NOTE 2: Holly-Frontier Merger

On February 21, 2011, we entered into a merger agreement providing for a "merger of equals" business combination between us and Frontier for purposes of creating a more diversified, combined company having a broader geographic sales footprint, stronger financial position and to reduce corporate overhead through the realization of synergies and promote earnings per share accretion. The legacy Frontier business operations consist of crude oil refining and the wholesale marketing of refined petroleum products. Frontier operates refineries in Cheyenne, Wyoming (the "Cheyenne Refinery") and El Dorado, Kansas (the "El Dorado Refinery") that serve markets in the Rocky Mountain and Plains States regions of the United States. The combined annual average crude oil capacity of these refineries is approximately 187,000 barrels per day.

On July 1, 2011, North Acquisition, Inc., a direct wholly-owned subsidiary of Holly, merged with and into Frontier, with Frontier surviving as a wholly-owned subsidiary of Holly. Concurrent with the merger, we changed our name to HollyFrontier Corporation and changed the ticker symbol for our common stock traded on the New York Stock Exchange to "HFC." Subsequent to the merger and following approval by the post-closing board of directors of HollyFrontier, Frontier merged with and into HollyFrontier, with HollyFrontier continuing as the surviving corporation.

In accordance with the merger agreement, we issued approximately 102.8 million shares of HollyFrontier common stock in exchange for outstanding shares of Frontier common stock to former Frontier stockholders. Each outstanding share of Frontier common stock was converted into 0.4811 shares of HollyFrontier common stock with any fractional shares paid in cash. The aggregate consideration paid in connection with the merger was approximately $3.7 billion. This is based on our July 1, 2011 market closing price of $35.93 and includes a portion of the fair value of the outstanding quity-based awards assumed from Frontier that relates to pre-merger services. The number of shares issued in connection with our merger with Frontier and the closing market price of our common stock at July 1, 2011 has been adjusted to reflect the two-for-one stock split on August 31, 2011.

The merger has been accounted for using the acquisition method of accounting with Holly being considered the acquirer of Frontier for accounting purposes. Therefore, the purchase price was allocated to the fair value of the acquired assets and assumed liabilities at the acquisition date, with the excess purchase price being recorded as goodwill. Goodwill is not deductible for income tax purposes.

The following table summarizes our preliminary fair value estimates of the Frontier assets and liabilities recognized upon our merger on July 1, 2011:


	(in millions)
Cash and cash equivalents	$	872
Accounts receivable		738
Inventories		670
Properties, plants and equipment		1,052
Goodwill		2,235
Income taxes receivable		38
Other assets		12
Accounts payable		(1,072	)
Accrued liabilities		(41	)
Long-term debt		(371	)
Other long-term liabilities		(65	)
Deferred income taxes		(361	)

Net tangible and intangible assets acquired and liabilities assumed	$	3,707

Due to the short time frame since July 1, 2011, our valuations of the acquired Frontier assets and liabilities are not final as of September 30, 2011. These fair value estimates, including the value of goodwill and the allocation, thereof to our reporting units are preliminary in nature and therefore, may change upon the completion such valuations. Such changes could be material.

Beginning July 1, 2011, HollyFrontier's consolidated financial and operating results reflect the operations of the merged Frontier businesses. Our Consolidated Statements of Income include revenues and income before income taxes of $2.2 billion and $397.6 million, respectively, for the period from July 1, 2011 through September 30, 2011 that are attributable to the operations of the legacy Frontier refineries.

Assuming the merger had been consummated on January 1, 2010, the beginning of the earliest period presented, pro forma revenues, net income and basic and diluted earnings per share (except in the case of the three months ended September 30, 2011 which represent actual results) are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(In thousands, except per share amounts)
Sales and other revenues	$	5,173,398	$	3,507,460	$	14,446,297	$	10,348,634
Net income attributable to HollyFrontier stockholders	$	523,088	$	66,792	$	1,129,775	$	142,499
Basic earnings per share	$	2.50	$	0.32	$	5.39	$	0.68
Diluted earnings per share	$	2.48	$	0.32	$	5.37	$	0.68

The pro forma financial information above reflects our preliminary fair value estimates of the acquired Frontier assets and liabilities. Adjustments made to derive pro forma net income primarily relate to depreciation and amortization expense in order to reflect our new basis in the acquired legacy Frontier refining facilities.

As of September 30, 2011, we have recognized $15.1 million in merger transaction costs that are presented separately in our income statements and primarily relate to legal, advisory and other professional fees incurred since the announcement of our merger agreement in February 2011. This does not include costs to integrate the operations of the combined company. For the three and nine months ended September 30, 2011, general and administrative expenses include $154 million in integration and severance costs associated with the integration of both companies.