HollyFrontier Corporation Reports Fourth Quarter 2011 Results

News provided by

HollyFrontier Corporation

Feb 28, 2012, 07:00 ET

DALLAS, Feb. 28, 2012 /PRNewswire/ -- HollyFrontier Corporation (NYSE-HFC) ("HollyFrontier" or the "Company") today reported fourth quarter net income attributable to HollyFrontier stockholders of $223.4 million or $1.06 per diluted share for the quarter ended December 31, 2011, compared to $14.7 million or $0.13 per diluted share for the quarter ended December 31, 2010. For the year ended December 31, 2011, net income attributable to HollyFrontier stockholders totaled $1 billion or $6.42 per diluted share compared to $104 million or $0.97 per diluted share for the year ended December 31, 2010.

For the fourth quarter, net income increased by $208.7 million, or 1,418% compared to the same period of 2010, reflecting both the effects of increased operating scale due to our recent merger and historically strong fourth quarter refining margins, which continued to benefit from wide differentials between inland and coastal-sourced crude oils.  Overall refinery gross margins were $15.32 per produced barrel, a 95% increase compared to $7.87 for the fourth quarter of 2010, with overall production levels averaging 438,000 barrels per day ("BPD") and overall crude oil charges averaging 407,000 BPD for the current quarter.  The Company's Rocky Mountain refining margins were the strongest, with average gross margins of $18.33 per barrel for the quarter.  The Mid-Continent and Southwest refining operations also yielded good results, where quarterly gross margins averaged $14.71 and $14.76 per barrel, respectively.

HollyFrontier's President & CEO, Mike Jennings, commented, "We are delighted with our fourth quarter results as we conclude our first fiscal year as a combined company.  Although overall product crack spreads narrowed during the quarter as the WTI crude differentials compressed, we generated solid profits for the quarter and remained near the top of our peer group in profitability per barrel.  We are especially pleased with the Company's full year results, as this was the most profitable year in our history, with net income over $1 billion.  Including last week's special dividend declaration, we have announced special distributions to shareholders of $1.50 per share or approximately $315 million since the completion of our merger in July of last year.  Further, we currently have a $350 million share repurchase program in place and continue to pay our regular quarterly dividend of $0.10 per share.  Looking forward, the differentials between inland and coastal crudes are fairly robust, which should contribute favorably to our first quarter results.  Further, we believe that operational synergies and increased asset scale gained during the merger will help us to extend our record of providing consistent returns and increasing shareholder value while maintaining a strong balance sheet."

Sales and other revenues for the fourth quarter of 2011 were $5 billion, a 125% increase compared to the three months ended December 31, 2010.  This increase was due primarily to the inclusion of revenues from the El Dorado and Cheyenne refineries and the effects of a 19% year-over-year increase in fourth quarter refined product sales prices.  Cost of products sold for the quarter was $4.3 billion, a 114% increase compared to the fourth quarter of 2010, reflecting both the fourth quarter impact of the legacy Frontier refineries and a 13% year-over-year increase in fourth quarter crude oil acquisition costs.  During the quarter, we recognized merger integration costs of $8 million, which are included among general and administrative costs. Fourth quarter cash flows from operations totaled $249.2 million, of which $122.8 million was directed towards cash dividends to shareholders.  These strong cash flows continued to contribute to the Company's combined balance of cash and short-term investments which stood at $1.8 billion on December 31, 2011 and compared to debt of $1.2 billion on a consolidated basis and $688.9 million excluding HEP debt, which is non-recourse to HollyFrontier.  During the fourth quarter and for the full year ended December 31, 2011 we paid dividends of $122.8 million and $252.1 million, respectively.

The Company has scheduled a webcast conference call for today, February 28, 2012, at 11:00 AM Eastern Time to discuss financial results.  This webcast may be accessed at: http://www.videonewswire.com/event.asp?id=84801.  

An audio archive of this webcast will be available using the above noted link through March 12, 2012.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day ("bpsd") refinery located in El Dorado, Kansas, a 125,000 bpsd refinery in Tulsa, Oklahoma, a 100,000 bpsd refinery located in Artesia, New Mexico, a 52,000 bpsd refinery located in Cheyenne, Wyoming and a 31,000 bpsd refinery in Woods Cross, Utah.  HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states.  A subsidiary of HollyFrontier also owns a 42% interest (including the general partner interest) in Holly Energy Partners, L.P.

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.  Any 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 and environmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of the Company's capital investments and marketing strategies, the Company's efficiency in carrying out construction projects, 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 possibility of terrorist attacks and the consequences of any such attacks, general economic conditions, our ability to realize fully or at all the anticipated benefits of our "merger of equals" with Frontier, 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 2010

2011 (1)

2010

Change

Percent

(In thousands, except per share data)





Sales and other revenues                                 

$  4,972,412

$  2,211,791

$  2,760,621

124.8%





Operating costs and expenses:



 Cost of products sold (exclusive of depreciation and amortization)

4,258,439

1,988,029

2,270,410

114.2

 Operating expenses (exclusive of depreciation and amortization)

246,110

125,776

120,334

95.7

 General and administrative expenses (exclusive of depreciation and amortization)

41,473

20,216

21,257

105.1

 Depreciation and amortization                             

53,327

31,810

21,517

67.6

  Total operating costs and expenses                     

4,599,349

2,165,831

2,433,518

112.4

Income from operations                                   

373,063

45,960

327,103

711.7





Other income (expense):



 Earnings in equity method investments                     

561

798

(237)

(29.7)

 Interest income                                        

338

410

(72)

(17.6)

 Interest expense                                       

(21,852)

(18,083)

(3,769)

20.8

(20,953)

(16,875)

(4,078)

24.2





Income before income taxes                               

352,110

29,085

323,025

1,110.6





Income tax provision                                     

116,261

4,836

111,425

2,304.1





Net income                                             

235,849

24,249

211,600

872.6





Less net income attributable to noncontrolling interest           

12,469

9,530

2,939

30.8





Net income attributable to HollyFrontier stockholders             

$  223,380

$  14,719

$  208,661

1,417.6%










Earnings per share attributable to HollyFrontier stockholders:



 Basic                                               

$  1.07

$  0.14

$  0.93

664.3%

 Diluted                                               

$  1.06

$  0.13

$  0.93

715.4%





Cash dividends declared per common share                   

$  0.60

$  0.07

$  0.53

757.1%





Average number of common shares outstanding:



 Basic                                               

209,319

106,516

102,803

96.5%

 Diluted                                               

210,159

107,296

102,863

95.9%





EBITDA                                                

$  414,482

$  69,038

$  345,444

500.4%



Years Ended

December 31,

Change from 2010

2011 (1)

2010

Change

Percent

(In thousands, except per share data)





Sales and other revenues                                 

$  15,439,528

$  8,322,929

$  7,116,599

85.5%





Operating costs and expenses:



 Cost of products sold (exclusive of depreciation and amortization)

12,680,078

7,367,149

5,312,929

72.1

 Operating expenses (exclusive of depreciation and amortization)

748,081

504,414

243,667

48.3

 General and administrative expenses (exclusive of depreciation and amortization)

120,114

70,839

49,275

69.6

 Depreciation and amortization                             

159,707

117,529

42,178

35.9

  Total operating costs and expenses                     

13,707,980

8,059,931

5,648,049

70.1

Income from operations                                   

1,731,548

262,998

1,468,550

558.4





Other income (expense):



 Earnings of equity method investments                     

2,300

2,393

(93)

(3.9)

 Interest income                                        

1,284

1,168

116

9.9

 Interest expense                                       

(78,323)

(74,196)

(4,127)

5.6

 Merger transaction costs                                

(15,114)

-

(15,114)

-

(89,853)

(70,635)

(19,218)

27.2





Income before income taxes                               

1,641,695

192,363

1,449,332

753.4





Income tax provision                                     

581,991

59,312

522,679

881.2





Net income                                             

1,059,704

133,051

926,653

696.5





Less net income attributable to noncontrolling interest           

36,307

29,087

7,220

24.8





Net income attributable to HollyFrontier stockholders             

$  1,023,397

$  103,964

$  919,433

884.4%










Earnings per share attributable to HollyFrontier stockholders:



 Basic                                               

$  6.46

$  0.98

$    5.48

559.2%

 Diluted                                               

$  6.42

$  0.97

$  5.45

561.9%





Cash dividends declared per common share                   

$  1.34

$  0.30

$  1.04

346.7%





Average number of common shares outstanding:



 Basic                                               

158,486

106,436

52,050

48.9%

 Diluted                                               

159,294

107,218

52,076

48.6%





EBITDA                                                

$  1,842,134

$  353,833

$  1,488,301

420.6%

(1)

We merged with Frontier Oil Corporation ("Frontier") on July 1, 2011.  Our consolidated financial and operating results reflect the operations of the merged Frontier businesses beginning July 1, 2011.

Balance Sheet Data

December 31,

December 31,

2011

2010


(In thousands)



Cash, cash equivalents and investments in marketable securities                 

$     1,840,610

$  230,444

Working capital                                                         

$  2,030,063

$  313,580

Total assets                                                           

$  10,314,621

$  3,701,475

Long-term debt                                                         

$  1,214,742

$  810,561

Total equity                                                            

$  5,835,900

$  1,288,139

Segment Information

Our operations are 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.  Intersegment transactions are eliminated in our consolidated financial statements and are included in Consolidations and Eliminations.  The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and NK Asphalt Partners ("NK Asphalt").  Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel.  These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States.  Additionally, the Refining segment includes specialty lubricant products produced at our Tulsa refinery that are marketed throughout North America and are distributed in Central and South America.  NK Asphalt operates asphalt terminals in Arizona and New Mexico.

The HEP segment involves all of the operations of HEP.  HEP owns and operates a system of petroleum product and crude gathering pipelines in New Mexico, Oklahoma, Texas and Utah, distribution terminals in Arizona, Idaho, Kansas, New Mexico, Oklahoma, Texas, Utah, Idaho, Washington and Wyoming and refinery tankage in Kansas, New Mexico, Oklahoma, Utah and Wyoming.  Revenues are generated by charging tariffs for transporting petroleum products and crude oil through its pipelines, by leasing certain pipeline capacity to Alon USA, Inc., by charging fees for terminalling refined products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals. The HEP segment also includes a 25% interest in SLC Pipeline LLC ("SLC Pipeline") that services refineries in the Salt Lake City, Utah area.  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.



Refining

HEP (1)

Corporate

and Other

Consolidations

and

Eliminations

Consolidated

Total

(In thousands)






Three Months Ended December 31, 2011




 Sales and other revenues            

$  4,959,334

$  68,333

$    147

$    (55,402)

$    4,972,412

 Depreciation and amortization         

$  41,086

$  9,660

$    2,788

$    (207)

$    53,327

 Income (loss) from operations         

$  379,074

$  36,694

$    (44,343)

$    1,638

$    373,063

 Capital expenditures                 

$  56,621

$  7,844

$    35,553

$    -

$    100,018






Three Months Ended December 31, 2010




 Sales and other revenues            

$  2,200,757

$  49,384

$    98

$    (38,448)

$    2,211,791

 Depreciation and amortization         

$  21,988

$  8,240

$    1,379

$    203

$    31,810

 Income (loss) from operations         

$  42,386

$  26,649

$    (22,125)

$    (950)

$    45,960

 Capital expenditures                 

$  68,054

$  17,049

$    190

$    -

$    85,293






Year Ended December 31, 2011




 Sales and other revenues            

$  15,392,430

$  213,566

$    1,247

$    (167,715)

$    15,439,528

 Depreciation and amortization         

$  122,437

$  31,530

$    6,568

$    (828)

$    159,707

 Income (loss) from operations         

$  1,739,068

$  113,258

$    (120,833)

$    55

$    1,731,548

 Capital expenditures                 

$  148,699

$  39,337

$    186,205

$    -

$    374,241






Year Ended December 31, 2010




 Sales and other revenues            

$  8,287,000

$  182,114

$    415

$    (146,600)

$    8,322,929

 Depreciation and amortization         

$  84,587

$  29,062

$    4,562

$    (682)

$    117,529

 Income (loss) from operations         

$  242,466

$  92,386

$    (69,654)

$    (2,200)

$    262,998

 Capital expenditures                 

$  186,441

$  25,103

$    1,688

$    -

$    213,232


December 31, 2011




 Cash, cash equivalents and investments in marketable securities

$  -

$  3,269

$    1,837,341

$    -

$    1,840,610

 Total assets                       

$  7,018,804

$  992,408

$    2,421,140

$    (117,731)

$    10,314,621

 Long-term debt                     

$  -

$  598,761

$    705,331

$    (89,350)

$    1,214,742






December 31, 2010




 Cash, cash equivalents and investments in marketable securities

$  -

$  403

$    230,041

$    -

$    230,444

 Total assets                       

$  2,490,193

$  669,820

$    573,531

$    (32,069)

$    3,701,475

 Long-term debt                     

$  -

$  482,271

$    345,215

$    (16,925)

$    810,561

Refining Operating Data

Our refinery operations include the El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries. The following tables set forth information, including non-GAAP performance measures about our consolidated refinery operations.  The cost of products and refinery gross margin do not include the effect of depreciation and amortization.  Reconciliations to amounts reported under GAAP are provided under "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" below.

Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011(10)

2010

Mid-Continent Region (Tulsa and El Dorado Refineries)



Crude charge (BPD) (1)                                  

250,840

109,660

183,070

111,670

Refinery throughput (BPD) (2)                             

271,940

110,230

194,310

113,100

Refinery production (BPD) (3)                             

265,480

101,190

188,760

106,910

Sales of produced refined products (BPD)                   

273,460

107,300

188,020

107,780

Sales of refined products (BPD) (4)                         

275,210

107,630

190,340

108,330





Refinery utilization (5)                                   

96.5%

87.7%

94.8%

89.3%





Average per produced barrel (6)



 Net sales                                           

$  113.94

$  96.60

$  119.51

$  90.84

 Cost of products (7)                                   

99.23

89.37

99.92

83.29

 Refinery gross margin                                 

14.71

7.23

19.59

7.55

 Refinery operating expenses (8)                         

4.94

4.47

5.04

4.94

 Net operating margin                                   

$  9.77

$  2.76

$  14.55

$  2.61





Refinery operating expenses per throughput barrel (9)         

$  4.97

$  4.35

$  4.88

$  4.71





Feedstocks:



 Sweet crude oil                                       

77%

97%

82%

92%

 Heavy sour crude oil                                   

10%

-%

8%

3%

 Sour crude oil                                        

5%

3%

4%

5%

 Other feedstocks and blends                            

8%

-%

6%

-%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

49%

34%

44%

38%

 Diesel fuels                                          

29%

32%

32%

31%

 Jet fuels                                             

7%

8%

7%

8%

 Lubricants                                           

4%

11%

6%

11%

 Gas oil / intermediates                                 

2%

7%

3%

4%

 Asphalt                                             

4%

6%

4%

5%

 LPG and other                                       

5%

2%

4%

3%

 Total                                               

100%

100%

100%

100%


Southwest Region (Navajo Refinery)



Crude charge (BPD) (1)                                  

86,190

89,080

83,700

83,900

Refinery throughput (BPD) (2)                             

99,310

100,070

93,260

94,270

Refinery production (BPD) (3)                             

96,490

97,270

91,810

92,050

Sales of produced refined products (BPD)                   

101,780

97,930

93,950

92,550

Sales of refined products (BPD) (4)                         

106,140

101,740

98,540

95,790





Refinery utilization (5)                                   

86.2%

89.1%

83.7%

83.9%





Average per produced barrel (6)



 Net sales                                           

$  115.90

$  94.18

$  118.76

$  90.37

 Cost of products (7)                                   

101.14

87.74

98.40

83.12

 Refinery gross margin                                 

14.76

6.44

20.36

7.25

 Refinery operating expenses (8)                         

5.14

4.78

5.44

4.95

 Net operating margin                                   

$  9.62

$  1.66

$  14.92

$  2.30





Refinery operating expenses per throughput barrel (9)         

$  5.27

$  4.68

$  5.48

$  4.86



Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011(10)

2010

Feedstocks:



 Sour crude oil                                        

86%

71%

75%

81%

 Sweet crude oil                                       

-%

6%

3%

5%

 Heavy sour crude oil                                   

1%

12%

11%

4%

 Other feedstocks and blends                            

13%

11%

11%

10%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

56%

56%

52%

57%

 Diesel fuels                                          

33%

33%

34%

32%

 Jet fuels                                             

1%

1%

1%

3%

 Fuel oil                                             

4%

5%

6%

4%

 Asphalt                                             

4%

3%

4%

2%

 LPG and other                                       

2%

2%

3%

2%

 Total                                               

100%

100%

100%

100%





Rocky Mountain Region (Woods Cross and Cheyenne Refineries)



Crude charge (BPD) (1)                                  

69,500

22,910

48,230

25,870

Refinery throughput (BPD) (2)                             

77,210

25,050

52,630

27,540

Refinery production (BPD) (3)                             

75,950

24,290

51,320

27,020

Sales of produced refined products (BPD)                   

75,570

26,480

50,750

27,810

Sales of refined products (BPD) (4)                         

77,430

26,600

51,750

27,980





Refinery utilization (5)                                   

83.7%

73.9%

84.3%

83.5%





Average per produced barrel (6)



 Net sales                                           

$  111.88

$  95.99

$  116.37

$  94.26

 Cost of products (7)                                   

93.55

80.33

91.33

75.54

 Refinery gross margin                                 

18.33

15.66

25.04

18.72

 Refinery operating expenses (8)                         

6.34

6.83

6.41

6.09

 Net operating margin                                   

$  11.99

$  8.83

$  18.63

$  12.63





Refinery operating expenses per throughput barrel (9)         

$  6.21

$  7.22

$  6.18

$  6.15





Feedstocks:



 Sweet crude oil                                       

48%

53%

52%

59%

 Heavy sour crude oil                                   

30%

6%

24%

6%

 Black wax crude oil                                   

11%

34%

15%

30%

 Sour crude oil                                        

1%

-%

1%

-%

 Other feedstocks and blends                            

10%

7%

8%

5%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

58%

67%

56%

63%

 Diesel fuels                                          

30%

26%

31%

30%

 Jet fuels                                             

1%

1%

1%

1%

 Fuel oil                                             

1%

1%

1%

1%

 Asphalt                                             

5%

3%

6%

3%

 LPG and other                                       

5%

2%

5%

2%

 Total                                               

100%

100%

100%

100%



Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011(10)

2010

Consolidated



Crude charge (BPD) (1)                                  

406,530

221,650

315,000

221,440

Refinery throughput (BPD) (2)                             

448,460

235,350

340,200

234,910

Refinery production (BPD) (3)                             

437,920

222,750

331,890

225,980

Sales of produced refined products (BPD)                   

450,810

231,710

332,720

228,140

Sales of refined products (BPD) (4)                         

458,780

235,970

340,630

232,100





Refinery utilization (5)                                   

91.8%

86.6%

89.9%

86.5%





Average per produced barrel (6)



 Net sales                                           

$  114.03

$  95.51

$  118.82

$  91.06

 Cost of products (7)                                   

98.71

87.64

98.18

82.27

 Refinery gross margin                                 

15.32

7.87

20.64

8.79

 Refinery operating expenses (8)                         

5.22

4.87

5.36

5.08

 Net operating margin                                   

$  10.10

$  3.00

$  15.28

$  3.71





Refinery operating expenses per throughput barrel (9)         

$  5.25

$  4.80

$  5.24

$  4.94





Feedstocks:



 Sour crude oil                                        

22%

32%

23%

35%

 Sweet crude oil                                       

55%

54%

56%

53%

 Heavy sour crude oil                                   

12%

5%

12%

4%

 Black wax crude oil                                   

2%

4%

2%

3%

 Other feedstocks and blends                            

9%

5%

7%

5%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

52%

48%

48%

49%

 Diesel fuels                                          

31%

31%

32%

31%

 Jet fuels                                             

5%

5%

5%

5%

 Fuel oil                                             

1%

2%

2%

2%

 Asphalt                                             

4%

4%

4%

3%

 Lubricants                                           

2%

5%

3%

5%

 Gas oil / intermediates                                 

1%

3%

2%

2%

 LPG and other                                       

4%

2%

4%

3%

 Total                                               

100%

100%

100%

100%

(1)

Crude charge represents the barrels per day of crude oil processed at our refineries.

(2)

Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.

(3)

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.

(4)

Includes refined products purchased for resale.

(5)

Represents crude charge divided by total crude capacity (BPSD).  As a result of our merger effective July 1, 2011 our consolidated crude capacity increased from 256,000 BPSD to 443,000 BPSD.

(6)

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" following Item 3 of Part I of this Form 10-Q.

(7)

Transportation costs billed from HEP are included in cost of products.

(8)

Represents operating expenses of our refineries, exclusive of depreciation and amortization.

(9)

Represents refinery operating expenses, exclusive of depreciation and amortization divided by refinery throughput

(10)

We merged with Frontier effective July 1, 2011. Refining operating data for the year ended December 31, 2011 include crude oil processed and products yielded from the El Dorado and Cheyenne Refineries for the period from July 1, 2011 through December 31, 2011 only, and averaged over the 365 days in year ended December 31, 2011.

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 attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization.  EBITDA is not a calculation provided for under 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

December 31,

Years Ended

December 31,

2011

2010

2011

2010

(In thousands)





Net income attributable to HollyFrontier stockholders             

$  223,380

$  14,719

$  1,023,397

$  103,964

 Add income tax provision                                

116,261

4,836

581,991

59,312

 Add interest expense                                   

21,852

18,083

78,323

74,196

 Subtract interest income                                 

(338)

(410)

(1,284)

(1,168)

 Add depreciation and amortization                         

53,327

31,810

159,707

117,529

EBITDA                                                

$  414,482

$  69,038

$  1,842,134

$  353,833

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.

Refinery gross margin per barrel is the difference between average net sales price and average cost of products per barrel of produced refined products.  Net operating margin per barrel is the difference between refinery gross margin and refinery operating expenses per barrel of produced refined products.  These two margins do not include the effect of depreciation and amortization.  Each of these component performance measures can be reconciled directly to our Consolidated Statements of Income.

Other companies in our industry may not calculate these performance measures in the same manner.

Refinery Gross and Net Operating Margins

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 revenues

Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





Average sales price per produced barrel sold                 

$  114.03

$  95.51

$  118.82

$  91.06

Times sales of produced refined products (BPD)               

450,810

231,710

332,720

228,140

Times number of days in period                             

92

92

365

365

Refined product sales from produced products sold             

$  4,729,340

$  2,036,017

$  14,429,833

$  7,582,666





Total refined product sales

$  4,729,340

$  2,036,017

$  14,429,833

$  7,582,666

Add refined product sales from purchased products and rounding (1)

84,132

37,158

350,843

130,866

Total refined product sales                                 

4,813,472

2,073,175

14,780,676

7,713,532

Add direct sales of excess crude oil (2)                      

135,965

104,362

558,855

459,743

Add other refining segment revenue (3)                       

9,897

23,220

52,899

113,725

Total refining segment revenue                             

4,959,334

2,200,757

15,392,430

8,287,000

Add HEP segment sales and other revenues                   

68,333

49,384

213,566

182,114

Add corporate and other revenues                          

147

98

1,247

415

Subtract consolidations and eliminations                      

(55,402)

(38,448)

(167,715)

(146,600)

Sales and other revenues                                 

$  4,972,412

$  2,211,791

$  15,439,528

$  8,322,929

Reconciliation of average cost of products per produced barrel sold to total cost of products sold

Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





Average cost of products per produced barrel sold             

$  98.71

$  87.64

$  98.18

$  82.27

Times sales of produced refined products (BPD)               

450,810

231,710

332,720

228,140

Times number of days in period                             

92

92

365

365

Cost of products for produced products sold                  

$  4,093,950

$  1,868,250

$  11,923,254

$  6,850,713


Total cost of products for produced products sold              

$   4,093,950

$1,868,250

$  11,923,254

$  6,850,713

Add refined product costs from purchased products sold and rounding (1)

83,012

36,905

351,788

131,668

Total cost of refined products sold                           

4,176,962

1,905,155

12,275,042

6,982,381

Add crude oil cost of direct sales of excess crude oil (2)         

134,535

102,923

550,619

454,566

Add other refining segment cost of products sold (4)            

1,478

17,517

18,672

73,410

Total refining segment cost of products sold                   

4,312,975

2,025,595

12,844,333

7,510,357

Subtract consolidations and eliminations                      

(54,536)

(37,566)

(164,255)

(143,208)

Costs of products sold (exclusive of depreciation and amortization)

$  4,258,439

$  1,988,029

$  12,680,078

$  7,367,149

Reconciliation of average refinery operating expenses per produced barrel sold to total operating expenses

Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





Average refinery operating expenses per produced barrel sold   

$  5.22

$  4.87

$  5.36

$  5.08

Times sales of produced refined products (BPD)               

450,810

231,710

332,720

228,140

Times number of days in period                            

92

92

365

365

Refinery operating expenses for produced products sold       

$  216,497

$  103,815

$  650,933

$  423,017





Total refinery operating expenses for produced products sold   

$  216,497

$  103,815

$  650,933

$  423,017

Add other refining segment operating expenses and rounding (5) 

9,702

6,973

35,659

26,573

Total refining segment operating expenses                   

226,199

110,788

686,592

449,590

Add HEP segment operating expenses                       

18,726

12,760

62,202

52,947

Add corporate and other costs                             

1,857

2,363

1,974

2,387

Subtract consolidations and eliminations                     

(672)

(135)

(2,687)

(510)

Operating expenses (exclusive of depreciation and amortization) 

$  246,110

$  125,776

$  748,081

$  504,414

Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues

Three Months Ended

December 31,

Years Ended

December 31,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





Net operating margin per barrel                             

$  10.10

$  3.00

$  15.28

$  3.71

Add average refinery operating expenses per produced barrel    

5.22

4.87

5.36

5.08

Refinery gross margin per barrel                            

15.32

7.87

20.64

8.79

Add average cost of products per produced barrel sold         

98.71

87.64

98.18

82.27

Average sales price per produced barrel sold                 

$  114.03

$  95.51

$  118.82

$  91.06

Times sales of produced refined products (BPD)               

450,810

231,710

332,720

228,140

Times number of days in period                             

92

92

365

365

Refined product sales from produced products sold             

$  4,729,340

$  2,036,017

$  14,429,833

$    7,582,666





Total refined product sales from produced products sold         

$  4,729,340

$  2,036,017

$  14,429,833

$  7,582,666

Add refined product sales from purchased products and rounding (1)

84,132

37,158

350,843

130,866

Total refined product sales                                 

4,813,472

2,073,175

14,780,676

7,713,532

Add direct sales of excess crude oil (2)                      

135,965

104,362

558,855

459,743

Add other refining segment revenue (3)                       

9,897

23,220

52,899

113,725

Total refining segment revenue                             

4,959,334

2,200,757

15,392,430

8,287,000

Add HEP segment sales and other revenues                   

68,333

49,384

213,566

182,114

Add corporate and other revenues                          

147

98

1,247

415

Subtract consolidations and eliminations                      

(55,402)

(38,448)

(167,715)

(146,600)

Sales and other revenues                                 

$  4,972,412

$   2,211,791

$  15,439,528

$  8,322,929

(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 incremental revenues associated with NK Asphalt and miscellaneous revenue.

(4)

Other refining segment cost of products sold includes the incremental cost of products for NK Asphalt and miscellaneous costs.

(5)

Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of NK Asphalt.

SOURCE HollyFrontier Corporation

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