HollyFrontier Corporation Reports Record Third Quarter 2011 Results

News provided by

HollyFrontier Corporation

Nov 08, 2011, 07:00 ET

DALLAS, Nov. 8, 2011 /PRNewswire/ -- HollyFrontier Corporation (NYSE: HFC) ("HollyFrontier" or the "Company") today reported record quarterly net income attributable to HollyFrontier stockholders of $523.1 million or $2.48 per diluted share for the quarter ended September 30, 2011, compared to $51.2 million or $0.48 per diluted share for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, net income attributable to HollyFrontier stockholders totaled $800 million or $5.63 per diluted share compared to $89.2 million or $0.83 per diluted share for the nine months ended September 30, 2010.  The 2011 year-to-date results do not include $307 million in net income recorded by the legacy Frontier Oil operations for the first six months of 2011.

For the third quarter, net income increased by $471.9 million, or 922% compared to the same period of 2010, reflecting both the effects of our recent merger and historically high refining gross margins, which were influenced by wide differentials between inland and coastal-sourced crude oils.  Overall refinery gross margins were $28.10 per produced barrel, a 170% increase compared to $10.41 for last year's third quarter, with overall production levels averaging just over 446,000 barrels per day ("BPD") and overall crude oil charges averaging 426,000 BPD for the current quarter.  The Company's Rocky Mountain refining margins were particularly strong, with average gross margins of $33.05 per barrel for the quarter.  The Southwest and Mid-Continent refining operations also yielded outstanding results, where quarterly gross margins averaged $28.34 and $26.64 per barrel, respectively.

HollyFrontier's President & CEO, Mike Jennings, commented, "This quarter, our first as a newly merged company, marked the most profitable quarter in our history. Continued year-over-year margin improvements at each of our refineries combined with strong throughput produced an overall EBITDA of $896 million. Favorable WTI crude differentials contributed to the high transportation fuel crack spreads in each of our three regions. Aside from the exceptional margin environment, our third quarter witnessed a superb effort on the part of HollyFrontier employees in integrating the two legacy companies.  We are really pleased with this process and wish to publicly recognize the nearly seamless integration that has been achieved in approximately three months.  Looking forward, we believe our increased asset scale and operational synergies will combine with favorable refining economics in our markets, allowing us to generate strong returns on our invested capital and increasing shareholder value."

Sales and other revenues for the third quarter of 2011 were $5.2 billion, a 147% increase compared to the three months ended September 30, 2010.  This increase was due primarily to the inclusion of revenues from the legacy Frontier refineries and to the effects of a 36% year-over-year increase in third quarter refined product sales prices.  Cost of products sold was approximately $4.0 billion, a 121% increase compared to the third quarter of 2010 reflecting third quarter sales from  the legacy Frontier refineries and a 19% year-over-year increase in third quarter crude oil acquisition costs.  Merger acquisition and integration related costs recognized during the quarter totaled $32 million, most of which were included among General and Administrative Costs and Merger Transaction Costs. Cash flows from operations totaled $631.2 million for the current quarter, of which $149.4 million was directed towards cash dividends to shareholders and share repurchases.  These strong cash flows contributed to the Company's combined balance of cash and short-term investments which stood at $1.7 billion on September 30, 2011.

The Company has scheduled a webcast conference call for today, November 8, 2011, at 10:00 AM Eastern Time to discuss financial results.  This webcast may be accessed at: http://www.videonewswire.com/event.asp?id=82955.  

An audio archive of this webcast will be available using the above noted link through November 21, 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 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

September 30,

Change from 2010

2011

2010

Change

Percent

(In thousands, except per share data)





Sales and other revenues                                 

$  5,173,398

$  2,090,988

$  3,082,410

147.4%





Operating costs and expenses:



 Cost of products sold (exclusive of depreciation and amortization)

3,989,927

1,807,044

2,182,883

120.8

 Operating expenses (exclusive of depreciation and amortization)

227,883

130,263

97,620

74.9

 General and administrative expenses (exclusive of depreciation and amortization)

43,141

16,925

26,216

154.9

 Depreciation and amortization                             

43,240

29,138

14,102

48.4

  Total operating costs and expenses                     

4,304,191

1,983,370

2,320,821

117.0

Income from operations                                   

869,207

107,618

761,589

707.7





Other income (expense):



 Earnings in equity method investments                     

532

570

(38)

(6.7)

 Interest income                                        

204

64

140

218.8

 Interest expense                                       

(25,074)

(17,368)

(7,706)

44.4

 Merger transaction costs                                

(9,100)

-

(9,100)

-

33,438

(16,734)

(16,704)

99.8





Income before income taxes                               

835,769

90,884

744,885

819.6





Income tax provision                                     

304,758

31,494

273,264

867.7





Net income                                             

531,011

59,390

471,621

794.1





Less net income attributable to noncontrolling interest           

7,923

8,213

(290)

(3.5)





Net income attributable to HollyFrontier stockholders             

$  523,088

$  51,177

$  471,911

922.1%










Earnings per share attributable to HollyFrontier stockholders:



 Basic                                               

$  2.50

$  0.48

$  2.02

420.8%

 Diluted                                               

$  2.48

$  0.48

$  2.00

416.7%





Cash dividends declared per common share                   

$  1.09

$  0.08

$         1.01

1,262.5%





Average number of common shares outstanding:



 Basic                                               

209,583

106,420

103,163

96.9%

 Diluted                                               

210,579

107,134

103,445

96.6%





EBITDA                                                

$  895,956

$  129,113

$  766,843

593.9%



Nine Months Ended

September 30,

Change from 2010

2011

2010

Change

Percent

(In thousands, except per share data)





Sales and other revenues                                 

$  10,467,116

$  6,111,138

$  4,355,978

71.3%





Operating costs and expenses:



 Cost of products sold (exclusive of depreciation and amortization)

8,421,639

5,379,120

3,042,519

56.6

 Operating expenses (exclusive of depreciation and amortization)

501,971

378,638

123,333

32.6

 General and administrative expenses (exclusive of depreciation and amortization)

78,641

50,623

28,018

55.3

 Depreciation and amortization                             

106,380

85,719

20,661

24.1

  Total operating costs and expenses                     

9,108,631

5,894,100

3,214,531

54.5

Income from operations                                   

1,358,485

217,038

1,141,447

525.9





Other income (expense):



 Earnings of equity method investments                     

1,739

1,595

144

9.0

 Interest income                                        

946

758

188

24.8

 Interest expense                                       

(56,471)

(56,113)

(358)

0.6

 Merger transaction costs                                

(15,114)

-

(15,114)

-

(68,900)

(53,760)

(15,140)

28.2





Income before income taxes                               

1,289,585

163,278

1,126,307

689.8





Income tax provision                                     

465,730

54,476

411,254

754.9





Net income                                             

823,855

108,802

715,053

657.2





Less net income attributable to noncontrolling interest           

23,838

19,557

4,281

21.9





Net income attributable to HollyFrontier stockholders             

$  800,017

$  89,245

$  710,772

796.4%










Earnings per share attributable to HollyFrontier stockholders:



 Basic                                               

$  5.66

$  0.84

$  4,82

573.8%

 Diluted                                               

$  5.63

$  0.83

$  4.80

578.3%





Cash dividends declared per common share                   

$  1.24

$  0.23

$  1.01

439.1%





Average number of common shares outstanding:



 Basic                                               

141,353

106,344

35,009

32.9%

 Diluted                                               

142,092

107,062

35,030

32.7%





EBITDA                                                

$  1,427,652

$  284,795

$  1,142,857

401.3%

Balance Sheet Data

September 30,

December 31,

2011

2010


(In thousands)



Cash, cash equivalents and investments in marketable securities                 

$     1,759,353

$  230,444

Working capital                                                         

$  1,998,248

$  313,580

Total assets                                                           

$  9,916,463

$  3,701,475

Long-term debt                                                         

$  1,224,987

$  810,561

Total equity                                                            

$  5,660,790

$  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.  Prior to the merger, the Refining segment included the operations of our Navajo, Woods Cross and Tulsa refineries and NK Asphalt Partners ("NK Asphalt") and effective July 1, 2011, includes the El Dorado and Cheyenne Refineries.  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 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 September 30, 2011




 Sales and other revenues            

$  5,164,778

$  49,288

$    299

$    (40,967)

$  5,173,398

 Depreciation and amortization         

$  34,890

$  7,326

$    1,231

$    (207)

$  43,240

 Income (loss) from operations         

$  886,860

$  25,261

$    (42,354)

$    (560)

$  869,207

 Capital expenditures                 

$  46,294

$  8,593

$    63,031

$    -

$  117,918






Three Months Ended September 30, 2010




 Sales and other revenues            

$  2,081,709

$  46,558

$  100

$  (37,379)

$  2,090,988

 Depreciation and amortization         

$  21,274

$  6,830

$  1,329

$  (295)

$  29,138

 Income (loss) from operations         

$  100,111

$  24,588

$   (16,652)

$  (429)

$  107,618

 Capital expenditures                 

$  47,623

$  3,567

$  219

$  -

$  51,409






Nine Months Ended September 30, 2011




 Sales and other revenues            

$  10,433,096

$  145,233

$    1,100

$    (112,313)

$  10,467,116

 Depreciation and amortization         

$  81,351

$  21,870

$    3,780

$    (621)

$  106,380

 Income (loss) from operations         

$  1,359,994

$  76,564

$    (76,490)

$    (1,583)

$  1,358,485

 Capital expenditures                 

$  92,078

$  31,493

$    150,652

$    -

$  274,223






Nine Months Ended September 30, 2010




 Sales and other revenues            

$  6,086,243

$  132,730

$  317

$  (108,152)

$  6,111,138

 Depreciation and amortization         

$  62,599

$  20,822

$  3,183

$  (885)

$  85,719

 Income (loss) from operations         

$  200,080

$  65,737

$  (47,529)

$  (1,250)

$  217,038

 Capital expenditures                 

$  118,387

$  8,054

$  1,498

$  -

$  127,939

September 30, 2011




 Cash, cash equivalents and investments in marketable securities

$  -

$  1,802

$  1,757,551

$    -

$  1,759,353

 Total assets                       

$  3,114,748

$  685,463

$  6,148,879

$    (32,627)

$  9,916,463

 Long-term debt                     

$  -

$  527,213

$    714,349

$    (16,575)

$  1,224,987






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 Tulsa, Navajo and Woods Cross Refineries and, effective July 1, 2011, the El Dorado and Cheyenne 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

September 30,

Nine Months Ended

September 30,

2011

2010

2011(10)

2010

Mid-Continent Region (Tulsa and El Dorado Refineries)



Crude charge (BPD) (1)                                  

263,260

114,820

160,230

112,340

Refinery throughput (BPD) (2)                             

283,970

117,450

168,150

114,070

Refinery production (BPD) (3)                             

272,790

110,670

162,900

108,830

Sales of produced refined products (BPD)                   

263,180

113,040

159,230

107,950

Sales of refined products (BPD) (4)                         

268,680

113,040

161,750

108,560





Refinery utilization (5)                                   

101.3%

91.9%

94.0%

89.9%





Average per produced barrel (6)



 Net sales                                           

$  122.82

$  89.22

$  122.74

$  88.91

 Cost of products (7)                                   

96.18

79.80

100.32

81.26

 Refinery gross margin                                 

26.64

9.42

22.42

7.65

 Refinery operating expenses (8)                         

4.57

4.80

5.09

5.10

 Net operating margin                                   

$  22.07

$  4.62

$  17.33

$       2.55





Refinery operating expenses per throughput barrel             

$  4.23

$  4.62

$  4.82

$  4.82





Feedstocks:



 Sweet crude oil                                       

75%

83%

84%

90%

 Heavy sour crude oil                                   

11%

8%

7%

4%

 Sour crude oil                                        

7%

9%

4%

6%

 Other feedstocks and blends                            

7%

-%

5%

-%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

44%

39%

41%

39%

 Diesel fuels                                          

35%

30%

33%

31%

 Jet fuels                                             

7%

8%

7%

8%

 Lubricants                                           

4%

10%

7%

10%

 Gas oil / intermediates                                 

2%

4%

4%

3%

 Asphalt                                             

2%

6%

4%

5%

 LPG and other                                       

6%

3%

4%

4%

100%

100%

100%

100%


Southwest Region (Navajo Refinery)



Crude charge (BPD) (1)                                  

92,270

85,110

82,860

82,150

Refinery throughput (BPD) (2)                             

100,290

93,970

91,220

92,310

Refinery production (BPD) (3)                             

100,100

91,550

90,230

90,290

Sales of produced refined products (BPD)                   

99,530

92,180

91,310

90,730

Sales of refined products (BPD) (4)                         

102,940

94,900

95,980

93,780





Refinery utilization (5)                                   

92.3%

85.1%

82.9%

82.2%





Average per produced barrel (6)



 Net sales                                           

$  120.67

$  87.60

$  119.84

$  88.98

 Cost of products (7)                                   

92.33

79.39

97.37

81.44

 Refinery gross margin                                 

28.34

8.21

22.47

7.54

 Refinery operating expenses (8)                         

5.30

5.25

5.56

5.01

 Net operating margin                                   

$  23.04

$  2.96

$  16.91

$  2.53





Refinery operating expenses per throughput barrel             

$  5.26

$  5.15

$  5.57

$  4.92



Three Months Ended

September 30,

Nine Months Ended

September 30,

2011

2010

2011(10)

2010

Feedstocks:



 Sour crude oil                                        

70%

81%

72%

84%

 Sweet crude oil                                       

4%

5%

4%

4%

 Heavy sour crude oil                                   

18%

6%

15%

2%

 Other feedstocks and blends                            

8%

8%

9%

10%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

50%

55%

51%

57%

 Diesel fuels                                          

34%

32%

34%

31%

 Jet fuels                                             

1%

2%

1%

4%

 Fuel oil                                             

7%

6%

6%

4%

 Asphalt                                             

5%

3%

5%

2%

 LPG and other                                       

3%

2%

3%

2%

 Total                                               

100%

100%

100%

100%





Rocky Mountain Region (Woods Cross and Cheyenne Refineries)



Crude charge (BPD) (1)                                  

70,060

27,440

41,050

26,870

Refinery throughput (BPD) (2)                             

75,860

29,250

44,340

28,440

Refinery production (BPD) (3)                             

73,620

28,410

43,030

27,940

Sales of produced refined products (BPD)                   

72,400

27,540

42,390

28,260

Sales of refined products (BPD) (4)                         

74,410

27,840

43,090

28,450





Refinery utilization (5)                                   

84.4%

88.5%

84.6%

86.7%





Average per produced barrel (6)



 Net sales                                           

$  119.40

$  94.86

$  119.07

$  93.71

 Cost of products (7)                                   

86.35

73.08

90.00

74.02

 Refinery gross margin                                 

33.05

21.78

29.07

19.69

 Refinery operating expenses (8)                         

6.55

6.11

6.44

5.86

 Net operating margin                                   

$  26.50

$  15.67

$  22.63

$  13.83





Refinery operating expenses per throughput barrel             

$  6.25

$  5.75

$  6.16

$  5.82





Feedstocks:



 Sweet crude oil                                       

49%

61%

53%

60%

 Heavy sour crude oil                                   

31%

5%

20%

6%

 Black wax crude oil                                   

10%

30%

18%

29%

 Other feedstocks and blends                            

3%

-%

2%

-%

 Total                                               

7%

4%

7%

5%

100%

100%

100%

100%

Sales of produced refined products:



 Gasolines                                           



 Diesel fuels                                          

50%

60%

55%

62%

 Jet fuels                                             

34%

33%

32%

31%

 Fuel oil                                             

-%

1%

1%

1%

 Asphalt                                             

1%

2%

2%

1%

 LPG and other                                       

7%

2%

5%

3%

 Total                                               

8%

2%

5%

2%

100%

100%

100%

100%



Three Months Ended

September 30,

Nine Months Ended

September 30,

2011

2010

2011(10)

2010

Consolidated



Crude charge (BPD) (1)                                  

425,590

227,370

284,140

221,360

Refinery throughput (BPD) (2)                             

460,120

240,660

303,710

234,820

Refinery production (BPD) (3)                             

446,510

230,630

296,160

227,060

Sales of produced refined products (BPD)                   

435,110

232,760

292,930

226,940

Sales of refined products (BPD) (4)                         

446,030

235,780

300,820

230,790





Refinery utilization (5)                                   

96.1%

88.8%

89.1%

86.5%





Average per produced barrel (6)



 Net sales                                           

$  121.76

$  89.25

$  121.31

$  89.53

 Cost of products (7)                                   

93.66

78.84

97.91

80.43

 Refinery gross margin                                 

28.10

10.41

23.40

9.10

 Refinery operating expenses (8)                         

5.07

5.14

5.43

5.16

 Net operating margin                                   

$  23.03

$  5.27

$  17.97

$  3.94





Refinery operating expenses per throughput barrel             

$  4.79

$  4.97

$  5.24

$  4.98





Feedstocks:



 Sour crude oil                                        

20%

36%

24%

36%

 Sweet crude oil                                       

55%

49%

55%

53%

 Heavy sour crude oil                                   

15%

7%

12%

3%

 Black wax crude oil                                   

2%

4%

3%

4%

 Other feedstocks and blends                            

8%

4%

6%

4%

 Total                                               

100%

100%

100%

100%





Sales of produced refined products:



 Gasolines                                           

47%

48%

47%

49%

 Diesel fuels                                          

35%

31%

33%

31%

 Jet fuels                                             

4%

5%

4%

6%

 Fuel oil                                             

2%

3%

2%

2%

 Asphalt                                             

4%

4%

4%

3%

 Lubricants                                           

2%

5%

4%

5%

 Gas oil / intermediates                                 

1%

2%

2%

1%

 LPG and other                                       

5%

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 nine months ended September 30, 2011 include crude oil processed and products yielded from the El Dorado and Cheyenne Refineries for the period from July 1, 2011 through September 30, 2011 only, and averaged over the 273 days in nine months ended September 30, 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

September 30,

Nine Months Ended

September 30,

2011

2010

2011

2010

(In thousands)





Net income attributable to HollyFrontier stockholders             

$  523,088

$  51,177

$  800,017

$  89,245

 Add income tax provision                                

304,758

31,494

465,730

54,476

 Add interest expense                                   

25,074

17,368

56,471

56,113

 Subtract interest income                                 

(204)

(64)

(946)

(758)

 Add depreciation and amortization                         

43,240

29,138

106,380

85,719

EBITDA                                                

$  895,956

$  129,113

$1,427,652

$  284,795

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

September 30,

Nine Months Ended

September 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Consolidated



Average sales price per produced barrel sold                 

$  121.76

$  89.25

$  121.31

$  89.53

Times sales of produced refined products sold (BPD)           

435,110

232,760

292,930

226,940

Times number of days in period                             

92

92

273

273

Refined product sales from produced products sold             

$  4,874,067

$  1,911,192

$  9,701,147

$  5,546,797





Total refined product sales

$  4,874,067

$  1,911,192

$  9,701,147

$  5,546,797

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

127,520

24,495

266,355

93,447

Total refined product sales                                 

5,001,587

1,935,687

9,967,502

5,640,244

Add direct sales of excess crude oil (2)                      

148,989

106,364

422,890

355,381

Add other refining segment revenue (3)                       

14,204

39,658

42,704

90,618

Total refining segment revenue                             

5,164,780

2,081,709

10,433,096

6,086,243

Add HEP segment sales and other revenues                   

49,288

46,558

145,233

132,730

Add corporate and other revenues                          

297

100

1,100

317

Subtract consolidations and eliminations                      

(40,967)

(37,379)

(112,313)

(108,152)

Sales and other revenues                                 

$  5,173,398

$  2,090,988

$  10,467,116

$  6,111,138

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Consolidated



Average cost of products per produced barrel sold             

$  93.66

$  78.84

$  97.91

$  80.43

Times sales of produced refined products sold (BPD)           

435,110

232,760

292,930

226,940

Times number of days in period                             

92

92

273

273

Cost of products for produced products sold                  

$  3,749,221

$  1,688,273

$  7,829,852

$  4,983,010


Total cost of products for produced products sold              

$ 3,749,221

$ 1,688,273

$  7,829,852

$  4,983,010

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

128,857

24,648

268,390

93,923

Total cost of refined products sold                           

3,878,078

1,712,921

8,098,242

5,076,933

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

147,223

105,091

416,084

351,643

Add other refining segment cost of products sold (4)            

4,696

25,555

17,032

56,186

Total refining segment cost of products sold                   

4,029,997

1,843,567

8,531,358

5,484,762

Subtract consolidations and eliminations                      

(40,070)

(36,523)

(109,719)

(105,642)

Costs of products sold (exclusive of depreciation and amortization)

$  3,989,927

$  1,807,044

$  8,421,639

$  5,379,120

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Consolidated



Average refinery operating expenses per produced barrel sold   

$  5.07

$  5.14

$  5.43

$  5.16

Times sales of produced refined products sold (BPD)           

435,110

232,760

292,930

226,940

Times number of days in period                            

92

92

273

273

Refinery operating expenses for produced products sold       

$  202,953

$  110,068

$  434,237

$  319,686





Total refinery operating expenses for produced products sold   

$  202,953

$  110,068

$  434,237

$  319,686

Add other refining segment operating expenses and rounding (5) 

10,080

6,689

26,156

19,116

Total refining segment operating expenses                   

213,033

116,757

460,393

338,802

Add HEP segment operating expenses                       

14,689

13,632

41,851

40,187

Add corporate and other costs                             

291

6

117

24

Subtract consolidations and eliminations                     

(130)

(132)

(390)

(375)

Operating expenses (exclusive of depreciation and amortization) 

$  227,883

$  130,263

$  501,971

$  378,638

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

2011

2010

2011

2010

(Dollars in thousands, except per barrel amounts)

Consolidated



Net operating margin per barrel                             

$  23.03

$  5.27

$  17.97

$  3.94

Add average refinery operating expenses per produced barrel    

5.07

5.14

5.43

5.16

Refinery gross margin per barrel                            

28.10

10.41

23.40

9.10

Add average cost of products per produced barrel sold         

93.66

78.84

97.91

80.43

Average sales price per produced barrel sold                 

$  121.76

$  89.25

$  121.31

$  89.53

Times sales of produced refined products sold (BPD)           

435,110

232,760

292,930

226,940

Times number of days in period                             

92

92

273

273

Refined product sales from produced products sold             

$  4,874,067

$  1,911,192

$  9,701,147

$  5,546,797





Total refined product sales from produced products sold         

$  4,874,067

$   1,911,192

$  9,701,147

$  5,546,797

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

127,520

24,495

266,355

93,447

Total refined product sales                                 

5,001,587

1,935,687

9,967,502

5,640,244

Add direct sales of excess crude oil (2)                      

148,989

106,364

422,890

355,381

Add other refining segment revenue (3)                       

14,204

39,658

42,704

90,618

Total refining segment revenue                             

5,164,780

2,081,709

10,433,096

6,086,243

Add HEP segment sales and other revenues                   

49,288

46,558

145,233

132,730

Add corporate and other revenues                          

297

100

1,100

317

Subtract consolidations and eliminations                      

(40,967)

(37,379)

(112,313)

(108,152)

Sales and other revenues                                 

$  5,173,398

$  2,090,988

$  10,467,116

$  6,111,138

(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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