EX-99.1 2 d66386exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
     
Press Release

February 17, 2009 		  (HOLLY LOGO)
Holly Corporation Reports Fourth Quarter and Full Year 2008 Results
Dallas, Texas, February 17, 2009 — Holly Corporation (NYSE-HOC) (“Holly” or the “Company”) today reported fourth quarter net income of $50.6 million ($1.02 per basic and $1.01 per diluted share) compared to $49.8 million ($0.92 per basic and $0.90 per diluted share) for the same period of 2007. For the year ended December 31, 2008, net income was $120.6 million ($2.40 per basic and $2.38 per diluted share) compared to $334.1 million ($6.09 per basic and $5.98 per diluted share) for the year ended December 31, 2007.
Net income for the fourth quarter of 2008 increased slightly compared to the same period in 2007. Our pre-tax income was $79.1 million for the 2008 fourth quarter, an increase of $3.9 million compared to the fourth quarter of 2007. The principal factor contributing to this increase in income was an increase in refined product margins, partially offset by a decrease in sulfur credit sales of $15.0 million. Overall refinery gross margins were $12.01 per produced barrel for the fourth quarter of 2008, a 22% increase compared to $9.83 for fourth quarter of 2007.
Net income for the year ended December 31, 2008 decreased compared to the year ended December 31, 2007. Our pre-tax income was $185.4 million for 2008, a decrease of $314.1 million compared to the prior year. This decrease in income was principally the result of a reduction in refined product margins during the first half of 2008. Overall refinery gross margins were $10.96 per produced barrel for the year ended December 31, 2008, a 35% decrease compared to $16.74 for the year ended December 31, 2007.
“We are pleased with our fourth quarter results. After a very challenging first half of 2008, our third and fourth quarter results reached more acceptable levels. Our EBITDA for the 2008 fourth quarter was $103.7 million, an increase of 27% over the same period last year. We experienced improved refining gross margins averaging $10.88 per barrel in the markets served by our Navajo Refinery, a 37% increase over last year’s fourth quarter. This margin improvement was due to strong gasoline crack spreads in October 2008, combined with wide diesel crack spreads during the quarter and the non-transportation product crack spreads were at the best levels of 2008. Our Woods Cross Refinery realized strong gross margins in their markets of $16.62 per barrel. Additionally during the quarter we completed at Woods Cross the feedstock flexibility and expansion project that now brings our crude capacity to 31,000 BPSD (a 19% increase), plus increases our ability to produce a greater percentage of high value diesel fuel and process a greater percentage of low-priced crude oil. At the Navajo Refinery, we remain on schedule for a first quarter of 2009 completion of our refinery expansion to 100,000 BPSD (an 18% increase) and our phase one operational upgrades which are being tied in during our major maintenance turnaround currently underway. These upgrades will allow us to process 100% lower priced sour crudes while increasing our ability to produce a greater percentage of high value diesel fuel. As we look forward, we believe our upgraded and expanded facilities coupled with

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our strong balance sheet, positions us as a top tier competitor in the markets we serve. I want to again commend our employees who make these accomplishments possible,” said Matthew Clifton, Chairman of the Board and Chief Executive Officer of Holly.
Overall refinery production levels were slightly up for the fourth quarter. For the year ended December 31, 2008, our production levels decreased 2% compared to the same period of 2007 due to unplanned downtime and power outages at our refineries during the second quarter of 2008 and the turnaround at Woods Cross in the third quarter.
Sales and other revenues decreased 36% for the three months ended December 31, 2008, yet increased 23% for the full year ended December 31, 2008 compared to the three months and year ended December 31, 2007, respectively. Our decrease for the 2008 fourth quarter was due to an overall 31% decrease in sales prices of produced refined products sold combined with a 5% decrease in refined products sold. Our increase for the year ended December 31, 2008, was due to an overall 21% increase in sales prices of produced refined products sold, partially offset by a 5% decrease in refined products sold. Cost of products sold decreased 43% for the three months ended December 31, 2008 compared to the same period in 2007. For the year ended December 31, 2008, cost of products sold increased 32% compared to the same period of 2007. With the exception of the second half of the year, overall crude oil costs in 2008 were significantly higher compared to 2007.
Operating costs and expenses for both the three months and year ended December 31, 2008 increased primarily due to the inclusion of Holly Energy Partners, L.P. (NYSE-HEP) (“HEP”) costs beginning March 1, 2008. Excluding the inclusion of HEP’s operating expenses in the current year, refining operating expenses were $4.8 million lower and $23.1 million higher for the three months and year ended December 31, 2008, respectively, compared to the same periods in 2007. The decrease in the fourth quarter resulted from a utility refund while the overall increase for the year ended December 31, 2008 was primarily the result of higher utility, maintenance and payroll costs. Partially offsetting the year-over-year increases in operating expenses was a reduction in general and administrative expenses for the year ended December 31, 2008. Additionally impacting the fourth quarter and the year ended December 31, 2008 were a $6.0 million gain on the sale of our oil and gas properties and an unrealized loss recognized on equity securities. Our income tax rate for 2007 was slightly lower due to a higher utilization of low sulfur diesel fuel production tax credits during 2007.
In February 2008, HEP acquired our crude pipelines and tankage assets. As a result of this transaction, we determined that our beneficial interest in HEP exceeds 50%, therefore, we reconsolidated HEP effective March 1, 2008. We no longer record our share of its earnings under the equity method of accounting. Accordingly, a significant increase in operating costs and expenses for the quarter and year ended December 31, 2008 was due to the inclusion of $10.5 million and $35.2 million of HEP’s operating expenses, $2.1 million and $5.6 million of additional general and administrative expenses, and $4.9 million and $19.2 million of additional depreciation and amortization resulting from our consolidation of HEP, respectively. Additionally, most of our interest expense for the quarter and year ended December 31, 2008 relates to interest costs of HEP. This press release includes key segment information that shows the impact of this reconsolidation on certain balance sheet and income statement amounts.

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The Company has scheduled a conference call for today, February 17, 2009 at 10:00 a.m. Eastern Time to discuss financial results. Listeners may access this call by dialing (888) 548-4639. The ID# for this call is 82338674. Listeners may access the call via the internet at: http://www.videonewswire.com/event.asp?id=55269. Additionally, listeners may replay this call approximately two hours after the call concludes by dialing (800) 642-1687. This audio archive will be available through March 3, 2009.
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 85,000 BPSD refinery located in Artesia, New Mexico and a 31,000 BPSD refinery in Woods Cross, Utah. Also, a subsidiary of Holly owns a 46% interest (including the general partner interest) in Holly Energy Partners, L.P., which through subsidiaries owns or leases approximately 2,500 miles of petroleum product and crude oil pipelines in Texas, New Mexico, Utah and Oklahoma and tankage 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 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        
    December 31,     Change from 2007  
    2008     2007     Change     Percent  
    (In thousands, except per share data)  
Sales and other revenues
   $ 923,942     $ 1,440,207     $ (516,265 )     (35.8 )%
Operating costs and expenses:
                                
Cost of products sold (exclusive of depreciation, depletion and amortization)
     741,936       1,295,066       (553,130 )     (42.7 )
Operating expenses (exclusive of depreciation, depletion and amortization)
     61,557       55,851       5,706       10.2  
General and administrative expenses (exclusive of depreciation, depletion and amortization)
     15,073       12,780       2,293       17.9  
Depreciation, depletion and amortization
     17,811       10,833       6,978       64.4  
Exploration expenses, including dry holes
     28       101       (73 )     (72.3 )
 
                          
Total operating costs and expenses
     836,405       1,374,631       (538,226 )     (39.2 )
 
                          
Income from operations
     87,537       65,576       21,961       33.5  
Other income (expense):
                                
Equity in earnings of HEP
     —       5,245       (5,245 )     (100.0 )
Minority interest in earnings of HEP
     (3,899 )     —       (3,899 )     (100.0 )
Impairment on equity securities
     (3,724 )     —       (3,724 )     (100.0 )
Gain on Sale of HPI
     5,958       —       5,958       100.0  
Interest income
     1,547       4,611       (3,064 )     (66.4 )
Interest expense
     (8,336 )     (246 )     8,090       3,288.6  
 
                          
 
     (8,454 )     9,610       (18,064 )     (188.0 )
 
                          
Income from operations before income taxes
     79,083       75,186       3,897       5.2  
Income tax provision
     28,525       25,353       3,172       12.5  
 
                          
Net income
   $ 50,558     $ 49,833     $ 725       1.5 %
 
                          
 
                                
Net income per share — basic
   $ 1.02     $ 0.92     $ 0.10       10.9 %
 
                          
 
                                
Net income per share — diluted
   $ 1.01     $ 0.90     $ 0.11       12.2 %
 
                          
 
                                
Cash dividends declared per common share
   $ 0.15     $ 0.12     $ 0.03       25.0 %
 
Average number of common shares outstanding:
                                
Basic
     49,794       54,451       (4,657 )     (8.6 )%
Diluted
     49,997       55,098       (5,101 )     (9.3 )%
 
                                
EBITDA
   $ 103,683     $ 81,654     $ 22,029       27.0 %

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    Years Ended        
    December 31,     Change from 2007  
    2008     2007     Change     Percent  
    (In thousands, except per share data)  
Sales and other revenues
   $ 5,867,668     $ 4,791,742     $ 1,075,926       22.5 %
Operating costs and expenses:
                                
Cost of products sold (exclusive of depreciation, depletion and amortization)
     5,280,699       4,003,488       1,277,211       31.9  
Operating expenses (exclusive of depreciation, depletion and amortization)
     267,570       209,281       58,289       27.9  
General and administrative expenses (exclusive of depreciation, depletion and amortization)
     54,906       68,773       (13,867 )     (20.2 )
Depreciation, depletion and amortization
     63,789       43,456       20,333       46.8  
Exploration expenses, including dry holes
     372       412       (40 )     (9.7 )
 
                          
Total operating costs and expenses
     5,667,336       4,325,410       1,341,926       31.0  
 
                          
Income from operations
     200,332       466,332       (266,000 )     (57.0 )
Other income (expense):
                                
Equity in earnings of HEP
     2,990       19,109       (16,119 )     (84.4 )
Minority interest in earnings of HEP
     (7,041 )     —       (7,041 )     (100.0 )
Impairment on equity securities
     (3,724 )     —       (3,724 )     (100.0 )
Gain on Sale of HPI
     5,958       —       5,958       100.0  
Interest income
     10,824       15,089       (4,265 )     (28.3 )
Interest expense
     (23,955 )     (1,086 )     (22,869 )     2,105.8  
 
                          
 
     (14,948 )     33,112       (48,060 )     (145.1 )
 
                          
Income from operations before income taxes
     185,384       499,444       (314,060 )     (62.9 )
Income tax provision
     64,826       165,316       (100,490 )     (60.8 )
 
                          
Net income
   $ 120,558     $ 334,128     $ (213,570 )     (63.9 )%
 
                          
 
                                
Net income per share — basic
   $ 2.40     $ 6.09     $ (3.69 )     (60.6 )%
 
                          
 
                                
Net income per share — diluted
   $ 2.38     $ 5.98     $ (3.60 )     (60.2 )%
 
                          
 
                                
Cash dividends declared per common share
   $ 0.60     $ 0.46     $ 0.14       30.4 %
 
                                
Average number of common shares outstanding:
                                
Basic
     50,202       54,852       (4,650 )     (8.5 )%
Diluted
     50,549       55,850       (5,301 )     (9.5 )%
 
EBITDA
   $ 262,304     $ 528,897     $ (266,593 )     (50.4 )%
Balance Sheet Data
                 
    December 31,   December 31,
    2008   2007
    (In thousands)
Cash, cash equivalents and investments in marketable securities
   $ 96,008     $ 329,784  
Working capital
   $ 68,465     $ 216,541  
Total assets
   $ 1,874,225     $ 1,663,945  
Long-term debt — HEP
   $ 341,914     $ —  
Stockholders’ equity
   $ 541,540     $ 593,794  

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Segment Information
Our operations are currently organized into two reportable segments, Refining and HEP. Our operations that are not included in the Refining and HEP segments are included in Corporate and Other.
The Refining segment includes the operations of our Navajo Refinery, Woods Cross Refinery and Holly Asphalt Company. The Refining segment involves the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel, and includes our Navajo Refinery and Woods Cross Refinery. The petroleum products produced by the Refining segment are marketed in Texas, New Mexico, Arizona, Utah, Wyoming, Idaho, Washington and northern Mexico. The Refining segment also includes Holly Asphalt Company which manufactures and markets asphalt and asphalt products in Arizona, New Mexico, Texas and northern Mexico.
The HEP segment involves all of the operations of HEP effective March 1, 2008 (date of reconsolidation). HEP owns and operates a system of petroleum product and crude gathering pipelines in Texas, New Mexico, Oklahoma and Utah, distribution terminals in Texas, New Mexico, Arizona, Utah, Idaho, and Washington and refinery tankage in New Mexico and Utah. Revenues are generated by charging tariffs for transporting petroleum products and crude oil through their pipelines and by charging fees for terminalling petroleum products and other hydrocarbons, and storing and providing other services at their storage tanks and terminals. The HEP segment also includes a 70% interest in Rio Grande Pipeline Company (“Rio Grande”) which provides petroleum products transportation services. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations and from HEP’s interest in Rio Grande.
                                         
                            Consolidations    
                    Corporate   and    
    Refining   HEP   and Other   Eliminations   Consolidated Total
    (In thousands)
Three Months Ended December 31, 2008
                                        
Sales and other revenues
   $ 913,417     $ 33,526     $ 784     $ (23,785 )   $ 923,942  
Operating expenses
   $ 51,028     $ 10,524     $ 108     $ (103 )   $ 61,557  
General and administrative expenses
   $ 7     $ 2,137     $ 12,929     $ —     $ 15,073  
Depreciation and amortization
   $ 11,444     $ 4,910     $ 1,457     $ —     $ 17,811  
Income (loss) from operations
   $ 85,320     $ 15,955     $ (13,738 )   $ —     $ 87,537  
Capital expenditures
   $ 112,748     $ 13,280     $ 598     $ —     $ 126,626  
 
                                        
Three Months Ended December 31, 2007
                                        
Sales and other revenues
   $ 1,439,560     $ —     $ 647     $ —     $ 1,440,207  
Operating expenses
   $ 55,850     $ —     $ 1     $ —     $ 55,851  
General and administrative expenses
   $ —     $ —     $ 12,780     $ —     $ 12,780  
Depreciation and amortization
   $ 9,821     $ —     $ 1,012     $ —     $ 10,833  
Income (loss) from operations
   $ 78,823     $ —     $ (13,247 )   $ —     $ 65,576  
Capital expenditures
   $ 47,650     $ —     $ 393     $ —     $ 48,043  

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                            Consolidations    
                    Corporate   and   Consolidated
    Refining   HEP   and Other   Eliminations   Total
                    (In thousands)                
Year Ended December 31, 2008
                                        
Sales and other revenues
   $ 5,837,449     $ 101,750     $ 2,641     $ (74,172 )   $ 5,867,668  
Operating expenses
   $ 232,511     $ 35,218     $ 128     $ (287 )   $ 267,570  
General and administrative expenses
   $ 12     $ 5,614     $ 49,280     $ —     $ 54,906  
Depreciation and amortization
   $ 40,090     $ 19,184     $ 4,515     $ —     $ 63,789  
Income (loss) from operations
   $ 210,252     $ 41,734     $ (51,654 )   $ —     $ 200,332  
Capital expenditures
   $ 381,227     $ 34,317     $ 2,515     $ —     $ 418,059  
 
                                        
Year Ended December 31, 2007
                                        
Sales and other revenues
   $ 4,790,164     $ —     $ 1,578     $ —     $ 4,791,742  
Operating expenses
   $ 209,269     $ —     $ 12     $ —     $ 209,281  
General and administrative expenses
   $ —     $ —     $ 68,773     $ —     $ 68,773  
Depreciation and amortization
   $ 40,325     $ —     $ 3,131     $ —     $ 43,456  
Income (loss) from operations
   $ 537,118     $ —     $ (70,786 )   $ —     $ 466,332  
Capital expenditures
   $ 151,448     $ —     $ 9,810     $ —     $ 161,258  
 
                                        
December 31, 2008
                                        
Cash, cash equivalents and investments in marketable securities
   $ —     $ 5,269     $ 90,739     $ —     $ 96,008  
Total assets
   $ 1,288,211     $ 458,049     $ 141,768     $ (13,803 )   $ 1,874,225  
Total debt
   $ —     $ 370,914     $ —     $ —     $ 370,914  
 
                                        
December 31, 2007
                                        
Cash, cash equivalents and investments in marketable securities
   $ —     $ —     $ 329,784     $ —     $ 329,784  
Total assets
   $ 1,271,163     $ —     $ 392,782     $ —     $ 1,663,945  

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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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Navajo Refinery
                                
Crude charge (BPD) (1)
     81,470       82,180       79,020       79,460  
Refinery production (BPD) (2)
     94,350       93,550       88,680       87,930  
Sales of produced refined products (BPD)
     95,380       99,080       89,580       88,920  
Sales of refined products (BPD) (3)
     100,380       105,550       97,320       100,460  
 
                                
Refinery utilization (4)
     95.8 %     96.7 %     93.0 %     94.6 %
 
                                
Average per produced barrel (5)
                                
Net sales
   $ 69.38     $ 99.39     $ 108.52     $ 89.68  
Cost of products (6)
     58.50       91.44       98.97       74.10  
 
                        
Refinery gross margin
     10.88       7.95       9.55       15.58  
Refinery operating expenses (7)
     3.52       4.11       4.58       4.30  
 
                        
Net operating margin
   $ 7.36     $ 3.84     $ 4.97     $ 11.28  
 
                        
 
                                
Feedstocks:
                                
Sour crude oil
     77 %     81 %     79 %     82 %
Sweet crude oil
     10 %     5 %     10 %     9 %
Other feedstocks and blends
     13 %     14 %     11 %     9 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Sales of produced refined products:
                                
Gasolines
     59 %     60 %     57 %     59 %
Diesel fuels
     33 %     30 %     33 %     30 %
Jet fuels
     1 %     2 %     1 %     3 %
Fuel oil
     2 %     4 %     3 %     3 %
Asphalt
     3 %     2 %     3 %     2 %
LPG and other
     2 %     2 %     3 %     3 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Woods Cross Refinery(8)
                                
Crude charge (BPD) (1)
     23,360       23,560       21,660       24,030  
Refinery production (BPD) (2)
     24,660       24,980       22,170       25,340  
Sales of produced refined products (BPD)
     23,170       25,040       22,370       26,130  
Sales of refined products (BPD) (3)
     23,270       25,040       23,430       26,340  
 
                                
Refinery utilization (4)
     75.4 %     90.6 %     79.5 %     92.4 %
 
                                
Average per produced barrel (5)
                                
Net sales
   $ 67.71     $ 100.79     $ 110.07     $ 90.09  
Cost of products (6)
     51.09       83.51       93.47       69.40  
 
                        
Refinery gross margin
     16.62       17.28       16.60       20.69  
Refinery operating expenses (7)
     6.94       5.47       7.42       4.86  
 
                        
Net operating margin
   $ 9.68     $ 11.81     $ 9.18     $ 15.83  
 
                        

-12-

 

                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Woods Cross Refinery
                                
Feedstocks:
                                
Sour crude oil
     — %     7 %     1 %     2 %
Sweet crude oil
     67 %     71 %     72 %     75 %
Black wax crude oil
     25 %     16 %     21 %     15 %
Other feedstocks and blends
     8 %     6 %     6 %     8 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Sales of produced refined products:
                                
Gasolines
     63 %     71 %     62 %     63 %
Diesel fuels
     29 %     24 %     30 %     27 %
Jet fuels
     — %     — %     — %     2 %
Fuel oil
     5 %     2 %     5 %     5 %
Asphalt
     1 %     1 %     1 %     1 %
LPG and other
     2 %     2 %     2 %     2 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Consolidated
                                
Crude charge (BPD) (1)
     104,830       105,740       100,680       103,490  
Refinery production (BPD) (2)
     119,010       118,530       110,850       113,270  
Sales of produced refined products (BPD)
     118,550       124,120       111,950       115,050  
Sales of refined products (BPD) (3)
     123,650       130,590       120,750       126,800  
 
                                
Refinery utilization (4)
     90.4 %     95.3 %     89.7 %     94.1 %
 
                                
Average per produced barrel (5)
                                
Net sales
   $ 69.06     $ 99.67     $ 108.83     $ 89.77  
Cost of products (6)
     57.05       89.84       97.87       73.03  
 
                        
Refinery gross margin
     12.01       9.83       10.96       16.74  
Refinery operating expenses (7)
     4.19       4.39       5.14       4.43  
 
                        
Net operating margin
   $ 7.82     $ 5.44     $ 5.82     $ 12.31  
 
                        
 
                                
Feedstocks:
                                
Sour crude oil
     60 %     66 %     63 %     62 %
Sweet crude oil
     22 %     19 %     23 %     23 %
Black wax crude oil
     5 %     3 %     4 %     3 %
Other feedstocks and blends
     13 %     12 %     10 %     12 %
 
                        
Total
     100 %     100 %     100 %     100 %
 
                        
 
                                
Sales of produced refined products:
                                
Gasolines
     60 %     62 %     58 %     60 %
Diesel fuels
     32 %     29 %     32 %     29 %
Jet fuels
     1 %     2 %     1 %     2 %
Fuel oil
     3 %     3 %     3 %     4 %
Asphalt
     2 %     2 %     3 %     2 %
LPG and other
     2 %     2 %     3 %     3 %
 
                        
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). Our consolidated crude capacity was increased from 109,000 BPSD to 111,000 BPSD in mid-year 2007 and by an additional 5,000 BPSD in the fourth quarter of 2008, increasing our consolidated crude capacity to 116,000 BPSD.

-13-

 

(5)   Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” 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.
 
(8)   There was a scheduled major maintenance turnaround at the Woods Cross Refinery during the 2008 third quarter.
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.
Set forth below is our calculation of EBITDA.
                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
    (In thousands)  
Income
   $ 50,558     $ 49,833     $ 120,558     $ 334,128  
Add provision for income tax
     28,525       25,353       64,826       165,316  
Add interest expense
     8,336       246       23,955       1,086  
Subtract interest income
     (1,547 )     (4,611 )     (10,824 )     (15,089 )
Add depreciation and amortization
     17,811       10,833       63,789       43,456  
 
                        
EBITDA
   $ 103,683     $ 81,654     $ 262,304     $ 528,897  
 
                        
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.

-14-

 

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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Average per produced barrel:
                                
 
                                
Navajo Refinery
                                
Net sales
   $ 69.38     $ 99.39     $ 108.52     $ 89.68  
Less cost of products
     58.50       91.44       98.97       74.10  
 
                        
Refinery gross margin
   $ 10.88     $ 7.95     $ 9.55     $ 15.58  
 
                        
 
                                
Woods Cross Refinery
                                
Net sales
   $ 67.71     $ 100.79     $ 110.07     $ 90.09  
Less cost of products
     51.09       83.51       93.47       69.40  
 
                        
Refinery gross margin
   $ 16.62     $ 17.28     $ 16.60     $ 20.69  
 
                        
 
                                
Consolidated
                                
Net sales
   $ 69.06     $ 99.67     $ 108.83     $ 89.77  
Less cost of products
     57.05       89.84       97.87       73.03  
 
                        
Refinery gross margin
   $ 12.01     $ 9.83     $ 10.96     $ 16.74  
 
                        
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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Average per produced barrel:
                                
 
                                
Navajo Refinery
                                
Refinery gross margin
   $ 10.88     $ 7.95     $ 9.55     $ 15.58  
Less refinery operating expenses
     3.52       4.11       4.58       4.30  
 
                        
Net operating margin
   $ 7.36     $ 3.84     $ 4.97     $ 11.28  
 
                        
 
                                
Woods Cross Refinery
                                
Refinery gross margin
   $ 16.62     $ 17.28     $ 16.60     $ 20.69  
Less refinery operating expenses
     6.94       5.47       7.42       4.86  
 
                        
Net operating margin
   $ 9.68     $ 11.81     $ 9.18     $ 15.83  
 
                        
 
                                
Consolidated
                                
Refinery gross margin
   $ 12.01     $ 9.83     $ 10.96     $ 16.74  
Less refinery operating expenses
     4.19       4.39       5.14       4.43  
 
                        
Net operating margin
   $ 7.82     $ 5.44     $ 5.82     $ 12.31  
 
                        
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.

-15-

 

Reconciliations of refined product sales from produced products sold to total sales and other revenue
                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Navajo Refinery
                                
Average sales price per produced barrel sold
   $ 69.38     $ 99.39     $ 108.52     $ 89.68  
Times sales of produced refined products sold (BPD)
     95,380       99,080       89,580       88,920  
Times number of days in period
     92       92       366       365  
 
                        
Refined product sales from produced products sold
   $ 608,807     $ 905,976     $ 3,557,967     $ 2,910,636  
 
                        
 
                                
Woods Cross Refinery
                                
Average sales price per produced barrel sold
   $ 67.71     $ 100.79     $ 110.07     $ 90.09  
Times sales of produced refined products sold (BPD)
     23,170       25,040       22,370       26,130  
Times number of days in period
     92       92       366       365  
 
                        
Refined product sales from produced products sold
   $ 144,333     $ 232,188     $ 901,189     $ 859,229  
 
                        
 
                                
Sum of refined products sales from produced products sold from our two refineries (4)
   $ 753,140     $ 1,138,164     $ 4,459,156     $ 3,769,865  
Add refined product sales from purchased products and rounding(1)
     45,243       61,759       384,073       383,396  
 
                        
Total refined products sales
     798,383       1,199,923       4,843,229       4,153,261  
Add direct sales of excess crude oil(2)
     83,480       194,350       860,642       491,150  
Add other refining segment revenue(3)
     31,554       45,287       133,578       145,753  
 
                        
Total refining segment revenue
     913,417       1,439,560       5,837,449       4,790,164  
Add HEP segment sales and other revenue
     33,526       —       101,750       —  
Add corporate and other revenues
     784       647       2,641       1,578  
Subtract consolidations and eliminations
     (23,785 )     —       (74,172 )     —  
 
                        
Sales and other revenues
   $ 923,942     $ 1,440,207     $ 5,867,668     $ 4,791,742  
 
                        
 
(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 that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost.
 
(3)   Other refining segment revenue includes the revenues associated with Holly Asphalt Company and other revenues including 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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Average sales price per produced barrel sold
   $ 69.06     $ 99.67     $ 108.83     $ 89.77  
Times sales of produced refined products sold (BPD)
     118,550       124,120       111,950       115,050  
Times number of days in period
     92       92       366       365  
 
                        
Refined product sales from produced products sold
   $ 753,140     $ 1,138,164     $ 4,459,156     $ 3,769,865  
 
                        
Reconciliation of average cost of products per produced barrel sold to total costs of products sold
                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Navajo Refinery
                                
Average cost of products per produced barrel sold
   $ 58.50     $ 91.44     $ 98.97     $ 74.10  
Times sales of produced refined products sold (BPD)
     95,380       99,080       89,580       88,920  
Times number of days in period
     92       92       366       365  
 
                        
Cost of products for produced products sold
   $ 513,335     $ 833,509     $ 3,244,858     $ 2,404,975  
 
                        

-16-

 

                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Woods Cross Refinery
                                
Average cost of products per produced barrel sold
   $ 51.09     $ 83.51     $ 93.47     $ 69.40  
Times sales of produced refined products sold (BPD)
     23,170       25,040       22,370       26,130  
Times number of days in period
     92       92       366       365  
 
                        
Cost of products for produced products sold
   $ 108,905     $ 192,380     $ 765,278     $ 661,899  
 
                        
 
                                
Sum of cost of products for produced products sold from our two refineries (4)
   $ 622,240     $ 1,025,889     $ 4,010,136     $ 3,066,874  
Add refined product costs from purchased products sold and rounding (1)
     46,273       56,341       389,944       374,432  
 
                        
Total refined cost of products sold
     668,513       1,082,230       4,400,080       3,441,306  
Add crude oil cost of direct sales of excess crude oil(2)
     82,151       194,933       853,360       492,222  
Add other refining segment costs of products sold(3)
     14,954       17,903       101,144       69,960  
 
                        
Total refining segment cost of products sold
     765,618       1,295,066       5,354,584       4,003,488  
Subtract consolidations and eliminations
     (23,682 )     —       (73,885 )     —  
 
                        
Costs of products sold (exclusive of depreciation, depletion and amortization)
   $ 741,936     $ 1,295,066     $ 5,280,699     $ 4,003,488  
 
                        
 
(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 that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost.
 
(3)   Other refining segment cost of products sold includes the cost of products for Holly Asphalt Company and other costs including 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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Average cost of products per produced barrel sold
   $ 57.05     $ 89.84     $ 97.87     $ 73.03  
Times sales of produced refined products sold (BPD)
     118,550       124,120       111,950       115,050  
Times number of days in period
     92       92       366       365  
 
                        
Cost of products for produced products sold
   $ 622,240     $ 1,025,889     $ 4,010,136     $ 3,066,874  
 
                        
Reconciliation of average refinery operating expenses per produced barrel sold to total operating expenses
                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Navajo Refinery
                                
Average refinery operating expenses per produced barrel sold
   $ 3.52     $ 4.11     $ 4.58     $ 4.30  
Times sales of produced refined products sold (BPD)
     95,380       99,080       89,580       88,920  
Times number of days in period
     92       92       366       365  
 
                        
Refinery operating expenses for produced products sold
   $ 30,888     $ 37,464     $ 150,161     $ 139,560  
 
                        
 
                                
Woods Cross Refinery
                                
Average refinery operating expenses per produced barrel sold
   $ 6.94     $ 5.47     $ 7.42     $ 4.86  
Times sales of produced refined products sold (BPD)
     23,170       25,040       22,370       26,130  
Times number of days in period
     92       92       366       365  
 
                        
Refinery operating expenses for produced products sold
   $ 14,794     $ 12,601     $ 60,751     $ 46,352  
 
                        

-17-

 

                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Sum of refinery operating expenses per produced products sold from our two refineries (2)
   $ 45,682     $ 50,065     $ 210,912     $ 185,912  
Add other refining segment operating expenses and rounding (1)
     5,346       5,785       21,599       23,357  
 
                        
Total refining segment operating expenses
     51,028       55,850       232,511       209,269  
Add HEP segment operating expenses
     10,524       —       35,218       —  
Add corporate and other costs
     5       1       (159 )     12  
 
                        
Operating expenses (exclusive of depreciation, depletion and amortization)
   $ 61,557     $ 55,851     $ 267,570     $ 209,281  
 
                        
 
(1)   Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of Holly Asphalt Company.
 
(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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Average refinery operating expenses per produced barrel sold
   $ 4.19     $ 4.39     $ 5.14     $ 4.43  
Times sales of produced refined products sold (BPD)
     118,550       124,120       111,950       115,050  
Times number of days in period
     92       92       366       365  
 
                        
Refinery operating expenses for produced products sold
   $ 45,682     $ 50,065     $ 210,912     $ 185,912  
 
                        
Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues
                                 
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Navajo Refinery
                                
Net operating margin per barrel
   $ 7.36     $ 3.84     $ 4.97     $ 11.28  
Add average refinery operating expenses per produced barrel
     3.52       4.11       4.58       4.30  
 
                        
Refinery gross margin per barrel
     10.88       7.95       9.55       15.58  
Add average cost of products per produced barrel sold
     58.50       91.44       98.97       74.10  
 
                        
Average net sales per produced barrel sold
   $ 69.38     $ 99.39     $ 108.52     $ 89.68  
Times sales of produced refined products sold (BPD)
     95,380       99,080       89,580       88,920  
Times number of days in period
     92       92       366       365  
 
                        
Refined products sales from produced products sold
   $ 608,807     $ 905,976     $ 3,557,967     $ 2,910,636  
 
                        
 
                                
Woods Cross Refinery
                                
Net operating margin per barrel
   $ 9.68     $ 11.81     $ 9.18     $ 15.83  
Add average refinery operating expenses per produced barrel
     6.94       5.47       7.42       4.86  
 
                        
Refinery gross margin per barrel
     16.62       17.28       16.60       20.69  
Add average cost of products per produced barrel sold
     51.09       83.51       93.47       69.40  
 
                        
Average net sales per produced barrel sold
   $ 67.71     $ 100.79     $ 110.07     $ 90.09  
Times sales of produced refined products sold (BPD)
     23,170       25,040       22,370       26,130  
Times number of days in period
     92       92       366       365  
 
                        
Refined products sales from produced products sold
   $ 144,333     $ 232,188     $ 901,189     $ 859,229  
 
                        
 
                                
Sum of refined products sales from produced products sold from our two refineries (4)
   $ 753,140     $ 1,138,164     $ 4,459,156     $ 3,769,865  
Add refined product sales from purchased products and rounding (1)
     45,243       61,759       384,073       383,396  
 
                        
Total refined products sales
     798,383       1,199,923       4,843,229       4,153,261  
Add direct sales of excess crude oil(2)
     83,480       194,350       860,642       491,150  
Add other refining segment revenue (3)
     31,554       45,287       133,578       145,753  
 
                        
Total refining segment revenue
     913,417       1,439,560       5,837,449       4,790,164  
Add HEP segment sales and other revenues
     33,526       —       101,750       —  
Add corporate and other revenues
     784       647       2,641       1,578  
Subtract consolidations and eliminations
     (23,785 )     —       (74,172 )     —  
 
                        
Sales and other revenues
   $ 923,942     $ 1,440,207     $ 5,867,668     $ 4,791,742  
 
                        

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(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 that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost.
 
(3)   Other refining segment revenue includes the revenues associated with Holly Asphalt Company and other revenues including 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     Years Ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Net operating margin per barrel
   $ 7.82     $ 5.44     $ 5.82     $ 12.31  
Add average refinery operating expenses per produced barrel
     4.19       4.39       5.14       4.43  
 
                        
Refinery gross margin per barrel
     12.01       9.83       10.96       16.74  
Add average cost of products per produced barrel sold
     57.05       89.84       97.87       73.03  
 
                        
Average sales price per produced barrel sold
   $ 69.06     $ 99.67     $ 108.83     $ 89.77  
Times sales of produced refined products sold (BPD)
     118,550       124,120       111,950       115,050  
Times number of days in period
     92       92       366       365  
 
                        
Refined product sales from produced products sold
   $ 753,140     $ 1,138,164     $ 4,459,156     $ 3,769,865  
 
                        
FOR FURTHER INFORMATION, Contact:
Bruce R, Shaw, Senior Vice President and
     Chief Financial Officer
M. Neale Hickerson, Vice President,
     Investor Relations
Holly Corporation
214/871-3555

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