UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-3876
HOLLY CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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75-1056913 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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100 Crescent Court, Suite 1600
Dallas, Texas
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75201-6915 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (214) 871-3555
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act).
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
53,195,521 shares of Common Stock, par value $.01 per share, were outstanding on April 30, 2010.
PART I. FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
References herein to Holly Corporation include Holly Corporation and its consolidated subsidiaries.
In accordance with the Securities and Exchange Commissions (SEC) Plain English guidelines,
this Quarterly Report on Form 10-Q has been written in the first person. In this document, the
words we, our, ours and us refer only to Holly Corporation and its consolidated
subsidiaries or to Holly Corporation or an individual subsidiary and not to any other person with
certain exceptions where there are transactions or obligations between Holly Energy Partners, L.P.
(HEP) and Holly Corporation or its other subsidiaries. For periods prior to our reconsolidation
of HEP effective March 1, 2008, the words we, our, ours and us exclude HEP and its
subsidiaries as consolidated subsidiaries of Holly Corporation. This document contains certain
disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not
necessarily represent obligations of Holly Corporation. When used in descriptions of agreements
and transactions, HEP refers to HEP and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning
of the federal securities laws. All statements, other than statements of historical fact included
in this Form 10-Q, including, but not limited to, those under Results of Operations, Liquidity
and Capital Resources and Risk Management in Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations in Part I and those in Item 1 Legal Proceedings in
Part II, are forward-looking statements. These statements are based on managements 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. Although we believe
that the expectations reflected in these forward-looking statements are reasonable, we cannot
assure you that our expectations will prove to be correct. Therefore, actual outcomes and results
could materially differ from what is expressed, implied or forecast in these statements. Any
differences could be caused by a number of factors including, but not limited to:
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risks and uncertainties with respect to the actions of actual or potential competitive
suppliers of refined petroleum products in our markets; |
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the demand for and supply of crude oil and refined products; |
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the spread between market prices for refined products and market prices for crude oil; |
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the possibility of constraints on the transportation of refined products; |
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the possibility of inefficiencies, curtailments or shutdowns in refinery operations or
pipelines; |
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effects of governmental and environmental regulations and policies; |
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the availability and cost of our financing; |
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the effectiveness of our capital investments and marketing strategies; |
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our efficiency in carrying out construction projects; |
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our ability to acquire refined product operations or pipeline and terminal operations on
acceptable terms and to integrate any existing or future acquired operations; |
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the possibility of terrorist attacks and the consequences of any such attacks; |
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general economic conditions; and |
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other financial, operational and legal risks and uncertainties detailed from time to
time in our Securities and Exchange Commission filings. |
Cautionary statements identifying important factors that could cause actual results to differ
materially from our expectations are set forth in this Form 10-Q, including without limitation, the
forward-looking statements included in this Form 10-Q that are referred to above. This summary
discussion should be read in conjunction with the discussion of risk factors and other cautionary
statements under the heading Risk Factors included in Item 1A of our Annual Report on Form 10-K
for the year ended December 31, 2009 and in conjunction with the discussion in this Form 10-Q in
Managements Discussion and Analysis of Financial Condition and Results of Operations under the
heading Liquidity and Capital Resources. All forward-looking statements included in this Form
10-Q and all subsequent written or oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by these cautionary statements. 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.
- 3 -
DEFINITIONS
Within this report, the following terms have these specific meanings:
Alkylation means the reaction of propylene or butylene (olefins) with isobutane to form an
iso-paraffinic gasoline (inverse of cracking).
Aromatic oil is long chain oil that is highly aromatic in nature that is used to manufacture
tires and in the production of asphalt.
BPD means the number of barrels per calendar day of crude oil or petroleum products.
BPSD means the number of barrels per stream day (barrels of capacity in a 24 hour period) of
crude oil or petroleum products.
Black wax crude oil is a low sulfur, low gravity crude oil produced in the Uintah Basin in
Eastern Utah that has certain characteristics that require specific facilities to transport, store
and refine into transportation fuels.
Catalytic reforming means a refinery process which uses a precious metal (such as platinum)
based catalyst to convert low octane naphtha to high octane gasoline blendstock and hydrogen. The
hydrogen produced from the reforming process is used to desulfurize other refinery oils and is the
primary source of hydrogen for the refinery.
Cracking means the process of breaking down larger, heavier and more complex hydrocarbon
molecules into simpler and lighter molecules.
Crude distillation means the process of distilling vapor from liquid crudes, usually by
heating, and condensing slightly above atmospheric pressure the vapor back to liquid in order to
purify, fractionate or form the desired products.
Delayed coker unit is a refinery unit that removes carbon from the bottom cuts of crude oil
to produce unfinished light transportation fuels and petroleum coke.
Ethanol means a high octane gasoline blend stock that is used to make various grades of
gasoline.
FCC, or fluid catalytic cracking, means a refinery process that breaks down large complex
hydrocarbon molecules into smaller more useful ones using a circulating bed of catalyst at
relatively high temperatures.
Hydrocracker means a refinery unit that breaks down large complex hydrocarbon molecules into
smaller more useful ones using a fixed bed of catalyst at high pressure and temperature with
hydrogen.
Hydrodesulfurization means to remove sulfur and nitrogen compounds from oil or gas in the
presence of hydrogen and a catalyst at relatively high temperatures.
Hydrogen plant means a refinery unit that converts natural gas and steam to high purity
hydrogen, which is then used in the hydrodesulfurization, hydrocracking and isomerization
processes.
HF alkylation, or hydrofluoric alkylation, means a refinery process which combines isobutane
and C3/C4 olefins using HF acid as a catalyst to make high octane gasoline blend stock.
Isomerization means a refinery process for rearranging the structure of C5/C6 molecules
without changing their size or chemical composition and is used to improve the octane of C5/C6
gasoline blendstocks.
LPG means liquid petroleum gases.
LSG, or low sulfur gasoline, means gasoline that contains less than 30 PPM of total sulfur.
- 4 -
Lube extraction unit is a unit used in the lube process that separates aromatic oils from
paraffinic oils using furfural as a solvent.
Lubricant or lube means a solvent neutral paraffinic product used in passenger and
commercial vehicle engine oils, specialty products for metal working or heat transfer applications
and other industrial applications.
MEK means a lube process that separates waxy oil from non-waxy oils using methyl ethyl
ketone as a solvent.
MMSCFD means one million standard cubic feet per day.
MTBE means methyl tertiary butyl ether, a high octane gasoline blend stock that is used to
make various grades of gasoline.
Natural gasoline means a low octane gasoline blend stock that is purchased and used to blend
with other high octane stocks produced to make various grades of gasoline.
PPM means parts-per-million.
Parafinnic oil is a high paraffinic, high gravity oil produced by extracting aromatic oil
and waxes from gas oil and is used in producing high-grade lubricating oils.
Refinery gross margin means the difference between average net sales price and average costs
of products per barrel of produced refined products. This does not include the associated
depreciation and amortization costs.
Reforming means the process of converting gasoline type molecules into aromatic, higher
octane gasoline blend stocks while producing hydrogen in the process.
Roofing flux is produced from the bottom cut of crude oil and is the base oil used to make
roofing shingles for the housing industry.
ROSE, or Solvent deasphalter / residuum oil supercritical extraction, means a refinery
unit that uses a light hydrocarbon like propane or butane to extract non-asphaltene heavy oils from
asphalt or atmospheric reduced crude. These deasphalted oils are then further converted to
gasoline and diesel in the FCC process. The remaining asphaltenes are either sold, blended to fuel
oil or blended with other asphalt as a hardener.
Scanfiner is a refinery unit that removes sulfur from gasoline to produce low sulfur
gasoline blendstock.
Sour crude oil means crude oil containing quantities of sulfur greater than 0.4 percent by
weight, while sweet crude oil means crude oil containing quantities of sulfur equal to or less
than 0.4 percent by weight.
ULSD, or ultra low sulfur diesel, means diesel fuel that contains less than 15 PPM of total
sulfur.
Vacuum distillation means the process of distilling vapor from liquid crudes, usually by
heating, and condensing below atmospheric pressure the vapor back to liquid in order to purify,
fractionate or form the desired products.
- 5 -
Item 1.
Financial Statements
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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March 31, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents (HEP: $16,609 and $2,508, respectively) |
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$ |
93,289 |
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$ |
124,596 |
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Marketable securities |
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1,467 |
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1,223 |
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Accounts receivable: Product and transportation (HEP: $20,456 and $18,767, respectively) |
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305,631 |
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292,310 |
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Crude oil resales |
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577,909 |
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470,145 |
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883,540 |
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762,455 |
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Inventories: Crude oil and refined products |
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376,113 |
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259,582 |
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Materials and supplies (HEP: $165 and $165) |
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44,909 |
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43,931 |
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421,022 |
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303,513 |
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Income taxes receivable |
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30,248 |
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38,072 |
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Prepayments and other (HEP: $349 and $574, respectively) |
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81,377 |
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50,957 |
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Current assets of discontinued operations (HEP: $2,195) |
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2,195 |
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Total current assets |
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1,510,943 |
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1,283,011 |
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Properties, plants and equipment, at cost (HEP: $531,427 and $491,999, respectively) |
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2,032,621 |
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2,001,855 |
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Less accumulated depreciation (HEP: $(39,726) and $(33,478), respectively) |
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(393,628 |
) |
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(371,885 |
) |
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1,638,993 |
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1,629,970 |
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Other assets: Turnaround costs |
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56,227 |
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53,463 |
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Goodwill (HEP: $81,602 and $81,602) |
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81,602 |
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81,602 |
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Intangibles and other (HEP: $75,140 and $77,443, respectively) |
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94,562 |
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97,893 |
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232,391 |
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232,958 |
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Total assets |
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$ |
3,382,327 |
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$ |
3,145,939 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable (HEP: $6,216 and $6,211, respectively) |
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$ |
1,155,517 |
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$ |
975,155 |
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Accrued liabilities (HEP: $13,222 and $13,594, respectively) |
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57,547 |
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49,957 |
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Total current liabilities |
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1,213,064 |
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1,025,112 |
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Long-term debt Holly Corporation |
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328,268 |
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328,260 |
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Long-term debt Holly Energy Partners (HEP: $492,327 and $379,198, respectively) |
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492,327 |
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379,198 |
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Deferred income taxes |
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102,870 |
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124,585 |
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Other long-term liabilities (HEP: $11,366 and $12,349, respectively) |
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82,287 |
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81,003 |
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Equity: |
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Holly Corporation stockholders equity: |
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Preferred stock, $1.00 par value 1,000,000 shares authorized; none issued |
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Common stock $.01 par value 160,000,000 shares authorized; 76,455,041 and 76,359,006 shares
issued as of March 31, 2010 and December 31, 2009, respectively |
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764 |
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764 |
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Additional capital |
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188,019 |
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195,565 |
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Retained earnings |
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1,098,257 |
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1,134,341 |
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Accumulated other comprehensive loss |
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(25,200 |
) |
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(25,700 |
) |
Common stock held in treasury, at cost 23,259,520 and 23,292,737 shares as of March 31, 2010
and December 31, 2009, respectively |
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(678,483 |
) |
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(685,931 |
) |
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Total Holly Corporation stockholders equity |
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583,357 |
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619,039 |
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Noncontrolling interest |
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580,154 |
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588,742 |
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Total equity |
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1,163,511 |
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1,207,781 |
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Total liabilities and equity |
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$ |
3,382,327 |
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$ |
3,145,939 |
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Parenthetical amounts represent asset and liability balances attributable to Holly Energy
Partners, L.P. (HEP) as of March 31, 2010 and December 31, 2009. HEP is a consolidated variable
interest entity. |
See accompanying notes.
- 6 -
HOLLY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Sales and other revenues |
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$ |
1,874,290 |
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$ |
648,030 |
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Operating costs and expenses: |
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Cost of products sold (exclusive of depreciation and amortization) |
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1,723,864 |
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511,654 |
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Operating expenses (exclusive of depreciation and amortization) |
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127,544 |
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66,748 |
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General and administrative expenses (exclusive of depreciation and amortization) |
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17,869 |
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11,756 |
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Depreciation and amortization |
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27,757 |
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20,081 |
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Total operating costs and expenses |
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1,897,034 |
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610,239 |
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Income (loss) from operations |
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(22,744 |
) |
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37,791 |
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Other income (expense): |
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Equity in earnings of SLC Pipeline |
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481 |
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175 |
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Interest income |
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59 |
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2,196 |
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Interest expense |
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(17,722 |
) |
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(6,239 |
) |
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(17,182 |
) |
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(3,868 |
) |
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Income (loss) from continuing operations before income taxes |
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(39,926 |
) |
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33,923 |
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|
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Income tax provision: |
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|
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Current |
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5,361 |
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|
9,878 |
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Deferred |
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(22,033 |
) |
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1,971 |
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(16,672 |
) |
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|
11,849 |
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Income (loss) from continuing operations |
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(23,254 |
) |
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|
22,074 |
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Income from discontinued operations, net of taxes |
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1,331 |
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Net income (loss) |
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(23,254 |
) |
|
|
23,405 |
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Less net income attributable to noncontrolling interest |
|
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4,840 |
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|
1,460 |
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Net income (loss) attributable to Holly Corporation stockholders |
|
$ |
(28,094 |
) |
|
$ |
21,945 |
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Earnings attributable to Holly Corporation stockholders: |
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Income (loss) from continuing operations |
|
$ |
(28,094 |
) |
|
$ |
21,553 |
|
Income from discontinued operations |
|
|
|
|
|
|
392 |
|
|
|
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Net income (loss) |
|
$ |
(28,094 |
) |
|
$ |
21,945 |
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Earnings per share attributable to Holly Corporation stockholders basic and diluted: |
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|
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Income (loss) from continuing operations |
|
$ |
(0.53 |
) |
|
$ |
0.43 |
|
Income from discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
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Net income (loss) |
|
$ |
(0.53 |
) |
|
$ |
0.44 |
|
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Cash dividends declared per common share |
|
$ |
0.15 |
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$ |
0.15 |
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Average number of common shares outstanding: |
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Basic |
|
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53,094 |
|
|
|
50,042 |
|
Diluted |
|
|
53,232 |
|
|
|
50,171 |
|
See accompanying notes.
- 7 -
HOLLY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
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|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009(1) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(23,254 |
) |
|
$ |
23,405 |
|
Adjustments to reconcile net income (loss) to net cash used for operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
27,757 |
|
|
|
20,321 |
|
SLC Pipeline earnings in excess of distributions |
|
|
(481 |
) |
|
|
(175 |
) |
Deferred income taxes |
|
|
(22,033 |
) |
|
|
1,971 |
|
Equity based compensation expense |
|
|
2,907 |
|
|
|
1,447 |
|
Change in fair value interest rate swaps |
|
|
1,464 |
|
|
|
216 |
|
Noncontrolling interest in earnings of Rio Grande Pipeline Company |
|
|
|
|
|
|
495 |
|
(Increase) decrease in current assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(121,085 |
) |
|
|
(15,423 |
) |
Inventories |
|
|
(117,509 |
) |
|
|
(37,189 |
) |
Income taxes receivable |
|
|
7,824 |
|
|
|
509 |
|
Prepayments and other |
|
|
(30,420 |
) |
|
|
494 |
|
Current assets of discontinued operations |
|
|
2,195 |
|
|
|
|
|
Increase (decrease) in current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
180,298 |
|
|
|
9,597 |
|
Accrued liabilities |
|
|
7,590 |
|
|
|
14,797 |
|
Turnaround expenditures |
|
|
(7,257 |
) |
|
|
(26,983 |
) |
Other, net |
|
|
1,980 |
|
|
|
4,203 |
|
|
|
|
|
|
|
|
Net cash used for operating activities |
|
|
(90,024 |
) |
|
|
(2,315 |
) |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to properties, plants and equipment Holly Corporation |
|
|
(29,187 |
) |
|
|
(88,658 |
) |
Additions to properties, plants and equipment Holly Energy Partners |
|
|
(1,911 |
) |
|
|
(10,570 |
) |
Investment in SLC Pipeline Holly Energy Partners |
|
|
|
|
|
|
(25,500 |
) |
Purchases of marketable securities |
|
|
|
|
|
|
(128,707 |
) |
Sales and maturities of marketable securities |
|
|
|
|
|
|
183,096 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(31,098 |
) |
|
|
(70,339 |
) |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under credit agreement Holly Corporation |
|
|
310,000 |
|
|
|
55,000 |
|
Repayments under credit agreement Holly Corporation |
|
|
(310,000 |
) |
|
|
|
|
Borrowings under credit agreement Holly Energy Partners |
|
|
33,000 |
|
|
|
53,000 |
|
Repayments under credit agreement Holly Energy Partners |
|
|
(68,000 |
) |
|
|
(13,000 |
) |
Proceeds from issuance of 8.25% senior notes Holly Energy Partners |
|
|
147,540 |
|
|
|
|
|
Purchase of treasury stock |
|
|
(1,055 |
) |
|
|
(1,214 |
) |
Contribution from joint venture partner |
|
|
1,250 |
|
|
|
4,750 |
|
Dividends |
|
|
(7,926 |
) |
|
|
(7,502 |
) |
Distributions to noncontrolling interest |
|
|
(11,963 |
) |
|
|
(6,916 |
) |
Issuance of common stock upon exercise of options |
|
|
61 |
|
|
|
45 |
|
Excess tax benefit (expense) from equity based compensation |
|
|
(1,045 |
) |
|
|
2,180 |
|
Purchase of units for restricted grants Holly Energy Partners |
|
|
(1,745 |
) |
|
|
(616 |
) |
Other |
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
89,815 |
|
|
|
85,727 |
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Increase (decrease) for the period |
|
|
(31,307 |
) |
|
|
13,073 |
|
Beginning of period |
|
|
124,596 |
|
|
|
40,805 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
93,289 |
|
|
$ |
53,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
11,879 |
|
|
$ |
8,774 |
|
Income taxes |
|
$ |
|
|
|
$ |
3,457 |
|
|
|
|
(1) |
|
Includes cash flows attributable to discontinued operations. |
See accompanying notes.
- 8 -
HOLLY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(23,254 |
) |
|
$ |
23,405 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities |
|
|
244 |
|
|
|
(463 |
) |
Reclassification adjustment to net income on sale of securities |
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gain (loss) on available-for-sale securities |
|
|
244 |
|
|
|
(227 |
) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss of Holly Energy Partners: |
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedge |
|
|
(1,362 |
) |
|
|
(250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before income taxes |
|
|
(1,118 |
) |
|
|
(477 |
) |
Income tax provision |
|
|
318 |
|
|
|
(133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(1,436 |
) |
|
|
(344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
(24,690 |
) |
|
|
23,061 |
|
|
|
|
|
|
|
|
|
|
Less noncontrolling interest in comprehensive income |
|
|
2,904 |
|
|
|
1,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Holly Corporation stockholders |
|
$ |
(27,594 |
) |
|
$ |
21,737 |
|
|
|
|
|
|
|
|
See accompanying notes.
- 9 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Description of Business and Presentation of Financial Statements
References herein to Holly Corporation include Holly Corporation and its consolidated subsidiaries.
In accordance with the Securities and Exchange Commissions (SEC) Plain English guidelines,
this Quarterly Report on Form 10-Q has been written in the first person. In this document, the
words we, our, ours and us refer only to Holly Corporation and its consolidated
subsidiaries or to Holly Corporation or an individual subsidiary and not to any other person with
certain exceptions where there are transactions or obligations between Holly Energy Partners, L.P.
(HEP) and Holly Corporation or its other subsidiaries. For periods prior to our reconsolidation
of HEP effective March 1, 2008, the words we, our, ours and us exclude HEP and its
subsidiaries as consolidated subsidiaries of Holly Corporation. Our consolidated financial
statements contain certain disclosures of agreements that are specific to HEP and its consolidated
subsidiaries and do not necessarily represent obligations of Holly Corporation. When used in
descriptions of agreements and transactions, HEP refers to HEP and its consolidated subsidiaries.
As of March 31, 2010, we:
|
|
|
owned and operated three refineries consisting of a petroleum refinery in Artesia, New
Mexico that is operated in conjunction with crude oil distillation and vacuum distillation
and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the
Navajo Refinery), a refinery in Woods Cross, Utah (the Woods Cross Refinery) and our
two refinery facilities located in Tulsa, Oklahoma (collectively, operated as the Tulsa
Refinery); |
|
|
|
owned and operated Holly Asphalt Company (Holly Asphalt) which manufactures and
markets asphalt products from various terminals in Arizona, New Mexico and Texas; |
|
|
|
owned a 75% interest in a 12-inch refined products pipeline project from Salt Lake City,
Utah to Las Vegas, Nevada, together with terminal facilities in the Cedar City, Utah and
North Las Vegas areas (the UNEV Pipeline); and |
|
|
|
owned a 34% interest in HEP (which includes our 2% general partnership interest), which
owns and operates logistics assets including approximately 2,500 miles of petroleum product
and crude oil pipelines located principally in west Texas and New Mexico; ten refined
product terminals; a jet fuel terminal; eight refinery loading rack facilities; a refined
products tank farm facility; on-site crude oil tankage at our Navajo, Woods Cross and Tulsa
Refineries, on-site refined product tankage at our Tulsa Refinery and a 25% interest in a
95-mile, crude oil pipeline joint venture (the SLC Pipeline). |
We have prepared these consolidated financial statements without audit. In managements opinion,
these consolidated financial statements include all normal recurring adjustments necessary for a
fair presentation of our consolidated financial position as of March 31, 2010, the consolidated
results of operations and comprehensive income for the three months ended March 31, 2010 and 2009
and consolidated cash flows for the three months ended March 31, 2010 and 2009 in accordance with
the rules and regulations of the SEC. Although certain notes and other information required by
generally accepted accounting principles in the United States (GAAP) have been condensed or
omitted, we believe that the disclosures in these consolidated financial statements are adequate to
make the information presented not misleading. These consolidated financial statements should be
read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009 filed
with the SEC.
Our results of operations for the three months ended March 31, 2010 are not necessarily indicative
of the results to be expected for the full year.
Accounts Receivable
Our accounts receivable consist of amounts due from customers that are primarily companies in the
petroleum industry. Credit is extended based on our evaluation of the customers financial
condition and in certain circumstances, collateral, such as a letter of credit or guarantee, is
required. Credit losses are charged to income
when accounts are deemed uncollectible and historically have been minimal. At March 31, 2010, our
allowance for doubtful accounts reserve was $2.5 million.
- 10 -
Inventories
We use the last-in, first-out (LIFO) method of valuing inventory. Under the LIFO method, an
actual valuation of inventory can only be made at the end of each year based on the inventory
levels at that time. Accordingly, interim LIFO calculations are based on managements estimates of
expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.
New Accounting Pronouncements
Variable Interest Entities
On January 1, 2010, new accounting standards became effective that replace the previous
quantitative-based risk and rewards calculation provided under GAAP with a qualitative approach in
determining whether an entity is the primary beneficiary of a variable interest entity (VIE).
Additionally, these standards require an entity to assess on an ongoing basis whether it is the
primary beneficiary of a VIE and enhances disclosure requirements with respect to an entitys
involvement in a VIE. See Note 3 for additional information on our involvement with HEP, a
consolidated VIE.
NOTE 2: Tulsa Refinery Acquisition
On June 1, 2009, we acquired an 85,000 BPSD refinery located in Tulsa, Oklahoma (the Tulsa
Refinery west facility) from an affiliate of Sunoco, Inc. (Sunoco) for $157.8 million in cash,
including crude oil, refined product and other inventories valued at $92.8 million. The refinery
produces fuel products including gasoline, diesel fuel and jet fuel, serves markets in the
Mid-Continent region of the United States and also produces specialty lubricant products that are
marketed throughout North America and are distributed in Central and South America. On October 20,
2009, we sold to an affiliate of Plains All American Pipeline, L.P. (Plains) a portion of the
crude oil petroleum storage, and certain refining-related crude oil receiving pipeline facilities
that were acquired as part of the refinery assets for $40 million. Due to our continuing
involvement in these assets, this transaction has been accounted for as a financing transaction.
See Note 10 for additional information.
On December 1, 2009, we acquired a 75,000 BPSD refinery that is also in Tulsa, Oklahoma (the Tulsa
Refinery east facility) from an affiliate of Sinclair Oil Company (Sinclair) for $183.3 million,
including crude oil, refined product and other inventories valued at $46.4 million. The total
purchase price consisted of $109.3 million in cash and 2,789,155 shares of our common stock having
a value of $74 million. Additionally, we will reimburse Sinclair approximately $8 million upon
their satisfactory completion of certain environmental projects at the refinery. The refinery
produces gasoline, diesel fuel and jet fuel products and also serves markets in the Mid-Continent
region of the United States. We are in the process of integrating the operations of both Tulsa
Refinery facilities. This will result in the Tulsa Refinery having an integrated crude processing
rate of 125,000 BPSD.
In accounting for these combined acquisitions, we recorded $20.6 million in materials and supplies,
$139.2 million in crude oil and refined products inventory, $203.8 million in property, plants and
equipment, $8.2 million in prepayments and other, $6.3 million in accrued liabilities and $24.4
million in other long-term liabilities. The acquired liabilities primarily relate to environmental
and asset retirement obligations. Additionally, we incurred $3.1 million in costs directly related
to these acquisitions that were expensed as acquisition costs in 2009.
- 11 -
NOTE 3: Holly Energy Partners
HEP, a VIE, is a publicly held master limited partnership that was formed to acquire, own and
operate the petroleum product and crude oil pipeline and terminal, tankage and loading rack
facilities that support our
refining and marketing operations in west Texas, New Mexico, Utah, Oklahoma, Idaho and Arizona.
HEP also owns and operates refined product pipelines and terminals, located primarily in Texas,
that service Alon USA, Inc.s (Alon) refinery in Big Spring, Texas.
As of March 31, 2010, we own a 34% interest in HEP, including the 2% general partner interest. As
the general partner of HEP, we have the sole ability to direct the activities of HEP that most
significantly impact HEPs economic performance. Additionally, since our obligation to absorb
losses and receive benefits from HEP are significant to HEP, we are HEPs primary beneficiary and
therefore we consolidate HEP. See Note 16 for supplemental guarantor/non-guarantor financial
information, including HEP balances included in these consolidated financial statements. All
intercompany transactions with HEP are eliminated in our consolidated balances.
HEP has two primary customers (including us) and generates revenues by charging tariffs for
transporting petroleum products and crude oil though its pipelines, by charging fees for
terminalling refined products and other hydrocarbons, and storing and providing other services at
our storage tanks and terminals. Under our long-term transportation agreements with HEP (discussed
further below), we accounted for 83% of HEPs total revenues for the three months ended March 31,
2010. We do not provide financial or equity support through any liquidity arrangements and /or
guarantees to HEP.
HEP has outstanding debt under a senior secured revolving credit agreement and its senior notes.
With the exception of the assets of HEP Logistics Holdings, L.P., one of our wholly-owned
subsidiaries and HEPs general partner, HEPs creditors have no recourse to our assets. Any
recourse to HEPs general partner would be limited to the extent of HEP Logistics Holdings, L.P.s
assets, which other than its investment in HEP, are not significant. Furthermore, our creditors
have no recourse to the assets of HEP and its consolidated subsidiaries. See Note 10 for a
description of HEPs debt obligations.
HEP has risk associated with its operations. If a major shipper of HEP were to terminate its
contracts or fail to meet desired shipping levels for an extended period time, revenue would be
reduced and HEP could suffer substantial losses to the extent that a new customer is not found. In
the event that HEP incurs a loss, our operating results will reflect HEPs loss, net of
intercompany eliminations, to the extent of our ownership interest in HEP at that point in time.
2010 Acquisitions
Tulsa East / Lovington Storage Asset Transaction
On March 31, 2010, HEP acquired from us certain storage assets for $93 million, consisting of
hydrocarbon storage tanks having approximately 2 million barrels of storage capacity, a rail
loading rack and a truck unloading rack located at our Tulsa Refinery east facility and an asphalt
loading rack facility located at our Navajo Refinery facility located in Lovington, New Mexico.
2009 Acquisitions
Sinclair Logistics and Storage Assets Transaction
On December 1, 2009, HEP acquired from Sinclair storage tanks having approximately 1.4 million
barrels of storage capacity and loading racks at its refinery located in Tulsa, Oklahoma for $79.2
million. The purchase price consisted of $25.7 million in cash, including $4.2 million in taxes
and 1,373,609 of HEPs common units having a fair value of $53.5 million.
With respect to this purchase, HEP recorded $30.2 million in properties and equipment, $49.1
million in goodwill and $0.2 million in other long-term liabilities.
Roadrunner / Beeson Pipelines Transaction
Also on December 1, 2009, HEP acquired our two newly constructed pipelines for $46.5 million,
consisting of a 65-mile, 16-inch crude oil pipeline (the Roadrunner Pipeline) that connects our
Navajo Refinery Lovington facility to a terminus of Centurion Pipeline L.P.s pipeline extending
between west Texas and Cushing,
Oklahoma and a 37-mile, 8-inch crude oil pipeline that connects HEPs New Mexico crude oil
gathering system to our Navajo Refinery Lovington facility (the Beeson Pipeline).
- 12 -
Tulsa West Loading Racks Transaction
On August 1, 2009, HEP acquired from us certain truck and rail loading/unloading facilities located
at our Tulsa Refinery west facility for $17.5 million. The racks load refined products and lube
oils produced at the Tulsa Refinery onto rail cars and/or tanker trucks.
Lovington-Artesia Pipeline Transaction
On June 1, 2009, HEP acquired our newly constructed, 16-inch intermediate pipeline for $34.2
million that runs 65 miles from our Navajo Refinerys crude oil distillation and vacuum facilities
in Lovington, New Mexico to its petroleum refinery located in Artesia, New Mexico.
SLC Pipeline Joint Venture Interest
On March 1, 2009, HEP acquired a 25% joint venture interest in the SLC Pipeline, a new 95-mile
intrastate pipeline system jointly owned with Plains. HEPs capitalized joint venture contribution
was $25.5 million.
Discontinued Operations
On December 1, 2009, HEP sold its 70% interest in Rio Grande Pipeline Company (Rio Grande) to a
subsidiary of Enterprise Products Partners LP for $35 million. Results of operations of Rio Grande
are presented in discontinued operations.
In accounting for the sale, HEP recorded a gain of $14.5 million and a receivable of $2.2 million
representing its final distribution from Rio Grande. The recorded net asset balance of Rio Grande
at December 1, 2009, was $22.7 million, consisting of cash of $3.1 million, $29.9 million in
properties and equipment, net and $10.3 million in equity, representing BP, Plcs 30%
noncontrolling interest.
The following table provides summarized income statement information related to discontinued
operations:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, 2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
Sales and other revenues from discontinued operations |
|
$ |
2,792 |
|
|
|
|
|
|
Income from discontinued operations before income taxes |
|
$ |
1,594 |
|
Income tax expense |
|
|
(263 |
) |
|
|
|
|
Income from discontinued operations, net of taxes |
|
$ |
1,331 |
|
|
|
|
|
Cash flows from discontinued operations have been combined with cash flows from continuing
operations for presentation purposes in the Consolidated Statements of Cash Flows. For the three
months ended March 31, 2009, net cash flows provided by discontinued Rio Grande operations were $2
million.
Transportation Agreements
HEP serves our refineries in New Mexico, Utah and Oklahoma under the following long-term pipeline
and terminal, tankage and throughput agreements:
|
|
|
HEP PTA (pipelines and terminals throughput agreement expiring in 2019 that relates to
the pipelines and terminal assets that we contributed to HEP upon its initial public
offering in 2004); |
|
|
|
HEP IPA (intermediate pipelines throughput agreement expiring in 2024 that relates to
the intermediate pipelines sold to HEP in 2005 and 2009);
|
- 13 -
|
|
|
HEP CPTA (crude pipelines and tankage throughput agreement expiring in 2023 that relates
to the crude pipelines and tankage assets sold to HEP in 2008); |
|
|
|
HEP PTTA (pipeline, tankage and loading rack throughput agreement expiring in 2024 that
relates to the Tulsa east storage tank and loading rack facilities acquired in 2009 and
2010); |
|
|
|
HEP RPA (pipeline throughput agreement expiring in 2024 that relates to the Roadrunner
Pipeline sold to HEP in 2009); |
|
|
|
HEP ETA (equipment and throughput agreement expiring in 2024 that relates to the Tulsa
west loading rack facilities sold to HEP in 2009); and |
|
|
|
HEP ATA (loading rack throughput agreement expiring in 2025 that relates to the
Lovington asphalt loading rack facility sold to HEP in March 2010). |
Under these agreements, we pay HEP fees to transport, store and throughput volumes of refined
product and crude oil on HEPs pipeline and terminal, tankage and loading rack facilities that
result in minimum annual payments to HEP. These minimum annual payments are adjusted each year at
a percentage change based upon the change in the Producer Price Index (PPI) but will not decrease
as a result of a decrease in the PPI. Under these agreements, the agreed upon tariff rates are
adjusted each year on July 1 at a rate based upon the percentage change in PPI or Federal Energy
Regulatory Commission (FERC) index, but with the exception of the HEP IPA, generally will not
decrease as a result of a decrease in the PPI or FERC index. The FERC index is the change in the
PPI plus a FERC adjustment factor that is reviewed periodically. As of March 31, 2010, these
agreements will result in minimum annualized payments to HEP of $132.4 million.
HEP Equity Offerings
In November 2009, HEP issued 2,185,000 of its common units priced at $35.78 per unit. Aggregate
net proceeds of $74.9 million were used to fund the cash portion of HEPs December 1, 2009 asset
acquisitions, to repay outstanding borrowings under HEPs credit agreement and for general
partnership purposes.
Additionally in May 2009, HEP issued 2,192,400 of its common units priced at $27.80 per unit. Net
proceeds of $58.4 million were used to repay outstanding borrowings under HEPs credit agreement
and for general partnership purposes.
NOTE 4: Financial Instruments
Our financial instruments consist of cash and cash equivalents, investments in marketable
securities, accounts receivable, accounts payable, interest rate swaps and debt. The carrying
amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair
value due to the short-term maturity of these instruments.
Debt consists of outstanding principal under HEPs revolving credit agreement, our 9.875% senior
notes due 2017 (the Holly 9.875% Senior Notes), HEPs 6.25% senior notes due 2015 (the HEP 6.25%
Senior Notes) and HEPs 8.25% senior notes due 2018 (the HEP 8.25% Senior Notes). The $171
million carrying amount of outstanding debt under HEPs credit agreement approximates fair value as
interest rates are reset frequently using current interest rates. At March 31, 2010, the estimated
fair value of the Holly 9.875% Senior Notes, HEP 6.25% Senior Notes and HEP 8.25% Senior Notes were
$310.5 million, $175.8 million and $151.5 million, respectively. These fair value estimates are
based on market quotes provided from a third-party bank. See Note 10 for additional information on
these debt instruments.
- 14 -
Fair value measurements are derived using inputs, assumptions that market participants would use in
pricing an asset or liability, including assumptions about risk. GAAP categorizes inputs used in
fair value measurements into three broad levels as follows:
|
|
|
(Level 1) Quoted prices in active markets for identical assets or liabilities. |
|
|
|
(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets, quoted prices for similar
assets and liabilities in markets that are not active or inputs that can be corroborated by
observable market data. |
|
|
|
(Level 3) Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities. This includes
valuation techniques that involve significant unobservable inputs. |
Our investments in marketable securities are measured at fair value using quoted market prices, a
Level 1 input. See Note 7 for additional information on our investments in marketable securities,
including fair value measurements.
HEP has an interest rate swap that is measured at fair value on a recurring basis using Level 2
inputs. With respect to this instrument, fair value is based on the net present value of expected
future cash flows related to both variable and fixed rate legs of its interest rate swap agreement.
The measurements are computed using the forward London Interbank Offered Rate (LIBOR) yield
curve, a market-based observable input. See Note 10 for additional information on this interest
rate swap, including fair value measurements.
NOTE 5: Earnings Per Share
Basic earnings per share from continuing operations is calculated as income (loss) from continuing
operations divided by the average number of shares of common stock outstanding. Diluted earnings
per share from continuing operations assumes, when dilutive, the issuance of the net incremental
shares from stock options and variable performance shares. The following is a reconciliation of
the denominators of the basic and diluted per share computations for income (loss) from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(28,094 |
) |
|
$ |
21,553 |
|
|
|
|
|
|
|
|
|
|
Average number of shares of common stock outstanding |
|
|
53,094 |
|
|
|
50,042 |
|
Effect of dilutive stock options, variable restricted shares and
performance share units |
|
|
138 |
|
|
|
129 |
|
|
|
|
|
|
|
|
Average number of shares of common stock outstanding assuming dilution |
|
|
53,232 |
|
|
|
50,171 |
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations |
|
$ |
(0.53 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations |
|
$ |
(0.53 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
NOTE 6: Stock-Based Compensation
Holly Corporation
On March 31, 2010, we had three principal share-based compensation plans which are described below
(collectively, the Long-Term Incentive Compensation Plan). The compensation cost that has been
charged against income for these plans was $1.9 million, and $1.3 million for the three months
ended March 31, 2010 and 2009, respectively. The total income tax benefit recognized in the
income statement for share-based compensation arrangements was $0.8 million and $0.5 million for
the three months ended March 31, 2010 and 2009, respectively. Our
current accounting policy for the recognition of compensation expense for awards with pro-rata
vesting (substantially all of our awards) is to expense the costs pro-rata over the vesting
periods. At March 31, 2010, 1,595,122 shares of common stock were reserved for future grants under
the current Long-Term Incentive Compensation Plan, which reservation allows for awards of options,
restricted stock or other performance awards.
- 15 -
Additionally, HEP maintains share-based compensation plans for HEP directors and select Holly
Logistic Services, L.L.C. executives and employees. Compensation cost attributable to HEPs
share-based compensation plans for the three months ended March 31, 2010 and 2009 was $1 million
and $0.4 million, respectively.
Stock Options
Under our Long-Term Incentive Compensation Plan and a previous stock option plan, we have granted
stock options to certain officers and other key employees. All the options have been granted at
prices equal to the market value of the shares at the time of the grant and normally expire on the
tenth anniversary of the grant date. These awards generally vest 20% at the end of each of the
five years after the grant date. There have been no options granted since December 2001. The fair
value on the date of grant for each option awarded was estimated using the Black-Scholes option
pricing model.
A summary of option activity and changes during the three months ended March 31, 2010 is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
Options |
|
Shares |
|
|
Price |
|
|
Term |
|
|
($000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at January 1, 2010 |
|
|
40,200 |
|
|
$ |
2.98 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(20,700 |
) |
|
|
2.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2010 |
|
|
19,500 |
|
|
$ |
2.98 |
|
|
9 months |
|
$ |
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the three months ended March 31, 2010
and 2009, was $0.5 million and $0.3 million, respectively.
Cash received from option exercises under the stock option plans was $61,000 and $45,000 for the
three months ended March 31, 2010 and 2009, respectively. The actual tax benefit realized for the
tax deductions from option exercises under the stock option plans totaled $199,000 and $122,000 for
the three months ended March 31, 2010 and 2009, respectively.
Restricted Stock
Under our Long-Term Incentive Compensation Plan, we grant certain officers, other key employees and
outside directors restricted stock awards with substantially all awards vesting generally over a
period of one to five years. Although ownership of the shares does not transfer to the recipients
until after the shares vest, recipients generally have dividend rights on these shares from the
date of grant. The vesting for certain key executives is contingent upon certain performance
targets being realized. The fair value of each share of restricted stock awarded, including the
shares issued to the key executives, was measured based on the market price as of the date of grant
and is being amortized over the respective vesting period.
A summary of restricted stock activity and changes during the three months ended March 31, 2010 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average Grant |
|
|
Aggregate |
|
|
|
|
|
|
|
Date Fair |
|
|
Intrinsic Value |
|
Restricted Stock |
|
Grants |
|
|
Value |
|
|
($000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2010 (non-vested) |
|
|
284,450 |
|
|
$ |
31.82 |
|
|
|
|
|
Vesting and transfer of ownership to recipients |
|
|
(91,000 |
) |
|
|
17.85 |
|
|
|
|
|
Granted |
|
|
165,108 |
|
|
|
48.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 (non-vested) |
|
|
358,558 |
|
|
$ |
33.95 |
|
|
$ |
10,007 |
|
|
|
|
|
|
|
|
|
|
|
- 16 -
The total fair value of restricted stock vested and transferred to recipients during the three
months ended March 31, 2010 and 2009 was $1.6 million and $3.4 million, respectively. As of March
31, 2010, there was $5 million of total unrecognized compensation cost related to non-vested
restricted stock grants. That cost is expected to be recognized over a weighted-average period of
1.2 years.
Performance Share Units
Under our Long-Term Incentive Compensation Plan, we grant certain officers and other key employees
performance share units, which are payable in stock upon meeting certain criteria over the service
period, and generally vest over a period of one to three years. Under the terms of our performance
share unit grants, awards are subject to financial performance criteria.
During the three months ended March 31, 2010, we granted 110,489 performance share units with a
fair value based on our grant date closing stock price of $29.17. These units are payable in stock
and are subject to certain financial performance criteria.
The fair value of each performance share unit award is computed using the grant date closing stock
price of each respective award grant and will apply to the number of units ultimately awarded. The
number of shares ultimately issued for each award will be based on our financial performance as
compared to peer group companies over the performance period and can range from zero to 200%. As
of March 31, 2010, estimated share payouts for outstanding non-vested performance share unit awards
ranged from 125% to 130%.
A summary of performance share unit activity and changes during the three months ended March 31,
2010 is presented below:
|
|
|
|
|
Performance Share Units |
|
Grants |
|
|
|
|
|
|
Outstanding at January 1, 2010 (non-vested) |
|
|
215,170 |
|
Vesting and transfer of ownership to recipients |
|
|
(38,653 |
) |
Granted |
|
|
110,489 |
|
|
|
|
|
Outstanding at March 31, 2010 (non-vested) |
|
|
287,006 |
|
|
|
|
|
For the three months ended March 31, 2010, we issued 66,483 shares of our common stock having
a fair value of $2.2 million related to vested performance share units, representing a 172% payout.
Based on the weighted average grant date fair value of $3.2 million, there was $6.4 million of
total unrecognized compensation cost related to non-vested performance share units. That cost is
expected to be recognized over a weighted-average period of 1.9 years.
NOTE 7: Cash and Cash Equivalents and Investments in Marketable Securities
Our investment portfolio consists of cash and cash equivalents at March 31, 2010. In addition, we
own 1,000,000 shares of Connacher Oil and Gas Limited common stock that were received as partial
consideration upon our sale of our Montana refinery in 2006.
At times we also invest available cash in highly-rated marketable debt securities, primarily issued
by government entities that have maturities at the date of purchase of greater than three months.
Our investments in marketable securities are classified as available-for-sale, and as a
result, are reported at fair value using quoted market prices. Unrealized gains and losses, net of
related income taxes, are considered temporary and are reported as a component of accumulated other
comprehensive income. For investments in an unrealized loss position that are determined to be
other than temporary, unrealized losses are reclassified out of accumulated other comprehensive
income and into earnings as an impairment loss. Upon sale, realized gains and losses on the sale
of marketable securities are computed based on the specific identification of the underlying cost
of the securities sold and the unrealized gains and losses previously reported in other
comprehensive income are reclassified to current earnings.
- 17 -
The following is a summary of our available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities |
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
Gross |
|
|
Fair Value |
|
|
|
Amortized |
|
|
Unrealized |
|
|
(Net Carrying |
|
|
|
Cost |
|
|
Gain |
|
|
Amount) |
|
|
|
(In thousands) |
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
604 |
|
|
$ |
863 |
|
|
$ |
1,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
604 |
|
|
$ |
619 |
|
|
$ |
1,223 |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, we received $183.1 million related to sales and
maturities of marketable debt securities.
NOTE 8: Inventories
Inventory consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
$ |
120,246 |
|
|
$ |
60,874 |
|
Other raw materials and unfinished products (1) |
|
|
53,690 |
|
|
|
42,783 |
|
Finished products (2) |
|
|
202,177 |
|
|
|
155,925 |
|
Process chemicals (3) |
|
|
22,660 |
|
|
|
22,823 |
|
Repairs and maintenance supplies and other |
|
|
22,249 |
|
|
|
21,108 |
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
421,022 |
|
|
$ |
303,513 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other raw materials and unfinished products include feedstocks and blendstocks,
other than crude. |
|
(2) |
|
Finished products include gasolines, jet fuels, diesels, lubricants, asphalts,
LPGs and residual fuels. |
|
(3) |
|
Process chemicals include catalysts, additives and other chemicals. |
NOTE 9: Environmental
Consistent with our accounting policy for environmental remediation costs, we expensed $1.4 million
and $2.6 million for the three months ended March 31, 2010 and 2009, respectively, for
environmental remediation obligations. The accrued environmental liability reflected in the
consolidated balance sheets was $31.3 million and $30.4 million at March 31, 2010 and December 31,
2009, respectively, of which $24.6 million and $24.2 million, respectively, were classified as
other long-term liabilities. These liabilities include $22.3 million of environmental obligations
that we assumed in connection with our Tulsa Refinery west facility acquired on June 1, 2009 and
our Tulsa Refinery east facility acquired on December 1, 2009. Costs of future expenditures for
environmental remediation that are expected to be incurred over the next several years are not
discounted to their present value.
- 18 -
NOTE 10: Debt
Credit Facilities
We have a $370 million senior secured credit agreement expiring in March 2013 (the Holly Credit
Agreement) with Bank of America, N.A. as administrative agent and one of a syndicate of lenders.
The credit agreement may be used to fund working capital requirements, capital expenditures,
permitted acquisitions or other general
corporate purposes. We were in compliance with all covenants at March 31, 2010. At March 31,
2010, we had no outstanding borrowings and letters of credit totaling $114.5 million under the
Holly Credit Agreement. At that level of usage, the unused commitment was $255.5 million at March
31, 2010. We entered into an amendment to the Holly Credit Agreement on May 6, 2010 that changed
certain financial covenants and provided other enhancements to the agreement.
HEP has a $300 million senior secured revolving credit agreement expiring in August 2011 (the HEP
Credit Agreement). The HEP Credit Agreement is available to fund capital expenditures,
acquisitions and working capital and for other general partnership purposes. At March 31, 2010,
HEP had outstanding borrowings totaling $171 million under the HEP Credit Agreement, with unused
borrowing capacity of $129 million. HEPs obligations under the HEP Credit Agreement are
collateralized by substantially all of HEPs assets. HEP assets that are included in our
Consolidated Balance Sheet at March 31, 2010 consist of $16.6 million in cash and cash equivalents,
$21 million in accounts receivable and other current assets, $491.7 million in properties, plants
and equipment, net and $156.7 million in intangible and other assets. Indebtedness under the HEP
Credit Agreement is recourse to HEP Logistics Holdings, L.P., its general partner, and guaranteed
by HEPs wholly-owned subsidiaries. Any recourse to the general partner would be limited to the
extent of HEP Logistics Holdings, L.P.s assets, which other than its investment in HEP, are not
significant. During the first quarter of 2010, our previous agreements to indemnify HEPs
controlling partner to the extent it makes any payment in satisfaction of debt service due on up to
a $171 million aggregate principal amount of borrowings under the HEP Credit Agreement were
terminated.
Holly Senior Notes Due 2017
In June 2009, we issued $200 million in aggregate principal amount of the Holly 9.875% Senior
Notes. A portion of the $188 million in net proceeds received was used for post-closing payments
for inventories of crude oil and refined products acquired from Sunoco following the closing of the
Tulsa Refinery west facility purchase on June 1, 2009. In October 2009, we issued an additional
$100 million aggregate principal amount as an add-on offering to the Holly 9.875% Senior Notes that
was used to fund the cash portion of our acquisition of Sinclairs 75,000 BPSD refinery located in
Tulsa, Oklahoma.
The $300 million aggregate principal amount of Holly 9.875% Senior Notes mature on June 15, 2017.
The Holly 9.875% Senior Notes are unsecured and impose certain restrictive covenants, including
limitations on our ability to incur additional debt, incur liens, enter into sale-and-leaseback
transactions, pay dividends, enter into mergers, sell assets and enter into certain transactions
with affiliates. At any time when the Holly 9.875% Senior Notes are rated investment grade by both
Moodys and Standard & Poors and no default or event of default exists, we will not be subject to
many of the foregoing covenants. Additionally, we have certain redemption rights under the Holly
9.875% Senior Notes.
HEP Senior Notes Due 2018 and 2015
In March 2010, HEP issued $150 million in aggregate principal amount of HEP 8.25% Senior Notes
maturing March 15, 2018. A portion of the $147.5 million in net proceeds received was used to fund
HEPs $93 million purchase of certain storage assets at our Tulsa Refinery east facility and Navajo
Refinery Lovington facility on March 31, 2010. Additionally, HEP used a portion to repay $42
million in outstanding HEP Credit Agreement borrowings, with the remaining proceeds available for
general partnership purposes, including working capital, capital expenditures and possible future
acquisitions.
The HEP 6.25% Senior Notes having an aggregate principal amount of $185 million mature March 1,
2015 and are registered with the SEC. The HEP 6.25% Senior Notes and HEP 8.25% Senior Notes
(collectively, the HEP Senior Notes) are unsecured and impose certain restrictive covenants,
including limitations on HEPs ability to incur additional indebtedness, make investments, sell
assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter
into mergers. At any time when the HEP Senior Notes are rated investment grade by both Moodys and
Standard & Poors and no default or event of default exists, HEP will not be subject to many of the
foregoing covenants. Additionally, HEP has certain redemption rights under the HEP Senior Notes.
- 19 -
Indebtedness under the HEP Senior Notes is recourse to HEP Logistics Holdings, L.P., its general
partner, and guaranteed by HEPs wholly-owned subsidiaries. However, any recourse to the general
partner would be limited to the extent of HEP Logistics Holdings, L.P.s assets, which other than
its investment in HEP, are not significant. During the first quarter of 2010, our previous
agreement to indemnify HEPs controlling partner to the extent it makes any payment in satisfaction
of debt service due on up to $35 million of the principal amount of the HEP 6.25% Senior Notes was
terminated.
Holly Financing Obligation
On October 20, 2009, we sold to Plains a portion of the crude oil petroleum storage, and certain
refining-related crude oil receiving pipeline facilities located at our Tulsa Refinery east
facility. In connection with this transaction, we entered into a 15-year lease agreement with
Plains, whereby we agreed to pay a fixed monthly fee for the exclusive use of this tankage as well
as a fee for volumes received at the receiving facilities purchased by Plains. Additionally, we
have a margin sharing agreement with Plains under which we will equally share contango profits with
Plains for crude oil purchased by them and delivered to our Tulsa Refinery west facility for
storage. Due to our continuing involvement in these assets, this transaction has been accounted
for as a financing obligation. As a result, we retained these assets on our books and recorded a
liability representing the $40 million in proceeds received.
The carrying amounts of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Holly 9.875% Senior Notes |
|
|
|
|
|
|
|
|
Principal |
|
$ |
300,000 |
|
|
$ |
300,000 |
|
Unamortized discount |
|
|
(11,295 |
) |
|
|
(11,549 |
) |
|
|
|
|
|
|
|
|
|
|
288,705 |
|
|
|
288,451 |
|
Holly Financing Obligation |
|
|
|
|
|
|
|
|
Principal |
|
|
39,563 |
|
|
|
39,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Holly long-term debt |
|
$ |
328,268 |
|
|
$ |
328,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEP Credit Agreement |
|
$ |
171,000 |
|
|
$ |
206,000 |
|
|
|
|
|
|
|
|
|
|
HEP 6.25% Senior Notes |
|
|
|
|
|
|
|
|
Principal |
|
|
185,000 |
|
|
|
185,000 |
|
Unamortized discount |
|
|
(12,934 |
) |
|
|
(13,593 |
) |
Unamortized premium dedesignated fair value hedge |
|
|
1,704 |
|
|
|
1,791 |
|
|
|
|
|
|
|
|
|
|
|
173,770 |
|
|
|
173,198 |
|
HEP 8.25% Senior Notes |
|
|
|
|
|
|
|
|
Principal |
|
|
150,000 |
|
|
|
|
|
Unamortized discount |
|
|
(2,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HEP long-term debt |
|
$ |
492,327 |
|
|
$ |
379,198 |
|
|
|
|
|
|
|
|
Interest Rate Risk Management
HEP uses interest rate swaps (derivative instruments) to manage its exposure to interest rate risk.
As of March 31, 2010, HEP has an interest rate swap that hedges its exposure to the cash flow risk
caused by the effects of LIBOR changes on a $171 million HEP Credit Agreement advance. This
interest rate swap effectively converts its $171 million LIBOR based debt to fixed rate debt having
an interest rate of 3.74% plus an applicable margin, currently 1.75%, which equaled an effective
interest rate of 5.49% as of March 31, 2010. The maturity date of this swap contract is February
28, 2013.
- 20 -
HEP designated this interest rate swap as a cash flow hedge. Based on its assessment of
effectiveness using the change in variable cash flows method, HEP determined that this interest
rate swap is effective in offsetting the variability in interest payments on the $171 million
variable rate debt resulting from changes in LIBOR. Under hedge accounting, HEP adjusts the cash
flow hedge on a quarterly basis to its fair value with the offsetting fair value adjustment to
accumulated other comprehensive income. Also on a quarterly basis, HEP measures hedge
effectiveness by comparing the present value of the cumulative change in the expected future
interest to be paid or received on the variable leg of the swap against the expected future
interest payments on the $171 million variable rate debt. Any ineffectiveness is reclassified from
accumulated other comprehensive income to interest expense. As of March 31, 2010, HEP had no
ineffectiveness on its cash flow hedge.
Additional information on HEPs interest rate swap at March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
Location of Offsetting |
|
Offsetting |
|
Interest Rate Swap |
|
Location |
|
Fair Value |
|
|
Balance |
|
Amount |
|
|
|
(In thousands) |
|
Liability |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge $171 million LIBOR based debt |
|
Other long-term liabilities |
|
$ |
10,502 |
|
|
Accumulated other comprehensive loss |
|
$ |
10,502 |
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2010, HEP settled two interest rate swaps. HEP had an interest rate
swap contract that effectively converted interest expense associated with $60 million of the HEP
6.25% Senior Notes from fixed to variable rate debt (Variable Rate Swap). HEP had an additional
interest rate swap contract that effectively unwound the effects of the Variable Rate Swap,
converting $60 million of the previously hedged long-term debt back to fixed rate debt (Fixed Rate
Swap), effectively fixing interest at a 4.75% rate. Upon settlement of the Variable Rate and
Fixed Rate Swaps, HEP received $1.9 million and paid $3.6 million, respectively.
For the three months ended March 31, 2010 and 2009, HEP recognized $1.5 million and $0.2 million,
respectively, in interest expense attributable to fair value adjustments to these interest rate
swaps.
HEP has a deferred hedge premium that relates to the application of hedge accounting to the
Variable Rate Swap prior to its hedge dedesignation in 2008. This deferred hedge premium having a
balance of $1.7 million at March 31, 2010, is being amortized as a reduction to interest expense
over the remaining term of the HEP 6.25% Senior Notes.
NOTE 11: Equity
Changes to equity during the three months ended March 31, 2010 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holly Corporation |
|
|
|
|
|
|
|
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
619,039 |
|
|
$ |
588,742 |
|
|
$ |
1,207,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(28,094 |
) |
|
|
4,840 |
|
|
|
(23,254 |
) |
Dividends |
|
|
(7,990 |
) |
|
|
|
|
|
|
(7,990 |
) |
Distributions to noncontrolling interest holders |
|
|
|
|
|
|
(11,963 |
) |
|
|
(11,963 |
) |
Other comprehensive income (loss) |
|
|
500 |
|
|
|
(1,936 |
) |
|
|
(1,436 |
) |
Contribution from joint venture partner |
|
|
|
|
|
|
1,250 |
|
|
|
1,250 |
|
Issuance of common stock upon exercise of stock options |
|
|
61 |
|
|
|
|
|
|
|
61 |
|
Tax benefit from stock options |
|
|
199 |
|
|
|
|
|
|
|
199 |
|
Equity based compensation |
|
|
1,941 |
|
|
|
966 |
|
|
|
2,907 |
|
Tax expense from equity based compensation arrangements |
|
|
(1,244 |
) |
|
|
|
|
|
|
(1,244 |
) |
Purchase of HEP units for restricted grants |
|
|
|
|
|
|
(1,745 |
) |
|
|
(1,745 |
) |
Purchase of treasury stock (1) |
|
|
(1,055 |
) |
|
|
|
|
|
|
(1,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
583,357 |
|
|
$ |
580,154 |
|
|
$ |
1,163,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes shares purchased under the terms of restricted stock agreements to provide
funds for the payment of payroll and income taxes due at vesting of restricted stock. |
- 21 -
During the three months ended March 31, 2010, we repurchased at market price from certain
executives and employees 44,406 shares of our common stock at a cost of $1.1 million.
These purchases were made under the terms of restricted stock and performance share unit agreements
to provide funds for the payment of payroll and income taxes due at the vesting of restricted
shares in the case of officers and employees who did not elect to satisfy such taxes by other
means.
NOTE 12: Other Comprehensive Income (Loss)
The components and allocated tax effects of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
|
|
Expense |
|
|
|
|
|
|
Before-Tax |
|
|
(Benefit) |
|
|
After-Tax |
|
|
|
(In thousands) |
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
$ |
244 |
|
|
$ |
94 |
|
|
$ |
150 |
|
Unrealized loss on HEP cash flow hedge |
|
|
(1,362 |
) |
|
|
224 |
|
|
|
(1,586 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(1,118 |
) |
|
|
318 |
|
|
|
(1,436 |
) |
Less other comprehensive loss attributable to noncontrolling interest |
|
|
(1,936 |
) |
|
|
|
|
|
|
(1,936 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income attributable to Holly stockholders |
|
$ |
818 |
|
|
$ |
318 |
|
|
$ |
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
$ |
(227 |
) |
|
$ |
(89 |
) |
|
$ |
(138 |
) |
Unrealized loss on HEP cash flow hedge |
|
|
(250 |
) |
|
|
(44 |
) |
|
|
(206 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(477 |
) |
|
|
(133 |
) |
|
|
(344 |
) |
Less other comprehensive loss attributable to noncontrolling interest |
|
|
(136 |
) |
|
|
|
|
|
|
(136 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss attributable to Holly stockholders |
|
$ |
(341 |
) |
|
$ |
(133 |
) |
|
$ |
(208 |
) |
|
|
|
|
|
|
|
|
|
|
The temporary unrealized gain on available-for-sale securities is due to changes in market
prices of securities.
Accumulated other comprehensive loss in the equity section of our Consolidated Balance Sheets
includes:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Pension obligation adjustment |
|
$ |
(21,774 |
) |
|
$ |
(21,774 |
) |
Retiree medical obligation adjustment |
|
|
(1,749 |
) |
|
|
(1,749 |
) |
Unrealized gain on available-for-sale securities |
|
|
529 |
|
|
|
379 |
|
Unrealized loss on HEP cash flow hedge, net of minority interest |
|
|
(2,206 |
) |
|
|
(2,556 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(25,200 |
) |
|
$ |
(25,700 |
) |
|
|
|
|
|
|
|
NOTE 13: Retirement Plan
We have a non-contributory defined benefit retirement plan that covers most of our employees who
were hired prior to January 1, 2007. Our policy is to make contributions annually of not less than
the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Benefits
are based on the employees years of service and compensation.
The retirement plan is frozen to employees hired subsequent to 2006 and not covered by collective
bargaining agreements with labor unions. To the extent an employee was hired prior to January 1,
2007, and elected to participate in automatic contributions features under our defined contribution
plan, their participation in future benefits of the retirement plan was frozen.
- 22 -
The net periodic pension expense consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Service cost benefit earned during the quarter |
|
$ |
1,141 |
|
|
$ |
1,088 |
|
Interest cost on projected benefit obligations |
|
|
1,286 |
|
|
|
1,231 |
|
Expected return on plan assets |
|
|
(1,124 |
) |
|
|
(1,002 |
) |
Amortization of prior service cost |
|
|
98 |
|
|
|
98 |
|
Amortization of net loss |
|
|
624 |
|
|
|
19 |
|
|
|
|
|
|
|
|
Net periodic pension expense |
|
$ |
2,025 |
|
|
$ |
1,434 |
|
|
|
|
|
|
|
|
The expected long-term annual rate of return on plan assets is 8.5%. This rate was used in
measuring 2010 and 2009 net periodic benefit cost. We expect to contribute between zero and $10
million to the retirement plan in 2010.
NOTE 14: Contingencies
In May 2007, the United States Court of Appeals for the District of Columbia Circuit (Court of
Appeals) issued its decision on petitions for review, brought by us and other parties, concerning
rulings by the FERC in proceedings brought by us and other parties against SFPP, L.P. (SFPP).
These proceedings relate to tariffs of common carrier pipelines, which are owned and operated by
SFPP, for shipments of refined products from El Paso, Texas to Tucson and Phoenix, Arizona and from
points in California to points in Arizona. We are one of several refiners that regularly utilize
the SFPP pipeline to ship refined products from El Paso, Texas to Tucson and Phoenix, Arizona on
SFPPs East Line. The Court of Appeals in its May 2007 decision approved a FERC position, which is
adverse to us, on the treatment of income taxes in the calculation of allowable rates for pipelines
operated by partnerships and ruled in our favor on an issue relating to our rights to reparations
when it is determined that certain tariffs we paid to SFPP in the past were too high. The income
tax issue and the other remaining issues relating to SFPPs obligations to shippers are being
handled by the FERC in a single compliance proceeding covering the period from 1992 through
May 2006. We currently estimate that, as a result of the May 2007 Court of Appeals decision and
prior rulings by the Court of Appeals and the FERC in these proceedings, a net amount will be due
from SFPP to us for the period January 1992 through May 2006 in addition to the $15.3 million we
received in 2003 from SFPP as reparations for the period from 1992 through July 2000. On April 16,
2010, a settlement among us, SFPP, and other shippers was filed with FERC for its approval. If
approved the settlement would finally resolve the amount of additional payments SFPP owes us for
the period January 2002 through May 2006. The proposed settlement remains subject to final appeal
by FERC.
We and other shippers have been engaged in settlement discussions with SFPP on remaining issues
relating to East Line service in the FERC proceedings. A partial settlement covering the period
June 2006 through November 2007, which became final in February 2008, resulted in a payment from
SFPP to us of approximately $1.3 million in April 2008. On October 22, 2008, we and other shippers
jointly filed at the FERC with SFPP a settlement covering the period from December 2008 through
November 2010. The FERC approved the settlement on January 29, 2009. The settlement reduced SFPPs
current rates and required SFPP to make additional payments to us of approximately $2.9 million,
which were received on May 18, 2009.
On June 2, 2009, SFPP notified us that it would terminate the October 2008 settlement, as provided
under the settlement, effective August 31, 2009. On July 31, 2009, SFPP filed substantial rate
increases for East Line service to become effective September 1, 2009. We and several other
shippers filed protests at the FERC challenging the rate increase and asking the FERC to suspend
the effectiveness of the increased rates. On August 31, 2009, the FERC issued an order suspending
the effective date of the rate increase until January 1, 2010, on which date the rate increase was
placed into effect, and setting the rate increase for a full evidentiary hearing to be held in
2010. We are not in a position to predict the ultimate outcome of the rate proceeding.
We are a party to various other litigation and proceedings which we believe, based on advice of
counsel, will not either individually or in the aggregate have a materially adverse impact on our
financial condition, results of operations or cash flows.
- 23 -
NOTE 15: 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.
The Refining segment includes the operations of our Navajo, Woods Cross, and Tulsa Refineries
and Holly 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 and jet fuel.
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 also includes specialty lubricant products produced at our Tulsa Refinery that
are marketed throughout North America and are distributed in Central and South America. Holly
Asphalt manufactures and markets asphalt and asphalt products in Arizona, New Mexico, Texas and
northern Mexico.
HEP, a consolidated VIE, 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 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. Our revaluation of HEPs assets and liabilities at March 1, 2008 (date of
reconsolidation) resulted in basis adjustments to our consolidated HEP balances. Therefore, our
reported amounts for the HEP segment may not agree to amounts reported in HEPs periodic public
filings.
The accounting policies for our segments are the same as those described in the summary of
significant accounting policies in our Annual Report on Form 10-K for the year ended December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
and |
|
|
Consolidated |
|
|
|
Refining |
|
|
HEP (1) |
|
|
and Other |
|
|
Eliminations |
|
|
Total |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other revenues |
|
$ |
1,867,174 |
|
|
$ |
40,689 |
|
|
$ |
66 |
|
|
$ |
(33,639 |
) |
|
$ |
1,874,290 |
|
Depreciation and amortization |
|
$ |
20,726 |
|
|
$ |
6,805 |
|
|
$ |
521 |
|
|
$ |
(295 |
) |
|
$ |
27,757 |
|
Income (loss) from operations |
|
$ |
(24,579 |
) |
|
$ |
18,261 |
|
|
$ |
(15,767 |
) |
|
$ |
(659 |
) |
|
$ |
(22,744 |
) |
Capital expenditures |
|
$ |
28,272 |
|
|
$ |
1,911 |
|
|
$ |
915 |
|
|
$ |
|
|
|
$ |
31,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other revenues |
|
$ |
636,910 |
|
|
$ |
29,332 |
|
|
$ |
99 |
|
|
$ |
(18,311 |
) |
|
$ |
648,030 |
|
Depreciation and amortization |
|
$ |
11,951 |
|
|
$ |
5,578 |
|
|
$ |
2,552 |
|
|
$ |
|
|
|
$ |
20,081 |
|
Income (loss) from operations |
|
$ |
38,705 |
|
|
$ |
12,078 |
|
|
$ |
(12,992 |
) |
|
$ |
|
|
|
$ |
37,791 |
|
Capital expenditures |
|
$ |
88,238 |
|
|
$ |
10,570 |
|
|
$ |
420 |
|
|
$ |
|
|
|
$ |
99,228 |
|
- 24 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
and |
|
|
Consolidated |
|
|
|
Refining |
|
|
HEP (1) |
|
|
and Other |
|
|
Eliminations |
|
|
Total |
|
|
|
(In thousands) |
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
in marketable securities |
|
$ |
|
|
|
$ |
16,609 |
|
|
$ |
78,147 |
|
|
$ |
|
|
|
$ |
94,756 |
|
Total assets |
|
$ |
2,392,006 |
|
|
$ |
686,022 |
|
|
$ |
335,538 |
|
|
$ |
(31,239 |
) |
|
$ |
3,382,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
in marketable securities |
|
$ |
|
|
|
$ |
2,508 |
|
|
$ |
123,311 |
|
|
$ |
|
|
|
$ |
125,819 |
|
Total assets |
|
$ |
2,142,317 |
|
|
$ |
641,775 |
|
|
$ |
392,007 |
|
|
$ |
(30,160 |
) |
|
$ |
3,145,939 |
|
|
|
|
(1) |
|
HEP segment revenues from external customers were $7.1 million and $11 million for the
three months ended March 31, 2010 and 2009, respectively. |
Note 16: Supplemental Guarantor/Non-Guarantor Financial Information
Our obligations under the Holly 9.875% Senior Notes have been jointly and severally guaranteed by
the substantial majority of our existing and future restricted subsidiaries (Guarantor Restricted
Subsidiaries). These guarantees are full and unconditional. HEP in which we have a 34% ownership
interest and its subsidiaries (collectively, Non-Guarantor Non-Restricted Subsidiaries), and
certain of our other subsidiaries (Non-Guarantor Restricted Subsidiaries) have not guaranteed
these obligations.
The following financial information presents condensed consolidating balance sheets, statements of
income, and statements of cash flows of Holly Corporation (the Parent), the Guarantor Restricted
Subsidiaries, the Non-Guarantor Restricted Subsidiaries and the Non-Guarantor Non-Restricted
Subsidiaries. The information has been presented as if the Parent accounted for its ownership in
the Guarantor Restricted Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the
ownership of the Non-Guarantor Restricted Subsidiaries and Non-Guarantor Non-Restricted
Subsidiaries, using the equity method of accounting. The Guarantor Restricted Subsidiaries and the
Non-Guarantor Restricted Subsidiaries are collectively the Restricted Subsidiaries.
Our revaluation of HEPs assets and liabilities at March 1, 2008 (date of reconsolidation) resulted
in basis adjustments to our consolidated HEP balances. Therefore, our reported amounts for the HEP
segment may not agree to amounts reported in HEPs periodic public filings.
- 25 -
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Holly Corp. |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Before |
|
|
Non-Restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Restricted |
|
|
|
|
|
|
Consolidation |
|
|
Subsidiaries |
|
|
|
|
|
|
|
March 31, 2010 |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
of HEP |
|
|
(HEP Segment) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
73,146 |
|
|
$ |
(2,068 |
) |
|
$ |
5,602 |
|
|
$ |
|
|
|
$ |
76,680 |
|
|
$ |
16,609 |
|
|
$ |
|
|
|
$ |
93,289 |
|
Marketable securities |
|
|
|
|
|
|
1,467 |
|
|
|
|
|
|
|
|
|
|
|
1,467 |
|
|
|
|
|
|
|
|
|
|
|
1,467 |
|
Accounts receivable |
|
|
1,048 |
|
|
|
880,460 |
|
|
|
(1 |
) |
|
|
|
|
|
|
881,507 |
|
|
|
20,456 |
|
|
|
(18,423 |
) |
|
|
883,540 |
|
Intercompany accounts
receivable
(payable) |
|
|
(1,107,093 |
) |
|
|
726,705 |
|
|
|
380,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
420,857 |
|
|
|
|
|
|
|
|
|
|
|
420,857 |
|
|
|
165 |
|
|
|
|
|
|
|
421,022 |
|
Income taxes receivable |
|
|
30,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,248 |
|
|
|
|
|
|
|
|
|
|
|
30,248 |
|
Prepayments and other assets |
|
|
23,012 |
|
|
|
60,967 |
|
|
|
|
|
|
|
|
|
|
|
83,979 |
|
|
|
349 |
|
|
|
(2,951 |
) |
|
|
81,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
(979,639 |
) |
|
|
2,088,388 |
|
|
|
385,989 |
|
|
|
|
|
|
|
1,494,738 |
|
|
|
37,579 |
|
|
|
(21,374 |
) |
|
|
1,510,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties and equipment, net |
|
|
21,839 |
|
|
|
971,336 |
|
|
|
165,126 |
|
|
|
|
|
|
|
1,158,301 |
|
|
|
491,701 |
|
|
|
(11,009 |
) |
|
|
1,638,993 |
|
Investment in subsidiaries |
|
|
1,992,379 |
|
|
|
504,018 |
|
|
|
(391,551 |
) |
|
|
(2,104,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles and other assets |
|
|
8,259 |
|
|
|
66,246 |
|
|
|
|
|
|
|
|
|
|
|
74,505 |
|
|
|
156,742 |
|
|
|
1,144 |
|
|
|
232,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,042,838 |
|
|
$ |
3,629,988 |
|
|
$ |
159,564 |
|
|
$ |
(2,104,846 |
) |
|
$ |
2,727,544 |
|
|
$ |
686,022 |
|
|
$ |
(31,239 |
) |
|
$ |
3,382,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,720 |
|
|
$ |
1,155,223 |
|
|
$ |
4,780 |
|
|
$ |
|
|
|
$ |
1,167,723 |
|
|
$ |
6,216 |
|
|
$ |
(18,422 |
) |
|
$ |
1,155,517 |
|
Accrued liabilities |
|
|
25,057 |
|
|
|
21,722 |
|
|
|
498 |
|
|
|
|
|
|
|
47,277 |
|
|
|
13,222 |
|
|
|
(2,952 |
) |
|
|
57,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
32,777 |
|
|
|
1,176,945 |
|
|
|
5,278 |
|
|
|
|
|
|
|
1,215,000 |
|
|
|
19,438 |
|
|
|
(21,374 |
) |
|
|
1,213,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
288,705 |
|
|
|
56,806 |
|
|
|
|
|
|
|
|
|
|
|
345,511 |
|
|
|
492,327 |
|
|
|
(17,243 |
) |
|
|
820,595 |
|
Non-current liabilities |
|
|
39,824 |
|
|
|
31,097 |
|
|
|
|
|
|
|
|
|
|
|
70,921 |
|
|
|
11,366 |
|
|
|
|
|
|
|
82,287 |
|
Deferred income taxes |
|
|
97,094 |
|
|
|
323 |
|
|
|
502 |
|
|
|
|
|
|
|
97,919 |
|
|
|
|
|
|
|
4,951 |
|
|
|
102,870 |
|
Distributions in excess of inv
in HEP |
|
|
|
|
|
|
372,438 |
|
|
|
|
|
|
|
|
|
|
|
372,438 |
|
|
|
|
|
|
|
(372,438 |
) |
|
|
|
|
Equity Holly Corporation |
|
|
584,438 |
|
|
|
1,992,379 |
|
|
|
153,784 |
|
|
|
(2,146,163 |
) |
|
|
584,438 |
|
|
|
162,891 |
|
|
|
(163,972 |
) |
|
|
583,357 |
|
Equity noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,317 |
|
|
|
41,317 |
|
|
|
|
|
|
|
538,837 |
|
|
|
580,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,042,838 |
|
|
$ |
3,629,988 |
|
|
$ |
159,564 |
|
|
$ |
(2,104,846 |
) |
|
$ |
2,727,544 |
|
|
$ |
686,022 |
|
|
$ |
(31,239 |
) |
|
$ |
3,382,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Holly Corp. |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Before |
|
|
Non-Restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Restricted |
|
|
|
|
|
|
Consolidation |
|
|
Subsidiaries |
|
|
|
|
|
|
|
December 31, 2009 |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
of HEP |
|
|
(HEP Segment) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
127,560 |
|
|
$ |
(12,477 |
) |
|
$ |
7,005 |
|
|
$ |
|
|
|
$ |
122,088 |
|
|
$ |
2,508 |
|
|
$ |
|
|
|
$ |
124,596 |
|
Marketable securities |
|
|
|
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
1,223 |
|
Accounts receivable |
|
|
973 |
|
|
|
759,140 |
|
|
|
|
|
|
|
|
|
|
|
760,113 |
|
|
|
18,767 |
|
|
|
(16,425 |
) |
|
|
762,455 |
|
Intercompany accounts
receivable
(payable) |
|
|
(1,134,296 |
) |
|
|
817,647 |
|
|
|
316,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
303,348 |
|
|
|
|
|
|
|
|
|
|
|
303,348 |
|
|
|
165 |
|
|
|
|
|
|
|
303,513 |
|
Income taxes receivable |
|
|
38,071 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
38,072 |
|
|
|
|
|
|
|
|
|
|
|
38,072 |
|
Prepayments and other assets |
|
|
24,940 |
|
|
|
29,018 |
|
|
|
|
|
|
|
|
|
|
|
53,958 |
|
|
|
574 |
|
|
|
(3,575 |
) |
|
|
50,957 |
|
Current assets of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,195 |
|
|
|
|
|
|
|
2,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
(942,752 |
) |
|
|
1,897,900 |
|
|
|
323,654 |
|
|
|
|
|
|
|
1,278,802 |
|
|
|
24,209 |
|
|
|
(20,000 |
) |
|
|
1,283,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties and equipment, net |
|
|
21,918 |
|
|
|
1,005,422 |
|
|
|
155,413 |
|
|
|
|
|
|
|
1,182,753 |
|
|
|
458,521 |
|
|
|
(11,304 |
) |
|
|
1,629,970 |
|
Investment in subsidiaries |
|
|
2,010,510 |
|
|
|
435,970 |
|
|
|
(314,973 |
) |
|
|
(2,131,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles and other assets |
|
|
8,752 |
|
|
|
64,017 |
|
|
|
|
|
|
|
|
|
|
|
72,769 |
|
|
|
159,045 |
|
|
|
1,144 |
|
|
|
232,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,098,428 |
|
|
$ |
3,403,309 |
|
|
$ |
164,094 |
|
|
$ |
(2,131,507 |
) |
|
$ |
2,534,324 |
|
|
$ |
641,775 |
|
|
$ |
(30,160 |
) |
|
$ |
3,145,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,968 |
|
|
$ |
974,177 |
|
|
$ |
2,224 |
|
|
$ |
|
|
|
$ |
985,369 |
|
|
$ |
6,211 |
|
|
$ |
(16,425 |
) |
|
$ |
975,155 |
|
Accrued liabilities |
|
|
23,752 |
|
|
|
15,477 |
|
|
|
709 |
|
|
|
|
|
|
|
39,938 |
|
|
|
13,594 |
|
|
|
(3,575 |
) |
|
|
49,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
32,720 |
|
|
|
989,654 |
|
|
|
2,933 |
|
|
|
|
|
|
|
1,025,307 |
|
|
|
19,805 |
|
|
|
(20,000 |
) |
|
|
1,025,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
288,451 |
|
|
|
39,809 |
|
|
|
|
|
|
|
|
|
|
|
328,260 |
|
|
|
379,198 |
|
|
|
|
|
|
|
707,458 |
|
Non-current liabilities |
|
|
37,859 |
|
|
|
48,137 |
|
|
|
|
|
|
|
|
|
|
|
85,996 |
|
|
|
12,349 |
|
|
|
(17,342 |
) |
|
|
81,003 |
|
Deferred income taxes |
|
|
119,127 |
|
|
|
229 |
|
|
|
278 |
|
|
|
|
|
|
|
119,634 |
|
|
|
|
|
|
|
4,951 |
|
|
|
124,585 |
|
Distributions in excess of inv
in HEP |
|
|
|
|
|
|
314,970 |
|
|
|
|
|
|
|
|
|
|
|
314,970 |
|
|
|
|
|
|
|
(314,970 |
) |
|
|
|
|
Equity Holly Corporation |
|
|
620,271 |
|
|
|
2,010,510 |
|
|
|
160,883 |
|
|
|
(2,171,393 |
) |
|
|
620,271 |
|
|
|
230,423 |
|
|
|
(231,655 |
) |
|
|
619,039 |
|
Equity noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,886 |
|
|
|
39,886 |
|
|
|
|
|
|
|
548,856 |
|
|
|
588,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,098,428 |
|
|
$ |
3,403,309 |
|
|
$ |
164,094 |
|
|
$ |
(2,131,507 |
) |
|
$ |
2,534,324 |
|
|
$ |
641,775 |
|
|
$ |
(30,160 |
) |
|
$ |
3,145,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 26 -
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Holly Corp. |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Before |
|
|
Non-Restricted |
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Restricted |
|
|
Restricted |
|
|
|
|
|
|
Consolidation |
|
|
Subsidiaries |
|
|
|
|
|
|
|
March 31, 2010 |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
of HEP |
|
|
(HEP Segment) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Sales and other revenues |
|
$ |
67 |
|
|
$ |
1,867,173 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,867,240 |
|
|
$ |
40,689 |
|
|
$ |
(33,639 |
) |
|
$ |
1,874,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
|
|
|
|
1,756,507 |
|
|
|
(74 |
) |
|
|
|
|
|
|
1,756,433 |
|
|
|
|
|
|
|
(32,569 |
) |
|
|
1,723,864 |
|
Operating expenses |
|
|
|
|
|
|
114,600 |
|
|
|
|
|
|
|
|
|
|
|
114,600 |
|
|
|
13,060 |
|
|
|
(116 |
) |
|
|
127,544 |
|
General and administrative
expenses |
|
|
14,885 |
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
15,306 |
|
|
|
2,563 |
|
|
|
|
|
|
|
17,869 |
|
Depreciation and amortization |
|
|
943 |
|
|
|
20,954 |
|
|
|
(650 |
) |
|
|
|
|
|
|
21,247 |
|
|
|
6,805 |
|
|
|
(295 |
) |
|
|
27,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
15,828 |
|
|
|
1,892,482 |
|
|
|
(724 |
) |
|
|
|
|
|
|
1,907,586 |
|
|
|
22,428 |
|
|
|
(32,980 |
) |
|
|
1,897,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(15,761 |
) |
|
|
(25,309 |
) |
|
|
724 |
|
|
|
|
|
|
|
(40,346 |
) |
|
|
18,261 |
|
|
|
(659 |
) |
|
|
(22,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of
subsidiaries |
|
|
(20,108 |
) |
|
|
6,480 |
|
|
|
5,929 |
|
|
|
13,628 |
|
|
|
5,929 |
|
|
|
|
|
|
|
(5,929 |
) |
|
|
|
|
Interest income (expense) |
|
|
(9,143 |
) |
|
|
(1,279 |
) |
|
|
8 |
|
|
|
|
|
|
|
(10,414 |
) |
|
|
(8,104 |
) |
|
|
855 |
|
|
|
(17,663 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481 |
|
|
|
|
|
|
|
481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,251 |
) |
|
|
5,201 |
|
|
|
5,937 |
|
|
|
13,628 |
|
|
|
(4,485 |
) |
|
|
(7,623 |
) |
|
|
(5,074 |
) |
|
|
(17,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
(45,012 |
) |
|
|
(20,108 |
) |
|
|
6,661 |
|
|
|
13,628 |
|
|
|
(44,831 |
) |
|
|
10,638 |
|
|
|
(5,733 |
) |
|
|
(39,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
(16,766 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,766 |
) |
|
|
94 |
|
|
|
|
|
|
|
(16,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
|
(28,246 |
) |
|
|
(20,108 |
) |
|
|
6,661 |
|
|
|
13,628 |
|
|
|
(28,065 |
) |
|
|
10,544 |
|
|
|
(5,733 |
) |
|
|
(23,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less net income attributable to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181 |
|
|
|
181 |
|
|
|
|
|
|
|
4,659 |
|
|
|
4,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
Holly Corporation stockholders |
|
$ |
(28,246 |
) |
|
$ |
(20,108 |
) |
|
$ |
6,661 |
|
|
$ |
13,447 |
|
|
$ |
(28,246 |
) |
|
$ |
10,544 |
|
|
$ |
(10,392 |
) |
|
$ |
(28,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Holly Corp. |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Before |
|
|
Non-Restricted |
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Restricted |
|
|
Restricted |
|
|
|
|
|
|
Consolidation |
|
|
Subsidiaries |
|
|
|
|
|
|
|
March 31, 2009 |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
of HEP |
|
|
(HEP Segment) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Sales and other revenues |
|
$ |
98 |
|
|
$ |
636,882 |
|
|
$ |
29 |
|
|
$ |
|
|
|
$ |
637,009 |
|
|
$ |
29,332 |
|
|
$ |
(18,311 |
) |
|
$ |
648,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
|
|
|
|
529,716 |
|
|
|
123 |
|
|
|
|
|
|
|
529,839 |
|
|
|
|
|
|
|
(18,185 |
) |
|
|
511,654 |
|
Operating expenses |
|
|
|
|
|
|
56,434 |
|
|
|
|
|
|
|
|
|
|
|
56,434 |
|
|
|
10,342 |
|
|
|
(28 |
) |
|
|
66,748 |
|
General and administrative
expenses |
|
|
9,956 |
|
|
|
564 |
|
|
|
|
|
|
|
|
|
|
|
10,520 |
|
|
|
1,334 |
|
|
|
(98 |
) |
|
|
11,756 |
|
Depreciation and amortization |
|
|
972 |
|
|
|
13,214 |
|
|
|
317 |
|
|
|
|
|
|
|
14,503 |
|
|
|
5,578 |
|
|
|
|
|
|
|
20,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
10,928 |
|
|
|
599,928 |
|
|
|
440 |
|
|
|
|
|
|
|
611,296 |
|
|
|
17,254 |
|
|
|
(18,311 |
) |
|
|
610,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(10,830 |
) |
|
|
36,954 |
|
|
|
(411 |
) |
|
|
|
|
|
|
25,713 |
|
|
|
12,078 |
|
|
|
|
|
|
|
37,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
43,414 |
|
|
|
4,895 |
|
|
|
5,220 |
|
|
|
(48,309 |
) |
|
|
5,220 |
|
|
|
|
|
|
|
(5,220 |
) |
|
|
|
|
Interest income (expense) |
|
|
391 |
|
|
|
1,565 |
|
|
|
8 |
|
|
|
|
|
|
|
1,964 |
|
|
|
(6,007 |
) |
|
|
|
|
|
|
(4,043 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,325 |
) |
|
|
2,500 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,805 |
|
|
|
6,460 |
|
|
|
5,228 |
|
|
|
(48,309 |
) |
|
|
7,184 |
|
|
|
(8,332 |
) |
|
|
(2,720 |
) |
|
|
(3,868 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
32,975 |
|
|
|
43,414 |
|
|
|
4,817 |
|
|
|
(48,309 |
) |
|
|
32,897 |
|
|
|
3,745 |
|
|
|
(2,720 |
) |
|
|
33,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
12,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,039 |
|
|
|
73 |
|
|
|
(263 |
) |
|
|
11,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
20,936 |
|
|
|
43,414 |
|
|
|
4,817 |
|
|
|
(48,309 |
) |
|
|
20,858 |
|
|
|
3,673 |
|
|
|
(2,457 |
) |
|
|
22,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,594 |
|
|
|
(263 |
) |
|
|
1,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
20,936 |
|
|
|
43,414 |
|
|
|
4,817 |
|
|
|
(48,309 |
) |
|
|
20,858 |
|
|
|
5,267 |
|
|
|
(2,720 |
) |
|
|
23,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less net income attributable to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
(78 |
) |
|
|
|
|
|
|
1,538 |
|
|
|
1,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Holly
Corporation stockholders |
|
$ |
20,936 |
|
|
$ |
43,414 |
|
|
$ |
4,817 |
|
|
$ |
(48,231 |
) |
|
$ |
20,936 |
|
|
$ |
5,267 |
|
|
$ |
(4,258 |
) |
|
$ |
21,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 27 -
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Holly Corp. |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Before |
|
|
Non-Restricted |
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Restricted |
|
|
Restricted |
|
|
|
|
|
|
Consolidation |
|
|
Subsidiaries |
|
|
|
|
|
|
|
March 31, 2010 |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
of HEP |
|
|
(HEP Segment) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Cash flows from operating activities |
|
$ |
(43,478 |
) |
|
$ |
(59,287 |
) |
|
$ |
2,660 |
|
|
$ |
|
|
|
$ |
(100,105 |
) |
|
$ |
18,723 |
|
|
$ |
(8,642 |
) |
|
$ |
(90,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plants
and equipment Holly |
|
|
(915 |
) |
|
|
(19,209 |
) |
|
|
(9,063 |
) |
|
|
|
|
|
|
(29,187 |
) |
|
|
|
|
|
|
|
|
|
|
(29,187 |
) |
Additions to properties, plants and
equipment HEP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,145 |
) |
|
|
37,234 |
|
|
|
(1,911 |
) |
Purchases of marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets |
|
|
|
|
|
|
37,234 |
|
|
|
|
|
|
|
|
|
|
|
37,234 |
|
|
|
|
|
|
|
(37,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(915 |
) |
|
|
18,025 |
|
|
|
(9,063 |
) |
|
|
|
|
|
|
8,047 |
|
|
|
(39,145 |
) |
|
|
|
|
|
|
(31,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior
notes Holly Energy Partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,540 |
|
|
|
|
|
|
|
147,540 |
|
Net borrowings under credit
agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,000 |
) |
|
|
|
|
|
|
(35,000 |
) |
Purchase of treasury stock |
|
|
(1,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,055 |
) |
|
|
|
|
|
|
|
|
|
|
(1,055 |
) |
Contribution from joint venture
partner |
|
|
|
|
|
|
(3,750 |
) |
|
|
5,000 |
|
|
|
|
|
|
|
1,250 |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
Dividends |
|
|
(7,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,926 |
) |
|
|
|
|
|
|
|
|
|
|
(7,926 |
) |
Distributions to noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,506 |
) |
|
|
8,543 |
|
|
|
(11,963 |
) |
Issuance of common units upon
exercise of stock options |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
61 |
|
Excess tax expense from equity
based compensation |
|
|
(1,045 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,045 |
) |
|
|
|
|
|
|
|
|
|
|
(1,045 |
) |
Purchase price in excess of
transferred basis in assets |
|
|
|
|
|
|
55,766 |
|
|
|
|
|
|
|
|
|
|
|
55,766 |
|
|
|
(55,766 |
) |
|
|
|
|
|
|
|
|
Purchase of
units for HEP restricted grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,745 |
) |
|
|
|
|
|
|
(1,745 |
) |
Other financing activities, net |
|
|
(56 |
) |
|
|
(345 |
) |
|
|
|
|
|
|
|
|
|
|
(401 |
) |
|
|
|
|
|
|
99 |
|
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,021 |
) |
|
|
51,671 |
|
|
|
5,000 |
|
|
|
|
|
|
|
46,650 |
|
|
|
34,523 |
|
|
|
8,642 |
|
|
|
89,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) for the period |
|
|
(54,414 |
) |
|
|
10,409 |
|
|
|
(1,403 |
) |
|
|
|
|
|
|
(45,408 |
) |
|
|
14,101 |
|
|
|
|
|
|
|
(31,307 |
) |
Beginning of period |
|
|
127,560 |
|
|
|
(12,477 |
) |
|
|
7,005 |
|
|
|
|
|
|
|
122,088 |
|
|
|
2,508 |
|
|
|
|
|
|
|
124,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
73,146 |
|
|
$ |
(2,068 |
) |
|
$ |
5,602 |
|
|
$ |
|
|
|
$ |
76,680 |
|
|
$ |
16,609 |
|
|
$ |
|
|
|
$ |
93,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 28 -
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Holly Corp. |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Before |
|
|
Non-Restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Restricted |
|
|
|
|
|
|
Consolidation |
|
|
Subsidiaries |
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
of HEP |
|
|
(HEP Segment) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Cash flows from operating activities |
|
$ |
(90,387 |
) |
|
$ |
85,748 |
|
|
$ |
(330 |
) |
|
$ |
|
|
|
$ |
(4,969 |
) |
|
$ |
9,556 |
|
|
$ |
(6,902 |
) |
|
$ |
(2,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plants
and equipment Holly |
|
|
(419 |
) |
|
|
(76,673 |
) |
|
|
(11,566 |
) |
|
|
|
|
|
|
(88,658 |
) |
|
|
|
|
|
|
|
|
|
|
(88,658 |
) |
Additions to properties, plants and
equipment HEP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,570 |
) |
|
|
|
|
|
|
(10,570 |
) |
Investment in SLC Pipeline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,500 |
) |
|
|
|
|
|
|
(25,500 |
) |
Purchases of marketable securities |
|
|
(128,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,707 |
) |
|
|
|
|
|
|
|
|
|
|
(128,707 |
) |
Sales and maturities of marketable
securities |
|
|
183,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,096 |
|
|
|
|
|
|
|
|
|
|
|
183,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,970 |
|
|
|
(76,673 |
) |
|
|
(11,566 |
) |
|
|
|
|
|
|
(34,269 |
) |
|
|
(36,070 |
) |
|
|
|
|
|
|
(70,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments under credit
agreement |
|
|
55,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
95,000 |
|
Purchase of treasury stock |
|
|
(1,214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,214 |
) |
|
|
|
|
|
|
|
|
|
|
(1,214 |
) |
Contribution from joint venture
partner |
|
|
|
|
|
|
(8,250 |
) |
|
|
13,000 |
|
|
|
|
|
|
|
4,750 |
|
|
|
(13,818 |
) |
|
|
13,818 |
|
|
|
4,750 |
|
Dividends |
|
|
(7,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,502 |
) |
|
|
|
|
|
|
|
|
|
|
(7,502 |
) |
Distributions to noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,916 |
) |
|
|
(6,916 |
) |
Issuance of common units upon
exercise of stock options |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
45 |
|
Excess tax benefit from equity
based compensation |
|
|
2,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,180 |
|
|
|
|
|
|
|
|
|
|
|
2,180 |
|
Purchase of units for HEP
restricted grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(616 |
) |
|
|
|
|
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,509 |
|
|
|
(8,250 |
) |
|
|
13,000 |
|
|
|
|
|
|
|
53,259 |
|
|
|
25,566 |
|
|
|
6,902 |
|
|
|
85,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) for the period |
|
|
12,092 |
|
|
|
825 |
|
|
|
1,104 |
|
|
|
|
|
|
|
14,021 |
|
|
|
(948 |
) |
|
|
|
|
|
|
13,073 |
|
Beginning of period |
|
|
33,316 |
|
|
|
(1,182 |
) |
|
|
3,402 |
|
|
|
|
|
|
|
35,536 |
|
|
|
5,269 |
|
|
|
|
|
|
|
40,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
45,408 |
|
|
$ |
(357 |
) |
|
$ |
4,506 |
|
|
$ |
|
|
|
$ |
49,557 |
|
|
$ |
4,321 |
|
|
$ |
|
|
|
$ |
53,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 29 -
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
This Item 2 contains forward-looking statements. See Forward-Looking Statements at the
beginning of Part I of this Quarterly Report on Form 10-Q. In this document, the words we,
our, ours and us refer only to Holly Corporation and its consolidated subsidiaries or to
Holly Corporation or an individual subsidiary and not to any other person. For periods after our
reconsolidation of Holly Energy Partners, L.P. (HEP) effective March 1, 2008, the words we,
our, ours and us generally include HEP and its subsidiaries as consolidated subsidiaries of
Holly Corporation with certain exceptions where there are transactions or obligations between HEP
and Holly Corporation or its other subsidiaries. This document contains certain disclosures of
agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily
represent obligations of Holly Corporation. When used in descriptions of agreements and
transactions, HEP refers to HEP and its consolidated subsidiaries.
OVERVIEW
We are principally an independent petroleum refiner operating three refineries consisting of
refinery facilities in Artesia and Lovington, New Mexico (collectively, the Navajo Refinery),
Woods Cross, Utah (the Woods Cross Refinery) and two refinery facilities in Tulsa, Oklahoma (the
Tulsa Refinery). As of March 31, 2010, our refineries had a combined crude capacity of 256,000
BPSD. Our profitability depends largely on the spread between market prices for refined petroleum
products and crude oil prices. At March 31, 2010, we also owned a 34% interest in HEP (including
the 2% general partner interest) which owns and operates pipeline and terminalling assets, and owns
a 25% interest in SLC Pipeline LLC (the SLC Pipeline).
Our principal source of revenue is from the sale of high value light products such as gasoline,
diesel fuel, jet fuel and specialty lubricant products in markets in the Southwest, Rocky Mountain
and Mid-Continent regions of the United States and northern Mexico. For the three months ended
March 31, 2010, sales and other revenues were $1,874.3 million and net loss attributable to Holly
Corporation stockholders was $28.1 million. For the three months ended March 31, 2009, sales and
other revenues from continuing operations were $648 million and net income attributable to Holly
Corporation stockholders was $21.9 million. Our principal expenses are costs of products sold and
operating expenses. Our total operating costs and expenses for the three months ended March 31,
2010 were $1,897 million compared to $610.2 million for the three months ended March 31, 2009.
On June 1, 2009, we acquired an 85,000 BPSD refinery located in Tulsa, Oklahoma (the Tulsa
Refinery west facility) from an affiliate of Sunoco, Inc. (Sunoco) for $157.8 million in cash,
including crude oil, refined product and other inventories valued at $92.8 million. The refinery
produces fuel products including gasoline, diesel fuel and jet fuel and serves markets in the
Mid-Continent region of the United States and also produces specialty lubricant products that are
marketed throughout North America and are distributed in Central and South America.
On December 1, 2009, we acquired a 75,000 BPSD refinery that is also located in Tulsa, Oklahoma
(the Tulsa Refinery east facility) from an affiliate of Sinclair Oil Company (Sinclair) for
$183.3 million, including crude oil, refined product and other inventories valued at $46.4 million.
The refinery produces gasoline, diesel fuel and jet fuel products and also serves markets in the
Mid-Continent region of the United States. We are in the process of integrating the operations of
both Tulsa Refinery facilities (collectively, the Tulsa Refinery). Upon completion, the Tulsa
Refinery will have an integrated crude processing rate of 125,000 BPSD.
Separately, HEP, also a party to the December 1, 2009 transaction with Sinclair, acquired certain
logistics and storage assets located at our Tulsa Refinery east facility. See Note 3 Holly
Energy Partners to the Consolidated Financial Statements under Item 1 for additional information
on this transaction as well as HEPs 2010 and 2009 asset acquisitions from us.
Also on December 1, 2009, HEP sold its 70% interest in Rio Grande to a subsidiary of Enterprise
Products Partners LP for $35 million. Results of operations of Rio Grande are presented in
discontinued operations.
- 30 -
RESULTS OF OPERATIONS
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
Change from 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Percent |
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other revenues |
|
$ |
1,874,290 |
|
|
$ |
648,030 |
|
|
$ |
1,226,260 |
|
|
|
189.2 |
% |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (exclusive of depreciation and
amortization) |
|
|
1,723,864 |
|
|
|
511,654 |
|
|
|
1,212,210 |
|
|
|
236.9 |
|
Operating expenses (exclusive of depreciation and
amortization) |
|
|
127,544 |
|
|
|
66,748 |
|
|
|
60,796 |
|
|
|
91.1 |
|
General and administrative expenses (exclusive of
depreciation
and amortization) |
|
|
17,869 |
|
|
|
11,756 |
|
|
|
6,113 |
|
|
|
52.0 |
|
Depreciation and amortization |
|
|
27,757 |
|
|
|
20,081 |
|
|
|
7,676 |
|
|
|
38.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
1,897,034 |
|
|
|
610,239 |
|
|
|
1,286,795 |
|
|
|
210.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(22,744 |
) |
|
|
37,791 |
|
|
|
(60,535 |
) |
|
|
(160.2 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of SLC Pipeline |
|
|
481 |
|
|
|
175 |
|
|
|
306 |
|
|
|
174.9 |
|
Interest income |
|
|
59 |
|
|
|
2,196 |
|
|
|
(2,137 |
) |
|
|
(97.3 |
) |
Interest expense |
|
|
(17,722 |
) |
|
|
(6,239 |
) |
|
|
(11,483 |
) |
|
|
184.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,182 |
) |
|
|
(3,868 |
) |
|
|
(13,314 |
) |
|
|
344.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(39,926 |
) |
|
|
33,923 |
|
|
|
(73,849 |
) |
|
|
(217.7 |
) |
Income tax provision |
|
|
(16,672 |
) |
|
|
11,849 |
|
|
|
(28,521 |
) |
|
|
(240.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(23,254 |
) |
|
|
22,074 |
|
|
|
(45,328 |
) |
|
|
(205.3 |
) |
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
1,331 |
|
|
|
(1,331 |
) |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(23,254 |
) |
|
|
23,405 |
|
|
|
(46,659 |
) |
|
|
(199.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less net income attributable to noncontrolling interest |
|
|
4,840 |
|
|
|
1,460 |
|
|
|
3,380 |
|
|
|
231.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Holly Corporation stockholders |
|
$ |
(28,094 |
) |
|
$ |
21,945 |
|
|
$ |
(50,039 |
) |
|
|
(228.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings attributable to Holly Corporation stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(28,094 |
) |
|
$ |
21,553 |
|
|
$ |
(49,647 |
) |
|
|
(230.3 |
)% |
Income from discontinued operations |
|
|
|
|
|
|
392 |
|
|
|
(392 |
) |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(28,094 |
) |
|
$ |
21,945 |
|
|
$ |
(50,039 |
) |
|
|
(228.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Holly Corporation
stockholders basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(0.53 |
) |
|
$ |
0.43 |
|
|
$ |
(0.96 |
) |
|
|
(223.3 |
)% |
Income from discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
(0.01 |
) |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.53 |
) |
|
$ |
0.44 |
|
|
$ |
(0.97 |
) |
|
|
(220.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,094 |
|
|
|
50,042 |
|
|
|
3,052 |
|
|
|
6.1 |
% |
Diluted |
|
|
53,232 |
|
|
|
50,171 |
|
|
|
3,061 |
|
|
|
6.1 |
% |
- 31 -
Balance Sheet Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments in marketable securities |
|
$ |
94,756 |
|
|
$ |
125,819 |
|
Working capital |
|
$ |
297,879 |
|
|
$ |
257,899 |
|
Total assets |
|
$ |
3,382,327 |
|
|
$ |
3,145,939 |
|
Long-term debt Holly Corporation |
|
$ |
328,268 |
|
|
$ |
328,260 |
|
Long-term debt Holly Energy Partners |
|
$ |
492,327 |
|
|
$ |
379,198 |
|
Total equity |
|
$ |
1,163,511 |
|
|
$ |
1,207,781 |
|
Other Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities |
|
$ |
(90,024 |
) |
|
$ |
(2,315 |
) |
Net cash used for investing activities |
|
$ |
(31,098 |
) |
|
$ |
(70,339 |
) |
Net cash provided by financing activities |
|
$ |
89,815 |
|
|
$ |
85,727 |
|
Capital expenditures |
|
$ |
31,098 |
|
|
$ |
99,228 |
|
EBITDA from continuing operations (1) |
|
$ |
654 |
|
|
$ |
57,526 |
|
|
|
|
(1) |
|
Earnings before interest, taxes, depreciation and amortization, which we refer to as
(EBITDA), is calculated as net income plus (i) interest expense, net of interest income,
(ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a
calculation provided for under GAAP; 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. EBITDA presented
above is reconciled to net income under Reconciliations to Amounts Reported Under
Generally Accepted Accounting Principles following Item 3 of Part I of this Form 10-Q. |
Our operations are currently organized into two reportable segments, Refining and HEP. Our
operations that are not included in the Refining and HEP segment are included in Corporate and
Other. Intersegment transactions are eliminated in our consolidated financial statements and are
included in Eliminations.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Sales and other revenues |
|
|
|
|
|
|
|
|
Refining (1) |
|
$ |
1,867,174 |
|
|
$ |
636,910 |
|
HEP (2) |
|
|
40,689 |
|
|
|
29,332 |
|
Corporate and Other |
|
|
66 |
|
|
|
99 |
|
Eliminations |
|
|
(33,639 |
) |
|
|
(18,311 |
) |
|
|
|
|
|
|
|
Consolidated |
|
$ |
1,874,290 |
|
|
$ |
648,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
Refining (1) |
|
$ |
(24,579 |
) |
|
$ |
38,705 |
|
HEP (2) |
|
|
18,261 |
|
|
|
12,078 |
|
Corporate and Other |
|
|
(15,767 |
) |
|
|
(12,992 |
) |
Eliminations |
|
|
(659 |
) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
(22,744 |
) |
|
$ |
37,791 |
|
|
|
|
|
|
|
|
- 32 -
|
|
|
(1) |
|
The Refining segment includes the operations of our Navajo, Woods Cross and Tulsa
Refineries and Holly Asphalt Company (Holly 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,
specialty lubricant products, and specialty and modified asphalt. 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, specialty
lubricant products produced at our Tulsa Refinery are marketed throughout North America and
are distributed in Central and South America. Holly Asphalt manufactures and markets
asphalt and asphalt products in Arizona, New Mexico, Texas and northern Mexico. |
|
(2) |
|
The HEP segment involves all of the operations of HEP. HEP owns and operates a system
of petroleum product and crude gathering pipelines and refinery tankage in Texas, New
Mexico, Oklahoma and Utah, and distribution terminals in Texas, New Mexico, Arizona, Utah,
Idaho, Oklahoma and Washington. Revenues are generated by charging tariffs for
transporting petroleum products and crude oil through its pipelines and by charging fees
for terminalling petroleum products and other hydrocarbons, and storing and providing other
services at its storage tanks and terminals. Additionally, HEP owns a 25% interest in the
SLC Pipeline that services refineries in the Salt Lake City, Utah area. Revenues from the
HEP segment are earned through transactions for pipeline transportation, rental and
terminalling operations as well as revenues relating to pipeline transportation services
provided for our refining operations. |
Refining Operating Data (Unaudited)
Our refinery operations include 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 following Item
3 of Part I of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Crude charge (BPD) (1) |
|
|
78,910 |
|
|
|
57,685 |
|
Refinery production (BPD) (2) |
|
|
87,530 |
|
|
|
63,061 |
|
Sales of produced refined products (BPD) |
|
|
86,930 |
|
|
|
62,147 |
|
Sales of refined products (BPD) (3) |
|
|
90,120 |
|
|
|
71,138 |
|
|
|
|
|
|
|
|
|
|
Refinery utilization (4) |
|
|
78.9 |
% |
|
|
67.9 |
% |
|
|
|
|
|
|
|
|
|
Average per produced barrel (5) |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
88.06 |
|
|
$ |
57.37 |
|
Cost of products (6) |
|
|
82.96 |
|
|
|
44.92 |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
|
5.10 |
|
|
|
12.45 |
|
Refinery operating expenses (7) |
|
|
5.18 |
|
|
|
6.17 |
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
(0.08 |
) |
|
$ |
6.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feedstocks: |
|
|
|
|
|
|
|
|
Sour crude oil |
|
|
87 |
% |
|
|
87 |
% |
Sweet crude oil |
|
|
4 |
% |
|
|
8 |
% |
Other feedstocks and blends |
|
|
9 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of produced refined products: |
|
|
|
|
|
|
|
|
Gasolines |
|
|
59 |
% |
|
|
61 |
% |
Diesel fuels |
|
|
30 |
% |
|
|
31 |
% |
Jet fuels |
|
|
4 |
% |
|
|
1 |
% |
Fuel oil |
|
|
4 |
% |
|
|
1 |
% |
Asphalt |
|
|
1 |
% |
|
|
3 |
% |
LPG and other |
|
|
2 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
- 33 -
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Crude charge (BPD) (1) |
|
|
25,680 |
|
|
|
23,309 |
|
Refinery production (BPD) (2) |
|
|
26,540 |
|
|
|
23,286 |
|
Sales of produced refined products (BPD) |
|
|
28,170 |
|
|
|
27,024 |
|
Sales of refined products (BPD) (3) |
|
|
28,360 |
|
|
|
27,664 |
|
|
|
|
|
|
|
|
|
|
Refinery utilization (4) |
|
|
82.8 |
% |
|
|
75.2 |
% |
|
|
|
|
|
|
|
|
|
Average per produced barrel (5) |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
89.52 |
|
|
$ |
50.31 |
|
Cost of products (6) |
|
|
74.72 |
|
|
|
39.57 |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
|
14.80 |
|
|
|
10.74 |
|
Refinery operating expenses (7) |
|
|
6.20 |
|
|
|
6.92 |
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
8.60 |
|
|
$ |
3.82 |
|
|
|
|
|
|
|
|
|
|
Feedstocks: |
|
|
|
|
|
|
|
|
Sour crude oil |
|
|
8 |
% |
|
|
3 |
% |
Sweet crude oil |
|
|
61 |
% |
|
|
66 |
% |
Black wax crude oil |
|
|
28 |
% |
|
|
29 |
% |
Other feedstocks and blends |
|
|
3 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of produced refined products: |
|
|
|
|
|
|
|
|
Gasolines |
|
|
64 |
% |
|
|
68 |
% |
Diesel fuels |
|
|
28 |
% |
|
|
23 |
% |
Jet fuels |
|
|
1 |
% |
|
|
1 |
% |
Fuel oil |
|
|
1 |
% |
|
|
4 |
% |
Asphalt |
|
|
3 |
% |
|
|
1 |
% |
LPG and other |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Crude charge (BPD) (1) |
|
|
103,600 |
|
|
|
|
|
Refinery production (BPD) (2) |
|
|
102,890 |
|
|
|
|
|
Sales of produced refined products (BPD) |
|
|
98,760 |
|
|
|
|
|
Sales of refined products (BPD) (3) |
|
|
100,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refinery utilization (4) |
|
|
82.9 |
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
Average per produced barrel (5) |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
86.22 |
|
|
$ |
|
|
Cost of products (6) |
|
|
82.89 |
|
|
|
|
|
|
|
|
|
|
|
|
Refinery gross margin |
|
|
3.33 |
|
|
|
|
|
Refinery operating expenses (7) |
|
|
5.91 |
|
|
|
|
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
(2.58 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feedstocks: |
|
|
|
|
|
|
|
|
Sweet crude oil |
|
|
100 |
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
Sales of produced refined products: |
|
|
|
|
|
|
|
|
Gasolines |
|
|
41 |
% |
|
|
|
% |
Diesel fuels |
|
|
30 |
% |
|
|
|
% |
Jet fuels |
|
|
9 |
% |
|
|
|
% |
Lubricants |
|
|
10 |
% |
|
|
|
% |
Asphalt |
|
|
4 |
% |
|
|
|
% |
Gas oil / intermediates |
|
|
2 |
% |
|
|
|
% |
LPG and other |
|
|
4 |
% |
|
|
|
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
|
% |
|
|
|
|
|
|
|
- 34 -
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Consolidated |
|
|
|
|
|
|
|
|
Crude charge (BPD) (1) |
|
|
208,190 |
|
|
|
80,994 |
|
Refinery production (BPD) (2) |
|
|
216,960 |
|
|
|
86,347 |
|
Sales of produced refined products (BPD) |
|
|
213,860 |
|
|
|
89,171 |
|
Sales of refined products (BPD) (3) |
|
|
219,100 |
|
|
|
98,802 |
|
|
|
|
|
|
|
|
|
|
Refinery utilization (4) |
|
|
81.3 |
% |
|
|
69.8 |
% |
|
|
|
|
|
|
|
|
|
Average per produced barrel (5) |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
87.40 |
|
|
$ |
55.23 |
|
Cost of products (6) |
|
|
81.84 |
|
|
|
43.30 |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
|
5.56 |
|
|
|
11.93 |
|
Refinery operating expenses (7) |
|
|
5.65 |
|
|
|
6.40 |
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
(0.09 |
) |
|
$ |
5.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feedstocks: |
|
|
|
|
|
|
|
|
Sour crude oil |
|
|
36 |
% |
|
|
64 |
% |
Sweet crude oil |
|
|
56 |
% |
|
|
24 |
% |
Black wax crude oil |
|
|
3 |
% |
|
|
8 |
% |
Other feedstocks and blends |
|
|
5 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of produced refined products: |
|
|
|
|
|
|
|
|
Gasolines |
|
|
51 |
% |
|
|
63 |
% |
Diesel fuels |
|
|
30 |
% |
|
|
29 |
% |
Jet fuels |
|
|
6 |
% |
|
|
1 |
% |
Fuel oil |
|
|
2 |
% |
|
|
2 |
% |
Asphalt |
|
|
3 |
% |
|
|
2 |
% |
Lubricants |
|
|
4 |
% |
|
|
|
% |
Gas oil / intermediates |
|
|
1 |
% |
|
|
|
% |
LPG and other |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Crude charge represents the barrels per day of crude oil processed at our
refineries. |
|
(2) |
|
Refinery production represents the barrels per day of refined products yielded
from processing crude and other refinery feedstocks through the crude units and other
conversion units at our refineries. |
|
(3) |
|
Includes refined products purchased for resale. |
|
(4) |
|
Represents crude charge divided by total crude capacity (BPSD). Our consolidated
crude capacity was increased by 15,000 BPSD effective April 1, 2009 (our Navajo
Refinery expansion) and 85,000 BPSD effective June 1, 2009 (our Tulsa Refinery west
facility acquisition) and 40,000 BPSD effective December 1, 2009 (our Tulsa Refinery
east facility acquisition), increasing our consolidated crude capacity to 256,000 BPSD. |
|
(5) |
|
Represents average per barrel amount for produced refined products sold, which is
a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
following Item 3 of Part I of this Form 10-Q. |
|
(6) |
|
Transportation, terminal and refinery storage costs billed from HEP are included
in cost of products. |
|
(7) |
|
Represents operating expenses of our refineries, exclusive of depreciation and
amortization. |
- 35 -
Results of Operations Three Months Ended March 31, 2010 Compared to Three Months Ended March
31, 2009
Summary
Net loss attributable to Holly Corporation stockholders for the three months ended March 31, 2010
was $28.1 million ($0.53 per basic and diluted share), a $50 million decrease compared to net
income of $21.9 million ($0.43 per basic and diluted share) for the three months ended March 31,
2009. Net income decreased principally due to industry-wide, low refinery gross margins during the
three months ended March 31, 2010.
Overall refinery gross margins for the three months ended March 31, 2010 were $5.56 per produced
barrel compared to $11.93 for the three months ended March 31, 2009.
Overall production levels for the three months ended March 31, 2010 increased by 151% over the same
period of 2009 due to production from our recently acquired Tulsa Refinery facilities combined with
higher production levels at our Navajo and Woods Cross Refineries. Additionally, production levels
were lower during the first quarter of 2009 due to scheduled downtime during a planned major
maintenance turnaround at our Navajo Refinery.
Sales and Other Revenues
Sales and other revenues from continuing operations increased 189% from $648 million for the three
months ended March 31, 2009 to $1,874.3 million for the three months ended March 31, 2010, due
principally to the effects of a 140% increase in year-over-year first quarter volumes of produced
refined products sold combined with an overall increase in sales prices of produced refined
products sold. The average sales price we received per produced barrel sold increased 58% from
$55.23 for the three months ended March 31, 2009 to $87.40 for the three months ended March 31,
2010. Sales and other revenues for the three months ended March 31, 2010 and 2009, include $7.1
million and $11 million, respectively, in HEP revenues attributable to pipeline and transportation
services provided to unaffiliated parties.
Cost of Products Sold
Cost of products sold increased 237% from $511.7 million for the three months ended March 31, 2009
to $1,723.9 million for the three months ended March 31, 2010, due principally to significantly
higher crude oil costs combined with a 140% increase in volumes of produced refined products sold.
The average price we paid per produced barrel sold for crude oil and feedstocks and the
transportation costs of moving the finished products to the market place increased 89% from $43.30
for the three months ended March 31, 2009 to $81.84 for the three months ended March 31, 2010.
Gross Refinery Margins
Gross refinery margin per produced barrel decreased 53% from $11.93 for the three months ended
March 31, 2009 to $5.56 for the three months ended March 31, 2010 due to the effects of a increase
in the average price we paid per barrel of crude oil and feedstocks, partially offset by an
increase in the average sales price we received per produced barrel sold. Gross refinery margin
does not include the effects of depreciation and amortization. See Reconciliations to Amounts
Reported Under Generally Accepted Accounting Principles following Item 3 of Part 1 of this Form
10-Q for a reconciliation to the income statement of prices of refined products sold and cost of
products purchased.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 91% from $66.7 million
for the three months ended March 31, 2009 to $127.5 million for the three months ended March 31,
2010, due principally to the inclusion of costs attributable to the operations of our Tulsa
Refinery facilities acquired in June and December 2009, and higher refinery utility costs.
General and Administrative Expenses
General and administrative expenses increased 52% from $11.8 million for the three months ended
March 31, 2009 to $17.9 million for the three months ended March 31, 2010, due principally to costs
associated with the support and integration of our Tulsa Refinery operations, increased payroll
costs and professional services.
Depreciation and Amortization Expenses
Depreciation and amortization increased 38% from $20.1 million for the three months ended March 31,
2009 to $27.8 million for the three months ended March 31, 2010. The increase was due principally
to depreciation and amortization attributable to our Tulsa Refinery facilities and capitalized
refinery improvement projects in 2009.
- 36 -
Interest Expense
Interest expense was $17.7 million for the three months ended March 31, 2010 compared to $6.2
million for the three months ended March 31, 2009. The increase was due principally to interest
incurred on the $300 million
Holly 9.875% senior notes due 2017. For the three months ended March 31, 2010 and 2009, interest
expense included $8.1 million and $6 million, respectively, in interest costs attributable to HEP
operations.
Income Taxes
For the three months ended March 31, 2010 we recorded an income tax benefit of $16.7 million
compared to income tax expense of $11.8 million for the three months ended March 31, 2009. This
decrease was due principally to our net loss for the three months ended March 31, 2010.
Discontinued Operations
On December 1, 2009, HEP sold its 70% interest in Rio Grande. Rio Grande operations generated
earnings, net of HEPs noncontrolling interest in discontinued operations, of $1.3 million for the
three months ended March 31, 2009.
LIQUIDITY AND CAPITAL RESOURCES
Holly Credit Agreement
We have a $370 million senior secured credit agreement expiring in March 2013 (the Holly Credit
Agreement) with Bank of America, N.A. as administrative agent and one of a syndicate of lenders.
The Holly Credit Agreement may be used to fund working capital requirements, capital expenditures,
permitted acquisitions or other general corporate purposes. We were in compliance with all
covenants at March 31, 2010. At March 31, 2010, we had no outstanding borrowings and letters of
credit totaling $114.5 million under the Holly Credit Agreement. At that level of usage, the
unused commitment was $255.5 million at March 31, 2010.
Refinery gross margins were substantially reduced in the first quarter of 2010 and the fourth
quarter of 2009, resulting in two consecutive quarterly losses. We entered into an amendment to
the Holly Credit Agreement on May 6, 2010 that changed certain financial covenants and provided
other enhancements to the agreement. We expect to be in compliance with the Holly Credit Agreement
covenant requirements as long as refinery margins show marked improvement over the levels
experienced in the first quarter of 2010 and the fourth quarter of 2009. If a situation were to
arise in which margins stayed depressed for a prolonged period of time, we could potentially need
to renegotiate certain covenants under the Holly Credit Agreement.
There are currently a total of fourteen lenders under the Holly Credit Agreement with individual
commitments ranging from $15 million to $47.5 million. If any particular lender could not honor
its commitment, we believe the unused capacity that would be available from the remaining lenders
would be sufficient to meet our borrowing needs. Additionally, we have reviewed publicly available
information on our lenders in order to review and monitor their financial stability and assess
their ongoing ability to honor their commitments under the Holly Credit Agreement. We have not
experienced, nor do we expect to experience, any difficulty in the lenders ability to honor their
respective commitments, and if it were to become necessary, we believe there would be alternative
lenders or options available.
HEP Credit Agreement
HEP has a $300 million senior secured revolving credit agreement expiring in August 2011 (the HEP
Credit Agreement). The HEP Credit Agreement is available to fund capital expenditures,
acquisitions, working capital and for other general partnership purposes. At March 31, 2010, HEP
had outstanding borrowings totaling $171 million under the HEP Credit Agreement, with unused
borrowing capacity of $129 million. HEPs obligations under the HEP Credit Agreement are
collateralized by substantially all of HEPs assets. HEP assets that are included in our
Consolidated Balance Sheet at March 31, 2010 consist of $16.6 million in cash and cash equivalents,
$21 million in accounts receivable and other current assets, $491.7 million in properties, plants
and equipment, net and $156.7 million in intangible and other assets. Indebtedness under the HEP
Credit Agreement is recourse to HEP Logistics Holdings, L.P., its general partner, and guaranteed
by HEPs wholly-owned subsidiaries. Any recourse to the general partner would be limited to the
extent of HEP Logistics Holdings, L.P.s assets, which other than its investment in HEP, are not
significant. During the first quarter of 2010, our previous agreements to indemnify HEPs
controlling partner to the extent it makes any payment in satisfaction of debt service due on up to
a $171 million aggregate principal amount of borrowings under the HEP Credit Agreement were
terminated.
- 37 -
There are currently a total of thirteen lenders under the HEP Credit Agreement with individual
commitments ranging from $15 million to $40 million. If any particular lender could not honor its
commitment, HEP believes the unused capacity that would be available from the remaining lenders
would be sufficient to meet its borrowing needs. Additionally, publicly available information on
these lenders is reviewed in order to monitor their financial stability and assess their ongoing
ability to honor their commitments under the HEP Credit Agreement. HEP has not experienced, nor do
they expect to experience, any difficulty in the lenders ability to honor their respective
commitments, and if it were to become necessary, HEP believes there would be alternative lenders or
options available.
Holly Senior Notes Due 2017
In June 2009, we issued $200 million in aggregate principal amount of 9.875% senior notes maturing
June 15, 2017 (the Holly 9.875% Senior Notes). A portion of the $188 million in net proceeds
received was used for post-closing payments for inventories of crude oil and refined products
acquired from Sunoco following the closing of the Tulsa Refinery west facility purchase on June 1,
2009. In October 2009, we issued an additional $100 million aggregate principal amount as an
add-on offering to the Holly 9.875% Senior Notes that was used to fund the cash portion of our
acquisition of the Tulsa Refinery east facility.
The Holly 9.875% Senior Notes are unsecured and impose certain restrictive covenants, including
limitations on our ability to incur additional debt, incur liens, enter into sale-and-leaseback
transactions, pay dividends, enter into mergers, sell assets and enter into certain transactions
with affiliates. At any time when the Holly 9.875% Senior Notes are rated investment grade by both
Moodys and Standard & Poors and no default or event of default exists, we will not be subject to
many of the foregoing covenants. Additionally, we have certain redemption rights under the Holly
9.875% Senior Notes.
HEP Senior Notes Due 2018 and 2015
In March 2010, HEP issued $150 million in aggregate principal amount of 8.25% senior notes maturing
March 15, 2018 (the HEP 8.25% Senior Notes). A portion of the $147.5 million in net proceeds
received was used to fund HEPs $93 million purchase of certain storage assets at our Tulsa
Refinery east facility and Navajo Refinery Lovington facility on March 31, 2010. Additionally, HEP
used a portion to repay $42 million in outstanding HEP Credit Agreement borrowings, with the
remaining proceeds available for general partnership purposes, including working capital, capital
expenditures and possible future acquisitions.
HEP also has $185 million in aggregate principal amount of 6.25% senior notes maturing March 1,
2015 (the HEP 6.25% Senior Notes) that are registered with the SEC. The HEP 6.25% Senior Notes
and HEP 8.25% Senior Notes (collectively, the HEP Senior Notes) are unsecured and impose certain
restrictive covenants, including limitations on HEPs ability to incur additional indebtedness,
make investments, sell assets, incur certain liens, pay distributions, enter into transactions with
affiliates, and enter into mergers. At any time when the HEP Senior Notes are rated investment
grade by both Moodys and Standard & Poors and no default or event of default exists, HEP will not
be subject to many of the foregoing covenants. Additionally, HEP has certain redemption rights
under the HEP Senior Notes.
Indebtedness under the HEP Senior Notes is recourse to HEP Logistics Holdings, L.P., its general
partner, and guaranteed by HEPs wholly-owned subsidiaries. However, any recourse to the general
partner would be limited to the extent of HEP Logistics Holdings, L.P.s assets, which other than
its investment in HEP, are not significant. During the first quarter of 2010, our previous
agreement to indemnify HEPs controlling partner to the extent it makes any payment in satisfaction
of debt service due on up to $35 million of the principal amount of the HEP 6.25% Senior Notes was
terminated.
See Risk Management for a discussion of HEPs interest rate swap contracts.
- 38 -
Holly Financing Obligation
On October 20, 2009, we sold approximately 400,000 barrels of crude oil tankage at our Tulsa
Refinery west facility as well as certain crude oil pipeline receiving facilities to Plains All
American Pipeline, L.P. (Plains) for $40 million in cash. In connection with this transaction,
we entered into a 15-year lease agreement with
Plains, whereby we agreed to pay a fixed monthly fee for the exclusive use of this tankage as well
as a fee for volumes received at the receiving facilities purchased by Plains. Additionally, we
have a margin sharing agreement with Plains under which we will equally share contango profits with
Plains for crude oil purchased by them and delivered to our Tulsa Refinery west facility for
storage. Due to our continuing involvement in these assets, this transaction has been accounted
for as a financing obligation. As a result, we retained these assets on our books and recorded a
liability representing the $40 million in proceeds received.
HEP Equity Offerings
In November 2009, HEP closed on a public offering of 2,185,000 of its common units priced at $35.78
per unit. Aggregate net proceeds of $74.9 million were used to fund the cash portion of HEPs
December 1, 2009 asset acquisitions, to repay outstanding borrowings under the HEP Credit Agreement
and for general partnership purposes.
Additionally in May 2009, HEP closed a public offering of 2,192,400 of its common units priced at
$27.80 per unit. Net proceeds of $58.4 million were used to repay outstanding borrowings under the
HEP Credit Agreement and for general partnership purposes.
Liquidity
We believe our current cash and cash equivalents, along with future internally generated cash flow
and funds available under our credit facilities will provide sufficient resources to fund currently
planned capital projects, including our planned integration of the Tulsa Refinery facilities, and
our liquidity needs for the foreseeable future. In addition, components of our growth strategy may
include construction of new refinery processing units and the expansion of existing units at our
facilities and selective acquisition of complementary assets for our refining operations intended
to increase earnings and cash flow. Our ability to acquire complementary assets will be dependent
upon several factors, including our ability to identify attractive acquisition candidates,
consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain
financing to fund acquisitions and to support our growth, and many other factors beyond our
control.
We consider all highly-liquid instruments with a maturity of three months or less at the time of
purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market
value, and are invested primarily in conservative, highly-rated instruments issued by financial
institutions or government entities with strong credit standings. As of March 31, 2010, we had
cash and cash equivalents of $93.3 million and short-term investments in marketable securities of
$1.5 million.
Cash and cash equivalents decreased by $31.3 million during the three months ended March 31, 2010.
Net cash used for operating activities and investing activities of $90 million and $31.1 million,
respectively, exceeded cash provided by financing activities of $89.8 million. Working capital
increased by $40 million during the three months ended March 31, 2010.
Cash Flows Operating Activities
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Net cash flows used for operating activities were $90 million for the three months ended March 31,
2010 compared to $2.3 million for the three months ended March 31, 2009, an increase of $87.7
million. Our net loss for the three months ended March 31, 2010 was $23.3 million, a decrease of
$46.7 million compared net income of $23.4 million for the three months ended March 31, 2009.
Non-cash adjustments consisting of depreciation and amortization, deferred income taxes,
equity-based compensation expense, interest rate swap adjustments and noncontrolling interest in
earnings of Rio Grande resulted in an increase to operating cash flows of $10.1 million for the
three months ended March 31, 2010 compared to $24 million for the same period in 2009.
Additionally, SLC Pipeline earnings in excess of distributions decreased operating cash flows by
$0.5 million and $0.2 million for the three months ended March 31, 2010 and 2009, respectively.
Changes in working capital items decreased cash flows by $71.1 million for the three months ended
March 31, 2010 compared to $27.2 million for the three months ended March 31, 2009 due primarily to
current quarter acquisitions of heavy crude oil line fill to be processed at our refineries.
Additionally, for the three months ended March 31, 2010, turnaround
expenditures decreased to $7.3 million from $27 million in 2009 due to the planned major
maintenance turnaround at our Navajo Refinery in the first quarter of 2009.
- 39 -
Cash Flows Investing Activities and Planned Capital Expenditures
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Net cash flows used for investing activities were $31.1 million for the three months ended March
31, 2010 compared to $70.3 million for the three months ended March 31, 2009, a decrease of $39.2
million. Cash expenditures for properties, plants and equipment for the first three months of 2010
decreased to $31.1 million from $99.2 million for the same period in 2009. These include HEP
capital expenditures of $1.9 million and $10.6 million for the three months ended March 31, 2010
and 2009, respectively. Capital expenditures were significantly higher in the first quarter of
2009 due to a higher level of capital project initiatives in 2009 including refinery expansion
projects. During the three months ended March 31, 2009, we invested $128.7 million in marketable
securities and received proceeds of $183.1 million from the sale or maturity of marketable
securities. Additionally HEP purchased a 25% joint venture interest in the SLC Pipeline for $25.5
million.
Planned Capital Expenditures
Holly Corporation
Each year our Board of Directors approves in our annual capital budget projects that our management
is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities
arise, other or special projects may be approved. The funds allocated for a particular capital
project may be expended over a period of several years, depending on the time required to complete
the project. Therefore, our planned capital expenditures for a given year consist of expenditures
approved for capital projects included in the current years capital budget as well as, in certain
cases, expenditures approved for capital projects in capital budgets for prior years. Our total
approved capital budget for 2010 is $159.6 million. Additionally, capital costs of $38.8 million
have been approved for refinery turnarounds and tank work. We currently expect to spend
approximately $165 million in capital costs in 2010, including capital projects approved in prior
years. Our capital spending for 2010 is comprised of $48.5 million for projects at the Navajo
Refinery, $10.8 million for projects at the Woods Cross Refinery, $46.7 million for projects at the
Tulsa Refinery, $55 million for our portion of the Salt Lake City, Utah to Las Vegas, Nevada
pipeline project (the UNEV Pipeline), $1.5 million for asphalt plant projects and $2.5 million
for marketing-related and miscellaneous projects. The following summarizes our key capital
projects.
We are proceeding with the integration project of our Tulsa Refinery west and east facilities.
Upon completion, the Tulsa Refinery will have an integrated crude processing rate of 125,000 BPSD.
The integration project involves the installation of interconnect pipelines that will permit us to
transfer various intermediate streams between the two facilities. We have also signed a 10-year
agreement with a third party for the use of an additional line for the transfer of gasoline blend
stocks which is currently in service. These interconnect lines will allow us to eliminate the sale
of gas oil at a discount to WTI under our 5-year gas oil off take agreement with a third party,
optimize gasoline blending, increase our utilization of better process technology, and reduce
operating costs. Also, as part of the integration, we are planning to expand the diesel
hydrotreater unit at the east facility to permit the processing of all high sulfur diesel produced
to ULSD, eliminating the need to construct a new diesel hydrotreater at our west facility as
previously planned. This expansion is expected to cost approximately $20 million and will use the
reactor that we acquired as part of the Tulsa Refinery west facility acquisition. We are currently
planning to complete the integration projects by the end of the 2010.
The combined Tulsa Refinery facilities also will be required to comply with new Control of
Hazardous Air Pollutants from Mobile Sources (MSAT2) regulations in order to meet new benzene
reduction requirements for gasoline. We have elected to largely use existing equipment at the
Tulsa Refinery east facility to split reformate from reformers at both Tulsa Refinery west and east
facilities and install a new benzene saturation unit to achieve the required benzene reduction at
an estimated cost of approximately $15 million. Our Tulsa Refinery is required to meet MSAT2 1.3%
benzene levels in gasoline beginning in July 2012 and we expect to complete this project well
before then. We will be required to buy credits until this project is complete, as required by law,
beginning in 2011.
- 40 -
Our consent decree with the EPA requires recovery of sulfur from the refinery fuel gas system at
the Tulsa Refinery west facility by the end of 2013. We estimate our investment to comply with the
requirements will be approximately $20 million. The consent decree also requires shutdown,
replacement, or installation of low NOx burners in two low pressure boilers by the end of 2013. We
are still evaluating the best solution to this issue.
We expect to complete phase II of our major capital projects at the Navajo Refinery in May 2010.
These improvements provide the capability to process up to 40,000 BPSD of heavy type crudes. Phase
II involves the installation of a new 18,000 BPSD solvent deasphalter and the revamp of our Artesia
crude and vacuum units. The solvent deasphalter unit was complete in the fourth quarter of 2009
and is in operation. The phase II project is expected to cost approximately $100 million.
Also, we expect to complete our asphalt tankage project at the Navajo Refinery and at the Holly
Asphalt facility in Artesia, New Mexico in August 2010, that will enhance asphalt economics by
permitting the storage of asphalt during the winter months when asphalt prices are generally lower.
These asphalt tank additions and the approved upgrade of our rail loading facilities at the
Artesia refinery is expected to cost $21 million.
The Navajo Refinery currently plans to comply with the new MSAT2 regulations by the fractionation
of raw naphtha with existing equipment to achieve benzene in gasoline levels below 1.3%. The
Navajo Refinery will purchase credits from the Woods Cross and Tulsa Refineries in order reduce
benzene down to the required 0.62%. Due to our acquisition of the Tulsa Refinery facilities from
Sunoco and Sinclair, our Navajo Refinery has until the end of 2011 to comply with the MSAT2
regulation because we have lost our small refiners exemption and as a large refiner we have 30
months to comply.
Our Woods Cross refinery is required to install a wet gas scrubber on its FCC unit by the end of
2012. We estimate the total cost to be $12 million. The MSAT2 solution for Woods Cross involves
installing a new reformate splitter and a benzene saturation unit at an estimated cost of $18
million. Like our Navajo Refinery, our Woods Cross Refinery has until the end of 2011 to comply
with the MSAT2 regulations.
Under a definitive agreement with Sinclair, we are jointly building the UNEV Pipeline, a 12-inch
refined products pipeline from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal
facilities in the Cedar City, Utah and North Las Vegas areas. Under the agreement, we own a 75%
interest in the joint venture pipeline with Sinclair, our joint venture partner, owning the
remaining 25% interest. The initial capacity of the pipeline will be 62,000 BPD, with the capacity
for further expansion to 120,000 BPD. The total cost of the pipeline is expected to be $275
million, with our share of the cost totaling $206 million.
In connection with this project, we have entered into a 10-year commitment to ship an annual
average of 15,000 barrels per day of refined products on the UNEV Pipeline at an agreed tariff.
Our commitment for each year is subject to reduction by up to 5,000 barrels per day in specified
circumstances relating to shipments by other shippers. We have an option agreement with HEP
granting them an option to purchase all of our equity interests in this joint venture pipeline
effective for a 180-day period commencing when the UNEV Pipeline becomes operational, at a purchase
price equal to our investment in this joint venture pipeline plus interest at 7% per annum.
We currently anticipate that all regulatory approvals required to commence the construction of the
UNEV Pipeline will be received by the end of the second quarter of 2010. Once such approvals are
received, construction of the pipeline will take approximately nine months. Under this schedule,
the pipeline would become operational during the second quarter of 2011.
Regulatory compliance items, such as the ULSD and LSG requirements mentioned above, or other
presently existing or future environmental regulations / consent decrees could cause us to make
additional capital investments beyond those described above and incur additional operating costs to
meet applicable requirements.
- 41 -
HEP
Each year the Holly Logistic Services, L.L.C. board of directors approves HEPs annual capital
budget, which specifies capital projects that HEP management is authorized to undertake.
Additionally, at times when conditions warrant or as new opportunities arise, special projects may
be approved. The funds allocated for a particular capital project may be expended over a period of
several years, depending on the time required to complete the project. Therefore, HEPs planned
capital expenditures for a given year consist of expenditures approved for capital projects
included in their current years capital budget as well as, in certain cases, expenditures approved
for capital projects in capital budgets for prior years. The 2010 HEP capital budget is comprised
of $4.8 million for maintenance capital expenditures and $6 million for expansion capital
expenditures.
Cash Flows Financing Activities
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Net cash flows provided by financing activities were $89.8 million for the three months ended March
31, 2010 compared to $85.7 million for the three months ended March 31, 2009, an increase of $4.1
million. During the three months ended March 31, 2010, we purchased $1.1 million in common stock
from employees to provide funds for the payment of payroll and income taxes due upon the vesting of
certain share-based incentive awards, paid $7.9 million in dividends, received a $1.3 million
contribution from our UNEV Pipeline joint venture partner, received $0.1 million for common stock
issued upon the exercise of stock options and recognized $1 million in taxes on our equity based
compensation. Also during this period, HEP received $147.5 million in proceeds upon the issuance
of the HEP 8.25% Senior Notes, repaid net advances of $35 million under the HEP Credit Agreement,
paid distributions of $12 million to noncontrolling interests and purchased $1.7 million in HEP
common units in the open market for recipients of its restricted unit grants. During the three
months ended March 31, 2009, we received advances under the Holly Credit Agreement of $55 million,
purchased $1.2 million in common stock from employees to provide funds for the payment of payroll
and income taxes due upon the vesting of certain share-based incentive awards, paid $7.5 million in
dividends, received a $4.8 million contribution from our UNEV Pipeline joint venture partner and
recognized $2.2 million in excess tax benefits on our equity based compensation. Also during this
period, HEP received net advances of $40 million under the HEP Credit Agreement, paid distributions
of $6.9 million to noncontrolling interests and purchased $0.6 million in HEP common units in the
open market for recipients of its 2009 restricted unit grants.
Contractual Obligations and Commitments
Holly Corporation
There were no significant changes to our contractual obligations during the three months ended
March 31, 2010.
HEP
During the three months ended March 31, 2010, HEP repaid net advances of $35 million resulting in
$171 million of outstanding principal under the HEP Credit Agreement at March 31, 2010.
In March 2010, HEP issued $150 million aggregate principal amount of HEP 8.25% Senior Notes
maturing March 15, 2018.
There were no other significant changes to HEPs long-term contractual obligations during this
period.
- 42 -
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities as of the date of the financial statements. Actual results may differ from
these estimates under different assumptions or conditions.
Our significant accounting policies are described in Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations Critical Accounting Policies in our Annual
Report on Form 10-K for the year ended December 31, 2009. Certain critical accounting policies
that materially affect the amounts recorded in our consolidated financial statements are the use of
the LIFO method of valuing certain inventories, the amortization of deferred costs for regular
major maintenance and repairs at our refineries, assessing the possible impairment of certain
long-lived assets, and assessing contingent liabilities for probable losses. There have been no
changes to these policies in 2010.
We use the LIFO method of valuing inventory. Under the LIFO method, an actual valuation of
inventory can only be made at the end of each year based on the inventory levels. Accordingly,
interim LIFO calculations are based on managements estimates of expected year-end inventory levels
and are subject to the final year-end LIFO inventory valuation.
Our purchase accounting for the Tulsa Refinery acquisitions is based on managements preliminary
fair value estimates and is subject to change.
New Accounting Pronouncements
Variable Interest Entities
On January 1, 2010, new accounting standards became effective that replace the previous
quantitative-based risk and rewards calculation provided under GAAP with a qualitative approach in
determining whether an entity is the primary beneficiary of a variable interest entity (VIE).
Additionally, these standards require an entity to assess on an ongoing basis whether it is the
primary beneficiary of a VIE and enhances disclosure requirements with respect to an entitys
involvement in a VIE. See Note 3 Holly Energy Partners to the Consolidated Financial
Statements under Item 1 for additional information on our involvement with HEP, a consolidated VIE.
RISK MANAGEMENT
We use certain strategies to reduce some commodity price and operational risks. We do not attempt
to eliminate all market risk exposures when we believe that the exposure relating to such risk
would not be significant to our future earnings, financial position, capital resources or liquidity
or that the cost of eliminating the exposure would outweigh the benefit.
HEP uses interest rate swaps (derivative instruments) to manage its exposure to interest rate risk.
As of March 31, 2010, HEP has an interest rate swap to hedge its exposure to the cash flow risk
caused by the effects of London Interbank Borrowed Rate (LIBOR) changes on a $171 million HEP
Credit Agreement advance. This interest rate swap effectively converts the $171 million LIBOR
based debt to fixed rate debt having an interest rate of 3.74% plus an applicable margin, currently
1.75%, which equaled an effective interest rate of 5.49% as of March 31, 2010. This swap contract
matures in February 2013.
HEP designated this interest rate swap as a cash flow hedge. Based on its assessment of
effectiveness using the change in variable cash flows method, HEP determined that this interest
rate swap is effective in offsetting the variability in interest payments on the $171 million
variable rate debt resulting from changes in LIBOR. Under hedge accounting, HEP adjusts the cash
flow hedge on a quarterly basis to its fair value with the offsetting fair value adjustment to
accumulated other comprehensive income. Also on a quarterly basis, HEP measures hedge
effectiveness by comparing the present value of the cumulative change in the expected future
interest to be paid or received on the variable leg of the swap against the expected future
interest payments on the $171 million variable rate debt. Any ineffectiveness is reclassified from
accumulated other comprehensive income to interest expense. As of March 31, 2010, HEP had no
ineffectiveness on its cash flow hedge.
- 43 -
Additional information on HEPs interest rate swap at March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
Location of Offsetting |
|
Offsetting |
|
Interest Rate Swap |
|
Location |
|
Fair Value |
|
|
Balance |
|
Amount |
|
|
|
(In thousands) |
|
Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge $171 million LIBOR based debt |
|
Other long-term liabilities |
|
$ |
10,502 |
|
|
Accumulated other comprehensive loss |
|
$ |
10,502 |
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2010, HEP settled two interest rate swaps. HEP had an interest rate
swap contract that effectively converted interest expense associated with $60 million of the HEP
6.25% Senior Notes from fixed to variable rate debt (Variable Rate Swap). HEP had an additional
interest rate swap contract that effectively unwound the effects of the Variable Rate Swap,
converting $60 million of the previously hedged long-term debt back to fixed rate debt (Fixed Rate
Swap), effectively fixing interest at a 4.75% rate. Upon settlement of the Variable Rate and
Fixed Rate Swaps, HEP received $1.9 million and paid $3.6 million, respectively.
For the three months ended March 31, 2010 and 2009, HEP recognized $1.5 million and $0.2 million,
respectively, in interest expense attributable to fair value adjustments to these interest rate
swaps.
HEP has a deferred hedge premium that relates to the application of hedge accounting to the
Variable Rate Swap prior to its hedge dedesignation in 2008. This deferred hedge premium having a
balance of $1.7 million at March 31, 2010, is being amortized as a reduction to interest expense
over the remaining term of the HEP 6.25% Senior Notes.
HEP reviews publicly available information on its counterparties in order to review and monitor
their financial stability and assess their ongoing ability to honor their commitments under the
interest rate swap contracts. These counterparties consist of large financial institutions. HEP
has not experienced, nor does it expect to experience, any difficulty in the counterparties
honoring their respective commitments.
The market risk inherent in our fixed-rate debt and positions is the potential change arising from
increases or decreases in interest rates as discussed below.
At March 31, 2010, outstanding principal under the Holly 9.875% Senior Notes, HEP 6.25% Senior
Notes and HEP 8.25% Senior Notes was $300 million, $185 million and $150 million, respectively.
For these fixed rate notes, changes in interest rates will generally affect fair value of the debt,
but not our earnings or cash flows. At March 31, 2010, the estimated fair values of the Holly
9.875% Senior Notes, HEP 6.25% Senior Notes and HEP 8.25% Senior Notes were $310.5 million, $175.8
million and $151.5 million, respectively. We estimate that a hypothetical 10% change in the
yield-to-maturity rates applicable to these notes would result in a total fair value change of
approximately $22 million.
For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but
not the fair value. At March 31, 2010, borrowings outstanding under the HEP Credit Agreement were
$171 million. By means of its cash flow hedge, HEP has effectively converted the variable rate on
$171 million of outstanding principal to a fixed rate of 5.49%.
At March 31, 2010, cash and cash equivalents included investments in investment grade, highly
liquid investments with maturities of three months or less at the time of purchase and hence the
interest rate market risk implicit in these cash investments is low. Due to the short-term nature
of our cash and cash equivalents, a hypothetical 10% increase in interest rates would not have a
material effect on the fair market value of our portfolio. Since we have the ability to liquidate
this portfolio, we do not expect our operating results or cash flows to be materially affected by
the effect of a sudden change in market interest rates on our investment portfolio.
Our operations are subject to normal hazards of operations, including fire, explosion and
weather-related perils. We maintain various insurance coverages, including business interruption
insurance, subject to certain deductibles. We are not fully insured against certain risks because
such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do
not justify such expenditures.
We have a risk management oversight committee that is made up of members from our senior
management. This committee oversees our risk enterprise program, monitors our risk environment and
provides direction for activities to mitigate identified risks that may adversely affect the
achievement of our goals.
- 44 -
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
See Risk Management under Managements Discussion and Analysis of Financial Condition and
Results of Operations.
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
Reconciliations of earnings before interest, taxes, depreciation and amortization (EBITDA) to
amounts reported under generally accepted accounting principles in financial statements.
Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is
calculated as net income plus (i) interest expense, net of interest income, (ii) income tax
provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under
GAAP; 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 from continuing operations.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(23,254 |
) |
|
$ |
22,074 |
|
Subtract noncontrolling interest in income from continuing operations |
|
|
(4,840 |
) |
|
|
(521 |
) |
Add (subtract) income tax provision (benefit) |
|
|
(16,672 |
) |
|
|
11,849 |
|
Add interest expense |
|
|
17,722 |
|
|
|
6,239 |
|
Subtract interest income |
|
|
(59 |
) |
|
|
(2,196 |
) |
Add depreciation and amortization |
|
|
27,757 |
|
|
|
20,081 |
|
|
|
|
|
|
|
|
EBITDA from continuing operations |
|
$ |
654 |
|
|
$ |
57,526 |
|
|
|
|
|
|
|
|
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.
- 45 -
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 our three refineries on a consolidated basis is calculated as shown below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Average per produced barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
88.06 |
|
|
$ |
57.37 |
|
Less cost of products |
|
|
82.96 |
|
|
|
44.92 |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
5.10 |
|
|
$ |
12.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
89.52 |
|
|
$ |
50.31 |
|
Less cost of products |
|
|
74.72 |
|
|
|
39.57 |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
14.80 |
|
|
$ |
10.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
86.22 |
|
|
$ |
|
|
Less cost of products |
|
|
82.89 |
|
|
|
|
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
3.33 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
87.40 |
|
|
$ |
55.23 |
|
Less cost of products |
|
|
81.84 |
|
|
|
43.30 |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
5.56 |
|
|
$ |
11.93 |
|
|
|
|
|
|
|
|
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 our three refineries on a consolidated basis is calculated as shown below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Average per produced barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
5.10 |
|
|
$ |
12.45 |
|
Less refinery operating expenses |
|
|
5.18 |
|
|
|
6.17 |
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
(0.08 |
) |
|
$ |
6.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
14.80 |
|
|
$ |
10.74 |
|
Less refinery operating expenses |
|
|
6.20 |
|
|
|
6.92 |
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
8.60 |
|
|
$ |
3.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
3.33 |
|
|
$ |
|
|
Less refinery operating expenses |
|
|
5.91 |
|
|
|
|
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
(2.58 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
Refinery gross margin |
|
$ |
5.56 |
|
|
$ |
11.93 |
|
Less refinery operating expenses |
|
|
5.65 |
|
|
|
6.40 |
|
|
|
|
|
|
|
|
Net operating margin |
|
$ |
(0.09 |
) |
|
$ |
5.53 |
|
|
|
|
|
|
|
|
- 46 -
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 |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
88.06 |
|
|
$ |
57.37 |
|
Times sales of produced refined products sold (BPD) |
|
|
86,930 |
|
|
|
62,147 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refined product sales from produced products sold |
|
$ |
688,955 |
|
|
$ |
320,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
89.52 |
|
|
$ |
50.31 |
|
Times sales of produced refined products sold (BPD) |
|
|
28,170 |
|
|
|
27,024 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refined product sales from produced products sold |
|
$ |
226,960 |
|
|
$ |
122,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
86.22 |
|
|
$ |
|
|
Times sales of produced refined products sold (BPD) |
|
|
98,760 |
|
|
|
|
|
Times number of days in period |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
Refined product sales from produced products sold |
|
$ |
766,358 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sum of
refined products sales from produced products sold from our three refineries (4) |
|
$ |
1,682,273 |
|
|
$ |
443,246 |
|
Add refined product sales from purchased products and rounding (1) |
|
|
41,506 |
|
|
|
53,646 |
|
|
|
|
|
|
|
|
Total refined products sales |
|
|
1,723,779 |
|
|
|
496,892 |
|
Add direct sales of excess crude oil (2) |
|
|
134,862 |
|
|
|
121,255 |
|
Add other refining segment revenue (3) |
|
|
8,533 |
|
|
|
18,763 |
|
|
|
|
|
|
|
|
Total refining segment revenue |
|
|
1,867,174 |
|
|
|
636,910 |
|
Add HEP segment sales and other revenues |
|
|
40,689 |
|
|
|
29,332 |
|
Add corporate and other revenues |
|
|
66 |
|
|
|
99 |
|
Subtract consolidations and eliminations |
|
|
(33,639 |
) |
|
|
(18,311 |
) |
|
|
|
|
|
|
|
Sales and other revenues |
|
$ |
1,874,290 |
|
|
$ |
648,030 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We purchase finished products when opportunities arise that provide a profit on
the sale of such products, or to meet delivery commitments. |
|
(2) |
|
We purchase crude oil that at times exceeds the supply needs of our refineries.
Quantities in excess of our needs are sold at market prices to purchasers of crude oil
that are recorded on a gross basis with the sales price recorded as revenues and the
corresponding acquisition cost as inventory and then upon sale as cost of products
sold. Additionally, we enter into buy/sell exchanges of crude oil with certain parties
to facilitate the delivery of quantities to certain locations that are netted at
carryover cost. |
|
(3) |
|
Other refining segment revenue includes the revenues associated with Holly
Asphalt and revenue derived from feedstock and sulfur credit sales. |
|
(4) |
|
The above calculations of refined product sales from produced products sold can
also be computed on a consolidated basis. These amounts may not calculate exactly due
to rounding of reported numbers. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
87.40 |
|
|
$ |
55.23 |
|
Times sales of produced refined products sold (BPD) |
|
|
213,860 |
|
|
|
89,171 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refined product sales from produced products sold |
|
$ |
1,682,273 |
|
|
$ |
443,246 |
|
|
|
|
|
|
|
|
- 47 -
Reconciliation of average cost of products per produced barrel sold to total cost of
products sold
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Average cost of products per produced barrel sold |
|
$ |
82.96 |
|
|
$ |
44.92 |
|
Times sales of produced refined products sold (BPD) |
|
|
86,930 |
|
|
|
62,147 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Cost of products for produced products sold |
|
$ |
649,054 |
|
|
$ |
251,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Average cost of products per produced barrel sold |
|
$ |
74.72 |
|
|
$ |
39.57 |
|
Times sales of produced refined products sold (BPD) |
|
|
28,170 |
|
|
|
27,024 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Cost of products for produced products sold |
|
$ |
189,438 |
|
|
$ |
96,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Average cost of products per produced barrel sold |
|
$ |
82.89 |
|
|
$ |
|
|
Times sales of produced refined products sold (BPD) |
|
|
98,760 |
|
|
|
|
|
Times number of days in period |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products for produced products sold |
|
$ |
736,759 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sum of cost of products for produced products sold from our three refineries (4) |
|
$ |
1,575,251 |
|
|
$ |
347,489 |
|
Add refined product costs from purchased products sold and rounding (1) |
|
|
41,464 |
|
|
|
57,760 |
|
|
|
|
|
|
|
|
Total refined cost of products sold |
|
|
1,616,715 |
|
|
|
405,249 |
|
Add crude
oil cost of direct sales of excess crude oil (2) |
|
|
133,667 |
|
|
|
120,682 |
|
Add other
refining segment cost of products sold (3) |
|
|
6,051 |
|
|
|
3,908 |
|
|
|
|
|
|
|
|
Total refining segment cost of products sold |
|
|
1,756,433 |
|
|
|
529,839 |
|
Subtract consolidations and eliminations |
|
|
(32,569 |
) |
|
|
(18,185 |
) |
|
|
|
|
|
|
|
Costs of products sold (exclusive of depreciation and amortization) |
|
$ |
1,723,864 |
|
|
$ |
511,654 |
|
|
|
|
|
|
|
|
|
|
|
(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 revenues associated with Holly Asphalt and
revenue derived from feedstock and sulfur credit sales. |
|
(4) |
|
The above calculations of refined product sales from produced products sold can
also be computed on a consolidated basis. These amounts may not calculate exactly due to
rounding of reported numbers. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Average cost of products per produced barrel sold |
|
$ |
81.84 |
|
|
$ |
43.30 |
|
Times sales of produced refined products sold (BPD) |
|
|
213,860 |
|
|
|
89,171 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Cost of products for produced products sold |
|
$ |
1,575,251 |
|
|
$ |
347,489 |
|
|
|
|
|
|
|
|
- 48 -
Reconciliation of average refinery operating expenses per produced barrel sold to total
operating expenses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Average refinery operating expenses per produced barrel sold |
|
$ |
5.18 |
|
|
$ |
6.17 |
|
Times sales of produced refined products sold (BPD) |
|
|
86,930 |
|
|
|
62,147 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refinery operating expenses for produced products sold |
|
$ |
40,527 |
|
|
$ |
34,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Average refinery operating expenses per produced barrel sold |
|
$ |
6.20 |
|
|
$ |
6.92 |
|
Times sales of produced refined products sold (BPD) |
|
|
28,170 |
|
|
|
27,024 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refinery operating expenses for produced products sold |
|
$ |
15,719 |
|
|
$ |
16,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Average refinery operating expenses per produced barrel sold |
|
$ |
5.91 |
|
|
$ |
|
|
Times sales of produced refined products sold (BPD) |
|
|
98,760 |
|
|
|
|
|
Times number of days in period |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
Refinery operating expenses for produced products sold |
|
$ |
52,530 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sum of refinery operating expenses per produced products sold from our three
refineries (2) |
|
$ |
108,776 |
|
|
$ |
51,341 |
|
Add other refining segment operating expenses and rounding (1) |
|
|
5,818 |
|
|
|
5,074 |
|
|
|
|
|
|
|
|
Total refining segment operating expenses |
|
|
114,594 |
|
|
|
56,415 |
|
Add HEP segment operating expenses |
|
|
13,060 |
|
|
|
10,342 |
|
Add corporate and other costs |
|
|
6 |
|
|
|
19 |
|
Subtract consolidations and eliminations |
|
|
(116 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization) |
|
$ |
127,544 |
|
|
$ |
66,748 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other refining segment operating expenses include the marketing costs associated
with our refining segment and the operating expenses of Holly Asphalt. |
|
(2) |
|
The above calculations of refinery operating expenses from produced products
sold can also be computed on a consolidated basis. These amounts may not calculate
exactly due to rounding of reported numbers. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Average refinery operating expenses per produced barrel sold |
|
$ |
5.65 |
|
|
$ |
6.40 |
|
Times sales of produced refined products sold (BPD) |
|
|
213,860 |
|
|
|
89,171 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refinery operating expenses for produced products sold |
|
$ |
108,776 |
|
|
$ |
51,341 |
|
|
|
|
|
|
|
|
- 49 -
Reconciliation of net operating margin per barrel to refinery gross margin per barrel to
total sales and other revenues
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Navajo Refinery |
|
|
|
|
|
|
|
|
Net operating margin per barrel |
|
$ |
(0.08 |
) |
|
$ |
6.28 |
|
Add average refinery operating expenses per produced barrel |
|
|
5.18 |
|
|
|
6.17 |
|
|
|
|
|
|
|
|
Refinery gross margin per barrel |
|
|
5.10 |
|
|
|
12.45 |
|
Add average cost of products per produced barrel sold |
|
|
82.96 |
|
|
|
44.92 |
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
88.06 |
|
|
$ |
57.37 |
|
Times sales of produced refined products sold (BPD) |
|
|
86,930 |
|
|
|
62,147 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refined products sales from produced products sold |
|
$ |
688,955 |
|
|
$ |
320,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woods Cross Refinery |
|
|
|
|
|
|
|
|
Net operating margin per barrel |
|
$ |
8.60 |
|
|
$ |
3.82 |
|
Add average refinery operating expenses per produced barrel |
|
|
6.20 |
|
|
|
6.92 |
|
|
|
|
|
|
|
|
Refinery gross margin per barrel |
|
|
14.80 |
|
|
|
10.74 |
|
Add average cost of products per produced barrel sold |
|
|
74.72 |
|
|
|
39.57 |
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
89.52 |
|
|
$ |
50.31 |
|
Times sales of produced refined products sold (BPD) |
|
|
28,170 |
|
|
|
27,024 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refined products sales from produced products sold |
|
$ |
226,960 |
|
|
$ |
122,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Refinery |
|
|
|
|
|
|
|
|
Net operating margin per barrel |
|
$ |
(2.58 |
) |
|
$ |
|
|
Add average refinery operating expenses per produced barrel |
|
|
5.91 |
|
|
|
|
|
|
|
|
|
|
|
|
Refinery gross margin per barrel |
|
|
3.33 |
|
|
|
|
|
Add average cost of products per produced barrel sold |
|
|
82.89 |
|
|
|
|
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
86.22 |
|
|
$ |
|
|
Times sales of produced refined products sold (BPD) |
|
|
98,760 |
|
|
|
|
|
Times number of days in period |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
Refined products sales from produced products sold |
|
$ |
766,358 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sum of
refined products sales from produced products sold from our three refineries (4) |
|
$ |
1,682,273 |
|
|
$ |
443,246 |
|
Add refined product sales from purchased products and rounding (1) |
|
|
41,506 |
|
|
|
53,646 |
|
|
|
|
|
|
|
|
Total refined products sales |
|
|
1,723,779 |
|
|
|
496,892 |
|
Add direct sales of excess crude oil (2) |
|
|
134,862 |
|
|
|
121,255 |
|
Add other refining segment revenue (3) |
|
|
8,533 |
|
|
|
18,763 |
|
|
|
|
|
|
|
|
Total refining segment revenue |
|
|
1,867,174 |
|
|
|
636,910 |
|
Add HEP segment sales and other revenues |
|
|
40,689 |
|
|
|
29,332 |
|
Add corporate and other revenues |
|
|
66 |
|
|
|
99 |
|
Subtract consolidations and eliminations |
|
|
(33,639 |
) |
|
|
(18,311 |
) |
|
|
|
|
|
|
|
Sales and other revenues |
|
$ |
1,874,290 |
|
|
$ |
648,030 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We purchase finished products when opportunities arise that provide a profit on the
sale of such products or to meet delivery commitments. |
|
(2) |
|
We purchase crude oil that at times exceeds the supply needs of our refineries.
Quantities in excess of our needs are sold at market prices to purchasers of crude oil that
are recorded on a gross basis with the sales price recorded as revenues and the
corresponding acquisition cost as inventory and then upon sale as cost of products sold.
Additionally, we enter into buy/sell exchanges of crude oil with certain parties to
facilitate the delivery of quantities to certain locations that are netted at carryover
cost. |
|
(3) |
|
Other refining segment revenue includes the revenues associated with Holly Asphalt and
revenue derived from feedstock and sulfur credit sales. |
|
(4) |
|
The above calculations of refined product sales from produced products sold can also be
computed on a consolidated basis. These amounts may not calculate exactly due to rounding
of reported numbers. |
- 50 -
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Net operating margin per barrel |
|
$ |
(0.09 |
) |
|
$ |
5.53 |
|
Add average refinery operating expenses per produced barrel |
|
|
5.65 |
|
|
|
6.40 |
|
|
|
|
|
|
|
|
Refinery gross margin per barrel |
|
|
5.56 |
|
|
|
11.93 |
|
Add average cost of products per produced barrel sold |
|
|
81.84 |
|
|
|
43.30 |
|
|
|
|
|
|
|
|
Average sales price per produced barrel sold |
|
$ |
87.40 |
|
|
$ |
55.23 |
|
Times sales of produced refined products sold (BPD) |
|
|
213,860 |
|
|
|
89,171 |
|
Times number of days in period |
|
|
90 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Refined product sales from produced products sold |
|
$ |
1,682,273 |
|
|
$ |
443,246 |
|
|
|
|
|
|
|
|
- 51 -
Item 4.
Controls and Procedures
Evaluation of disclosure controls and procedures. Our principal executive officer and principal
financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act
of 1934 (the Exchange Act), our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report
on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance
that the information we are required to disclose in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure and is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms. Based upon the evaluation,
our principal executive officer and principal financial officer have concluded that our disclosure
controls and procedures were effective as of March 31, 2010.
Changes in internal control over financial reporting. There have been no changes in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that
occurred during our last fiscal quarter that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
- 52 -
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
SFPP Litigation
a. The Early Complaint Cases
In May 2007, the United States Court of Appeals for the District of Columbia Circuit (Court of
Appeals) issued its decision on petitions for review, brought by us and other parties, concerning
rulings by the Federal Energy Regulatory Commission (FERC) in proceedings brought by us and other
parties against SFPP, L.P. (SFPP). These proceedings relate to tariffs of common carrier
pipelines, which are owned and operated by SFPP, for shipments of refined products from El Paso,
Texas to Tucson and Phoenix, Arizona and from points in California to points in Arizona. We are one
of several refiners that regularly utilize the SFPP pipeline to ship refined products from El Paso,
Texas to Tucson and Phoenix, Arizona on SFPPs East Line. The Court of Appeals in its May 2007
decision approved a FERC position, which is adverse to us, on the treatment of income taxes in the
calculation of allowable rates for pipelines operated by partnerships and ruled in our favor on an
issue relating to our rights to reparations when it is determined that certain tariffs we paid to
SFPP in the past were too high. The income tax issue and the other remaining issues relating to
SFPPs obligations to shippers are being handled by the FERC in a single compliance proceeding
covering the period from 1992 through May 2006. We currently estimate that, as a result of the
May 2007 Court of Appeals decision and prior rulings by the Court of Appeals and the FERC in these
proceedings, a net amount will be due from SFPP to us for the period January 1992 through May 2006
in addition to the $15.3 million we received in 2003 from SFPP as reparations for the period from
1992 through July 2000. On April 16, 2010, a settlement among us, SFPP, and other shippers was
filed with FERC for its approval. If approved the settlement would finally resolve the amount of
additional payments SFPP owes us for the period January 2002 through May 2006. The proposed
settlement remains subject to final appeal by FERC.
b. Other Settlements
We and other shippers have been engaged in settlement discussions with SFPP on remaining issues
relating to East Line service in the FERC proceedings. A partial settlement covering the period
June 2006 through November 2007, which became final in February 2008, resulted in a payment from
SFPP to us of approximately $1.3 million in April 2008. On October 22, 2008, we and other shippers
jointly filed at the FERC with SFPP a settlement covering the period from December 2008 through
November 2010. The FERC approved the settlement on January 29, 2009. The settlement reduced SFPPs
current rates and required SFPP to make additional payments to us of approximately $2.9 million,
which were received on May 18, 2009.
c. The Latest Rate Proceeding
On June 2, 2009, SFPP notified us that it would terminate the October 2008 settlement, as provided
under the settlement, effective August 31, 2009. On July 31, 2009, SFPP filed substantial rate
increases for East Line service to become effective September 1, 2009. We and several other
shippers filed protests at the FERC challenging the rate increase and asking the FERC to suspend
the effectiveness of the increased rates. On August 31, 2009, the FERC issued an order suspending
the effective date of the rate increase until January 1, 2010, on which date the rate increase was
placed into effect, and setting the rate increase for a full evidentiary hearing to be held in
2010. We are not in a position to predict the ultimate outcome of the rate proceeding.
NMED NOV
In October 2008, the New Mexico Environment Department (NMED) issued an Amended Notice of
Violation and Proposed Penalties (Amended NOV) to Navajo Refining Company, amending a Notice of
Violation (NOV) issued in February 2007. The Amended NOV is a preliminary enforcement document
issued by NMED and usually is the predicate to formal administrative or judicial enforcement. The
February 2007 NOV was issued following two hazardous waste compliance evaluation inspections at the
Artesia, New Mexico refinery that were conducted in April and November 2006 and alleged violations
of the New Mexico Hazardous Waste Management Regulations and Navajos Hazardous Waste Permit. NMED
proposed a civil penalty of approximately $0.1 million for the February 2007 NOV. The Amended NOV
included additional alleged
violations concerning post-closure care of a hazardous waste land treatment unit and the
construction of a tank on the land treatment area. The Amended NOV also proposed an additional
civil penalty of $0.3 million. Navajo and NMED have resolved this matter in a Settlement Agreement
and Stipulated Final Order entered on March 31, 2010. The settlement requires Navajo to pay a
civil penalty of $0.3 million and take specified corrective actions. Most of the required
corrective actions have already been completed.
- 53 -
Woods Cross Construction Dispute
Our Holly Refining & Marketing Company Woods Cross and Woods Cross Refining Company, LLC
subsidiaries were named, along with other parties, as defendants in a lawsuit filed on April 22,
2009 by Brahma Group, Inc. in the State District Court in Davis County, Utah, involving a
construction dispute over the installation of an oil gas hydrocracker at the Woods Cross, Utah
refinery. The lawsuit alleges that the defendants caused delays, additional work and increased
costs in the installation of the oil gas hydrocracker for which the plaintiff was not paid. The
claims made against our subsidiaries are for lien foreclosure, failure to obtain a payment bond,
and implied contract. The lawsuit seeks compensatory damages in the approximate amount of
$12 million, costs, attorneys fees allowed by law, and interest allowed by law. A lien has also
been filed in the county records against the refinery property in that amount. Our subsidiaries
have tendered defense of the complaint to the general contractor, Benham Constructors. Our
subsidiaries have answered the complaint and denied any liability. The plaintiff and the general
contractor have arbitrated their dispute and an award in that arbitration has been issued. The
claims against our subsidiaries have been stayed and it is expected they will be dismissed when the
arbitration award is satisfied.
Cut Bank Hill Environmental Claims
Prior to the sale by Holly Corporation of the Montana Refining Company (MRC) assets in 2006, MRC,
along with other companies was the subject of several environmental claims at the Cut Bank Hill
site in Montana. These claims include: (1) a U.S. Environmental Protection Agency administrative
order requiring MRC and other companies to undertake cleanup actions; (2) a U.S. Coast Guard claim
against MRC and other companies for response costs of $298,500 in connection with its cleanup
efforts at the Cut Bank Hill site; and (3) a unilateral order by the Montana Department of
Environmental Quality (MDEQ) directing MRC and other companies to complete a remedial
investigation and a request by the MDEQ that MRC and other companies pay approximately $150,000 to
reimburse the States costs for remedial actions. MRC has denied responsibility for the requested
EPA and the MDEQ cleanup actions and the MDEQ and Coast Guard response costs.
OSHA
Inspection Woods Cross
In June 2007, the Federal Occupational Safety and Health Administration (OSHA) announced a
national emphasis program (NEP) for inspecting approximately 80 refineries within its
jurisdiction. As a part of the NEP, OSHA encouraged certain State Plan States, such as Utah, to
initiate their own version of the NEP. Beginning on May 1, 2008, the Utah Labor Commission,
Occupational Safety and Health Division (UOSH) began an inspection of the refinery, which is
operated by Holly Refining and Marketing Company Woods Cross and is located in Woods Cross, Utah.
The inspection ended on September 18 and on October 23, 2008. UOSH issued one citation alleging 33
violations of various safety standards including the Process Safety Management Standard and
proposing a penalty of $91,750. We filed a notice of contest with the Adjudicative Division, Utah
Labor Commission, in Salt Lake City, Utah. On February 18, 2009, the initial status conference for
this matter was held and a scheduling order was issued. Our answer was filed and served on March 4,
2009 and discovery ended on January 6, 2010. The hearing date has been set for July 6, 2010. While
we intend to vigorously defend this citation and believe that we have strong defenses on the
merits, settlement discussions have begun and are evolving in a positive direction.
- 54 -
OSHA
Inspection Tulsa Refinery east facility
In June 2007, OSHA announced a NEP for inspecting approximately 80 refineries within its
jurisdiction. As part of the NEP, OSHA conducted an inspection of Sinclair Tulsa Refining
Companys (Sinclair Tulsa) refinery in Tulsa, Oklahoma (our Tulsa Refinery east facility) from
February 4, 2009 through August 3, 2009. On August 4, 2009, OSHA issued two citations to Sinclair
Tulsa, alleging 51 serious violations and 1 willful violation of various safety standards including
the Process Safety Management Standard (PSM) and the General Duty Clause. OSHA proposed
penalties totaling $240,750. Sinclair filed a notice of contest, challenging the citations.
Because the proposed penalties exceed $100,000, the matter was referred for mandatory settlement
before the Occupational Safety and Health Review Commission (OSHRC). Prior to the mandatory
settlement conference which had been scheduled for March 16 17, 2010 in Dallas, Texas, Sinclair
Tulsa and OSHA notified the OSHRC that a settlement had been reached in principle and the OSHRC
gave them until May 12, 2010 to submit the settlement agreement in writing for its review and
approval.
Our subsidiary, Holly Refining & Marketing Tulsa LLC (HRM-Tulsa), entered into an Asset Sale &
Purchase Agreement (the Agreement) with Sinclair Tulsa dated October 19, 2009 to acquire the
Tulsa Refinery east facility, and the sale closed on December 1, 2009. HRM-Tulsa intervened in the
case against Sinclair Tulsa pending before the Occupational Safety and Health Review Commission
shortly after the sale closed. Under the terms of the Agreement, Sinclair retains responsibility
for defending the OSHA citations and paying any penalties, and HRM-Tulsa has the discretion to
select the means and methods of improving the PSM program. HRM-Tulsa is in the initial stages of
evaluating the feasibility and range of options to make such PSM program improvements at the Tulsa
Refinery east facility.
Discharge Permit Appeal Tulsa Refinery west facility
Our subsidiary, Holly Refining & Marketing Tulsa LLC (HRM Tulsa) is party to parallel Oklahoma
administrative and state district court proceedings involving a challenge, originally filed by
Sunoco, Inc. (R&M), to the terms of the Oklahoma Department of Environmental Quality (ODEQ)
permit that governs the discharge of industrial wastewater from what is now our Tulsa Refinery west
facility. After our acquisition of the Tulsa Refinery west facility, we were substituted for
Sunoco in both proceedings. On February 1, 2010, we entered into a settlement agreement with the
Oklahoma Department of Environmental Quality. The agreement provided, among other things, for the
amendment of the permit to require that the Tulsa Refinery west facility make certain modifications
in its system for handling storm flows. These modifications are required to be complete within
three years of the issuance of the revised permit. Both the administrative and the state district
court proceedings have been stayed to permit this settlement agreement to be effectuated. Once the
agreed-upon changes become effective, both proceedings will be dismissed. Preliminary engineering
is underway to develop a final scope and capital estimate, and any process modification is subject
to regulatory review and approval. Accordingly, it is not possible to estimate the costs of
compliance with the new permit provision at this time.
Navajo Tank Fire
On March 2, 2010, a tank caught fire while under construction. At the time of the incident, four
individuals were working on top of the tank. These individuals were all employees of a third-party
contractor who was placing insulation on the tank. Two individuals sustained injuries and two
individuals died as a result of the incident. Lawsuits have been filed by the two survivors and by
the estate of one of the deceased workers. It is anticipated that a lawsuit will be filed by the
estate of the other deceased worker. At the date of this report, it is not possible to predict
the likely outcome of this litigation. This matter is being reported due to the serious nature of
the injuries. At this time, the total cost to the Company for these cases is not expected to be
material.
- 55 -
Unclaimed Property Audit
A multi-state audit of our unclaimed property compliance and reporting is being conducted by Kelmar
Associates, LLC on behalf of ten states. We expect this audit process to take several years to be
resolved due to the lengthy period covered by the audit (1981 2004). It is not yet possible to
accurately estimate the amount, if any, that is owed to each of the states since only preliminary
investigation has occurred to date.
Other
We are a party to various other litigation and proceedings that we believe, based on advice of
counsel, will not either individually or in the aggregate have a materially adverse impact on our
financial condition, results of operations or cash flows.
Item 5. Other Information
(a) On March 12, 2010, the Compensation Committee of the Board of Directors of the Company
authorized awards of executive restricted stock with performance vesting features to Matthew P.
Clifton and David L. Lamp under the Companys Long-Term Incentive Compensation Plan (the Plan).
Mr. Cliftons award is comprised of 27,512 restricted shares and Mr. Lamps award is comprised of
15,256 restricted shares.
In connection with such awards, the Compensation Committee also adopted new performance metrics and
a new form award agreement pursuant to which it may grant executive restricted stock with
performance vesting features under the Plan. The following is intended to provide a brief
description of the new form award agreement and the 2010 awards to Messrs. Clifton and Lamp, but is
not a complete description and is qualified in its entirety by reference to the full text of the
agreements. The awards to Messrs. Clifton and Lamp described above are subject to the terms and
conditions of the new form award agreement, which is attached hereto as Exhibit [10.1]. The award
agreements evidencing the 2010 awards to Messrs. Clifton and Lamp are attached hereto as Exhibits
[10.2] and [10.3], respectively.
The form award agreement provides that the recipient of the restricted shares is entitled to all
rights as a stockholder of the shares, including the right to receive dividends thereon, except
that the recipient is not entitled to receive any such dividends until the underlying restricted
shares have vested. Pursuant to the form award agreement, the restricted shares are subject to
both time and performance based vesting conditions, and both conditions must be satisfied in order
for the restricted shares to vest. The time vesting conditions are satisfied if the recipient
remains employed with the Company through the date(s) designated for the award. In the case of the
awards to Messrs. Clifton and Lamp described above, one-third of the restricted shares awarded will
vest on each of January 1, 2011, January 1, 2012 and January 1, 2013, provided the executives
remain employed through those dates. The performance vesting conditions are satisfied if, by
December 31 of the third calendar year following the calendar year in which the award is granted,
for any four consecutive quarters during the four year period ending on that date, either (i) the
sum of the Companys net income per diluted share reaches a designated target level, or (ii) the
Company ranks at or above the median of a designated peer group of companies with respect to at
least two out of four performance measures. The performance measures are earnings per share
growth, net profit margin, return on assets and return on investment, and the Company must rank at
or above median on the same two performance measures in each quarter in order for the performance
standard to be satisfied in this manner. In the case of the awards to Messrs. Clifton and Lamp,
the net income target is $0.30 over four quarters. If a recipients employment is terminated due
to death or disability, the recipient will vest in a pro rata amount of the restricted shares,
based on the length of the recipients service with the Company prior to the employment termination
date. If the recipients employment is terminated within 60 days prior to or at any time after a
change in control by the Company without cause or by the recipient due to an adverse change
in his or her employment conditions, then all restricted shares granted under the award will remain
eligible to vest if the performance standard is actually attained.
- 56 -
Item 6.
Exhibits
(a) Exhibits
|
|
|
4.1
|
|
Indenture dated March 10, 2010, among Holly Energy Partners, L.P.,
Holly Energy Finance Corp. and each of the guarantors party thereto and U.S. Bank
National Association (incorporated by reference to Exhibit 4.1 of Holly Energy
Partners, L.P.s Current Report on Form 8-K filed with the SEC on March 11, 2010). |
|
|
|
10.1
|
|
Pipeline Systems Operating Agreement, dated as of February 8, 2010, by
and among Navajo Refining Company, L.L.C., Lea Refining Company, Woods Cross
Refining Company, L.L.C., Holly Refining & Marketing Tulsa LLC. and Holly Energy
Partners-Operating, L.P. (incorporated by reference to Exhibit 10.1 of Holly Energy
Partners, L.P.s Current Report on Form 8-K filed with the SEC on February 9,
2010). |
|
|
|
10.2
|
|
First Amended and Restated Pipelines, Tankage and Loading Rack
Throughput Agreement (Tulsa East), dated as of March 31,2010, by and among Holly
Refining & Marketing-Tulsa, LLC, HEP Tulsa LLC and Holly Energy Storage-Tulsa LLC
(incorporated by reference to Exhibit 10.1 of Holly Corporations Current Report on
Form 8-K filed with the SEC on April 6, 2010). |
|
|
|
10.3
|
|
Loading Rack Throughput Agreement (Lovington), dated as of March 31,
2010, by and between Navajo Refining Company, L.L.C. and Holly Energy
Storage-Lovington LLC (incorporated by reference to Exhibit 10.2 of Holly
Corporations Current Report on Form 8-K filed with the SEC on April 6, 2010). |
|
|
|
10.4
|
|
Fourth Amended and Restated Omnibus Agreement, dated as of March 31,
2010, by and among Holly Corporation, Holly Energy Partners, L.P. and certain of
their respective subsidiaries (incorporated by reference to Exhibit 10.3 of Holly
Corporations Current Report on Form 8-K filed with the SEC on April 6, 2010). |
|
|
|
10.5
|
|
First Amended and Restated Lease and Access Agreement (East Tulsa),
dated as of March 31, 2010, by and among Holly Refining & Marketing-Tulsa, LLC, HEP
Tulsa LLC and Holly Energy Storage-Tulsa LLC (incorporated by reference to Exhibit
10.4 of Holly Corporations Current Report on Form 8-K filed with the SEC on April
6, 2010). |
|
|
|
10.6
|
|
First Amendment to Pipeline Systems Operating Agreement, dated as of
March 31, 2010, by and among Navajo Refining Company, L.L.C, Lea Refining Company,
Woods Cross Refining Company, L.L.C, Holly Refining & Marketing-Tulsa, LLC and
Holly Energy Partners-Operating, L.P. (incorporated by reference to Exhibit 10.5 of
Holly Corporations Current Report on Form 8-K filed with the SEC on April 6,
2010). |
|
|
|
10.7+*
|
|
Form of Executive Restricted Stock Agreement [time and performance based
vesting]. |
|
|
|
10.8+*
|
|
Executive Restricted Stock Agreement, dated March 12, 2010, by and between Holly
Corporation and Matthew P. Clifton. |
|
|
|
10.9+*
|
|
Executive Restricted Stock Agreement, dated March 12, 2010, by and between Holly
Corporation and David L. Lamp. |
|
|
|
10.10+*
|
|
Form of Employee Restricted Stock Agreement [time based vesting]. |
|
|
|
31.1+
|
|
Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2+
|
|
Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.1++
|
|
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
32.2++
|
|
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
+ |
|
Filed herewith. |
|
++ |
|
Furnished herewith. |
|
* |
|
Constitutes management contracts or compensatory plans or arrangements. |
- 57 -
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
HOLLY CORPORATION
(Registrant)
|
|
Date:May 7, 2010 |
/s/ Bruce R. Shaw
|
|
|
Bruce R. Shaw |
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
/s/ Scott C. Surplus
|
|
|
Scott C. Surplus |
|
|
Vice President and Controller
(Principal Accounting Officer) |
|
- 58 -