Company Quick10K Filing
Quick10K
Par Pacific Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.52 49 $1,010
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-05-15 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-05-13 Shareholder Vote
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-02 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-21 Regulation FD, Exhibits
8-K 2019-01-09 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-12-19 Enter Agreement, Sale of Shares, Regulation FD, Other Events, Exhibits
8-K 2018-12-12 Officers, Regulation FD, Exhibits
8-K 2018-12-10 Enter Agreement, Exhibits
8-K 2018-12-06 Other Events, Exhibits
8-K 2018-11-26 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-08-29 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-19 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-14 Shareholder Vote
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-03-26 Regulation FD, Exhibits
8-K 2018-03-23 Other Events, Regulation FD, Exhibits
8-K 2018-03-06 Officers
8-K 2018-03-05 Earnings, Exhibits
8-K 2018-02-14 Regulation FD, Exhibits
8-K 2018-01-09 Enter Agreement, Regulation FD, Exhibits
Z Zillow Group 7,020
OFIX Orthofix Medical 1,080
ALDR Alder Biopharmaceuticals 973
SCOR Comscore 686
NEXT Nextdecade 585
GTYH GTY Technology 472
CVM Cel Sci 262
ENSV Enservco 27
HICKA Hickok 0
IPCI IntelliPharmaceutics 0
PARR 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1-Overview
Note 2-Summary of Significant Accounting Policies
Note 3-Investment in Laramie Energy, Llc
Note 4-Acquisitions
Note 5-Revenue Recognition
Note 6-Inventories
Note 7-Prepaid and Other Current Assets
Note 8-Inventory Financing Agreements
Note 9-Debt
Note 10-Derivatives
Note 11-Fair Value Measurements
Note 12-Leases
Note 13-Commitments and Contingencies
Note 14-Stockholders' Equity
Note 15-Income (Loss) per Share
Note 16-Income Taxes
Note 17-Segment Information
Note 18-Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6. Exhibits
EX-10.3 a20190630ex103-parxamendme.htm
EX-31.1 a20190630ex311-wp20190630.htm
EX-31.2 a20190630ex312-wm20190630.htm
EX-32.1 a20190630ex321-wp20190630.htm
EX-32.2 a20190630ex322-wm20190630.htm

Par Pacific Holdings Earnings 2019-06-30

PARR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019063010q20190630.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to

Commission File No. 001-36550
________________________________________________________________________________________________________________________
PAR PACIFIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________________________________________
Delaware
84-1060803
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
825 Town & Country Lane, Suite 1500
 
Houston, Texas
77024
(Address of principal executive offices)
(Zip Code)
(281) 899-4800 
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 every Interactive Data File required to be submitted 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 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
¨
 
Accelerated filer
ý
 
 
 
 
 
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 Securities Act. Yes  ¨ No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common stock, $0.01 par value
 
PARR
 
New York Stock Exchange

51,008,846 shares of Common Stock, $0.01 par value, were outstanding as of August 2, 2019.
 




PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS



Page No.
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
The terms “Par,” “Company,” “we,” “our,” and “us” refer to Par Pacific Holdings, Inc. and its consolidated subsidiaries unless the context suggests otherwise.



PART I - FINANCIAL INFORMATION 
Item 1. FINANCIAL STATEMENTS
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
 
June 30, 2019
 
December 31, 2018
ASSETS
 

 
 

Current assets
 
 
 

Cash and cash equivalents
$
106,190

 
$
75,076

Restricted cash
2,447

 
743

Total cash, cash equivalents, and restricted cash
108,637

 
75,819

Trade accounts receivable
254,684

 
160,338

Inventories
573,879

 
322,065

Prepaid and other current assets
13,833

 
28,370

Total current assets
951,033

 
586,592

Property and equipment
 
 
 

Property, plant, and equipment
1,106,419

 
649,768

Less accumulated depreciation, depletion, and amortization
(146,251
)
 
(111,507
)
Property and equipment, net
960,168

 
538,261

Long-term assets
 
 
 

Operating lease assets
389,047

 

Investment in Laramie Energy, LLC
137,448

 
136,656

Intangible assets, net
22,617

 
23,947

Goodwill
194,705

 
153,397

Other long-term assets
17,392

 
21,881

Total assets
$
2,672,410

 
$
1,460,734

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Current liabilities
 
 
 

Current maturities of long-term debt
$
12,295

 
$
33

Obligations under inventory financing agreements
636,489

 
373,882

Accounts payable
146,264

 
54,787

Deferred revenue
8,079

 
6,681

Accrued taxes
32,211

 
17,256

Operating lease liabilities
59,707

 

Other accrued liabilities
79,148

 
54,562

Total current liabilities
974,193

 
507,201

Long-term liabilities
 
 
 

Long-term debt, net of current maturities
631,801

 
392,607

Common stock warrants
7,246

 
5,007

Finance lease liabilities
6,501

 
6,123

Operating lease liabilities
332,465

 

Other liabilities
60,641

 
37,467

Total liabilities
2,012,847

 
948,405

Commitments and contingencies (Note 13)


 


Stockholders’ equity
 
 


Preferred stock, $0.01 par value: 3,000,000 shares authorized, none issued

 

Common stock, $0.01 par value; 500,000,000 shares authorized at June 30, 2019 and December 31, 2018, 51,024,186 shares and 46,983,924 shares issued at June 30, 2019 and December 31, 2018, respectively
510

 
470

Additional paid-in capital
675,870

 
617,937

Accumulated deficit
(19,490
)
 
(108,751
)
Accumulated other comprehensive income
2,673

 
2,673

Total stockholders’ equity
659,563

 
512,329

Total liabilities and stockholders’ equity
$
2,672,410

 
$
1,460,734

 
See accompanying notes to the condensed consolidated financial statements.

1


PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
1,409,409

 
$
856,396

 
$
2,600,744

 
$
1,621,835




 
 
 
 
 
 
Operating expenses
 

 
 

 
 
 
 
Cost of revenues (excluding depreciation)
1,251,842

 
747,924

 
2,312,574

 
1,409,823

Operating expense (excluding depreciation)
74,830

 
53,060

 
148,504

 
104,070

Depreciation, depletion, and amortization
21,919

 
12,775

 
42,876

 
25,812

General and administrative expense (excluding depreciation)
11,379

 
12,905

 
23,044

 
24,110

Acquisition and integration costs
818

 
749

 
3,702

 
1,381

Total operating expenses
1,360,788

 
827,413

 
2,530,700

 
1,565,196




 
 
 
 
 
 
Operating income
48,621

 
28,983

 
70,044

 
56,639




 
 
 
 
 
 
Other income (expense)
 

 
 

 
 
 
 
Interest expense and financing costs, net
(20,278
)
 
(10,544
)
 
(38,988
)
 
(18,921
)
Debt extinguishment and commitment costs
(3,690
)
 

 
(9,186
)
 

Other income, net
2,177

 
657

 
2,264

 
776

Change in value of common stock warrants
(957
)
 
(74
)
 
(2,239
)
 
671

Change in value of contingent consideration

 

 

 
(10,500
)
Equity earnings (losses) from Laramie Energy, LLC
491

 
(2,352
)
 
792

 
3,224

Total other income (expense), net
(22,257
)
 
(12,313
)
 
(47,357
)
 
(24,750
)



 
 
 
 
 
 
Income before income taxes
26,364

 
16,670

 
22,687

 
31,889

Income tax benefit (expense)
1,805

 
(492
)
 
66,574

 
(526
)
Net income
$
28,169

 
$
16,178

 
$
89,261

 
$
31,363

 
 
 
 
 
 
 
 
Income per share


 


 
 
 
 
Basic
$
0.56

 
$
0.35

 
$
1.78

 
$
0.68

Diluted
$
0.56

 
$
0.35

 
$
1.75

 
$
0.68

Weighted-average number of shares outstanding
 

 
 

 
 
 
 
Basic
49,960

 
45,684

 
49,529

 
45,659

Diluted
50,074

 
45,723

 
55,580

 
45,700

 


 






See accompanying notes to the condensed consolidated financial statements.

2







PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net income
$
89,261

 
$
31,363

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation, depletion, and amortization
42,876

 
25,812

Debt extinguishment and commitment costs
9,186

 

Non-cash interest expense
4,968

 
3,603

Change in value of common stock warrants
2,239

 
(671
)
Deferred taxes
(67,129
)
 
31

Stock-based compensation
3,198

 
3,103

Unrealized loss on derivative contracts
21,086

 
4,878

Equity earnings from Laramie Energy, LLC
(792
)
 
(3,224
)
Net changes in operating assets and liabilities:
 

 
 

Trade accounts receivable
(60,680
)
 
(10,604
)
Prepaid and other assets
12,029

 
(72,043
)
Inventories
(154,878
)
 
15,894

Deferred turnaround expenditures
(1,894
)
 

Obligations under inventory financing agreements
74,287

 
22,311

Accounts payable, other accrued liabilities, and operating lease assets and liabilities
50,480

 
10,874

Net cash provided by operating activities
24,237

 
31,327

Cash flows from investing activities:
 

 
 

Acquisitions of businesses, net of cash acquired
(274,291
)
 
(74,331
)
Proceeds from purchase price settlement related to asset acquisition
3,226

 

Capital expenditures
(41,404
)
 
(17,657
)
Other investing activities
188

 
797

Net cash used in investing activities
(312,281
)
 
(91,191
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
450,505

 
106,500

Repayments of borrowings
(180,541
)
 
(111,844
)
Net borrowings on deferred payment arrangements and receivable advances
71,447

 
30,213

Payment of deferred loan costs
(13,413
)
 
(72
)
Payments for debt extinguishment and commitment costs
(7,142
)
 

Other financing activities, net
6

 
(564
)
Net cash provided by financing activities
320,862

 
24,233

Net increase (decrease) in cash, cash equivalents, and restricted cash
32,818

 
(35,631
)
Cash, cash equivalents, and restricted cash at beginning of period
75,819

 
119,077

Cash, cash equivalents, and restricted cash at end of period
$
108,637

 
$
83,446

Supplemental cash flow information:
 

 
 

Net cash received (paid) for:
 
 
 
Interest
$
(26,740
)
 
$
(12,012
)
Taxes
(3,966
)
 

Non-cash investing and financing activities:
 

 
 

Accrued capital expenditures
$
8,085

 
$
2,145

Common stock issued for business combination
36,980

 

Common stock issued to repurchase convertible notes
30,055

 

 


See accompanying notes to the condensed consolidated financial statements.

3







PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
Common Stock
 
Paid-In
 
Accumulated
 
Comprehensive
 
Total
 
Shares
 
Amount
 
Capital
 
Deficit
 
Income
 
Equity
Balance, December 31, 2017
45,776

 
$
458

 
$
593,295

 
$
(148,178
)
 
$
2,144

 
$
447,719

Stock-based compensation
272

 
1

 
1,437

 

 

 
1,438

Purchase of common stock for retirement
(29
)
 

 
(543
)
 

 

 
(543
)
Other comprehensive income (loss)

 

 

 

 

 

Net income

 

 

 
15,185

 

 
15,185

Balance, March 31, 2018
46,019

 
459

 
594,189

 
(132,993
)
 
2,144

 
463,799

Stock-based compensation
(8
)
 
1

 
1,663

 

 

 
1,664

Purchase of common stock for retirement
(3
)
 

 
(21
)
 

 

 
(21
)
Other comprehensive income (loss)

 

 

 

 

 

Net income

 

 

 
16,178

 

 
16,178

Balance, June 30, 2018
46,008

 
$
460

 
$
595,831

 
$
(116,815
)
 
$
2,144

 
$
481,620


 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
Common Stock
 
Paid-In
 
Accumulated
 
Comprehensive
 
Total
 
Shares
 
Amount
 
Capital
 
Deficit
 
Income
 
Equity
Balance, December 31, 2018
46,984

 
$
470

 
$
617,937

 
$
(108,751
)
 
$
2,673

 
$
512,329

Issuance of common stock for business combination
2,364

 
23

 
36,957

 

 

 
36,980

Stock-based compensation
246

 
3

 
1,532

 

 

 
1,535

Purchase of common stock for retirement
(44
)
 

 
(734
)
 

 

 
(734
)
Net income

 

 

 
61,092

 

 
61,092

Balance, March 31, 2019
49,550

 
496

 
655,692

 
(47,659
)
 
2,673

 
611,202

Issuance of common stock for convertible notes repurchase, net (1)
1,449

 
14

 
17,775

 

 

 
17,789

Issuance of common stock for employee stock purchase plan
37

 

 
754

 

 

 
754

Stock-based compensation
(31
)
 

 
1,550

 

 

 
1,550

Purchase of common stock for retirement
(2
)
 

 
(20
)
 

 

 
(20
)
Exercise of stock options
21

 

 
119

 

 

 
119

Net income

 

 

 
28,169

 

 
28,169

Balance, June 30, 2019
51,024

 
$
510

 
$
675,870

 
$
(19,490
)
 
$
2,673

 
$
659,563

________________________________________
(1)
The issuance of common stock for the repurchase of a portion of our 5.00% Convertible Senior Notes in the three months ended June 30, 2019 is presented net of a $12.3 million write-off associated with the equity component of the repurchased notes.


See accompanying notes to the condensed consolidated financial statements.

4

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018




Note 1Overview
Par Pacific Holdings, Inc. and its wholly owned subsidiaries (“Par” or the “Company”) own and operate market-leading energy and infrastructure businesses. Our strategy is to acquire and develop businesses in logistically-complex markets. Currently, we operate in three primary business segments:
1) Refining - We own and operate three refineries with total throughput capacity of over 200 thousand barrels per day (“Mbpd”). Our co-located refinery in Kapolei, Hawaii, produces ultra-low sulfur diesel (“ULSD”), gasoline, jet fuel, marine fuel, low sulfur fuel oil (“LSFO”), and other associated refined products primarily for consumption in Hawaii. Our refinery in Newcastle, Wyoming, produces gasoline, ULSD, jet fuel, and other associated refined products that are primarily marketed in Wyoming and South Dakota. Our refinery in Tacoma, Washington, acquired in January 2019, produces distillates, gasoline, asphalt, and other associated refined products primarily marketed in the Pacific Northwest.
2) Retail - Our retail outlets in Hawaii sell gasoline, diesel, and retail merchandise throughout the islands of Oahu, Maui, Hawaii, and Kauai. Our Hawaii retail network includes Hele and “76” branded retail sites, company-operated convenience stores, 7-Eleven operated convenience stores, other sites operated by third parties, and unattended cardlock stations. Through June 30, 2019, we completed the rebranding of 25 of our 34 company-operated convenience stores in Hawaii to “nomnom,” a new proprietary brand. Our retail outlets in Washington and Idaho sell gasoline, diesel, and retail merchandise and operate under the “Cenex®” and “Zip Trip®” brand names.
3) Logistics - We operate an extensive multi-modal logistics network spanning the Pacific, the Northwest, and the Rockies. We own and operate terminals, pipelines, a single-point mooring (“SPM”), and trucking operations to distribute refined products throughout the islands of Oahu, Maui, Hawaii, Molokai, and Kauai. We own and operate a crude oil pipeline gathering system, a refined products pipeline, storage facilities, and loading racks in Wyoming and a jet fuel storage facility and pipeline that serve the Ellsworth Air Force Base in South Dakota. Beginning in January 2019, we own and operate logistics assets in Washington, including a marine terminal, a unit train-capable rail loading terminal, storage facilities, a truck rack, and a proprietary pipeline that serves McChord Air Force Base.
As of June 30, 2019, we owned a 46.0% equity investment in Laramie Energy, LLC (“Laramie Energy”). Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco Counties, Colorado.
Our Corporate and Other reportable segment primarily includes general and administrative costs.
Note 2Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of Par and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts previously reported in our condensed consolidated financial statements for prior periods have been reclassified to conform with the current presentation.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The condensed consolidated financial statements contained in this report include all material adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the complete fiscal year or for any other period. The condensed consolidated balance sheet as of December 31, 2018 was derived from our audited consolidated financial statements as of that date. These condensed consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. Actual amounts could differ from these estimates.

5

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Restricted Cash
Restricted cash consists of cash not readily available for general purpose cash needs. Restricted cash relates to cash held at commercial banks to support letter of credit facilities and certain ongoing bankruptcy recovery trust claims.
Inventories
Commodity inventories, excluding commodity inventories at the Washington refinery, are stated at the lower of cost or net realizable value using the first-in, first-out accounting method (“FIFO”). Commodity inventories at the Washington refinery are stated at the lower of cost or net realizable value using the last-in, first-out (“LIFO”) inventory accounting method. We value merchandise along with spare parts, materials, and supplies at average cost. Our LIFO reserve was $10.6 million as of June 30, 2019.
All of the crude oil utilized at the Hawaii refinery is financed by J. Aron & Company (“J.Aron”) under the Supply and Offtake Agreements as described in Note 8—Inventory Financing Agreements. The crude oil remains in the legal title of J. Aron and is stored in our storage tanks governed by a storage agreement. Legal title to the crude oil passes to us at the tank outlet. After processing, J. Aron takes title to the refined products stored in our storage tanks until they are sold to our retail locations or to third parties. We record the inventory owned by J. Aron on our behalf as inventory with a corresponding obligation on our balance sheet because we maintain the risk of loss until the refined products are sold to third parties and we are obligated to repurchase the inventory.
In connection with the consummation of the Washington Acquisition (as defined in Note 4—Acquisitions), we became a party to an intermediation arrangement (the “Washington Refinery Intermediation Agreement”) with Merrill Lynch Commodities, Inc. (“MLC”) as described in Note 8—Inventory Financing Agreements. Under this arrangement, U.S. Oil (as defined in Note 4—Acquisitions) purchases crude oil supplied from third-party suppliers and MLC provides credit support for certain crude oil purchases. MLC’s credit support can consist of either providing a payment guaranty, causing the issuance of a letter of credit from a third party issuing bank, or purchasing crude oil directly from third-parties on our behalf. U.S. Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of same, exclusively to MLC.
Cost Classifications
Cost of revenues (excluding depreciation) includes the hydrocarbon-related costs of inventory sold, transportation costs of delivering product to customers, crude oil consumed in the refining process, costs to satisfy our Renewable Identification Numbers (“RINs”) obligations, and certain hydrocarbon fees and taxes. Cost of revenues (excluding depreciation) also includes the unrealized gains (losses) on derivatives and inventory valuation adjustments. Certain direct operating expenses related to our logistics segment are also included in Cost of revenues (excluding depreciation).
Operating expense (excluding depreciation) includes direct costs of labor, maintenance and services, energy and utility costs, property taxes, and environmental compliance costs as well as chemicals and catalysts and other direct operating expenses.
The following table summarizes depreciation and finance lease amortization expense excluded from each line item in our condensed consolidated statements of operations (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Cost of revenues
 
$
3,950

 
$
1,639

 
$
7,816

 
$
3,246

Operating expense
 
13,635

 
6,501

 
26,582

 
13,405

General and administrative expense
 
762

 
901

 
1,544

 
2,048

Recent Accounting Pronouncements
There have been no developments to recent accounting pronouncements, including the expected dates of adoption and estimated effects on our financial condition, results of operations, and cash flows, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Accounting Principles Adopted
On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as amended by other ASUs issued since February 2019 (“ASU 2016-02” or “ASC 842”), using the modified retrospective transition method.

6

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Under this optional transition method, information presented prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period. There was no adjustment to our opening retained earnings as a result of the adoption of this ASU.
ASU 2016-02 requires lessees to recognize a right-of-use asset (“ROU asset”) and lease liability on the balance sheet for all rights and obligations created by leases. The new standard provided a number of optional practical expedients. We have elected:
the package of practical expedients, permitting us to carryforward our conclusions regarding lease identification, classification, and initial direct costs for contracts that commenced prior to the effective date;
the practical expedient pertaining to land easements, allowing us to account for existing land easements under our previous accounting policy;
the short-term lease exemption, which states that leases that are 12 months or less are exempt from balance sheet reporting; and
the practical expedient that allows us to combine lease and non-lease components.
ASC 842 had a material impact on our consolidated balance sheet; however, it did not materially impact our consolidated statement of operations or statement of cash flows. As a result of the adoption of ASC 842, we recorded ROU assets and lease liabilities related to operating leases of $347 million and $349 million, respectively. Our accounting for finance leases remained substantially unchanged. Additionally, we acquired operating lease assets and lease liabilities of $62 million in connection with the Washington Acquisition (as defined in Note 4—Acquisitions). Please read Note 12—Leases for further disclosures and information.
On January 1, 2019, we adopted ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02”) and elected not to reclassify to retained earnings the stranded effects in Accumulated Other Comprehensive Income related to the changes in the statutory tax rate that were charged to income from continuing operations under the requirements of Financial Accounting Standards Board (“FASB”) ASC Topic 740, “Income Taxes.” The adoption of ASU 2018-02 did not have a material impact on our financial condition, results of operations, and cash flows.
Note 3Investment in Laramie Energy, LLC
As of June 30, 2019, we had a 46.0% ownership interest in Laramie Energy. Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco Counties, Colorado.
Laramie Energy has a $400 million revolving credit facility with a borrowing base currently set at $240 million that is secured by a lien on its natural gas and crude oil properties and related assets. As of June 30, 2019, the balance outstanding on the revolving credit facility was approximately $201.0 million. We are guarantors of Laramie Energy’s credit facility, with recourse limited to the pledge of our equity interest of our wholly owned subsidiary, Par Piceance Energy Equity, LLC. Under the terms of its credit facility, Laramie Energy is generally prohibited from making future cash distributions to its owners, including us.
During the second quarter of 2019, we conducted an impairment evaluation of our investment in Laramie Energy as a result of the significant decline in natural gas prices during the latter part of the second quarter of 2019 and determined that the estimated fair value of our investment in Laramie Energy was in the range of $100 million to $123 million compared to a carrying value of $137.4 million. The range was determined using primarily a discounted cash flow approach using pricing forecasts as of quarter end through 2023 and a 5 year historical average for subsequent years. As part of our evaluation, we considered the duration of the decline in fair value, the likelihood that natural gas prices will recover in the near term, the severity of the current decline in natural gas prices and historical pricing trends. We intend and are able to hold our investment in Laramie Energy through the recovery of natural gas prices. Based on these factors, we concluded that the excess of the carrying value of our investment in Laramie Energy over its fair value was not other than temporary and that no impairment loss should be recorded on our statement of operations for the three months ended June 30, 2019. However, sustained downward pressure on natural gas prices could potentially be an indicator of a future other-than-temporary impairment of our investment in Laramie Energy.  We will continue to closely monitor these market factors and their effect on the value of our investment in Laramie Energy.


7

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The change in our equity investment in Laramie Energy is as follows (in thousands):
 
Six Months Ended June 30, 2019
Beginning balance
$
136,656

Equity losses from Laramie Energy
(2,553
)
Accretion of basis difference
3,345

Ending balance
$
137,448

Summarized financial information for Laramie Energy is as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
Current assets
$
21,028

 
$
28,569

Non-current assets
769,913

 
788,515

Current liabilities
33,986

 
41,681

Non-current liabilities
280,047

 
293,084

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Natural gas and oil revenues
$
43,270

 
$
46,750

 
$
111,194

 
$
93,431

Income (loss) from operations
(8,205
)
 
(554
)
 
5,538

 
5,490

Net loss
(2,570
)
 
(8,846
)
 
(5,553
)
 
(1,556
)
Laramie Energy’s net loss for the three and six months ended June 30, 2019 includes $21.0 million and $42.4 million of depreciation, depletion, and amortization (“DD&A”) and $8.4 million and $11.1 million of unrealized gains on derivative instruments, respectively. Laramie Energy’s net loss for the three and six months ended June 30, 2018 includes $17.1 million and $32.0 million of DD&A and $8.1 million and $3.5 million of unrealized losses on derivative instruments, respectively.
At June 30, 2019 and December 31, 2018, our equity in the underlying net assets of Laramie Energy exceeded the carrying value of our investment by approximately $81.9 million and $85.2 million, respectively. This difference arose primarily due to lack of control and marketability discounts and an other-than-temporary impairment of our equity investment in Laramie Energy. We attributed this difference to natural gas and crude oil properties and are amortizing the difference over 15 years based on the estimated timing of production of proved reserves.
Note 4Acquisitions
Washington Acquisition
On November 26, 2018, we entered into a Purchase and Sale Agreement to acquire U.S. Oil & Refining Co. and certain affiliated entities (collectively, “U.S. Oil”), a privately-held downstream business, for $358 million plus net working capital (the “Washington Acquisition”). The Washington Acquisition includes a 42 Mbpd refinery, a marine terminal, a unit train-capable rail loading terminal, and 2.9 MMbbls of refined product and crude oil storage. The refinery and associated logistics system are strategically located in Tacoma, Washington, and currently serve the Pacific Northwest market. On January 11, 2019, we completed the Washington Acquisition for a total purchase price of $327.4 million, including acquired working capital, consisting of cash consideration of $290.4 million and approximately 2.4 million shares of Par’s common stock with a fair value of $37.0 million issued to the seller of U.S. Oil. The cash consideration was funded in part through cash on hand, proceeds from borrowings under a new term loan facility entered into with Goldman Sachs Bank USA, as administrative agent, of $250.0 million (the “Term Loan B”) and proceeds from borrowings under a term loan from the Bank of Hawaii of $45.0 million (the “Par Pacific Term Loan”). Please read Note 9—Debt for further information on the Term Loan B and Par Pacific Term Loan. In January 2019, we incurred $5.4 million of commitment fees associated with the funding of the Washington Acquisition. Such commitment fees are presented as Debt extinguishment and commitment costs on our condensed consolidated statements of operations for the six months ended June 30, 2019.
In connection with the consummation of the Washington Acquisition, we assumed the Washington Refinery Intermediation Agreement with MLC that provides a structured financing arrangement based on U.S. Oil’s crude oil and refined products inventories

8

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



and associated accounts receivable. Please read Note 8—Inventory Financing Agreements for further information on the Washington Refinery Intermediation Agreement.
We accounted for the Washington Acquisition as a business combination whereby the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of the acquisition. Goodwill recognized in the transaction was attributable to opportunities expected to arise from combining our operations with those of the Washington refinery and the utilization of our net operating loss carryforwards, as well as other intangible assets that do not qualify for separate recognition. Goodwill recognized as a result of the Washington Acquisition is not expected to be deductible for income tax reporting purposes.
A summary of the preliminary estimated fair value of the assets acquired and liabilities assumed is as follows (in thousands):
Cash
$
16,146

Accounts receivable
36,384

Inventories
96,936

Prepaid and other assets
5,320

Property, plant, and equipment
412,766

Operating lease assets
62,337

Goodwill (1)
41,308

Total assets
671,197

Obligations under inventory financing agreements
(116,873
)
Accounts payable
(55,444
)
Current operating lease obligations
(21,571
)
Other current liabilities
(18,411
)
Long-term operating lease obligations
(40,766
)
Deferred tax liability
(89,909
)
Other non-current liabilities
(804
)
Total liabilities
(343,778
)
Total
$
327,419

______________________________________________
(1) We allocated $29.7 million and $11.6 million of total assets to our refining and logistics segments, respectively.
We have recorded a preliminary estimate of the fair value of the assets acquired and liabilities assumed and expect to finalize the purchase price allocation during the remainder of 2019. The primary areas of the purchase price allocation that are not yet finalized relate to property, plant, and equipment, goodwill, and income taxes. During the three months ended June 30, 2019, the purchase price allocation was adjusted to record an increase in the property, plant, and equipment valuation of $2.1 million, a decrease in the deferred tax liability of $5.9 million, and a net decrease in working capital adjustments of $2.8 million. Goodwill decreased $5.2 million as a result of these adjusting entries. We incurred $2.2 million of acquisition costs related to the Washington Acquisition for the six months ended June 30, 2019. These costs are included in Acquisition and integration costs on our condensed consolidated statement of operations.
The results of operations of U.S. Oil were included in our results beginning on January 11, 2019. For the three and six months ended June 30, 2019, our results of operations included revenues of $309.8 million and $555.6 million and profit before tax of $23.2 million and $20.1 million related to U.S. Oil, respectively. The following unaudited pro forma financial information presents our consolidated revenues and net income (loss) as if the Washington Acquisition had been completed on January 1, 2018 (in thousands except per share information):

9

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



 
Six Months Ended June 30,
 
2019
 
2018
Revenues
$
2,628,652

 
$
2,269,578

Net income
77,704

 
15,280

 
 
 
 
Income per share
 
 
 
Basic
$
1.55

 
$
0.31

Diluted
$
1.54

 
$
0.31

Hawaii Refinery Expansion
On August 29, 2018, we entered into a Topping Unit Purchase Agreement with IES Downstream, LLC (“IES”) to purchase certain of IES’s refining units and related assets in addition to certain hydrocarbon and non-hydrocarbon inventory (collectively, the “Hawaii Refinery Expansion”). On December 19, 2018, we completed the asset purchase for total consideration of approximately $66.9 million, net of a $4.3 million receivable related to net working capital adjustments. The purchase price consisted of $47.6 million in cash and approximately 1.1 million shares of our common stock with a fair value of $19.3 million.
We accounted for the Hawaii Refinery Expansion as an asset acquisition whereby the purchase price was allocated entirely to the assets acquired. Of the total purchase price of $66.9 million, $45.2 million was allocated to property, plant, and equipment, $4.3 million to non-hydrocarbon inventory, and $17.4 million to hydrocarbon inventory. With the completion of the Hawaii Refinery Expansion, the Hawaii refinery operations now have two facility locations which are approximately two miles from one another: Par East, our legacy refinery assets, and Par West, the recently-acquired assets.
Northwest Retail Acquisition
On January 9, 2018, we entered into an Asset Purchase Agreement with CHS, Inc. to acquire twenty-one (21) owned retail gasoline, convenience store facilities and twelve (12) leased retail gasoline, convenience store facilities, all at various locations in Washington and Idaho (collectively, “Northwest Retail”). On March 23, 2018, we completed the acquisition for cash consideration of approximately $74.5 million (the “Northwest Retail Acquisition”).
As part of the Northwest Retail Acquisition, Par and CHS, Inc. entered into a multi-year branded petroleum marketing agreement for the continued supply of Cenex®-branded refined products to the acquired Cenex® Zip Trip convenience stores. In addition, the parties also entered into a multi-year supply agreement pursuant to which Par will supply refined products to CHS, Inc. within the Rocky Mountain and Pacific Northwest markets.
We accounted for the acquisition of Northwest Retail as a business combination whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. Goodwill recognized in the transaction was attributable to opportunities expected to arise from combining our operations with Northwest Retail and utilization of our net operating loss carryforwards, as well as intangible assets that do not qualify for separate recognition. Goodwill recognized as a result of the Northwest Retail Acquisition is expected to be deductible for income tax reporting purposes.
A summary of the fair value of the assets acquired and liabilities assumed is as follows (in thousands):
Cash
$
200

Inventories
4,138

Prepaid and other current assets
243

Property, plant, and equipment
30,230

Goodwill (1)
46,210

Accounts payable and other current liabilities
(759
)
Long-term capital lease obligations
(5,244
)
Other non-current liabilities
(487
)
Total
$
74,531

________________________________________________________
(1) The total goodwill balance of $46.2 million was allocated to our retail segment.

10

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



As of December 31, 2018, we finalized the Northwest Retail Acquisition purchase price allocation. We incurred $0.6 million of acquisition costs related to the Northwest Retail Acquisition for the six months ended June 30, 2018. These costs are included in Acquisition and integration costs on our condensed consolidated statement of operations. No such costs were incurred during the three months ended June 30, 2018.
Note 5Revenue Recognition
As of June 30, 2019 and December 31, 2018, receivables from contracts with customers were $236.5 million and $148.4 million, respectively. Our refining segment recognizes deferred revenues when cash payments are received in advance of delivery of products to the customer. Deferred revenue was $8.1 million and $6.7 million as of June 30, 2019 and December 31, 2018, respectively.
The following table provides information about disaggregated revenue by major product line and includes a reconciliation of the disaggregated revenue with reportable segments (in thousands):
Three Months Ended June 30, 2019
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
372,352

 
$

 
$
86,248

Distillates (1)
 
646,907

 

 
10,547

Other refined products (2)
 
327,939

 

 

Merchandise
 

 

 
23,469

Transportation and terminalling services
 

 
50,146

 

Other revenue
 
359

 

 
485

Total segment revenues (3)
 
$
1,347,557

 
$
50,146

 
$
120,749

Three Months Ended June 30, 2018
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
255,870

 
$

 
$
84,754

Distillates (1)
 
453,968

 

 
11,125

Other refined products (2)
 
90,570

 

 

Merchandise
 

 

 
23,812

Transportation and terminalling services
 

 
31,289

 

Total segment revenues (3)
 
$
800,408

 
$
31,289

 
$
119,691

Six Months Ended June 30, 2019
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
660,552

 
$

 
$
156,011

Distillates (1)
 
1,202,799

 

 
19,556

Other refined products (2)
 
629,385

 

 

Merchandise
 

 

 
44,078

Transportation and terminalling services
 

 
95,355

 

Other revenue
 
885

 

 
935

Total segment revenues (3)
 
$
2,493,621

 
$
95,355

 
$
220,580


11

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Six Months Ended June 30, 2018
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
495,131

 
$

 
$
142,956

Distillates (1)
 
852,497

 

 
18,121

Other refined products (2)
 
193,043

 

 

Merchandise
 

 

 
37,206

Transportation and terminalling services
 

 
64,356

 

Total segment revenues (3)
 
$
1,540,671

 
$
64,356

 
$
198,283

_______________________________________________________
(1)
Distillates primarily include diesel and jet fuel.
(2)
Other refined products include fuel oil, gas oil, asphalt, and naphtha.
(3)
Refer to Note 17—Segment Information for the reconciliation of segment revenues to total consolidated revenues.
Note 6Inventories
Inventories at June 30, 2019 consisted of the following (in thousands):
 
Titled Inventory
 
Supply and Offtake Agreements (1)
 
Total
Crude oil and feedstocks
$
71,058

 
$
173,232

 
$
244,290

Refined products and blendstock
121,955

 
158,707

 
280,662

Warehouse stock and other (2)
48,927

 

 
48,927

Total
$
241,940

 
$
331,939

 
$
573,879

Inventories at December 31, 2018 consisted of the following (in thousands):
 
Titled Inventory
 
Supply and Offtake Agreements (1)
 
Total
Crude oil and feedstocks
$
7,000

 
$
117,877

 
$
124,877

Refined products and blendstock
62,401

 
100,175

 
162,576

Warehouse stock and other (2)
34,612

 

 
34,612

Total
$
104,013

 
$
218,052

 
$
322,065

________________________________________________________
(1)
Please read Note 8—Inventory Financing Agreements for further information.
(2)
Includes $4.8 million and $5.0 million of RINs and environmental credits as of June 30, 2019 and December 31, 2018, respectively.
As of June 30, 2019 and December 31, 2018, there was a $13.4 million and $3.8 million reserve for the lower of cost or net realizable value of inventory, respectively. Our LIFO inventory reserve was $10.6 million as of June 30, 2019.

12

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Note 7Prepaid and Other Current Assets
Prepaid and other current assets at June 30, 2019 and December 31, 2018 consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Collateral posted with broker for derivative instruments (1)
$
2,656

 
$
2,759

Prepaid insurance
3,791

 
7,727

Deferred financing costs
335

 

Derivative assets
1,730

 
5,164

Other
5,321

 
12,720

Total
$
13,833

 
$
28,370

_________________________________________________________
(1)
Our cash margin that is required as collateral deposits on our commodity derivatives cannot be offset against the fair value of open contracts except in the event of default. Please read Note 10—Derivatives for further information.
Note 8Inventory Financing Agreements
Supply and Offtake Agreements
On June 1, 2015, we entered into several agreements with J. Aron to support the operations of our Hawaii refinery (the “Supply and Offtake Agreements”). The Supply and Offtake Agreements mature on May 31, 2021 and have a one-year extension option upon mutual agreement of the parties. Under the Supply and Offtake Agreements, J. Aron may enter into agreements with third parties whereby J. Aron will remit payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. As of June 30, 2019, we had no obligations due to J. Aron under this contractual undertakings agreement. On December 5, 2018, we amended the Supply and Offtake Agreements to account for additional processing capacity expected to be provided through the Hawaii Refinery Expansion. The amendment to the Supply and Offtake Agreements also (i) required us to increase our margin requirements by an aggregate of $2.5 million by making certain additional margin payments on December 19, 2018, March 1, 2019, and June 3, 2019, and (ii) only allows dividends, payments, or other distributions with respect to any equity interests in Par Hawaii Refining, LLC ("PHR") in limited and restricted circumstances.
During the term of the Supply and Offtake Agreements, J. Aron and we will identify mutually acceptable contracts for the purchase of crude oil from third parties. Per the Supply and Offtake Agreements, J. Aron will provide up to 150 Mbpd per day of crude oil to our Hawaii refinery. Additionally, we agreed to sell and J. Aron agreed to buy, at market prices, refined products produced at our Hawaii refinery. We will then repurchase the refined products from J. Aron prior to selling the refined products to our retail operations or to third parties. The agreements also provide for the lease of crude oil and certain refined product storage facilities to J. Aron. Following the expiration or termination of the Supply and Offtake Agreements, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the leased storage facilities at then-current market prices.
Though title to the crude oil and certain refined product inventories resides with J. Aron, the Supply and Offtake Agreements are accounted for similar to a product financing arrangement; therefore, the crude oil and refined products inventories will continue to be included on our condensed consolidated balance sheets until processed and sold to a third party. Each reporting period, we record a liability in an amount equal to the amount we expect to pay to repurchase the inventory held by J. Aron based on current market prices.
For the three and six months ended June 30, 2019, we incurred approximately $7.7 million and $13.0 million in handling fees related to the Supply and Offtake Agreements, respectively, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. For the three and six months ended June 30, 2018, we incurred approximately $6.0 million and $10.8 million in handling fees related to the Supply and Offtake Agreements, respectively. For the three and six months ended June 30, 2019, Interest expense and financing costs, net, on our condensed consolidated statements of operations includes approximately $1.4 million and $3.1 million of expenses related to the Supply and Offtake Agreements, respectively. For the three and six months ended June 30, 2018, Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $1.3 million and $2.0 million of expenses related to the Supply and Offtake Agreements, respectively.
The Supply and Offtake Agreements also include a deferred payment arrangement (“Deferred Payment Arrangement”) whereby we can defer payments owed under the agreements up to the lesser of $165 million or 85% of the eligible accounts

13

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



receivable and inventory. Upon execution of the Supply and Offtake Agreements, we paid J. Aron a deferral arrangement fee of $1.3 million. The deferred amounts under the Deferred Payment Arrangement bear interest at a rate equal to three-month LIBOR plus 3.50% per annum. We also agreed to pay a deferred payment availability fee equal to 0.75% of the unused capacity under the Deferred Payment Arrangement. Amounts outstanding under the Deferred Payment Arrangement are included in Obligations under inventory financing agreements on our condensed consolidated balance sheets. Changes in the amount outstanding under the Deferred Payment Arrangement are included within Cash flows from financing activities on the condensed consolidated statements of cash flows. As of June 30, 2019 and December 31, 2018, the capacity of the Deferred Payment Arrangement was $142.0 million and $77.4 million, respectively. As of June 30, 2019 and December 31, 2018, we had $126.9 million and $68.4 million outstanding, respectively, under the Deferred Payment Arrangements.
Under the Supply and Offtake Agreements, we pay or receive certain fees from J. Aron based on changes in market prices over time. In February 2016, we fixed the market fee for the period from December 1, 2016 through May 31, 2018 for $14.6 million to be settled in eighteen equal monthly payments. In 2017, we fixed the market fee for the period from June 1, 2018 through May 2021 for an additional $2.2 million. The receivable from J. Aron was recorded as a reduction to our Obligations under inventory financing agreements pursuant to our Master Netting Agreement. As of June 30, 2019 and December 31, 2018, the receivable was $1.0 million and $2.5 million, respectively.
Washington Refinery Intermediation Agreement
In connection with the consummation of the Washington Acquisition, we became a party to the Washington Refinery Intermediation Agreement with MLC that provides a structured financing arrangement based on U.S. Oil’s crude oil and refined products inventories and associated accounts receivable. Under this arrangement, U.S. Oil purchases crude oil supplied from third-party suppliers and MLC provides credit support for such crude oil purchases. MLC’s credit support can consist of either providing a payment guaranty, causing the issuance of a letter of credit from a third-party issuing bank, or purchasing crude oil directly from third parties on our behalf. U.S. Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of same, exclusively to MLC. The Washington Refinery Intermediation Agreement expires on December 31, 2019.
During the remaining term of the Washington Refinery Intermediation Agreement, MLC will make receivable advances to U.S. Oil based on an advance rate of 95% of eligible receivables, up to a total receivables advance maximum of $90.0 million (the “MLC receivable advances”), and additional advances based on crude oil and products inventories. Changes in the amount outstanding under the MLC receivable advances are included within Cash flows from financing activities on the condensed consolidated statements of cash flows. The MLC receivable advances bear interest at a rate equal to three-month LIBOR plus 3.25% per annum. We also agreed to pay an availability fee equal to 1.50% of the unused capacity under the MLC receivable advances. As of June 30, 2019, our outstanding balance under MLC receivable advances was equal to our borrowing base of $62.5 million. Additionally, as of June 30, 2019, we had approximately $65.9 million in letters of credit outstanding through MLC’s credit support.
For the three and six months ended June 30, 2019, we incurred approximately $0.9 million and $1.7 million in handling fees, respectively, related to the Washington Refinery Intermediation Agreement, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. For the three and six months ended June 30, 2019, Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $1.5 million and $2.8 million of expenses, respectively, related to the Washington Refinery Intermediation Agreement.
The Supply and Offtake Agreements and the Washington Refinery Intermediation Agreement also provide us with the ability to economically hedge price risk on our inventories and crude oil purchases. Please read Note 10—Derivatives for further information.
Note 9Debt
The following table summarizes our outstanding debt (in thousands):
 
June 30, 2019
 
December 31, 2018
5.00% Convertible Senior Notes due 2021
$
79,895

 
$
115,000

7.75% Senior Secured Notes due 2025
300,000

 
300,000

ABL Credit Facility

 

Mid Pac Term Loan
1,449

 
1,466

Term Loan B
246,875

 

Retail Property Term Loan
44,754

 

Principal amount of long-term debt
672,973

 
416,466

Less: unamortized discount and deferred financing costs
(28,877
)
 
(23,826
)
Total debt, net of unamortized discount and deferred financing costs
644,096

 
392,640

Less: current maturities
(12,295
)
 
(33
)
Long-term debt, net of current maturities
$
631,801

 
$
392,607

Additionally, as of June 30, 2019 and December 31, 2018, we had approximately $0.1 million and $13.5 million in letters of credit outstanding under the ABL Credit Facility, respectively. As of June 30, 2019, we also had $3.7 million in cash-collateralized letters of credit and surety bonds outstanding.
Under the ABL Credit Facility, the indenture governing the 7.75% Senior Secured Notes, and the Term Loan B Facility, our subsidiaries are restricted from paying dividends or making other equity distributions, subject to certain exceptions.
7.75% Senior Secured Notes Due 2025
On December 21, 2017, Par Petroleum, LLC and Par Petroleum Finance Corp. (collectively, the “Issuers”), both our wholly owned subsidiaries, completed the issuance and sale of $300 million in aggregate principal amount of 7.75% Senior Secured Notes in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The net proceeds of $289.2 million (net of financing costs and original issue discount of 1%) from the sale were used to repay our previous credit facilities and the forward sale agreement with J. Aron and for general corporate purposes.
The 7.75% Senior Secured Notes bear interest at a rate of 7.750% per year (payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2018) and will mature on December 15, 2025.
ABL Credit Facility
On December 21, 2017, in connection with the issuance of the 7.75% Senior Secured Notes, Par Petroleum, LLC, Par Hawaii Inc., Mid Pac Petroleum, LLC (“Mid Pac”), HIE Retail, LLC, Hermes Consolidated, LLC, and Wyoming Pipeline Company (collectively, the “ABL Borrowers”), entered into a Loan and Security Agreement dated as of December 21, 2017 (the “ABL Credit Facility”) with certain lenders and Bank of America, N.A., as administrative agent and collateral agent. The ABL Credit Facility

14

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



provides for a revolving credit facility that provides for revolving loans and for the issuance of letters of credit (the “ABL Revolver”). On July 24, 2018, we amended the ABL Credit Facility to increase the maximum principal amount at any time outstanding of the ABL Revolver by $10 million to $85 million, subject to a borrowing base. As of June 30, 2019, the ABL Revolver had no outstanding balance and a borrowing base of approximately $53.7 million and the ABL Credit Facility had $0.1 million in letters of credit outstanding.
5.00% Convertible Senior Notes Due 2021
As of June 30, 2019, the outstanding principal amount of the 5.00% Convertible Senior Notes was $79.9 million, the unamortized discount and deferred financing cost was $8.3 million, and the carrying amount of the liability component was $71.6 million. During May and June 2019, we entered into privately negotiated exchange agreements with a limited number of holders (the “Noteholders”) to repurchase $35.1 million in aggregate principal amount of the 5.00% Convertible Senior Notes held by the Noteholders for an aggregate of $16.2 million in cash and approximately 1.4 million shares of Par’s common stock with a fair value of $30.1 million. We recognized a loss of approximately $3.7 million related to the extinguishment of the repurchased 5.00% Convertible Senior Notes in the three months ended June 30, 2019.
Term Loan B Facility
On January 11, 2019, Par Petroleum, LLC and Par Petroleum Finance Corp. entered into a new term loan facility with Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto from time to time (the “Term Loan B Facility”). Pursuant to the Term Loan B Facility, the lenders made a term loan to the borrowers in the amount of $250.0 million (“Term Loan B”) on the closing date. The net proceeds from Term Loan B totaled $228.9 million after deducting the original issue discount, deferred financing costs, and commitment and other fees.
Loans under Term Loan B bear interest at a rate per annum equal to Adjusted LIBOR (as defined in the Term Loan B Facility) plus an applicable margin of 6.75% or at a rate per annum equal to Alternate Base Rate (as defined in the Term Loan B Facility) plus an applicable margin of 5.75%. In addition to the quarterly interest payments, Term Loan B requires quarterly principal payments of $3.1 million. Term Loan B matures on January 11, 2026.
The obligations of the borrowers under the Term Loan B Facility are guaranteed by Par Petroleum, LLC’s and Par Petroleum Finance Corp.’s existing and future direct or indirect domestic subsidiaries and by the Company, with respect to principal and interest only. The Term Loan B Facility and the 7.75% Senior Secured Notes are secured on a pari passu basis by first priority liens (subject to the relative priority of permitted liens) on substantially all of the property and assets of Par Petroleum, LLC, Par Petroleum Finance Corp., and their subsidiary guarantors, but excluding certain property which is collateral under the ABL Credit Facility, the Supply and Offtake Agreements, and the Washington Refinery Intermediation Agreement.
Par Pacific Term Loan Agreement
On January 9, 2019, we entered into a loan agreement (the “Par Pacific Term Loan Agreement”) with Bank of Hawaii (“BOH”). Pursuant to the Par Pacific Term Loan Agreement, BOH made a loan to the Company in the amount of $45.0 million (the “Par Pacific Term Loan”).
During the term of the Par Pacific Term Loan, the interest payments were due monthly and were based on the outstanding principal balance multiplied by a floating rate equal to 3.50% above the applicable LIBOR rate (as defined in the Par Pacific Term Loan Agreement) subject to an increased default interest rate in the event of a default. The Par Pacific Term Loan Agreement was scheduled to mature on July 9, 2019. We terminated and repaid all amounts outstanding under the Par Pacific Term Loan Agreement on March 29, 2019 using the proceeds of the Retail Property Term Loan (as defined below). We recognized approximately $0.1 million of debt extinguishment costs related to the unamortized deferred financing costs associated with the Par Pacific Term Loan Agreement in the six months ended June 30, 2019.
Retail Property Term Loan
On March 29, 2019, Par Pacific Hawaii Property Company, LLC (“Par Property LLC”), our wholly owned subsidiary, entered into a term loan agreement (the “Retail Property Term Loan”) with BOH, which provided a term loan in the principal amount of $45.0 million. The proceeds from the Retail Property Term Loan were used to repay and terminate the Par Pacific Term Loan Agreement.
The Retail Property Term Loan is guaranteed by Par and secured by a lien on substantially all of the assets of Par Property LLC, including a mortgage lien on 21 retail properties in Hawaii (the “Portfolio Properties”). Certain covenants require us to maintain a loan-to-appraisal value of the Portfolio Properties ratio of not greater than 75% and an annual debt yield of at least 9%. Par is also subject to a minimum liquidity covenant measured on the last day of each fiscal quarter.

15

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The Retail Property Term Loan bears interest based on a floating rate equal to the applicable LIBOR for a one-month interest period plus 1.5%. Principal and interest payments are payable monthly based on a 20-year amortization schedule, principal prepayments are allowed subject to applicable prepayment penalties, and the remaining unpaid principal, plus any unpaid interest or other charges, is due on April 1, 2024, the maturity date of the Retail Property Term Loan.
Cross Default Provisions
Included within each of our debt agreements are affirmative and negative covenants, and customary cross default provisions, that require the repayment of amounts outstanding on demand unless the triggering payment default or acceleration is remedied, rescinded, or waived. As of June 30, 2019, we were in compliance with all of our debt agreements.
Guarantors
In connection with our shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission (“SEC”) on February 6, 2019 and declared effective on February 15, 2019 (“Registration Statement”), we may sell non-convertible debt securities and other securities in one or more offerings with an aggregate initial offering price of up to $750.0 million. Any non-convertible debt securities issued under the Registration Statement may be fully and unconditionally guaranteed (except for customary release provisions), on a joint and several basis, by some or all of our subsidiaries, other than subsidiaries that are “minor” within the meaning of Rule 3-10 of Regulation S-X (the “Guarantor Subsidiaries”). We have no “independent assets or operations” within the meaning of Rule 3-10 of Regulation S-X and certain of the Guarantor Subsidiaries may be subject to restrictions on their ability to distribute funds to us, whether by cash dividends, loans, or advances.
Note 10Derivatives
Commodity Derivatives
We utilize commodity derivative contracts to manage our price exposure in our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and crude oil consumption in our refining process. The derivative contracts that we execute to manage our price risk include exchange traded futures, options, and over-the-counter (“OTC”) swaps. Our futures, options, and OTC swaps are marked-to-market and changes in the fair value of these contracts are recognized within Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations.
We are obligated to repurchase the crude oil and refined products from J. Aron at the termination of the Supply and Offtake Agreements. Our Washington Refinery Intermediation Agreement contains forward purchase obligations for certain volumes of crude and refined products that are required to be settled at market prices on a monthly basis. We have determined that these obligations under the Supply and Offtake Agreements and Washington Refinery Intermediation Agreement contain embedded derivatives. As such, we have accounted for these embedded derivatives at fair value with changes in the fair value recorded in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. We are required under the Supply and Offtake Agreements to hedge the time spread between the period of crude oil cargo pricing and the month of delivery for certain crude oil purchases. We utilize OTC swaps to accomplish this.
We have entered into forward purchase contracts for crude oil and forward purchases and sales contracts of refined products. We elect the normal purchases normal sales (“NPNS”) exception for all forward contracts that meet the definition of a derivative and are not expected to net settle. Any gains and losses with respect to these forward contracts designated as NPNS are not reflected in earnings until the delivery occurs. Our open futures and OTC swaps expire at various dates through September 2019.
We elect to offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement. Our condensed consolidated balance sheets present derivative assets and liabilities on a net basis. Please read Note 11—Fair Value Measurements for the gross fair value and net carrying value of our derivative instruments. Our cash margin that is required as collateral deposits cannot be offset against the fair value of open contracts except in the event of default.
At June 30, 2019, our open commodity derivative contracts represented (in thousands of barrels):
Contract type
 
Purchases
 
Sales
 
Net
Futures
 
1,045

 
(308
)
 
737

Swaps
 
2,700

 
(3,946
)
 
(1,246
)
Total
 
3,745

 
(4,254
)
 
(509
)
Interest Rate Derivatives
We are exposed to interest rate volatility in our ABL Revolver, Term Loan B Facility, Retail Property Term Loan, Supply and Offtake Agreements, and Washington Refinery Intermediation Agreement. We may utilize interest rate swaps to manage our interest rate risk. As of June 30, 2019, we entered into an interest rate swap at an average fixed rate of 3.91% in exchange for the floating interest rate and on the notional amounts due under the Retail Property Term Loan. This swap expires on April 1, 2024, the maturity date of the Retail Property Term Loan.
Our 5.00% Convertible Senior Notes include a redemption option and a related make-whole premium which represent an embedded derivative that is not clearly and closely related to the 5.00% Convertible Senior Notes. As such, we have accounted for this embedded derivative at fair value with changes in the fair value recorded in Interest expense and financing costs, net, on our condensed consolidated statements of operations. As of June 30, 2019, this embedded derivative was deemed to have a de minimis fair value.

16

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The following table provides information on the fair value amounts (in thousands) of these derivatives as of June 30, 2019 and December 31, 2018 and their placement within our condensed consolidated balance sheets.
 
Balance Sheet Location
 
June 30, 2019
 
December 31, 2018
 
 
 
Asset (Liability)
Commodity derivatives (1)
Prepaid and other current assets
 
$
1,730

 
$
4,973

Commodity derivatives
Other accrued liabilities
 
(16,878
)
 
(700
)
J. Aron repurchase obligation derivative
Obligations under inventory financing agreements
 
165

 
4,085

MLC repurchase obligation derivative
Obligations under inventory financing agreements
 
(5,639
)
 

Interest rate derivatives
Prepaid and other current assets
 

 
191

Interest rate derivatives
Other accrued liabilities
 
(188
)
 

Interest rate derivatives
Other liabilities
 
(1,286
)
 

_________________________________________________________
(1)
Does not include cash collateral of $2.7 million and $2.7 million recorded in Prepaid and other current assets and $9.5 million and $8.3 million in Other long-term assets as of June 30, 2019 and December 31, 2018, respectively.
The following table summarizes the pre-tax gains (losses) recognized on our condensed consolidated statements of operations resulting from changes in fair value of derivative instruments not designated as hedges charged directly to earnings (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Statement of Operations Location
 
2019
 
2018
 
2019
 
2018
Commodity derivatives
Cost of revenues (excluding depreciation)
 
$
(2,755
)
 
$
(1,247
)
 
$
(3,259
)
 
$
3,685

J. Aron repurchase obligation derivative
Cost of revenues (excluding depreciation)
 
13,388

 
8,800

 
(3,919
)
 
15,142

MLC repurchase obligation derivative
Cost of revenues (excluding depreciation)
 
9,603

 

 
(3,339
)
 

Interest rate derivatives
Interest expense and financing costs, net
 
(1,471
)
 
62

 
(1,470
)
 
1,298

Note 11Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Common Stock Warrants
As of June 30, 2019 and December 31, 2018, we had 354,350 common stock warrants outstanding. We estimate the fair value of our outstanding common stock warrants using the difference between the strike price of the warrant and the market price of our common stock, which is a Level 3 fair value measurement. As of June 30, 2019 and December 31, 2018, the warrants had a weighted-average exercise price of $0.09 and $0.09 and a remaining term of 3.17 years and 3.67 years, respectively.
The estimated fair value of the common stock warrants was $20.45 and $14.13 per share as of June 30, 2019 and December 31, 2018, respectively.
Derivative Instruments
We utilize crude oil commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and cost of crude oil consumed in the refining process. We may utilize interest rate swaps to manage our interest rate risk.
We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These commodity derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The valuation of our J. Aron and MLC repurchase obligation embedded derivatives requires that we make estimates of the prices and differentials assuming settlement at the end of the reporting period; therefore, they are classified as Level 3 instruments. We do not have other commodity derivatives classified as Level 3 at June 30, 2019 or December 31, 2018. Please read Note 10—Derivatives for further information on derivatives.
Financial Statement Impact
Fair value amounts by hierarchy level as of June 30, 2019 and December 31, 2018 are presented gross in the tables below (in thousands):
 
June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-Party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
1,851

 
$
3,688

 
$

 
$
5,539

 
$
(3,809
)
 
$
1,730

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$

 
$

 
$
(7,246
)
 
$
(7,246
)
 
$

 
$
(7,246
)
Commodity derivatives
(976
)
 
(19,711
)
 

 
(20,687
)
 
3,809

 
(16,878
)
J. Aron repurchase obligation derivative

 

 
165

 
165

 

 
165

MLC repurchase obligation derivative

 

 
(5,639
)
 
(5,639
)
 

 
(5,639
)
Interest rate derivatives

 
(1,474
)
 

 
(1,474
)
 

 
(1,474
)
Total
$
(976
)
 
$
(21,185
)
 
$
(12,720
)
 
$
(34,881
)
 
$
3,809

 
$
(31,072
)

17

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-Party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
170

 
$
5,234

 
$

 
$
5,404

 
$
(431
)
 
$
4,973

Interest rate derivatives

 
191

 

 
191

 

 
191

Total
$
170

 
$
5,425

 
$

 
$
5,595

 
$
(431
)
 
$
5,164

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$

 
$

 
$
(5,007
)
 
$
(5,007
)
 
$

 
$
(5,007
)
Commodity derivatives
(870
)
 
(261
)
 

 
(1,131
)
 
431

 
(700
)
J. Aron repurchase obligation derivative

 

 
4,085

 
4,085

 

 
4,085

Total
$
(870
)
 
$
(261
)
 
$
(922
)
 
$
(2,053
)
 
$
431

 
$
(1,622
)
_________________________________________________________
(1)
Does not include cash collateral of $12.2 million and $10.9 million as of June 30, 2019 and December 31, 2018, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.
A roll forward of Level 3 financial instruments measured at fair value on a recurring basis is as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Balance, at beginning of period
$
(26,741
)
 
$
(19,285
)
 
$
(922
)
 
$
(26,372
)
Settlements
(7,898
)
 

 
(7,898
)
 

Acquired
6,353

 

 
(2,301
)
 

Total unrealized income (loss) included in earnings
15,566

 
8,726

 
(1,599
)
 
15,813

Balance, at end of period
$
(12,720
)
 
$
(10,559
)
 
$
(12,720
)
 
$
(10,559
)
The carrying value and fair value of long-term debt and other financial instruments as of June 30, 2019 and December 31, 2018 are as follows (in thousands):
 
June 30, 2019
 
Carrying Value
 
Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3)
$
71,621

 
$
101,583

7.75% Senior Secured Notes due 2025 (1)
291,386

 
298,125

Mid Pac Term Loan (2)
1,449

 
1,449

Term Loan B Facility (1)
235,767

 
248,727

Retail Property Term Loan (2)
43,873

 
43,873

Common stock warrants (2)
7,246

 
7,246


18

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



 
December 31, 2018
 
Carrying Value
 
Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3)
$
100,411

 
$
121,488

7.75% Senior Secured Notes due 2025 (1)
290,763

 
270,000

Mid Pac Term Loan (2)
1,466

 
1,466

Common stock warrants (2)
5,007

 
5,007

_________________________________________________________
(1)
The fair values measurements of the 5.00% Convertible Senior Notes, 7.75% Senior Secured Notes, and Term Loan B Facility are considered Level 2 measurements as discussed below.
(2)
The fair value of the common stock warrants, Mid Pac Term Loan, and Retail Property Term Loan are considered Level 3 measurements in the fair value hierarchy.
(3)
The carrying value of the 5.00% Convertible Senior Notes excludes the fair value of the equity component, which was classified as equity upon issuance.
The fair value of the 5.00% Convertible Senior Notes was determined by aggregating the fair value of the liability and equity components of the notes. The fair value of the liability component of the 5.00% Convertible Senior Notes was determined using a discounted cash flow analysis in which the projected interest and principal payments were discounted at an estimated market yield for a similar debt instrument without the conversion feature. The equity component was estimated based on the Black-Scholes model for a call option with strike price equal to the conversion price, a term matching the remaining life of the 5.00% Convertible Senior Notes, and an implied volatility based on market values of options outstanding as of June 30, 2019. The fair value of the 5.00% Convertible Senior Notes is considered a Level 2 measurement in the fair value hierarchy.
The fair value of the 7.75% Senior Secured Notes and the Term Loan B Facility were determined using a market approach based on quoted prices. Because the 7.75% Senior Secured Notes and Term Loan B Facility may not be actively traded, the inputs used to measure the fair value are classified as Level 2 inputs within the fair value hierarchy.
The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature.

19

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Note 12Leases
We have cancelable and non-cancelable finance and operating lease obligations for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material lease arrangements where we are the lessor.
We determine whether a contract is or contains a lease when we have the right to control the use of the identified asset in exchange for consideration. Lease liabilities and ROU assets are recognized at the commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate in the calculation of present value unless the implicit rate can be readily determined. Certain leases include provisions for variable payments based upon percentage of sales and/or other operating metrics; escalation provisions to adjust rental payments to reflect changes in price indices and fair market rents; and provisions for the renewal, termination, and/or purchase of the leased asset. We only consider fixed payments and those options that are reasonably certain to be exercised in the determination of the lease term and the initial measurement of lease liabilities and ROU assets. Expense for operating lease payments is recognized as lease expense on a straight-line basis over the lease term. Expense for finance leases is recognized as amortization expense on a straight-line basis and interest expense on an effective rate basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
We do not separate lease and nonlease components of a contract. There are no material residual value guarantees associated with any of our leases.
The following table provides information on the amounts (in thousands, except lease term and discount rates) of our leased assets and liabilities as of June 30, 2019 and their placement within our condensed consolidated balance sheets:
Lease type
 
Balance Sheet Location
 
June 30, 2019
Assets
 
 
 
 
Finance
 
Property, plant, and equipment
 
$
10,781

Finance
 
Accumulated amortization
 
(3,481
)
Finance
 
Property and equipment, net
 
$
7,300

Operating
 
Operating lease assets
 
389,047

Total leased assets
 
 
 
$
396,347

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Finance
 
Other accrued liabilities
 
$
1,718

Operating
 
Operating lease liabilities
 
59,707

Long-term
 
 
 
 
Finance
 
Finance lease liabilities
 
6,501

Operating
 
Operating lease liabilities
 
332,465

Total lease liabilities
 
 
 
$
400,391

 
 
 
 
 
Weighted-average remaining lease term (in years)
 
 
Finance
 
 
 
5.94

Operating
 
 
 
11.40

Weighted-average discount rate
 
 
Finance
 
 
 
6.69
%
Operating
 
 
 
7.77
%

20

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The following table summarizes the lease costs recognized on our condensed consolidated statements of operations (in thousands):
Lease cost type
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Finance lease cost
 
 
 
 
Amortization of finance lease assets
 
$
402

 
$
901

Interest on lease liabilities
 
108

 
264

Operating lease cost
 
24,566

 
47,978

Variable lease cost
 
910

 
2,540

Short-term lease cost
 
163

 
416

Net lease cost
 
$
26,149

 
$
52,099

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):
Lease type
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of liabilities
 
 
Financing cash flows from finance leases
 
$
996

Operating cash flows from finance leases
 
245

Operating cash flows from operating leases
 
46,044

Non-cash supplemental amounts
 
 
ROU assets obtained in exchange for new finance lease obligations
 
192

ROU assets obtained in exchange for new operating lease obligations
 
14,308

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of June 30, 2019 (in thousands):