EX-99.1 2 d48994exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
For Immediate Release
HOLLY CORPORATION REPORTS RECORD QUARTERLY RESULTS
HOLLY CORPORATION ANNOUNCES $100 MILLION INCREASE IN STOCK
REPURCHASE PROGRAM
     Dallas, Texas, August 9, 2007 — Holly Corporation (NYSE-HOC) (“Holly” or the “Company”) today reported quarterly net income of $158.6 million ($2.89 per basic and $2.84 per diluted share) for the three months ended June 30, 2007, compared to net income of $93.1 million ($1.62 per basic and $1.60 per diluted share) for the three months ended June 30, 2006. Our second quarter 2007 net income was the highest quarterly net income in our Company’s history. Income from continuing operations was $158.6 million ($2.89 per basic and $2.84 per diluted share) for the three months ended June 30, 2007, compared to income from continuing operations of $87.7 million ($1.53 per basic and $1.51 per diluted share) for the three months ended June 30, 2006. Net income was $226.2 million ($4.11 per basic and $4.03 per diluted share) for the six months ended June 30, 2007, compared to net income of $139.9 million ($2.42 per basic and $2.37 per diluted share) for the six months ended June 30, 2006. Income from continuing operations was $226.2 million ($4.11 per basic and $4.03 per diluted share) for the six months ended June 30, 2007, compared to income from continuing operations of $118.9 million ($2.06 per basic and $2.01 per diluted share) for the six months ended June 30, 2006.
     The Board of Directors has authorized a $100.0 million increase in our current common stock repurchase program. Before this increase, we had $50.0 million remaining under the repurchase program announced in November 2005 and increased to $300.0 million in October 2006. Repurchases under the expanded program will be made from time to time in the open market or privately negotiated transactions based on market conditions, securities law limitations and other factors.

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     On March 31, 2006 we sold our petroleum refinery in Great Falls, Montana (the “Montana Refinery”) to a subsidiary of Connacher Oil and Gas Limited. Accordingly, the results of operations of the Montana Refinery and a net gain of $14.0 million are shown in discontinued operations for the three and six months ended June 30, 2006.
     Income from continuing operations increased $70.9 million for the three months ended June 30, 2007, an increase of 81%, as compared to the three months ended June 30, 2006, and increased $107.3 million for the six months ended June 30, 2007, an increase of 90%, as compared to the six months ended June 30, 2006, principally due to improved refined product margins experienced in the current year and an increase in volumes of produced refined products sold. These favorable factors were partially offset by the effects of higher operating and general and administrative expenses for the three months ended June 30, 2007 and higher depreciation, depletion and amortization and general and administrative expenses for the six months ended June 30, 2007. Overall sales of produced refined products from continuing operations increased by 25% for the three months ended June 30, 2007 and 17% for the six months ended June 30, 2007 as compared to the three and six months ended June 30, 2006, respectively. Overall refinery gross margins from continuing operations were $28.36 per produced barrel for the three months ended June 30, 2007, as compared to $22.37 per produced barrel for the three months ended June 30, 2006, and $22.35 per produced barrel for the six months ended June 30, 2007, as compared to $16.95 for the six months ended June 30, 2006.
     The large increase in volume of produced refined products sold is attributable to increased production levels for the three and six months ended June 30, 2007, as compared to the same periods in 2006. Our production levels were lower for the three and six months ended June 30, 2006 due to planned downtime at our Navajo and Woods Cross Refineries during the second quarter of 2006. Diesel fuel produced at both of our refineries was required to meet certain nationwide ultra low sulfur diesel fuel (“ULSD”) requirements as of June 30, 2006. To meet this requirement, we completed certain ULSD projects at both refineries during the second quarter of 2006. In conjunction with these ULSD projects, we timed other refinery maintenance projects and an expansion of our Navajo Refinery. Downtime incurred from these capital projects was the principal factor in our reduced production levels during the three and six months ended June 30, 2006. Also contributing to our production increase for the three and six months ended June 30, 2007

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is an increase in production levels following our 8,000 BPSD Navajo Refinery expansion in mid-year 2006.
     Sales and other revenues from continuing operations increased 9% for the three months ended June 30, 2007 and 12% for the six months ended June 30, 2007, as compared to the three and six months ended June 30, 2006, respectively, due principally to higher refined product sales prices and an increase in volumes of produced refined products sold. For the three months ended June 30, 2007, cost of products sold decreased by 1%, as compared to the three months ended June 30, 2006 due principally to a per unit decrease in the cost of produced refined products sold, partially offset by an increase in volumes of produced refined products sold. For the six months ended June 30, 2007, cost of products sold increased by 4%, as compared to the six months ended June 30, 2006, due principally to an increase in volumes of produced refined products sold, partially offset by a per unit decrease in the cost of produced refined products sold. For the three months ended June 30, 2007, operating expenses, exclusive of depreciation, depletion and amortization, increased principally due to higher utility costs, as compared to the three months ended June 30, 2006. For the three and six months ended June 30, 2007, general and administrative expenses increased principally due to increased equity-based incentive compensation expense and software implementation costs, as compared to the same periods in 2006. The increase in equity-based compensation expense was due to an increase in our stock price.
     “Strong industry-wide refinery margins coupled with record production levels resulted in our best ever quarterly results. Our Southwest and Rocky Mountain markets provided particularly strong gasoline and diesel fuel crack spreads during the second quarter of 2007. Expanded use of lower priced black wax crudes at our Woods Cross Refinery and a widening of discounts to WTI for the sour crudes processed in our Navajo Refinery also contributed to improved results. For the second quarter of 2007, we generated earnings before interest, taxes and depreciation (“EBITDA”) of $252.1 million, a 72% increase over the $146.4 million of EBITDA for the second quarter of 2006.”
     “Strong financial performances during the first six months of 2007 allowed us to expend $72.5 million under our capital expansion programs and $43.0 million for the purchase of

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common stock under our stock repurchase program while increasing our cash and investments in marketable securities by $155.3 million to $411.3 million. With continued confidence in industry fundamentals and our strong financial position, our Board of Directors has authorized a $100.0 million increase to our current stock repurchase program. We believe the combination of our previously announced feedstock flexibility and capacity expansion capital programs with an expanded stock repurchase program will continue to add shareholder value in a prudent manner” said Matthew Clifton, Chairman of the Board and Chief Executive Officer of Holly.
     The Company has scheduled a conference call for today, August 9, 2007 at 10:00AM EDT to discuss financial results. Listeners may access this call by dialing (888) 548-4639. The ID# for this call is 10413372. Listeners may access the call via the internet at: http://www.videonewswire.com/event.asp?id=41254. Additionally, listeners may replay this call approximately two hours after the call concludes by dialing (800) 642-1687. This audio archive will be available for two weeks.
     Holly Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel and jet fuel. Holly operates through its subsidiaries an 83,000 barrels per stream day (“bpsd”) refinery located in New Mexico and a 26,000 bpsd refinery in Utah. Holly also owns a 45% interest (including the general partner interest) in Holly Energy Partners, L.P., which through subsidiaries owns or leases approximately 1,700 miles of petroleum product pipelines in Texas, New Mexico and Oklahoma and refined product terminals in several Southwest and Rocky Mountain states.
     The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are “forward-looking statements” based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Such differences could be caused

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by a number of factors including, but not limited to, risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company’s markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and market prices for crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, effects of governmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of the Company’s capital investments and marketing strategies, the ability of the Company to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate any future acquired operations, the Company’s efficiency in carrying out construction projects, the possibility of terrorist attacks and the consequences of any such attacks, general economic conditions, and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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RESULTS OF OPERATIONS
Financial Data (all information in this release is unaudited)
                                 
    Three Months Ended        
    June 30,     Change from 2006  
    2007     2006     Change     Percent  
    (In thousands, except per share data)  
Sales and other revenues
   $ 1,216,997     $ 1,120,840     $ 96,157       8.6 %
Operating costs and expenses:
                                
Cost of products sold (exclusive of depreciation, depletion and amortization)
     897,237       908,009       (10,772 )     (1.2 )
Operating expenses (exclusive of depreciation, depletion and amortization)
     51,116       49,092       2,024       4.1  
General and administrative expenses (exclusive of depreciation, depletion and amortization)
     21,348       18,731       2,617       14.0  
Depreciation, depletion and amortization
     10,641       10,683       (42 )     (0.4 )
Exploration expenses, including dry holes
     105       100       5       5.0  
 
                          
Total operating costs and expenses
     980,447       986,615       (6,168 )     (0.6 )
 
                          
Income from operations
     236,550       134,225       102,325       76.2  
Other income (expense):
                                
Equity in earnings of HEP
     4,954       1,516       3,438       226.8  
Interest income
     3,550       2,408       1,142       47.4  
Interest expense
     (291 )     (272 )     (19 )     7.0  
 
                          
 
     8,213       3,652       4,561       124.9  
 
                          
Income from continuing operations before income taxes
     244,763       137,877       106,886       77.5  
Income tax provision
     86,136       50,148       35,988       71.8  
 
                          
Income from continuing operations
     158,627       87,729       70,898       80.8  
Income from discontinued operations, net of taxes
     —       5,372       (5,372 )     (100.0 )
 
                          
Net income
   $ 158,627     $ 93,101     $ 65,526       70.4 %
 
                          
 
                                
Basic earnings per share:
                                
Continuing operations
   $ 2.89     $ 1.53     $ 1.36       88.9 %
Discontinued operations
     —       0.09       (0.09 )     (100.0 )
 
                          
Net income
   $ 2.89     $ 1.62     $ 1.27       78.4 %
 
                          
 
                                
Diluted earnings per share:
                                
Continuing operations
   $ 2.84     $ 1.51     $ 1.33       88.1 %
Discontinued operations
     —       0.09       (0.09 )     (100.0 )
 
                          
Net income
   $ 2.84     $ 1.60     $ 1.24       77.5 %
 
                          
 
                                
Cash dividends declared per common share
   $ 0.12     $ 0.08     $ 0.04       50.0 %
 
                                
Average number of common shares outstanding:
                                
Basic
     54,959       57,186       (2,227 )     (3.9 )%
Diluted
     55,953       58,363       (2,410 )     (4.1 )%

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    Six Months Ended        
    June 30,     Change from 2006  
    2007     2006     Change     Percent  
    (In thousands, except per share data)  
Sales and other revenues
   $ 2,142,864     $ 1,912,434     $ 230,430       12.0 %
Operating costs and expenses:
                                
Cost of products sold (exclusive of depreciation, depletion and amortization)
     1,648,951       1,583,494       65,457       4.1  
Operating expenses (exclusive of depreciation, depletion and amortization)
     101,245       101,559       (314 )     (0.3 )
General and administrative expenses (exclusive of depreciation, depletion and amortization)
     37,195       32,247       4,948       15.3  
Depreciation, depletion and amortization
     22,092       18,707       3,385       18.1  
Exploration expenses, including dry holes
     257       227       30       13.2  
 
                          
Total operating costs and expenses
     1,809,740       1,736,234       73,506       4.2  
 
                          
Income from operations
     333,124       176,200       156,924       89.1  
Other income (expense):
                                
Equity in earnings of HEP
     8,300       4,728       3,572       75.6  
Interest income
     6,110       4,143       1,967       47.5  
Interest expense
     (543 )     (547 )     4       (0.7 )
 
                          
 
     13,867       8,324       5,543       66.6  
 
                          
Income from continuing operations before income taxes
     346,991       184,524       162,467       88.0  
Income tax provision
     120,822       65,635       55,187       84.1  
 
                          
Income from continuing operations
     226,169       118,889       107,280       90.2  
Income from discontinued operations, net of taxes
     —       21,016       (21,016 )     (100.0 )
 
                          
Net income
   $ 226,169     $ 139,905     $ 86,264       61.7 %
 
                          
 
                                
Basic earnings per share:
                                
Continuing operations
   $ 4.11     $ 2.06     $ 2.05       99.5 %
Discontinued operations
     —       0.36       (0.36 )     (100.0 )
 
                          
Net income
   $ 4.11     $ 2.42     $ 1.69       69.8 %
 
                          
 
                                
Diluted earnings per share:
                                
Continuing operations
   $ 4.03     $ 2.01     $ 2.02       100.5 %
Discontinued operations
     —       0.36       (0.36 )     (100.0 )
 
                          
Net income
   $ 4.03     $ 2.37     $ 1.66       70.0 %
 
                          
 
                                
Cash dividends declared per common share
   $ 0.22     $ 0.13     $ 0.09       69.2 %
 
                                
Average number of common shares outstanding:
                                
Basic
     55,073       57,819       (2,746 )     (4.7 )%
Diluted
     56,079       59,072       (2,993 )     (5.1 )%

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Balance Sheet Data (Unaudited)
                 
    June 30,   December 31,
    2007   2006
    (In thousands)
Cash, cash equivalents and investments in marketable securities
   $ 411,286     $ 255,953  
Working capital
   $ 321,259     $ 240,181  
Total assets
   $ 1,457,477     $ 1,237,869  
Stockholders’ equity
   $ 640,000     $ 466,094  
Other Financial Data (Unaudited)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2007   2006   2007   2006
    (In thousands)
Net cash provided by operating activities
   $ 194,283     $ 98,135     $ 280,584     $ 79,795  
Net cash provided by (used for) investing activities
   $ (220,646 )   $ (43,760 )   $ (274,421 )   $ 76,128  
Net cash used for financing activities
   $ (17,679 )   $ (31,130 )   $ (53,143 )   $ (87,131 )
Capital expenditures
   $ 45,781     $ 35,259     $ 72,531     $ 67,494  
EBITDA from continuing operations (1)
   $ 252,145     $ 146,424     $ 363,516     $ 199,635  
 
(1)   Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA as presented above is reconciled to net income under “Reconciliations to Amounts Reported under Generally Accepted Accounting Principles” below.

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Refining Operating Data
Our refinery operations include the Navajo Refinery and the Woods Cross Refinery. The following tables set forth information, including non-GAAP performance measures about our refinery operations. The cost of products and refinery gross margin do not include the effect of depreciation, depletion and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” below.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Navajo Refinery
                                
Crude charge (BPD) (1)
     82,730       60,380       79,790       66,420  
Refinery production (BPD) (2)
     90,940       65,600       88,540       73,320  
Sales of produced refined products (BPD)
     90,660       66,320       88,040       73,000  
Sales of refined products (BPD) (3)
     100,840       83,940       98,610       87,340  
 
                                
Refinery utilization (4)
     99.7 %     80.5 %     96.1 %     88.6 %
 
                                
Average per produced barrel (5)
                                
Net sales
   $ 93.17     $ 90.76     $ 84.69     $ 82.49  
Cost of products (6)
     65.63       67.34       62.45       64.90  
 
                        
Refinery gross margin
     27.54       23.42       22.24       17.59  
Refinery operating expenses (7)
     4.26       5.37       4.22       5.07  
 
                        
Net operating margin
   $ 23.28     $ 18.05     $ 18.02     $ 12.52  
 
                        
 
                                
Feedstocks:
                                
Sour crude oil
     78 %     80 %     76 %     81 %
Sweet crude oil
     10 %     9 %     10 %     7 %
Other feedstocks and blends
     12 %     11 %     14 %     12 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Sales of produced refined products:
                                
Gasolines
     58 %     57 %     59 %     60 %
Diesel fuels
     30 %     27 %     29 %     26 %
Jet fuels
     3 %     5 %     3 %     5 %
Fuel oil
     3 %     — %     3 %     — %
Asphalt
     3 %     4 %     3 %     3 %
LPG and other
     3 %     7 %     3 %     6 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Woods Cross Refinery
                                
Crude charge (BPD) (1)
     25,800       25,270       25,230       24,010  
Refinery production (BPD) (2)
     27,280       27,030       26,920       25,530  
Sales of produced refined products (BPD)
     26,130       27,500       27,120       25,410  
Sales of refined products (BPD) (3)
     26,230       28,800       27,390       26,640  
 
                                
Refinery utilization (4)
     99.2 %     97.2 %     97.0 %     92.3 %
 
                                
Average per produced barrel (5)
                                
Net sales
   $ 96.51     $ 89.63     $ 83.67     $ 80.52  
Cost of products (6)
     65.29       69.80       60.95       65.42  
 
                        
Refinery gross margin
     31.22       19.83       22.72       15.10  
Refinery operating expenses (7)
     4.22       4.36       4.50       4.99  
 
                        
Net operating margin
   $ 27.00     $ 15.47     $ 18.22     $ 10.11  
 
                        

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    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Woods Cross Refinery
                                
Feedstocks:
                                
Sour crude oil
     2 %     3 %     1 %     4 %
Sweet crude oil
     90 %     89 %     90 %     87 %
Other feedstocks and blends
     8 %     8 %     9 %     9 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Sales of produced refined products:
                                
Gasolines
     58 %     64 %     61 %     63 %
Diesel fuels
     31 %     30 %     28 %     28 %
Jet fuels
     3 %     1 %     2 %     2 %
Fuel oil
     7 %     4 %     7 %     5 %
LPG and other
     1 %     1 %     2 %     2 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Consolidated
                                
Crude charge (BPD) (1)
     108,530       85,650       105,020       90,430  
Refinery production (BPD) (2)
     118,220       92,630       115,460       98,850  
Sales of produced refined products (BPD)
     116,790       93,820       115,160       98,410  
Sales of refined products (BPD) (3)
     127,070       112,740       126,000       113,980  
 
                                
Refinery utilization (4)
     99.6 %     84.8 %     96.3 %     89.5 %
 
                                
Average per produced barrel (5)
                                
Net sales
   $ 93.92     $ 90.43     $ 84.45     $ 81.98  
Cost of products (6)
     65.56       68.06       62.10       65.03  
 
                        
Refinery gross margin
     28.36       22.37       22.35       16.95  
Refinery operating expenses (7)
     4.25       5.08       4.29       5.05  
 
                        
Net operating margin
   $ 24.11     $ 17.29     $ 18.06     $ 11.90  
 
                        
 
                                
Feedstocks:
                                
Sour crude oil
     60 %     58 %     59 %     61 %
Sweet crude oil
     28 %     32 %     29 %     28 %
Other feedstocks and blends
     12 %     10 %     12 %     11 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Sales of produced refined products:
                                
Gasolines
     58 %     59 %     59 %     61 %
Diesel fuels
     30 %     27 %     29 %     27 %
Jet fuels
     3 %     4 %     3 %     4 %
Fuel oil
     4 %     1 %     4 %     1 %
Asphalt
     2 %     3 %     2 %     2 %
LPG and other
     3 %     6 %     3 %     5 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
(1)   Crude charge represents the barrels per day of crude oil processed at the crude units at our refineries.
 
(2)   Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries.
 
(3)   Includes refined products purchased for resale.
 
(4)   Represents crude charge divided by total crude capacity (BPSD). Crude capacity for the Navajo Refinery was increased from 75,000 BPSD to 83,000 BPSD in mid-year 2006, increasing our consolidated crude capacity from 101,000 BPSD to 109,000 BPSD.
 
(5)   Represents average per barrel amounts for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are located under “Reconciliations to Amounts Reported under Generally Accepted Accounting Principles” below.
 
(6)   Transportation costs billed from HEP are included in cost of products.
 
(7)   Represents operating expenses of our refineries, exclusive of depreciation, depletion, and amortization, and excludes refining segment expenses of product pipelines and terminals.

- 10 -

 

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under generally accepted accounting principles in financial statements.
Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income plus (i) interest expense net of interest income, (ii) income tax provision, and (iii) depreciation, depletion and amortization. EBITDA is not a calculation based upon accounting principles generally accepted in the United States; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. We are reporting EBITDA from continuing operations.
Set forth below is our calculation of EBITDA from continuing operations.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
            (In thousands)          
Income from continuing operations
   $ 158,627     $ 87,729     $ 226,169     $ 118,889  
Add provision for income tax
     86,136       50,148       120,822       65,635  
Add interest expense
     291       272       543       547  
Subtract interest income
     (3,550 )     (2,408 )     (6,110 )     (4,143 )
Add depreciation and amortization
     10,641       10,683       22,092       18,707  
 
                        
EBITDA from continuing operations
   $ 252,145     $ 146,424     $ 363,516     $ 199,635  
 
                        
Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements.
Refinery gross margin and net operating margin are non-GAAP performance measures that are used by our management and others to compare our refining performance to that of other companies in our industry. We believe these margin measures are helpful to investors in evaluating our refining performance on a relative and absolute basis.
We calculate refinery gross margin and net operating margin using net sales, cost of products and operating expenses, in each case averaged per produced barrel sold. These two margins do not include the effect of depreciation, depletion and amortization. Each of these component performance measures can be reconciled directly to our Statements of Income.
Other companies in our industry may not calculate these performance measures in the same manner.

- 11 -

 

Refinery Gross Margin
Refinery gross margin per barrel is the difference between average net sales price and average cost of products per barrel of produced refined products. Refinery gross margin for each of our refineries and for both of our refineries on a consolidated basis is calculated as shown below.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Average per produced barrel:
                                
 
                                
Navajo Refinery
                                
Net sales
   $ 93.17     $ 90.76     $ 84.69     $ 82.49  
Less cost of products
     65.63       67.34       62.45       64.90  
 
                        
Refinery gross margin
   $ 27.54     $ 23.42     $ 22.24     $ 17.59  
 
                        
 
                                
Woods Cross Refinery
                                
Net sales
   $ 96.51     $ 89.63     $ 83.67     $ 80.52  
Less cost of products
     65.29       69.80       60.95       65.42  
 
                        
Refinery gross margin
   $ 31.22     $ 19.83     $ 22.72     $ 15.10  
 
                        
 
                                
Consolidated
                                
Net sales
   $ 93.92     $ 90.43     $ 84.45     $ 81.98  
Less cost of products
     65.56       68.06       62.10       65.03  
 
                        
Refinery gross margin
   $ 28.36     $ 22.37     $ 22.35     $ 16.95  
 
                        
Net Operating Margin
Net operating margin per barrel is the difference between refinery gross margin and refinery operating expenses per barrel of produced refined products. Net operating margin for each of our refineries and for both of our refineries on a consolidated basis is calculated as shown below.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Average per produced barrel:
                                
 
                                
Navajo Refinery
                                
Refinery gross margin
   $ 27.54     $ 23.42     $ 22.24     $ 17.59  
Less refinery operating expenses
     4.26       5.37       4.22       5.07  
 
                        
Net operating margin
   $ 23.28     $ 18.05     $ 18.02     $ 12.52  
 
                        
 
                                
Woods Cross Refinery
                                
Refinery gross margin
   $ 31.22     $ 19.83     $ 22.72     $ 15.10  
Less refinery operating expenses
     4.22       4.36       4.50       4.99  
 
                        
Net operating margin
   $ 27.00     $ 15.47     $ 18.22     $ 10.11  
 
                        
 
                                
Consolidated
                                
Refinery gross margin
   $ 28.36     $ 22.37     $ 22.35     $ 16.95  
Less refinery operating expenses
     4.25       5.08       4.29       5.05  
 
                        
Net operating margin
   $ 24.11     $ 17.29     $ 18.06     $ 11.90  
 
                        
Below are reconciliations to our Consolidated Statements of Income for (i) net sales, cost of products and operating expenses, in each case averaged per produced barrel sold, and (ii) net operating margin and refinery gross margin. Due to rounding of reported numbers, some amounts may not calculate exactly.

- 12 -

 

Reconciliations of refined product sales from produced products sold to total sales and other revenue
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Navajo Refinery
                                
Average sales price per produced barrel sold
   $ 93.17     $ 90.76     $ 84.69     $ 82.49  
Times sales of produced refined products sold (BPD)
     90,660       66,320       88,040       73,000  
Times number of days in period
     91       91       181       181  
 
                        
Refined product sales from produced products sold
   $ 768,658     $ 547,747     $ 1,349,555     $ 1,089,940  
 
                        
 
                                
Woods Cross Refinery
                                
Average sales price per produced barrel sold
   $ 96.51     $ 89.63     $ 83.67     $ 80.52  
Times sales of produced refined products sold (BPD)
     26,130       27,500       27,120       25,410  
Times number of days in period
     91       91       181       181  
 
                        
Refined product sales from produced products sold
   $ 229,484     $ 224,299     $ 410,713     $ 370,328  
 
                        
 
                                
Sum of refined products sales from produced products sold from our two refineries (4)
   $ 998,142     $ 772,046     $ 1,760,268     $ 1,460,268  
Add refined product sales from purchased products and rounding(1)
     91,747       168,064       171,093       252,343  
 
                        
Total refined products sales
     1,089,889       940,110       1,931,361       1,712,611  
Add direct sales of excess crude oil(2)
     91,843       131,275       153,523       131,275  
Add other refining segment revenue(3)
     35,045       49,453       57,475       68,300  
 
                        
Total refining segment revenue
     1,216,777       1,120,838       2,142,359       1,912,186  
Add corporate and other revenues
     114       143       505       524  
Subtract consolidations and eliminations
     106       (141 )     —       (276 )
 
                        
Sales and other revenues
   $ 1,216,997     $ 1,120,840     $ 2,142,864     $ 1,912,434  
 
                        
 
(1)   We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery commitments.
 
(2)   We purchase crude oil and enter into buy/sell exchanges in excess of the needs to supply our refineries. Certain direct sales of this excess crude oil are made to purchasers or users of crude oil. Under new accounting guidance, these sales and related purchases starting April 1, 2006 are being measured at fair value and accounted for as revenues with the related acquisition costs included as cost of products sold. Prior to April 1, 2006, sales and cost of sales attributable to such excess crude oil direct sales were netted and presented in cost of products sold.
 
(3)   Other refining segment revenue includes the revenues associated with NK Asphalt Partners and revenue derived from sulfur credit sales.
 
(4)   The above calculations of refined product sales from produced products sold can also be computed on a consolidated basis. These amounts may not calculate exactly due to rounding of reported numbers.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Average sales price per produced barrel sold
   $ 93.92     $ 90.43     $ 84.45     $ 81.98  
Times sales of produced refined products sold (BPD)
     116,790       93,820       115,160       98,410  
Times number of days in period
     91       91       181       181  
 
                        
Refined product sales from produced products sold
   $ 998,142     $ 772,046     $ 1,760,268     $ 1,460,268  
 
                        
Reconciliation of average cost of products per produced barrel sold to total costs of products sold
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Navajo Refinery
                                
Average cost of products per produced barrel sold
   $ 65.63     $ 67.34     $ 62.45     $ 64.90  
Times sales of produced refined products sold (BPD)
     90,660       66,320       88,040       73,000  
Times number of days in period
     91       91       181       181  
 
                        
Cost of products for produced products sold
   $ 541,451     $ 406,405     $ 995,156     $ 857,524  
 
                        

- 13 -

 

                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Woods Cross Refinery
                                
Average cost of products per produced barrel sold
   $ 65.29     $ 69.80     $ 60.95     $ 65.42  
Times sales of produced refined products sold (BPD)
     26,130       27,500       27,120       25,410  
Times number of days in period
     91       91       181       181  
 
                        
Cost of products for produced products sold
   $ 155,249     $ 174,675     $ 299,186     $ 300,880  
 
                        
 
                                
Sum of cost of products for produced products sold from our two refineries (4)
   $ 696,700     $ 581,080     $ 1,294,342     $ 1,158,404  
Add refined product costs from purchased products sold and rounding (1)
     86,404       172,348       168,556       257,966  
 
                        
Total refined cost of products sold
     783,104       753,428       1,462,898       1,416,370  
Add crude oil cost of direct sales of excess crude oil(2)
     92,054       131,061       153,906       131,061  
Add other refining segment costs of products sold(3)
     21,973       23,661       32,147       36,339  
 
                        
Total refining segment cost of products sold
     897,131       908,150       1,648,951       1,583,770  
Subtract consolidations and eliminations
     106       (141 )     —       (276 )
 
                        
Costs of products sold (exclusive of depreciation, depletion and amortization)
   $ 897,237     $ 908,009     $ 1,648,951     $ 1,583,494  
 
                        
 
(1)   We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery commitments.
 
(2)   We purchase crude oil and enter into buy/sell exchanges in excess of the needs to supply our refineries. Certain direct sales of this excess crude oil are made to purchasers or users of crude oil. Under new accounting guidance, these sales and related purchases starting April 1, 2006 are being measured at fair value and accounted for as revenues with the related acquisition costs included as cost of products sold. Prior to April 1, 2006, sales and cost of sales attributable to such excess crude oil direct sales were netted and presented in cost of products sold.
 
(3)   Other refining segment costs of products sold includes the costs of products for NK Asphalt Partners and costs attributable to sulfur credit sales.
 
(4)   The above calculations of costs of products from produced products sold can also be computed on a consolidated basis. These amounts may not calculate exactly due to rounding of reported numbers.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Average cost of products per produced barrel sold
   $ 65.56     $ 68.06     $ 62.10     $ 65.03  
Times sales of produced refined products sold (BPD)
     116,790       93,820       115,160       98,410  
Times number of days in period
     91       91       181       181  
 
                        
Cost of products for produced products sold
   $ 696,700     $ 581,080     $ 1,294,342     $ 1,158,404  
 
                        
Reconciliation of average refinery operating expenses per produced barrel sold to total operating expenses
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Navajo Refinery
                                
Average refinery operating expenses per produced barrel sold
   $ 4.26     $ 5.37     $ 4.22     $ 5.07  
Times sales of produced refined products sold (BPD)
     90,660       66,320       88,040       73,000  
Times number of days in period
     91       91       181       181  
 
                        
Refinery operating expenses for produced products sold
   $ 35,145     $ 32,409     $ 67,247     $ 66,990  
 
                        
 
                                
Woods Cross Refinery
                                
Average refinery operating expenses per produced barrel sold
   $ 4.22     $ 4.36     $ 4.50     $ 4.99  
Times sales of produced refined products sold (BPD)
     26,130       27,500       27,120       25,410  
Times number of days in period
     91       91       181       181  
 
                        
Refinery operating expenses for produced products sold
   $ 10,034     $ 10,911     $ 22,089     $ 22,950  
 
                        

- 14 -

 

                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Sum of refinery operating expenses per produced products sold from our two refineries (2)
   $ 45,179     $ 43,320     $ 89,336     $ 89,940  
Add other refining segment operating expenses and rounding (1)
     5,934       5,790       11,895       11,603  
 
                        
Total refining segment operating expenses
     51,113       49,110       101,231       101,543  
Add corporate and other costs
     3       (18 )     14       16  
 
                        
Operating expenses (exclusive of depreciation, depletion and amortization)
   $ 51,116     $ 49,092     $ 101,245     $ 101,559  
 
                        
 
(1)   Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of NK Asphalt Partners.
 
(2)   The above calculations of refinery operating expenses from produced products sold can also be computed on a consolidated basis. These amounts may not calculate exactly due to rounding of reported numbers.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Average refinery operating expenses per produced barrel sold
   $ 4.25     $ 5.08     $ 4.29     $ 5.05  
Times sales of produced refined products sold (BPD)
     116,790       93,820       115,160       98,410  
Times number of days in period
     91       91       181       181  
 
                        
Refinery operating expenses for produced products sold
   $ 45,179     $ 43,320     $ 89,336     $ 89,940  
 
                        
Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Navajo Refinery
                                
Net operating margin per barrel
   $ 23.28     $ 18.05     $ 18.02     $ 12.52  
Add average refinery operating expenses per produced barrel
     4.26       5.37       4.22       5.07  
 
                        
Refinery gross margin per barrel
     27.54       23.42       22.24       17.59  
Add average cost of products per produced barrel sold
     65.63       67.34       62.45       64.90  
 
                        
Average net sales per produced barrel sold
   $ 93.17     $ 90.76     $ 84.69     $ 82.49  
Times sales of produced refined products sold (BPD)
     90,660       66,320       88,040       73,000  
Times number of days in period
     91       91       181       181  
 
                        
Refined products sales from produced products sold
   $ 768,658     $ 547,747     $ 1,349,555     $ 1,089,940  
 
                        
 
                                
Woods Cross Refinery
                                
Net operating margin per barrel
   $ 27.00     $ 15.47     $ 18.22     $ 10.11  
Add average refinery operating expenses per produced barrel
     4.22       4.36       4.50       4.99  
 
                        
Refinery gross margin per barrel
     31.22       19.83       22.72       15.10  
Add average cost of products per produced barrel sold
     65.29       69.80       60.95       65.42  
 
                        
Average net sales per produced barrel sold
   $ 96.51     $ 89.63     $ 83.67     $ 80.52  
Times sales of produced refined products sold (BPD)
     26,130       27,500       27,120       25,410  
Times number of days in period
     91       91       181       181  
 
                        
Refined products sales from produced products sold
   $ 229,484     $ 224,299     $ 410,713     $ 370,328  
 
                        
 
                                
Sum of refined products sales from produced products sold from our two refineries (4)
   $ 998,142     $ 772,046     $ 1,760,268     $ 1,460,268  
Add refined product sales from purchased products and rounding (1)
     91,747       168,064       171,093       252,343  
 
                        
Total refined products sales
     1,089,889       940,110       1,931,361       1,712,611  
Add direct sales of excess crude oil(2)
     91,843       131,275       153,523       131,275  
Add other refining segment revenue (3)
     35,045       49,453       57,475       68,300  
 
                        
Total refining segment revenue
     1,216,777       1,120,838       2,142,359       1,912,186  
Add corporate and other revenues
     114       143       505       524  
Subtract consolidations and eliminations
     106       (141 )     —       (276 )
 
                        
Sales and other revenues
   $ 1,216,997     $ 1,120,840     $ 2,142,864     $ 1,912,434  
 
                        

- 15 -

 

 
(1)   We purchase finished products when opportunities arise that provide a profit on the sale of such products or to meet delivery commitments.
 
(2)   We purchase crude oil and enter into buy/sell exchanges in excess of the needs to supply our refineries. Certain direct sales of this excess crude oil are made to purchasers or users of crude oil. Under new accounting guidance, these sales and related purchases starting April 1, 2006 are being measured at fair value and accounted for as revenues with the related acquisition costs included as cost of products sold. Prior to April 1, 2006, sales and cost of sales attributable to such excess crude oil direct sales were netted and presented in cost of products sold.
 
(3)   Other refining segment revenue includes the revenues associated with NK Asphalt Partners and revenue derived from sulfur credit sales.
 
(4)   The above calculations of refined product sales from produced products sold can also be computed on a consolidated basis. These amounts may not calculate exactly due to rounding of reported numbers.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Net operating margin per barrel
   $ 24.11     $ 17.29     $ 18.06     $ 11.90  
Add average refinery operating expenses per produced barrel
     4.25       5.08       4.29       5.05  
 
                        
Refinery gross margin per barrel
     28.36       22.37       22.35       16.95  
Add average cost of products per produced barrel sold
     65.56       68.06       62.10       65.03  
 
                        
Average sales price per produced barrel sold
   $ 93.92     $ 90.43     $ 84.45     $ 81.98  
Times sales of produced refined products sold (BPD)
     116,790       93,820       115,160       98,410  
Times number of days in period
     91       91       181       181  
 
                        
Refined product sales from produced products sold
   $ 998,142     $ 772,046     $ 1,760,268     $ 1,460,268  
 
                        
FOR FURTHER INFORMATION, Contact:
Stephen J. McDonnell,
Vice President and Chief Financial Officer
M. Neale Hickerson,
Vice President, Investor Relations
Holly Corporation
214/871-3555

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