HollyFrontier Corporation Reports Record Second Quarter 2011 Results

News provided by

HollyFrontier Corporation

Aug 05, 2011, 07:00 ET

DALLAS, Aug. 5, 2011 /PRNewswire/ -- HollyFrontier Corporation (NYSE: HFC) ("HollyFrontier" or the "Company") today reported record quarterly net income attributable to HollyFrontier stockholders of $192.2 million or $3.58 per diluted share for the quarter ended June 30, 2011, compared to $66.2 million or $1.24 per diluted share for the quarter ended June 30, 2010. For the six months ended June 30, 2011, net income attributable to HollyFrontier stockholders totaled $276.9 million or $5.16 per diluted share compared to $38.1 million or $0.71 per diluted share for the six months ended June 30, 2010.

For the most recent quarter, income increased by $126.1 million, or 191% compared to the same period of 2010.  This increase in the most recent quarter was due principally to the effects of significantly higher refinery gross margins largely attributable to the considerable price differences between WTI crude oil and coastal crude oils like Brent and LLS.  Substantially all of the crude oil run by HollyFrontier is priced at WTI or less.  Overall refinery gross margins were $21.42 per produced barrel in the most recent quarter, a 95% increase compared to $11.01 for the same period last year.  Production levels averaged 232,050 barrels per day ("BPD") for the current year's second quarter.

"We are extremely pleased with our second quarter results, reflecting the most profitable quarter in our history," said Matthew Clifton, Executive Chairman of HollyFrontier.  "Significant year-over-year margin improvements at each of our refineries, contributed to a 126% increase in EBITDA levels to $351 million for the three months ended June 30, 2011, compared to $155 million for the same period of 2010.  Both our Tulsa and Navajo refineries earned approximately $140 million in EBITDA during the quarter.  Our processing of lower priced WTI related crudes combined with strong transportation fuel cracks at all of our refineries helped fuel these improved results.  Additionally, our Tulsa refinery benefited from attractive lube margins.

"Overall refinery production levels improved through the quarter as we rebounded from operational issues earlier in the year.  For the month of June 2011, our total production was over 250,000 BPD and we have continued near such levels into the third quarter.  We are on schedule for completion of the interconnect pipeline project at our Tulsa refinery later this summer.  Upon completion, we expect the pipelines to lower operating expenses and enhance the earnings potential of our Tulsa refinery," Clifton said.

HollyFrontier's Chief Executive Officer and President, Michael Jennings, commented, "We completed our merger on July 1, 2011 forming the new HollyFrontier Corporation.  Our integration of the two companies is moving along well and we are now starting to realize cost savings opportunities and operational synergies.  The combination has strengthened our strategic position by diversifying revenue streams, expanding infrastructure and increasing asset scale.  We began the third quarter as a combined company with over $1.3 billion in cash and marketable securities and a new $1 billion revolving credit facility, making our financial condition one of the strongest among our independent refining peers."

Sales and other revenues for the second quarter of 2011 were $2,967.1 million, a 38% increase compared to the three months ended June 30, 2010.  This increase was due primarily to the effects of a 39% year-over-year increase in second quarter refined product sales prices.  Cost of products sold was $2,447.1 million, a 32% increase compared to the second quarter of 2010 due mainly to higher crude oil acquisition costs.

Legacy Frontier Oil Corporation Second Quarter 2011 Results

For the quarter ended June 30, 2011, the legacy Frontier Oil Corporation ("Frontier") business operations also generated strong quarterly results with net income of $167.1 million, or $1.57 per diluted share, compared to $66.1 million, or $0.63 per diluted share for the second quarter of 2010.  EBITDA for the second quarter of 2011 was $296.2 million compared to $141.9 million for the same period last year.  The legacy Frontier results of operations for the three and six months ended June 30, 2011 and 2010 are not included in the HFC results for the three and six month periods and will be made available in a HollyFrontier Form 8-K that will be filed with the SEC on August 8, 2011.

The Company has scheduled a webcast conference call for today, August 5, 2011, at 10:00 AM Eastern Time to discuss financial results.  This webcast may be accessed at: http://www.videonewswire.com/event.asp?id=81267.  

An audio archive of this webcast will be available using the above noted link through August 18, 2011.

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 100,000 barrels per stream day ("bpsd") refinery located in Artesia, New Mexico, a 125,000 bpsd refinery in Tulsa, Oklahoma, a 31,000 bpsd refinery in Woods Cross, Utah, a 135,000 bpsd refinery located in El Dorado, Kansas, and a 52,000 bpsd refinery located in Cheyenne, Wyoming.  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 34% 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 successfully integrate the operations of Holly's and Frontier's businesses and 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

June 30,

Change from 2010

2011

2010

Change

Percent

(In thousands, except per share data)





Sales and other revenues                                 

$  2,967,133

$  2,145,860

$  821,273

38.3%





Operating costs and expenses:



 Cost of products sold (exclusive of depreciation and amortization)

2,447,095

1,848,212

598,883

32.4

 Operating expenses (exclusive of depreciation and amortization)

139,345

120,831

18,514

15.3

 General and administrative expenses (exclusive of depreciation and amortization)

18,682

15,829

2,853

18.0

 Depreciation and amortization                             

31,832

28,824

3,008

10.4

  Total operating costs and expenses                     

2,636,954

2,013,696

623,258

31.0

Income from operations                                   

330,179

132,164

198,015

149.8





Other income (expense):



 Equity in earnings of SLC Pipeline                         

467

544

(77)

(14.2)

 Interest income                                        

657

635

22

3.5

 Interest expense                                       

(15,193)

(21,023)

5,830

(27.7)

 Merger transaction costs                                

(2,316)

-

(2,316)

-

(16,385)

(19,844)

3,459

(17.4)





Income before income taxes                               

313,794

112,320

201,474

179.4





Income tax provision                                     

111,961

39,654

72,307

182.3





Net income                                             

201,833

72,666

129,167

177.8





Less net income attributable to noncontrolling interest           

9,598

6,504

3,094

47.6





Net income attributable to HollyFrontier stockholders             

$  192,235

$  66,162

$  126,073

190.6%










Earnings per share attributable to HollyFrontier stockholders:



 Basic                                               

$  3.60

$  1.24

$  2.36

190.3%

 Diluted                                               

$  3.58

$  1.24

$  2.34

188.7%





Cash dividends declared per common share                   

$  0.15

$  0.15

$  -

-%





Average number of common shares outstanding:



 Basic                                               

53,365

53,206

159

0.3%

 Diluted                                               

53,670

53,408

262

0.5%





EBITDA                                                

$  350,564

$  155,028

$  195,536

126.1%



Six Months Ended

June 30,

Change from 2010

2011

2010

Change

Percent

(In thousands, except per share data)





Sales and other revenues                                 

$  5,293,718

$  4,020,150

$  1,273,568

31.7%





Operating costs and expenses:



 Cost of products sold (exclusive of depreciation and amortization)

4,431,712

3,572,076

859,636

24.1

 Operating expenses (exclusive of depreciation and amortization)

274,088

248,375

25,713

10.4

 General and administrative expenses (exclusive of depreciation and amortization)

35,500

33,698

1,802

5.3

 Depreciation and amortization                             

63,140

56,581

6,559

11.6

  Total operating costs and expenses                     

4,804,440

3,910,730

893,710

22.9

Income from operations                                   

489,278

109,420

379,858

347.2





Other income (expense):



 Equity in earnings of SLC Pipeline                         

1,207

1,025

182

17.8

 Interest income                                        

742

694

48

6.9

 Interest expense                                       

(31,397)

(38,745)

7,348

(19.0)

 Merger transaction costs                                

(6,014)

-

(6,014)

-

(35,462)

(37,026)

1,564

(4.2)





Income before income taxes                               

453,816

72,394

381,422

526.9





Income tax provision                                     

160,972

22,982

137,990

600.4





Net income                                             

292,844

49,412

243,432

492.7





Less net income attributable to noncontrolling interest           

15,915

11,344

4,571

40.3





Net income attributable to HollyFrontier stockholders             

$  276,929

$  38,068

$  238,861

627.5%










Earnings per share attributable to HollyFrontier stockholders:



 Basic                                               

$  5.19

$  0.72

$  4.47

620.8%

 Diluted                                               

$  5.16

$  0.71

$  4.45

626.8%





Cash dividends declared per common share                   

$  0.30

$  0.30

$  -

-%





Average number of common shares outstanding:



 Basic                                               

53,336

53,152

184

0.3%

 Diluted                                               

53,643

53,375

268

0.5%





EBITDA                                                

$  531,696

$  155,682

$  376,014

241.5%

Balance Sheet Data

June 30,

December 31,

2011

2010

(In thousands)



Cash, cash equivalents and investments in marketable securities                 

$     517,347

$  230,444

Working capital                                                         

$  467,381

$  313,580

Total assets                                                           

$  4,165,303

$  3,701,475

Long-term debt                                                         

$  838,866

$  810,561

Total equity                                                            

$  1,559,188

$  1,288,139

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.  Intersegment transactions are eliminated in our consolidated financial statements and are included in Consolidations and Eliminations.  Prior to the merger, the Refining segment included the operations of our Navajo, Woods Cross and Tulsa refineries and NK Asphalt Partners ("NK Asphalt").  The Refining segment involves the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel, jet fuel and specialty lubricant products.  The petroleum products produced by the Refining segment are primarily marketed in the Southwest, Rocky Mountain and Mid-Continent regions of the United States and northern Mexico.  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 various asphalt terminals in Arizona, New Mexico and Texas.

The HEP segment involves all of the operations of HEP.  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, Utah and Oklahoma.  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 June 30, 2011




 Sales and other revenues           

$  2,953,226

$  50,940

$  153

$  (37,186)

$  2,967,133

 Depreciation and amortization         

$  23,478

$  7,309

$  1,252

$  (207)

$  31,832

 Income (loss) from operations         

$  321,032

$  27,692

$  (18,040)

$  (505)

$  330,179

 Capital expenditures                

$  25,152

$  11,425

$  45,690

$  -

$  82,267






Three Months Ended June 30, 2010




 Sales and other revenues           

$  2,137,361

$  45,483

$  150

$  (37,134)

$  2,145,860

 Depreciation and amortization         

$  20,599

$  7,187

$  1,333

$  (295)

$  28,824

 Income (loss) from operations         

$  124,549

$  22,888

$  (15,111)

$  (162)

$  132,164

 Capital expenditures                

$  42,492

$  2,576

$  364

$  -

$  45,432






Six Months Ended June 30, 2011




 Sales and other revenues           

$  5,268,318

$  95,945

$  801

$  (71,346)

$  5,293,718

 Depreciation and amortization         

$  46,461

$  14,544

$  2,549

$  (414)

$  63,140

 Income (loss) from operations         

$  473,136

$  51,303

$  (34,138)

$  (1,023)

$  489,278

 Capital expenditures                

$  45,784

$  22,900

$  87,621

$  -

$  156,305






Six Months Ended June 30, 2010




 Sales and other revenues           

$  4,004,534

$  86,172

$  217

$  (70,773)

$  4,020,150

 Depreciation and amortization         

$  41,325

$  13,992

$  1,854

$  (590)

$  56,581

 Income (loss) from operations         

$  99,969

$  41,149

$  (30,877)

$  (821)

$  109,420

 Capital expenditures                

$  70,764

$  4,487

$  1,279

$  -

$  76,530


June 30, 2011




 Cash, cash equivalents and investments in marketable securities

$  -

$  1,402

$  515,945

$  -

$  517,347

 Total assets                       

$  2,614,120

$  678,508

$  901,439

$  (28,764)

$  4,165,303

 Long-term debt                    

$  -

$  510,566

$  344,996

$  (16,696)

$  838,866






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

Prior to the merger, our refinery operations included the Navajo, Woods Cross and Tulsa 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

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

Navajo Refinery



Crude charge (BPD) (1)                                  

86,080

82,370

78,070

80,650

Refinery throughput (BPD) (2)                             

94,190

92,440

86,600

91,470

Refinery production (BPD) (3)                             

93,620

91,750

85,220

89,650

Sales of produced refined products (BPD)                   

94,340

93,040

87,130

90,000

Sales of refined products (BPD) (4)                         

98,120

96,280

92,440

93,220





Refinery utilization (5)                                   

86.1%

82.4%

78.1%

80.7%





Average per produced barrel (6)



 Net sales                                           

$  126.36

$  91.21

$  119.35

$  89.70

 Cost of products (7)                                   

104.24

82.08

100.30

82.50

 Refinery gross margin                                 

22.12

9.13

19.05

7.20

 Refinery operating expenses (8)                         

5.17

4.61

5.71

4.88

 Net operating margin                                   

$  16.95

$  4.52

$  13.34

$  2.32





Refinery operating expenses per throughput barrel            

$  5.18

$  4.64

$  5.74

$  4.80





Feedstocks:



 Sour crude oil                                       

71%

85%

72%

86%

 Sweet crude oil                                      

4%

4%

4%

4%

 Heavy sour crude oil                                  

16%

-%

14%

-%

 Other feedstocks and blends                           

9%

11%

10%

10%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

52%

57%

52%

57%

 Diesel fuels                                         

32%

31%

33%

31%

 Jet fuels                                            

1%

5%

1%

4%

 Fuel oil                                             

7%

3%

6%

4%

 Asphalt                                             

4%

2%

4%

2%

 LPG and other                                       

4%

2%

4%

2%

 Total                                               

100%

100%

100%

100%


Woods Cross Refinery



Crude charge (BPD) (1)                                  

26,840

27,450

26,310

26,570

Refinery throughput (BPD) (2)                             

28,740

28,940

28,320

28,030

Refinery production (BPD) (3)                             

28,320

28,850

27,480

27,700

Sales of produced refined products (BPD)                   

27,600

29,070

27,130

28,620

Sales of refined products (BPD) (4)                         

27,600

29,140

27,170

28,750





Refinery utilization (5)                                   

86.6%

88.5%

84.9%

85.7%





Average per produced barrel (6)



 Net sales                                           

$  128.02

$  96.62

$  118.62

$  93.15

 Cost of products (7)                                   

99.79

74.26

94.95

74.48

 Refinery gross margin                                 

28.23

22.36

23.67

18.67

 Refinery operating expenses (8)                         

6.16

5.30

6.29

5.74

 Net operating margin                                   

$  22.07

$  17.06

$  17.38

$  12.93





Refinery operating expenses per throughput barrel            

$  5.92

$  5.32

$  6.03

$  5.86



Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

Feedstocks:



 Sweet crude oil                                       

61%

60%

59%

60%

 Heavy sour crude oil                                   

5%

5%

5%

6%

 Black wax crude oil                                   

28%

29%

29%

29%

 Other feedstocks and blends                            

6%

6%

7%

5%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

61%

62%

61%

63%

 Diesel fuels                                          

31%

31%

30%

29%

 Jet fuels                                             

1%

1%

1%

1%

 Fuel oil                                             

3%

1%

3%

1%

 Asphalt                                             

2%

3%

3%

3%

 LPG and other                                       

2%

2%

2%

3%

 Total                                               

100%

100%

100%

100%





Tulsa Refinery (8)



Crude charge (BPD) (1)                                  

110,100

118,480

107,860

111,080

Refinery throughput (BPD) (2)                             

111,850

119,800

109,290

112,350

Refinery production (BPD) (3)                             

110,110

112,860

107,050

107,900

Sales of produced refined products (BPD)                   

112,710

111,880

106,400

105,360

Sales of refined products (BPD) (4)                         

114,300

111,880

107,390

106,280





Refinery utilization (5)                                   

88.1%

94.8%

86.3%

88.9%





Average per produced barrel (6)



 Net sales                                           

$  129.11

$  90.93

$  122.65

$  88.74

 Cost of products (7)                                   

109.94

81.32

105.53

82.05

 Refinery gross margin                                 

19.17

9.61

17.12

6.69

 Refinery operating expenses (8)                         

5.56

4.70

5.76

5.26

 Net operating margin                                   

$  13.61

$       4.91

$  11.36

$       1.43





Refinery operating expenses per throughput barrel             

$  5.60

$  4.39

$  5.61

$  4.93





Feedstocks:



 Sweet crude oil                                       

93%

89%

95%

94%

 Heavy sour crude oil                                   

5%

3%

4%

1%

 Sour crude oil                                        

-%

8%

-%

4%

 Other feedstocks and blends                            

2%

-%

1%

1%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

38%

37%

37%

39%

 Diesel fuels                                          

30%

32%

30%

31%

 Jet fuels                                             

8%

9%

8%

9%

 Lubricants                                           

10%

10%

11%

10%

 Gas oil / intermediates                                 

6%

3%

6%

3%

 Asphalt                                             

5%

4%

5%

4%

 LPG and other                                       

3%

5%

3%

4%

 Total                                               

100%

100%

100%

100%



Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

Consolidated



Crude charge (BPD) (1)                                  

223,020

228,300

212,240

218,300

Refinery throughput (BPD) (2)                             

234,780

241,180

224,210

231,850

Refinery production (BPD) (3)                             

232,050

233,460

219,750

225,250

Sales of produced refined products (BPD)                   

234,650

233,990

220,660

223,980

Sales of refined products (BPD) (4)                         

240,020

237,300

227,000

228,250





Refinery utilization (5)                                   

87.1%

89.2%

82.9%

85.3%





Average per produced barrel (6)



 Net sales                                           

$  127.87

$  91.75

$  120.85

$  89.69

 Cost of products (7)                                   

106.45

80.74

102.16

81.26

 Refinery gross margin                                 

21.42

11.01

18.69

8.43

 Refinery operating expenses (8)                         

5.48

4.74

5.80

5.17

 Net operating margin                                   

$  15.94

$  6.27

$  12.89

$  3.26





Refinery operating expenses per throughput barrel             

$  5.47

$  4.60

$  5.71

$  4.99





Feedstocks:



 Sour crude oil                                        

29%

37%

28%

36%

 Sweet crude oil                                       

54%

53%

55%

55%

   Heavy sour crude oil                                   

9%

2%

8%

1%

 Black wax crude oil                                   

3%

3%

4%

3%

 Other feedstocks and blends                            

5%

5%

5%

5%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

46%

48%

46%

49%

 Diesel fuels                                          

31%

32%

32%

31%

 Jet fuels                                             

4%

6%

4%

6%

 Fuel oil                                             

3%

1%

3%

2%

 Asphalt                                             

5%

3%

4%

3%

 Lubricants                                           

5%

5%

5%

5%

 Gas oil / intermediates                                 

3%

2%

3%

1%

 LPG and other                                       

3%

3%

3%

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 refinery.

(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.  Refinery production excludes fuel produced for refinery consumption.

(4)

Includes refined products purchased for resale.

(5)

Represents crude charge divided by total crude capacity (BPSD).  Our consolidated crude capacity is 256,000 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" below.

(7)

Transportation, terminal and refinery storage costs billed from HEP are included in cost of products.  

(8)

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

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

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(In thousands)





Net income attributable to HollyFrontier stockholders             

$  192,235

$  66,162

$  276,929

$  38,068

 Add income tax provision                                

111,961

39,654

160,972

22,982

 Add interest expense                                   

15,193

21,023

31,397

38,745

 Subtract interest income                                 

(657)

(635)

(742)

(694)

 Add depreciation and amortization                         

31,832

28,824

63,140

56,581

EBITDA                                                

$  350,564

$  155,028

$  531,696

$  155,682

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 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 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 all of our refineries on a consolidated basis is calculated as shown below.

Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

Average per produced barrel:








Navajo Refinery



 Net sales                                             

$  126.36

$  91.21

$  119.35

$  89.70

 Less cost of products                                   

104.24

82.08

100.30

82.50

 Refinery gross margin                                   

$  22.12

$  9.13

$  19.05

$  7.20





Woods Cross Refinery



 Net sales                                             

$  128.02

$  96.62

$  118.62

$  93.15

 Less cost of products                                   

99.79

74.26

94.95

74.48

 Refinery gross margin                                   

$  28.23

$  22.36

$  23.67

$  18.67





Tulsa Refinery



 Net sales                                             

$  129.11

$  90.93

$  122.65

$  88.74

 Less cost of products                                   

109.94

81.32

105.53

82.05

 Refinery gross margin                                   

$  19.17

$  9.61

$  17.12

$  6.69





Consolidated



 Net sales                                             

$  127.87

$  91.75

$  120.85

$  89.69

 Less cost of products                                   

106.45

80.74

102.16

81.26

 Refinery gross margin                                   

$  21.42

$  11.01

$  18.69

$  8.43

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 all of our refineries on a consolidated basis is calculated as shown below.

Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

Average per produced barrel:








Navajo Refinery



 Refinery gross margin                                   

$  22.12

$  9.13

$  19.05

$  7.20

 Less refinery operating expenses                         

5.17

4.61

5.71

4.88

 Net operating margin                                   

$  16.95

$  4.52

$  13.34

$  2.32





Woods Cross Refinery



 Refinery gross margin                                   

$  28.23

$  22.36

$  23.67

$  18.67

 Less refinery operating expenses                         

6.16

5.30

6.29

5.74

 Net operating margin                                   

$  22.07

$  17.06

$  17.38

$  12.93





Tulsa Refinery



 Refinery gross margin                                   

$  19.17

$  9.61

$  17.12

$  6.69

 Less refinery operating expenses                         

5.56

4.70

5.76

5.26

 Net operating margin                                   

$  13.61

$  4.91

$  11.36

$  1.43





Consolidated



 Refinery gross margin                                   

$  21.42

$  11.01

$  18.69

$  8.43

 Less refinery operating expenses                         

5.48

4.74

5.80

5.17

 Net operating margin                                   

$  15.94

$  6.27

$  12.89

$  3.26

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

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Navajo Refinery



Average sales price per produced barrel sold                 

$  126.36

$  91.21

$  119.35

$  89.70

Times sales of produced refined products sold (BPD)           

94,340

93,040

87,130

90,000

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  1,084,793

$  772,242

$  1,882,213

$  1,461,213





Woods Cross Refinery



Average sales price per produced barrel sold                 

$  128.02

$  96.62

$  118.62

$  93.15

Times sales of produced refined products sold (BPD)           

27,600

29,070

27,130

28,620

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  321,535

$  255,596

$  582,487

$  482,537





Tulsa Refinery



Average sales price per produced barrel sold                 

$  129.11

$  90.93

$  122.65

$  88.74

Times sales of produced refined products sold (BPD)           

112,710

111,880

106,400

105,360

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  1,324,231

$  925,766

$  2,362,043

$  1,692,286





Sum of refined product sales from produced products sold from our three refineries (1)

$  2,730,559

$  1,953,604

$  4,826,743

$  3,636,036

Add refined product sales from purchased products and rounding (2)

63,038

27,296

138,659

68,680

Total refined product sales                                 

2,793,597

1,980,900

4,965,402

3,704,716

Add direct sales of excess crude oil (3)                      

138,492

114,155

273,901

249,017

Add other refining segment revenue (4)                       

21,137

42,306

29,015

50,801

Total refining segment revenue                             

2,953,226

2,137,361

5,268,318

4,004,534

Add HEP segment sales and other revenues                   

50,940

45,483

95,945

86,172

Add corporate and other revenues                          

153

150

801

217

Subtract consolidations and eliminations                      

(37,186)

(37,134)

(71,346)

(70,773)

Sales and other revenues                                 

$  2,967,133

$  2,145,860

$  5,293,718

$  4,020,150

(1)

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.

(2)

We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery commitments.

(3)

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.

(4)

Other refining segment revenue includes the incremental revenues associated with NK Asphalt and revenue derived from feedstock and sulfur credit sales.


Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





Average sales price per produced barrel sold                 

$  127.87

$  91.75

$  120.85

$  89.69

Times sales of produced refined products sold (BPD)           

234,650

233,990

220,660

223,980

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  2,730,559

$  1,953,604

$  4,826,743

$  3,636,036

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Navajo Refinery



Average cost of products per produced barrel sold             

$  104.24

$  82.08

$  100.30

$  82.50

Times sales of produced refined products sold (BPD)           

94,340

93,040

87,130

90,000

Times number of days in period                             

91

91

181

181

Cost of products for produced products sold                  

$  894,894

$  694,942

$  1,581,784

$  1,343,925


Woods Cross Refinery



Average cost of products per produced barrel sold             

$  99.79

$  74.26

$  94.95

$  74.48

Times sales of produced refined products sold (BPD)           

27,600

29,070

27,130

28,620

Times number of days in period                             

91

91

181

181

Cost of products for produced products sold                  

$  250,633

$  196,445

$  466,255

$  385,823





Tulsa Refinery



Average cost of products per produced barrel sold             

$     109.94

$      81.32

$  105.53

$        82.05

Times sales of produced refined products sold (BPD)           

112,710

111,880

106,400

105,360

Times number of days in period                             

91

91

181

181

Cost of products for produced products sold                  

$  1,127,612

$  827,925

$  2,032,339

$  1,564,707





Sum of cost of products for produced products sold from our three refineries (1)

$    2,273,139

$   1,719,312

$  4,080,378

$  3,294,455

Add refined product costs from purchased products sold and rounding (2)

64,110

27,827

139,583

69,329

Total refined cost of products sold                           

2,337,249

1,747,139

4,219,961

3,363,784

Add crude oil cost of direct sales of excess crude oil (3)         

135,981

112,885

268,861

246,552

Add other refining segment cost of products sold (4)            

10,205

24,738

12,539

30,859

Total refining segment cost of products sold                   

2,483,435

1,884,762

4,501,361

3,641,195

Subtract consolidations and eliminations                      

(36,340)

(36,550)

(69,649)

(69,119)

Costs of products sold (exclusive of depreciation and amortization) 

$  2,447,095

$  1,848,212

$  4,431,712

$  3,572,076

(1)

The above calculations of cost of products for produced products sold can also be computed on a consolidated basis.  These amounts may not calculate exactly due to rounding of reported numbers.

(2)

We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery commitments.

(3)

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.

(4)

Other refining segment cost of products sold includes the incremental cost of products for NK Asphalt and costs attributable to feedstock and sulfur credit sales.


Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





 Average cost of products per produced barrel sold             

$  106.45

$  80.74

$  102.16

$  81.26

 Times sales of produced refined products sold (BPD)           

234,650

233,990

220,660

223,980

 Times number of days in period                             

91

91

181

181

 Cost of products for produced products sold                   

$  2,273,139

$  1,719,312

$  4,080,378

$  3,294,455

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Navajo Refinery



Average refinery operating expenses per produced barrel sold   

$  5.17

$  4.61

$  5.71

$  4.88

Times sales of produced refined products sold (BPD)           

94,340

93,040

87,130

90,000

Times number of days in period                            

91

91

181

181

Refinery operating expenses for produced products sold       

$  44,384

$  39,031

$  90,050

$  79,495





Woods Cross Refinery



Average refinery operating expenses per produced barrel sold   

$  6.16

$  5.30

$  6.29

$  5.74

Times sales of produced refined products sold (BPD)           

27,600

29,070

27,130

28,620

Times number of days in period                            

91

91

181

181

Refinery operating expenses for produced products sold       

$  15,471

$  14,020

$  30,887

$  29,734





Tulsa Refinery



Average refinery operating expenses per produced barrel sold   

$  5.56

$  4.70

$  5.76

$  5.26

Times sales of produced refined products sold (BPD)           

112,710

111,880

106,400

105,360

Times number of days in period                            

91

91

181

181

Refinery operating expenses for produced products sold       

$  57,027

$  47,851

$  110,928

$  100,309





Sum of refinery operating expenses per produced products sold from our three refineries (1)

$  116,882

$  100,902

$  231,865

$  209,538

Add other refining segment operating expenses and rounding (2) 

8,399

6,549

15,495

12,507

Total refining segment operating expenses                   

125,281

107,451

247,360

222,045

Add HEP segment operating expenses                       

14,366

13,495

27,162

26,555

Add corporate and other costs                             

(168)

12

(174)

18

Subtract consolidations and eliminations                     

(134)

(127)

(260)

(243)

Operating expenses (exclusive of depreciation and amortization) 

$  139,345

$  120,831

$  274,088

$  248,375

(1)

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.

(2)

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


Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





 Average refinery operating expenses per produced barrel sold sold

$  5.48

$  4.74

$  5.80

$  5.17

 Times sales of produced refined products sold (BPD)           

234,650

233,990

220,660

223,980

 Times number of days in period                             

91

91

181

181

 Refinery operating expenses for produced products sold         

$  116,882

$  100,902

$  231,865

$  209,538

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Navajo Refinery



Net operating margin per barrel                             

$  16.95

$  4.52

$  13.34

$  2.32

Add average refinery operating expenses per produced barrel    

5.17

4.61

5.71

4.88

Refinery gross margin per barrel                            

22.12

9.13

19.05

7.20

Add average cost of products per produced barrel sold         

104.24

82.08

100.30

82.50

Average sales price per produced barrel sold                 

$  126.36

$  91.21

$  119.35

$  89.70

Times sales of produced refined products sold (BPD)           

94,340

93,040

87,130

90,000

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  1,084,793

$  772,242

$  1,882,213

$  1,461,213





Woods Cross Refinery



Net operating margin per barrel                             

$  22.07

$  17.06

$  17.38

$  12.93

Add average refinery operating expenses per produced barrel    

6.16

5.30

6.29

5.74

Refinery gross margin per barrel                            

28.23

22.36

23.67

18.67

Add average cost of products per produced barrel sold         

99.79

74.26

94.95

74.48

Average sales price per produced barrel sold                 

$  128.02

$  96.62

$  118.62

$  93.15

Times sales of produced refined products sold (BPD)           

27,600

29,070

27,130

28,620

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  321,535

$  255,596

$  582,487

$  482,537





Tulsa Refinery



Net operating margin per barrel                             

$  13.61

$  4.91

$  11.36

$         1.43

Add average refinery operating expenses per produced barrel    

5.56

4.70

5.76

5.26

Refinery gross margin per barrel                            

19.17

9.61

17.12

6.69

Add average cost of products per produced barrel sold         

109.94

81.32

105.53

82.05

Average sales price per produced barrel sold                 

$  129.11

$  90.93

$  122.65

$  88.74

Times sales of produced refined products sold (BPD)           

112,710

111,880

106,400

105,360

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  1,324,231

$  925,766

$  2,362,043

$  1,692,286





Sum of refined product sales from produced products sold from our three refineries (1)

$  2,730,559

$  1,953,604

$  4,826,743

$  3,636,036

Add refined product sales from purchased products and rounding (2)

63,038

27,296

138,659

68,680

Total refined product sales                                 

2,793,597

1,980,900

4,965,402

3,704,716

Add direct sales of excess crude oil (3)                      

138,492

114,155

273,901

249,017

Add other refining segment revenue (4)                       

21,137

42,306

29,015

50,801

Total refining segment revenue                             

2,953,226

2,137,361

5,268,318

4,004,534

Add HEP segment sales and other revenues                   

50,940

45,483

95,945

86,172

Add corporate and other revenues                          

153

150

801

217

Subtract consolidations and eliminations                      

(37,186)

(37,134)

(71,346)

(70,773)

Sales and other revenues                                 

$  2,967,133

$  2,145,860

$  5,293,718

$  4,020,150

(1)

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.

(2)

We purchase finished products when opportunities arise that provide a profit on the sale of such products or to meet delivery commitments.

(3)

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.

(4)

Other refining segment revenue includes the incremental revenues associated with NK Asphalt and revenue derived from feedstock and sulfur credit sales.


Three Months Ended

June 30,

Six Months Ended

June 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)





Net operating margin per barrel                             

$  15.94

$  6.27

$  12.89

$  3.26

Add average refinery operating expenses per produced barrel    

5.48

4.74

5.80

5.17

Refinery gross margin per barrel                            

21.42

11.01

18.69

8.43

Add average cost of products per produced barrel sold         

106.45

80.74

102.16

81.26

Average sales price per produced barrel sold                 

$  127.87

$  91.75

$  120.85

$  89.69

Times sales of produced refined products sold (BPD)           

234,650

233,990

220,660

223,980

Times number of days in period                             

91

91

181

181

Refined product sales from produced products sold             

$  2,730,559

$  1,953,604

$  4,826,743

$  3,636,036

SOURCE HollyFrontier Corporation

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