HOC Holly Corp.

DALLAS, Feb. 17 /PRNewswire-FirstCall/ -- 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 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. 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. 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% 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 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 Consolidated Refining HEP and Other Eliminations 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 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 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 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. (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. 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. 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 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 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 (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 DATASOURCE: Holly Corporation CONTACT: Bruce R, Shaw, Senior Vice President and Chief Financial Officer, or M. Neale Hickerson, Vice President, Investor Relations, both of Holly Corporation, +1-214-871-3555 Web Site: http://www.hollycorp.com/

Copyright