
    
    $
    185,955
    
    
    $
    (61,987
    )
    
    $
    24,549
    
    
    $
    (93,686
    )
    
    $
    54,831
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1: Organization, Basis of Presentation, and Principles of Consolidation
      Recent Accounting Pronouncements
  - 8 -




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Note 2: Initial Public Offering of HEP
     - 9 -




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Navajo Pipeline
    
    
    Contributed toCo., L.P.
    
    
    Holly Energy(Predecessor)
    
    
    Partners, L.P.
    
    
    NotJuly 12, 2004
    
    
    July 13, 2004
    
    
    Contributed(In thousands)Cash
    
    $
    2,268
    
    
    $
    2,268
    
    
    $
    Accounts receivable  trade
    
    
    850
    
    
    
    800
    
    
    
    50Accounts receivable  affiliates
    
    
    51,934
    
    
    
    
    
    
    
    51,934Prepaid and other current assets
    
    
    292
    
    
    
    173
    
    
    
    119Properties and equipment, net
    
    
    95,337
    
    
    
    76,605
    
    
    
    18,732Transportation agreement, net
    
    
    5,692
    
    
    
    5,692
    
    
    
    Total assets
    
    
    156,373
    
    
    
    85,538
    
    
    
    70,835Accounts payable  trade
    
    
    1,452
    
    
    
    339
    
    
    
    1,113Accounts payable  affiliates
    
    
    18,819
    
    
    
    
    
    
    
    18,819Accrued liabilities
    
    
    1,018
    
    
    
    534
    
    
    
    484Short-term debt
    
    
    30,082
    
    
    
    30,082
    
    
    
    Non-current liabilities
    
    
    1,775
    
    
    
    1,138
    
    
    
    637Minority interest
    
    
    13,263
    
    
    
    13,263
    
    
    
    Total liabilities
    
    
    66,409
    
    
    
    45,356
    
    
    
    21,053Net Assets
    
    $
    89,964
    
    
    $
    40,182
    
    
    $
    49,782
    Note 3: Acquisitions
 Alon Transaction
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Holly Intermediate Pipelines Transaction
    - 11 -




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Note 4: Properties and Equipment
 September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)Pipelines and terminals
    
    $
    191,118
    
    
    $
    104,095Land and right of way
    
    
    15,511
    
    
    
    4,865Other
    
    
    5,057
    
    
    
    4,436Construction in progress
    
    
    1,707
    
    
    
    201213,393
    
    
    
    113,597Less accumulated depreciation
    
    
    49,885
    
    
    
    38,971$
    163,508
    
    
    $
    74,626
  Note 5: Employees, Retirement and Benefit Plans
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Restricted Units
   Weighted-Average
    
    
    Weighted-AverageGrant-Date Fair
    
    
    Remaining
    
    
    Aggregate IntrinsicRestricted Units
    
    Grants
    
    
    Value
    
    
    Contractual Term
    
    
    Value ($000)Outstanding at
January 1, 2005
(not vested)
    
    
    6,489
    
    
    $
    34.32Vesting and
transfer of
ownership to
recipients
    
    
    
    
    
    
    Granted
    
    
    14,437
    
    
    
    43.97Forfeited
    
    
    
    
    
    
    Outstanding at
September 30, 2005
(not vested)
    
    
    20,926
    
    
    $
    40.98
    
    
    2.8 years
    
    $
    916
  Performance Units
   - 13 -




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Expected Return
    
    
    Standard DeviationCompany
    
    on Equity
    
    
    (Monthly)HEP
    
    4.8% to 7.5%
    
    13.0% to 15.5%Peer group
    
    4.0% to 5.9%
    
    9.5% to 11.0%
  Performance Units
    
    GrantsOutstanding at January 1, 2005 (not vested)
    
    
    Vesting and payment of cash benefit to recipients
    
    
    Granted
    
    
    1,514Forfeited
    
    
    Outstanding at September 30, 2005 (not vested)
    
    
    1,514
   Note 6: Debt
 Credit Agreement
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Senior Notes Due 2015
      - 15 -




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Interest Rate Risk Management
    Other Debt Information
   Note 7: Commitments and Contingencies
   Note 8: Significant Customers
  - 16 -




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Holly
    
    
    58
    %
    
    
    67
    %
    
    
    55
    %
    
    
    69
    %Customer A
    
    
    8
    %
    
    
    16
    %
    
    
    11
    %
    
    
    17
    %Customer B
    
    
    31
    %
    
    
    11
    %
    
    
    30
    %
    
    
    9
    %
 Note 9: Related Party Transactions
     Note 10: Partners Equity and Cash Distributions
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Note 11: Supplemental Guarantor/Non-Guarantor Financial Information
   - 18 -




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Unaudited Condensed Consolidating Balance Sheets
September 30, 2005
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2
    
    
    $
    19,025
    
    
    $
    1,497
    
    
    $
    
    
    
    $
    20,524Accounts receivable
    
    
    
    
    
    
    3,605
    
    
    
    685
    
    
    
    
    
    
    
    4,290Intercompany accounts receivable (payable)
    
    
    (10,040
    )
    
    
    10,298
    
    
    
    (258
    )
    
    
    
    
    
    
    Prepaid and other current assets
    
    
    354
    
    
    
    757
    
    
    
    
    
    
    
    
    
    
    
    1,111Total current assets
    
    
    (9,684
    )
    
    
    33,685
    
    
    
    1,924
    
    
    
    
    
    
    
    25,925Properties and equipment, net
    
    
    
    
    
    
    129,009
    
    
    
    34,499
    
    
    
    
    
    
    
    163,508Investment in subsidiaries
    
    
    245,894
    
    
    
    27,255
    
    
    
    
    
    
    
    (273,149
    )
    
    
    Transportation agreements, net
    
    
    
    
    
    
    58,768
    
    
    
    3,155
    
    
    
    
    
    
    
    61,923Other assets
    
    
    1,542
    
    
    
    1,364
    
    
    
    
    
    
    
    
    
    
    
    2,906Total assets
    
    $
    237,752
    
    
    $
    250,081
    
    
    $
    39,578
    
    
    $
    (273,149
    )
    
    $
    254,262LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable
    
    $
    81
    
    
    $
    2,043
    
    
    $
    283
    
    
    $
    
    
    
    $
    2,407Accrued interest
    
    
    911
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    911Other current liabilities
    
    
    508
    
    
    
    1,852
    
    
    
    359
    
    
    
    
    
    
    
    2,719Total current liabilities
    
    
    1,500
    
    
    
    3,895
    
    
    
    642
    
    
    
    
    
    
    
    6,037Long-term debt
    
    
    181,349
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,349Other long-term liabilities
    
    
    72
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    364Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,681
    
    
    
    11,681Partners equity
    
    
    54,831
    
    
    
    245,894
    
    
    
    38,936
    
    
    
    (284,830
    )
    
    
    54,831Total liabilities and partners equity
    
    $
    237,752
    
    
    $
    250,081
    
    
    $
    39,578
    
    
    $
    (273,149
    )
    
    $
    254,262
 Condensed Consolidating Balance Sheets
December 31, 2004
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2
    
    
    $
    15,143
    
    
    $
    3,959
    
    
    $
    
    
    
    $
    19,104Accounts receivable
    
    
    
    
    
    
    2,373
    
    
    
    486
    
    
    
    
    
    
    
    2,859Intercompany accounts receivable (payable)
    
    
    (5,658
    )
    
    
    5,658
    
    
    
    
    
    
    
    
    
    
    
    Prepaid and other current assets
    
    
    180
    
    
    
    338
    
    
    
    52
    
    
    
    
    
    
    
    570Total current assets
    
    
    (5,476
    )
    
    
    23,512
    
    
    
    4,497
    
    
    
    
    
    
    
    22,533Properties and equipment, net
    
    
    
    
    
    
    39,097
    
    
    
    35,529
    
    
    
    
    
    
    
    74,626Investment in subsidiaries
    
    
    67,551
    
    
    
    30,876
    
    
    
    
    
    
    
    (98,427
    )
    
    
    Transportation agreements, net
    
    
    
    
    
    
    
    
    
    
    4,718
    
    
    
    
    
    
    
    4,718Other assets
    
    
    
    
    
    
    1,881
    
    
    
    
    
    
    
    
    
    
    
    1,881Total assets
    
    $
    62,075
    
    
    $
    95,366
    
    
    $
    44,744
    
    
    $
    (98,427
    )
    
    $
    103,758LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    1,467
    
    
    $
    249
    
    
    $
    
    
    
    $
    1,716Other current liabilities
    
    
    547
    
    
    
    763
    
    
    
    387
    
    
    
    
    
    
    
    1,697Total current liabilities
    
    
    547
    
    
    
    2,230
    
    
    
    636
    
    
    
    
    
    
    
    3,413Long-term debt
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Other long-term liabilities
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    585Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,232
    
    
    
    13,232Partners equity
    
    
    61,528
    
    
    
    67,551
    
    
    
    44,108
    
    
    
    (111,659
    )
    
    
    61,528Total liabilities and partners equity
    
    $
    62,075
    
    
    $
    95,366
    
    
    $
    44,744
    
    
    $
    (98,427
    )
    
    $
    103,758
 - 19 -




---



##### Table of Contents



Unaudited Condensed Consolidating Statements of Income
Three Months Ended September 30, 2005
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    12,507
    
    
    $
    
    
    
    $
    
    
    
    $
    12,507Third parties
    
    
    
    
    
    
    7,627
    
    
    
    1,662
    
    
    
    (279
    )
    
    
    9,010
    
    
    
    20,134
    
    
    
    1,662
    
    
    
    (279
    )
    
    
    21,517Operating costs and expenses:Operations
    
    
    
    
    
    
    5,969
    
    
    
    643
    
    
    
    (279
    )
    
    
    6,333Depreciation and amortization
    
    
    
    
    
    
    3,080
    
    
    
    844
    
    
    
    
    
    
    
    3,924General and administrative
    
    
    557
    
    
    
    517
    
    
    
    1
    
    
    
    
    
    
    
    1,075557
    
    
    
    9,566
    
    
    
    1,488
    
    
    
    (279
    )
    
    
    11,332Operating income (loss)
    
    
    (557
    )
    
    
    10,568
    
    
    
    174
    
    
    
    
    
    
    
    10,185Equity in earnings of subsidiaries
    
    
    10,655
    
    
    
    130
    
    
    
    
    
    
    
    (10,785
    )
    
    
    Interest income (expense)
    
    
    (2,806
    )
    
    
    (43
    )
    
    
    12
    
    
    
    
    
    
    
    (2,837
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Net income
    
    $
    7,292
    
    
    $
    10,655
    
    
    $
    186
    
    
    $
    (10,841
    )
    
    $
    7,292
 Unaudited Condensed Consolidating Statements of Income
Three Months Ended September 30, 2004
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated*(in thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    9,650
    
    
    $
    
    
    
    $
    
    
    
    $
    9,650Third parties
    
    
    
    
    
    
    2,440
    
    
    
    2,392
    
    
    
    
    
    
    
    4,832
    
    
    
    12,090
    
    
    
    2,392
    
    
    
    
    
    
    
    14,482Operating costs and expenses:Operations
    
    
    
    
    
    
    4,871
    
    
    
    374
    
    
    
    
    
    
    
    5,245Depreciation and amortization
    
    
    
    
    
    
    904
    
    
    
    845
    
    
    
    
    
    
    
    1,749General and administrative
    
    
    443
    
    
    
    354
    
    
    
    91
    
    
    
    
    
    
    
    888443
    
    
    
    6,129
    
    
    
    1,310
    
    
    
    
    
    
    
    7,882Operating income
    
    
    (443
    )
    
    
    5,961
    
    
    
    1,082
    
    
    
    
    
    
    
    6,600Equity in earnings of subsidiaries
    
    
    5,302
    
    
    
    756
    
    
    
    
    
    
    
    (6,058
    )
    
    
    Interest income (expense)
    
    
    
    
    
    
    (284
    )
    
    
    (1
    )
    
    
    
    
    
    
    (285
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (324
    )
    
    
    (324
    )Net income
    
    $
    4,859
    
    
    $
    6,433
    
    
    $
    1,081
    
    
    $
    (6,382
    )
    
    $
    5,991
 - 20 -




---



##### Table of Contents



Unaudited Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2005
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    31,878
    
    
    $
    
    
    
    $
    
    
    
    $
    31,878Third parties
    
    
    
    
    
    
    19,941
    
    
    
    6,290
    
    
    
    (558
    )
    
    
    25,673
    
    
    
    51,819
    
    
    
    6,290
    
    
    
    (558
    )
    
    
    57,551Operating costs and expenses:Operations
    
    
    
    
    
    
    16,484
    
    
    
    2,243
    
    
    
    (558
    )
    
    
    18,169Depreciation and amortization
    
    
    
    
    
    
    7,603
    
    
    
    2,533
    
    
    
    
    
    
    
    10,136General and administrative
    
    
    1,477
    
    
    
    1,549
    
    
    
    16
    
    
    
    
    
    
    
    3,0421,477
    
    
    
    25,636
    
    
    
    4,792
    
    
    
    (558
    )
    
    
    31,347Operating income (loss)
    
    
    (1,477
    )
    
    
    26,183
    
    
    
    1,498
    
    
    
    
    
    
    
    26,204Equity in earnings of subsidiaries
    
    
    26,888
    
    
    
    1,070
    
    
    
    
    
    
    
    (27,958
    )
    
    
    Interest income (expense)
    
    
    (5,752
    )
    
    
    (365
    )
    
    
    30
    
    
    
    
    
    
    
    (6,087
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (458
    )
    
    
    (458
    )Net income
    
    $
    19,659
    
    
    $
    26,888
    
    
    $
    1,528
    
    
    $
    (28,416
    )
    
    $
    19,659
 Unaudited Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2004
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated*(in thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    35,433
    
    
    $
    
    
    
    $
    
    
    
    $
    35,433Third parties
    
    
    
    
    
    
    7,642
    
    
    
    8,699
    
    
    
    
    
    
    
    16,341
    
    
    
    43,075
    
    
    
    8,699
    
    
    
    
    
    
    
    51,774Operating costs and expenses:Operations
    
    
    
    
    
    
    16,226
    
    
    
    1,679
    
    
    
    
    
    
    
    17,905Depreciation and amortization
    
    
    
    
    
    
    2,953
    
    
    
    2,533
    
    
    
    
    
    
    
    5,486General and administrative
    
    
    443
    
    
    
    354
    
    
    
    91
    
    
    
    
    
    
    
    888443
    
    
    
    19,533
    
    
    
    4,303
    
    
    
    
    
    
    
    24,279Operating
income (loss)
    
    
    (443
    )
    
    
    23,542
    
    
    
    4,396
    
    
    
    
    
    
    
    27,495Equity in earnings of subsidiaries
    
    
    5,302
    
    
    
    3,077
    
    
    
    
    
    
    
    (8,379
    )
    
    
    Interest income (expense)
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    
    
    
    
    (213
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,319
    )
    
    
    (1,319
    )Net income
    
    $
    4,859
    
    
    $
    26,406
    
    
    $
    4,396
    
    
    $
    (9,698
    )
    
    $
    25,963
 - 21 -




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##### Table of Contents



Unaudited Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2005
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities
    
    $
    (2,444
    )
    
    $
    28,944
    
    
    $
    4,238
    
    
    $
    
    
    
    $
    30,738Cash flows used for investing activities:Acquisitions, net of cash acquired
    
    
    (125,801
    )
    
    
    (1,990
    )
    
    
    
    
    
    
    
    
    
    
    (127,791
    )Additions to properties and equipment
    
    
    
    
    
    
    (2,394
    )
    
    
    
    
    
    
    
    
    
    
    (2,394
    )Investments in subsidiaries, net
    
    
    (1
    )
    
    
    4,690
    
    
    
    
    
    
    
    (4,689
    )
    
    
    (125,802
    )
    
    
    306
    
    
    
    
    
    
    
    (4,689
    )
    
    
    (130,185
    )Cash flows from financing activities:Proceeds from issuance of senior
notes, net of discount
    
    
    181,238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,238Proceeds from issuance of common
units, net of underwriter discount
    
    
    45,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,100Contributions from (distributions
to) partners
    
    
    (24,423
    )
    
    
    1
    
    
    
    (6,700
    )
    
    
    6,699
    
    
    
    (24,423
    )Deemed distribution related to asset
acquisition
    
    
    (71,850
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,850
    )Borrowings (repayments) of debt, net
    
    
    
    
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Distributions to minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,010
    )
    
    
    (2,010
    )Other financing activities, net
    
    
    (1,819
    )
    
    
    (369
    )
    
    
    
    
    
    
    
    
    
    
    (2,188
    )128,246
    
    
    
    (25,368
    )
    
    
    (6,700
    )
    
    
    4,689
    
    
    
    100,867Cash and cash equivalentsIncrease (decrease) for the period
    
    
    
    
    
    
    3,882
    
    
    
    (2,462
    )
    
    
    
    
    
    
    1,420Beginning of period
    
    
    2
    
    
    
    15,143
    
    
    
    3,959
    
    
    
    
    
    
    
    19,104End of period
    
    $
    2
    
    
    $
    19,025
    
    
    $
    1,497
    
    
    $
    
    
    
    $
    20,524
 Unaudited Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2004
 Guarantor
    
    
    Non-Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated*(in thousands)Cash flows from operating activities
    
    $
    (353
    )
    
    $
    (707
    )
    
    $
    6,009
    
    
    $
    
    
    
    $
    4,949Cash flows used for investing activities:Additions to properties and equipment
    
    
    
    
    
    
    (2,107
    )
    
    
    (717
    )
    
    
    
    
    
    
    (2,824
    )Investments in subsidiaries, net
    
    
    (15,082
    )
    
    
    6,580
    
    
    
    
    
    
    
    8,502
    
    
    
    (15,082
    )
    
    
    4,473
    
    
    
    (717
    )
    
    
    8,502
    
    
    
    (2,824
    )Cash flows from financing activities:Issuance of common units, net of underwriter
discount
    
    
    145,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,460Distributions to Holly concurrent with IPO
    
    
    (125,612
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125,612
    )Contributions from (distributions to) partners
    
    
    
    
    
    
    15,082
    
    
    
    (9,400
    )
    
    
    (5,682
    )
    
    
    Borrowings (repayments)of debt, net
    
    
    
    
    
    
    (5,082
    )
    
    
    
    
    
    
    
    
    
    
    (5,082
    )Cash distribution to minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,820
    )
    
    
    (2,820
    )Other financing activities, net
    
    
    (3,476
    )
    
    
    (1,409
    )
    
    
    
    
    
    
    
    
    
    
    (4,885
    )16,372
    
    
    
    8,591
    
    
    
    (9,400
    )
    
    
    (8,502
    )
    
    
    7,061Cash and cash equivalentsIncrease (decrease) for the period
    
    
    937
    
    
    
    12,357
    
    
    
    (4,108
    )
    
    
    
    
    
    
    9,186Beginning of period
    
    
    
    
    
    
    
    
    
    
    6,694
    
    
    
    
    
    
    
    6,694End of period
    
    $
    937
    
    
    $
    12,357
    
    
    $
    2,586
    
    
    $
    
    
    
    $
    15,880
 
 *
    
    Includes results of Navajo Pipeline Co., L.P. (Predecessor) prior to formation of the
parent in July 2004. - 22 -




---



##### Table of Contents



Note 12: Subsequent Events
  - 23 -




---



##### Table of Contents



HOLLY ENERGY PARTNERS, L.P.
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  OVERVIEW
   Historical Results of Operations
    
    
    net proceeds from our initial public offering which closed on July 13, 2004 (see Liquidity and Capital
Resources below);
    
    the transfer of certain of our predecessors operations to HEP, which
 -
    
    includes our predecessors refined product pipeline and terminal assets and
short-term debt due to Holly (which was repaid upon the closing of our initial public
offering), and-
    
    excludes our predecessors intermediate product pipelines prior to our purchase
in July 2005, crude oil systems, accounts receivable from or payable to affiliates, and
other miscellaneous assets and liabilities;
 - 24 -




---



##### Table of Contents




    
    the execution of a 15-year pipelines and terminals
agreement with Holly (Holly PTA) and the recognition of
revenues derived therefrom for serving Hollys refineries in
New Mexico and Utah; and
    
    the execution of an omnibus agreement with Holly and
several of its subsidiaries (the Omnibus Agreement) and the
recognition of allocated general and administrative expenses
in addition to direct general and administrative expense
related to our operation as a publicly owned entity.
  Agreements with Holly Corporation
     - 25 -




---



##### Table of Contents



Alon Transaction; Senior Note Offering
   Holly Intermediate Pipelines Transaction
   - 26 -




---



##### Table of Contents



RESULTS OF OPERATIONS (Unaudited)
 Income, Distributable Cash Flow and Volumes
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per unit data)RevenuesPipelines:Affiliates  refined product pipelines
    
    $
    7,659
    
    
    $
    6,947
    
    
    $
    21,848
    
    
    $
    21,046Affiliates  intermediate pipelines
    
    
    2,224
    
    
    
    
    
    
    
    2,224
    
    
    
    Third parties
    
    
    7,873
    
    
    
    4,030
    
    
    
    22,371
    
    
    
    13,55217,756
    
    
    
    10,977
    
    
    
    46,443
    
    
    
    34,598Terminals & truck loading racks:Affiliates
    
    
    2,624
    
    
    
    2,310
    
    
    
    7,806
    
    
    
    6,769Third parties
    
    
    1,137
    
    
    
    780
    
    
    
    3,302
    
    
    
    2,4993,761
    
    
    
    3,090
    
    
    
    11,108
    
    
    
    9,268Other
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    15Total for pipelines and terminal assets
    
    
    21,517
    
    
    
    14,068
    
    
    
    57,551
    
    
    
    43,881Crude system and intermediate pipelines not contributed to HEP at
inception (1):Lovington crude oil pipelines
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    3,325Intermediate pipelines
    
    
    
    
    
    
    247
    
    
    
    
    
    
    
    4,568Total for crude system and intermediate pipeline assets not
contributed to HEP at inception
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    7,893Total revenues
    
    
    21,517
    
    
    
    14,482
    
    
    
    57,551
    
    
    
    51,774Operating costs and expensesCosts related to refined product pipeline and terminal assets:Operations
    
    
    6,333
    
    
    
    5,156
    
    
    
    18,169
    
    
    
    15,625Depreciation and amortization
    
    
    3,924
    
    
    
    1,723
    
    
    
    10,136
    
    
    
    5,053General and administrative
    
    
    1,075
    
    
    
    888
    
    
    
    3,042
    
    
    
    88811,332
    
    
    
    7,767
    
    
    
    31,347
    
    
    
    21,566Crude system and intermediate pipelines not contributed
to HEP at inception (1):Operations
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    2,280Depreciation and amortization
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    433
    
    
    
    115
    
    
    
    
    
    
    
    2,713Total operating costs and expenses
    
    
    11,332
    
    
    
    7,882
    
    
    
    31,347
    
    
    
    24,279Operating income
    
    
    10,185
    
    
    
    6,600
    
    
    
    26,204
    
    
    
    27,495Interest income
    
    
    201
    
    
    
    16
    
    
    
    434
    
    
    
    88Interest expense, including amortization
    
    
    (3,038
    )
    
    
    (301
    )
    
    
    (6,521
    )
    
    
    (301
    )Minority interest in Rio Grande
    
    
    (56
    )
    
    
    (324
    )
    
    
    (458
    )
    
    
    (1,319
    )Net income
    
    
    7,292
    
    
    
    5,991
    
    
    
    19,659
    
    
    
    25,963Less:Net income applicable to Predecessor
    
    
    
    
    
    
    1,132
    
    
    
    
    
    
    
    21,104General
partner interest in net income, including incentive
distributions (2)
    
    
    208
    
    
    
    97
    
    
    
    455
    
    
    
    97Limited partners interest in net income
    
    $
    7,084
    
    
    $
    4,762
    
    
    $
    19,204
    
    
    $
    4,762Net income per limited partner unit  basic and diluted(2)
    
    $
    0.44
    
    
    $
    0.34
    
    
    $
    1.27
    
    
    $
    0.34Weighted average limited partners units outstanding
    
    
    16,018
    
    
    
    14,000
    
    
    
    15,103
    
    
    
    14,000EBITDA(3)
    
    $
    14,053
    
    
    $
    8,025
    
    
    $
    35,882
    
    
    $
    31,662Distributable cash flow(4)
    
    $
    11,424
    
    
    $
    6,274
    
    
    $
    30,114
    
    
    $
    6,274
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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Volumes (bpd)(5)Pipelines:Affiliates  refined product pipelines
    
    
    66,541
    
    
    
    62,186
    
    
    
    66,504
    
    
    
    64,186Affiliates  intermediate pipelines
    
    
    53,725
    
    
    
    
    
    
    
    18,105
    
    
    
    Third parties
    
    
    66,584
    
    
    
    25,135
    
    
    
    60,007
    
    
    
    29,076186,850
    
    
    
    87,321
    
    
    
    144,616
    
    
    
    93,262Terminals & truck loading racks:Affiliates
    
    
    121,835
    
    
    
    113,303
    
    
    
    122,460
    
    
    
    114,662Third parties
    
    
    44,369
    
    
    
    25,925
    
    
    
    40,911
    
    
    
    26,333166,204
    
    
    
    139,228
    
    
    
    163,371
    
    
    
    140,995Total for pipelines and terminal assets (bpd)
    
    
    353,054
    
    
    
    226,549
    
    
    
    307,987
    
    
    
    234,257
 
 (1)
    
    Revenue and expense items generated by the crude system and intermediate pipeline
assets that were not contributed to HEP at inception in July 2004. Historically, these
items were included in the income of NPL as predecessor, but are not included in the income
of HEP beginning July 13, 2004. The intermediate pipelines were later purchased by HEP on
July 8, 2005.(2)
    
    Net income is allocated between limited partners and the general partner interest in
accordance with the provisions of the partnership agreement. Net income allocated to the
general partner includes any incentive distributions declared in the period. As of
September 30, 2005, $62,844 of incentive distributions had been declared. The net income
applicable to the limited partners is divided by the weighted average limited partner units
outstanding in computing the net income per unit applicable to limited partners.(3)
    
    Earnings before interest, taxes, depreciation and amortization (EBITDA) is calculated
as net income plus (i) interest expense net of interest income and (ii) depreciation and
amortization. EBITDA is not a calculation based upon U.S. generally accepted accounting
principles (U.S. 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 compliance with financial covenants.Set forth below is our calculation of EBITDA.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Net income
    
    $
    7,292
    
    
    $
    5,991
    
    
    $
    19,659
    
    
    $
    25,963Add interest expense
    
    
    2,803
    
    
    
    237
    
    
    
    5,978
    
    
    
    237Add amortization of discount and
deferred debt issuance costs
    
    
    235
    
    
    
    64
    
    
    
    543
    
    
    
    64Subtract interest income
    
    
    (201
    )
    
    
    (16
    )
    
    
    (434
    )
    
    
    (88
    )Add depreciation and amortization
    
    
    3,924
    
    
    
    1,749
    
    
    
    10,136
    
    
    
    5,486EBITDA
    
    $
    14,053
    
    
    $
    8,025
    
    
    $
    35,882
    
    
    $
    31,662
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##### Table of Contents



(4)
    
    Distributable cash flow is not a calculation based upon U.S. GAAP. However, the
amounts included in the calculation are derived from amounts separately presented in our
consolidated financial statements, with the exception of maintenance capital expenditures.
Distributable cash flow should not be considered in isolation or 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. Distributable cash flow is
not necessarily comparable to similarly titled measures of other companies. Distributable
cash flow is presented here because it is a widely accepted financial indicator used by
investors to compare partnership performance. We believe that this measure provides
investors an enhanced perspective of the operating performance of our assets and the cash
our business is generating.Set forth below is our calculation of distributable cash flow attributable to partners
subsequent to the formation on July 13, 2004.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Net income
    
    $
    7,292
    
    
    $
    5,991
    
    
    $
    19,659
    
    
    $
    25,963Subtract income attributable to predecessor
    
    
    
    
    
    
    (1,132
    )
    
    
    
    
    
    
    (21,104
    )Add depreciation and amortization
subsequent to formation
    
    
    3,924
    
    
    
    1,503
    
    
    
    10,136
    
    
    
    1,503Add amortization of discount and deferred
debt issuance costs subsequent to
formation
    
    
    235
    
    
    
    64
    
    
    
    543
    
    
    
    64Subtract maintenance capital expenditures
subsequent to formation*
    
    
    (27
    )
    
    
    (152
    )
    
    
    (224
    )
    
    
    (152
    )Distributable cash flow of partnership
subsequent to formation on July 13, 2004
    
    $
    11,424
    
    
    $
    6,274
    
    
    $
    30,114
    
    
    $
    6,274
 
 *
    
    Maintenance capital expenditures are capital expenditures made to replace partially
or fully depreciated assets in order to maintain the existing operating capacity of our
assets and to extend their useful lives. (5)
    
    The amounts reported represent volumes from the initial assets contributed to HEP at
inception in July 2004 and additional volumes from the assets acquired from Alon starting
in March 2005 and the intermediate pipelines acquired from Holly starting in July 2005.
The amounts reported in the 2005 periods include volumes on the acquired assets from their
respective acquisition dates averaged over the full reported periods.
 Balance Sheet Data
 September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Cash and cash equivalents
    
    $
    20,524
    
    
    $
    19,104Working capital
    
    $
    19,888
    
    
    $
    19,120Total assets
    
    $
    254,262
    
    
    $
    103,758Long-term debt
    
    $
    181,349
    
    
    $
    25,000Partners equity
    
    $
    54,831
    
    
    $
    61,528
 - 29 -




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##### Table of Contents



Results of Operations  Three Months Ended September 30, 2005 Compared with Three Months Ended
September 30, 2004
 Summary
  Revenues
    Operating Costs
  Depreciation and Amortization
  - 30 -




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##### Table of Contents



General and Administrative
  Interest Expense
  Minority Interest in Earnings of Rio Grande
  Results of Operations  Nine Months Ended September 30, 2005 Compared with Nine Months Ended
September 30, 2004
 Summary
  Revenues
   - 31 -




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##### Table of Contents



Operating Costs
  Depreciation and Amortization
  General and Administrative
  Interest Expense
  Minority Interest in Earnings of Rio Grande
  - 32 -




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Overview
      Cash Flows  Operating Activities
  - 33 -




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##### Table of Contents



Cash Flows  Investing Activities
  Cash Flows  Financing Activities
  Capital Requirements
  - 34 -




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##### Table of Contents



Credit Agreement
        - 35 -




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##### Table of Contents



Senior Notes Due 2015
   .
  Alon Transaction
   - 36 -




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##### Table of Contents



Holly Intermediate Pipelines Transaction
    - 37 -




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##### Table of Contents



Contractual Obligations and Contingencies
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    Over 5Total
    
    
    1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    Years(In thousands)Long-term debt  principal
    
    $
    185,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    185,000Long-term debt  interest
    
    
    109,844
    
    
    
    11,563
    
    
    
    23,125
    
    
    
    23,125
    
    
    
    52,031Pipeline operating lease
    
    
    9,840
    
    
    
    5,623
    
    
    
    4,217
    
    
    
    
    
    
    
    Other
    
    
    5,092
    
    
    
    2,575
    
    
    
    2,517
    
    
    
    
    
    
    
    Total
    
    $
    309,776
    
    
    $
    19,761
    
    
    $
    29,859
    
    
    $
    23,125
    
    
    $
    237,031
 Impact of Inflation
  Environmental Matters
    - 38 -




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Recent Accounting Pronouncement
   - 39 -




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##### Table of Contents



ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
  RISK MANAGEMENT
        - 40 -




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risks
   
 Item 4.
    
    Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control over financial reporting
  - 41 -




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal proceedings
  
 Item 6.
    
    Exhibits
 10.1
    
    
    Form of Restricted Unit Agreement (with Performance Vesting) (incorporated by
reference to Exhibit 10.1 of Registrants Form 8-K Current Report dated August 4,
2005).10.2
    
    
    Form of Restricted Unit Agreement (without Performance Vesting) (incorporated
by reference to Exhibit 10.2 of Registrants Form 8-K Current Report dated August 4,
2005).10.3
    
    
    Form of Performance Unit Agreement (incorporated by reference to Exhibit 10.3
of Registrants Form 8-K Current Report dated August 4, 2005).10.4
    *
    
    First Amendment to the Holly Energy
Partners, L.P. Long-Term Incentive Plan.12.1
    *
    
    Computation of Ratio of Earnings to Fixed Charges31.1
    *
    
    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.
 
 *
    
    Filed herewith. - 42 -




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##### Table of Contents



SIGNATURES
  HOLLY ENERGY PARTNERS, L.P.
(Registrant)By: HEP LOGISTICS HOLDINGS, L.P.
its General PartnerBy: HOLLY LOGISTIC SERVICES, L.L.C.
its General PartnerDate: November 4, 2005
    
    
    
    /s/ P. Dean RidenourP. Dean Ridenour
Vice President and Chief Accounting Officer
and Director(Principal Accounting Officer)/s/ Stephen J. McDonnellStephen J. McDonnell
Vice President and Chief Financial Officer
(Principal Financial Officer)
 - 43 -