HollyFrontier 2009 Annual Report Download

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2009 ANNUAL REPORT

Table of contents

  • Page 1
    2009 ANNUAL REPORT

  • Page 2
    ...000 bpsd refinery located in Oklahoma and a 31,000 bpsd refinery in Utah. Holly also owns an interest in Holly Energy Partners, L.P., which through subsidiaries owns or leases approximately 2,500 miles of petroleum product and crude oil gathering pipelines in Texas, New Mexico, Oklahoma and Utah and...

  • Page 3
    ... 418,059,000 1,874,225,000 541,540,000 120,750 110,850 978 NAVAJO REFINERY 2009 Sales of Refinery Produced Products WOODS CROSS REFINERY 2009 Sales of Refinery Produced Products TULSA REFINERY 2009 Sales of Refinery Produced Products 87,140 BPD 26,870 BPD 96,170 BPD (1) GASOLINES DIESEL FUELS...

  • Page 4
    ... to greatly increase Holly's overall crude capacity. Thanks to the outstanding work of our new employees in Tulsa, we achieved a seamless transition of these refineries into our company. In addition, we announced the sale of certain logistics assets - both to Holly Energy Partners and a third party...

  • Page 5
    ... expansion and upgrade, which was completed in late 2008. Our Woods Cross margins benefited significantly in 2009 from the ability to process lower cost crude feedstocks. Significant Progress made on the UNEV Pipeline. Our project to build a pipeline from Salt Lake City, Utah to Las Vegas, Nevada...

  • Page 6
    ...WISCONSIN ILLINOIS Holly Corp $400 $300 $200 $100 S&P 500 Index Peer Group(2) BURLEY CHICAGO WOODS CROSS KANSAS OMAHA DES MOINES KANSAS CITY SALT LAKE CITY UTAH ARIZONA BLOOMFIELD LAS VEGAS ALBUQUERQUE PHOENIX COLORADO NEW MEXICO OKLAHOMA TEXAS MISSOURI ARKANSAS MORIARTY TULSA 0 Jan...

  • Page 7
    ... to Commission File Number 1-3876 HOLLY CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 100 Crescent Court, Suite 1600, Dallas, Texas (Address of principle executive offices) Registrant' s telephone number...

  • Page 8
    ... Directors, executive officers and corporate governance...Executive compensation ...Security ownership of certain beneficial owners and management and related stockholder matters ...Certain relationships, related transactions and director independence ...Principal accountant fees and services...PART...

  • Page 9
    ... crude oil and refined products; the spread between market prices for refined products and market prices for crude oil; the possibility of constraints on the transportation of refined products; the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines; effects...

  • Page 10
    ... 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...

  • Page 11
    ... 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...

  • Page 12
    ...PTA ...HEP PTTA...HEP RPA ...HEP Credit Agreement...HEP Pipeline Operating Agreement ...HEP Senior Notes...Holly Asphalt...Holly Credit Agreement ...HPI ...HRM-Tulsa...LIBOR ...LIFO ...MDEQ...MRC ...MSAT2 ...Magellan ...NEP...NMED...NPDES...Navajo Refinery...Non-Guarantor Non-Restricted Subsidiaries...

  • Page 13
    Page Reference Tulsa Refinery ...Tulsa Refinery east facility...Tulsa Refinery west facility ...UNEV Pipeline ...UOSH ...Variable Rate Swap ...VIE...Woods Cross Refinery...WRB ...8 8 8 9 41 62 8 9 12 Terms used in the financial statements and footnotes are as defined therein. -7-

  • Page 14
    ... connection pipelines located in west Texas and New Mexico, on-site crude tankage located within both of our refinery complexes, a jet fuel products pipeline and leased terminal between Artesia and Roswell, New Mexico and crude oil and product pipelines that support our refinery in Woods Cross, Utah...

  • Page 15
    ...Tulsa Refinery; owned and operated Holly Asphalt Company (formerly, NK Asphalt Partners) 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...

  • Page 16
    ...quarter of 2008 (our 2008 Woods Cross Refinery expansion). During 2009, we increased our consolidated crude capacity by 15,000 BPSD in the first quarter of 2009 (our 2009 Navajo Refinery expansion), by 85,000 BPSD in second quarter of 2009 (our June 2009 Tulsa Refinery west facility acquisition) and...

  • Page 17
    ...2009 Navajo Refinery expansion), increasing crude capacity to 100,000 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...

  • Page 18
    ... pipelines and terminals agreement with HEP at terminals in El Paso, Texas; Tucson, Arizona; and Artesia, Moriarty and Bloomfield, New Mexico. Holly Asphalt Company We manufacture and market commodity and modified asphalt products in Arizona, New Mexico, Texas and northern Mexico under Holly Asphalt...

  • Page 19
    ... to serve the Albuquerque market out of El Paso currently operates at near capacity. In addition, HEP leases from Mid-America Pipeline Company, L.L.C., a pipeline between White Lakes, New Mexico and the Albuquerque vicinity and Bloomfield, New Mexico. The lease agreement currently runs through 2017...

  • Page 20
    ...budget for Holly Asphalt for 2010 is $1.2 million. Woods Cross Refinery Facilities The Woods Cross Refinery has a crude oil capacity of 31,000 BPSD and is located in Woods Cross, Utah. The Woods Cross Refinery processes regional sweet and black wax crude as well as Canadian sour crude oils into high...

  • Page 21
    .... We own and operate 4 miles of hydrogen pipeline that allows us to connect to a hydrogen plant located at Chevron' s Salt Lake City Refinery. Additionally, HEP owns and operates 12 miles of crude oil and refined products pipelines that allows us to connect our Woods Cross Refinery to common carrier...

  • Page 22
    ... Terminalling Pipeline Company. We sell to branded and unbranded customers in these markets. We also truck refined products to Las Vegas, Nevada. The Idaho market for refined products is primarily supplied via Chevron' s common carrier pipeline system from refiners located in the Salt Lake City area...

  • Page 23
    ... to our customers or marketed through Holly Asphalt to governmental entities or contractors. LPG' s are sold to LPG wholesalers and LPG retailers. Crude Oil and Feedstock Supplies The Woods Cross Refinery currently obtains its supply of crude oil primarily from suppliers in Canada, Wyoming, Utah and...

  • Page 24
    ... Form 10-K. (6) Transportation costs billed from HEP are included in cost of products. (7) Represents operating expenses of the refinery, exclusive of depreciation and amortization. (8) The amounts reported for the Tulsa Refinery for the year ended December 31, 2009 include crude oil processed and...

  • Page 25
    ... agricultural oils, base oils, process oils and waxes that are sold throughout the United States and to customers with operations in Central America and South America. Our refinery' s production represents 6% of paraffinic oil capacity and 12% of wax production capacity in the United States market...

  • Page 26
    ... are shipped by product pipelines and are also made available to customers through truck and rail loading facilities. The Tulsa Refinery' s principal customers for conventional gasoline include Sinclair, other refiners, convenience store chains, independent marketers and retailers. The composition...

  • Page 27
    ... our refining and marketing operations in west Texas, New Mexico, Utah, Idaho, Arizona and Oklahoma. HEP owns and operates a system of petroleum product and crude oil pipelines in Texas, New Mexico, Oklahoma and Utah and distribution terminals and refinery tankage in Texas, New Mexico, Arizona, Utah...

  • Page 28
    ... SLC Pipeline commenced operations effective March 2009 and allows various refineries in the Salt Lake City area, including our Woods Cross Refinery, to ship crude oil into the Salt Lake City area from the Utah terminus of the Frontier Pipeline as well as crude oil flowing from Wyoming and Utah via...

  • Page 29
    ...HEP HEP serves our refineries in New Mexico, Utah and Oklahoma under several long-term pipeline and terminal, tankage and throughput agreements. In connection with our 2009 asset transfers to HEP, as described above, we entered into three new 15-year transportation agreements with HEP, each expiring...

  • Page 30
    ...in west Texas, New Mexico and Oklahoma that deliver crude oil to our Navajo Refinery; • approximately 10 miles of crude oil and refined product pipelines that support our Woods Cross Refinery located near Salt Lake City, Utah; and • gasoline and diesel connecting pipelines that support our Tulsa...

  • Page 31
    ...operating expenses and provides for one five-year renewal period. Functions performed in the Dallas office include overall corporate management, refinery and HEP management, planning and strategy, corporate finance, crude acquisition, logistics, contract administration, marketing, investor relations...

  • Page 32
    ...interconnecting lines that connect the two Tulsa facilities are in service. Additionally, we are proceeding with capital projects at our Navajo and Woods Cross Refineries in order to meet this requirement. We are currently making plans to comply with the EPA' s new MSAT2 regulations on gasoline that...

  • Page 33
    ... from time to time. Crude oil and refined products are commodities whose price levels are determined by market forces beyond our control. Additionally, due to the seasonality of refined products markets and refinery maintenance schedules, results of operations for any particular quarter of...

  • Page 34
    ... existing assets. Additionally, our growth strategy includes projects that permit access to new and/or more profitable markets such as our UNEV Pipeline joint venture, a 12-inch refined products pipeline running from Salt Lake City, Utah to Las Vegas, Nevada that is currently under construction and...

  • Page 35
    ...will be under scheduled downtime. The Woods Cross refinery turnaround occurred in August/September, 2008, and the Navajo refinery turnaround occurred in January/February, 2009. We may incur significant costs to comply with new or changing environmental, energy, health and safety laws and regulations...

  • Page 36
    ... over time of offsetting projected increases in the demand for refined petroleum products in certain markets, particularly gasoline. In the near term, the new renewable fuel standard presents ethanol production and logistics challenges for both the ethanol and refining industries and may require...

  • Page 37
    .... We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile...

  • Page 38
    ... in our geographic market. These transactions could increase the future competitive pressures on us. Portions of our operations in the areas we operate may be impacted by competitors' plans for expansion projects and refinery improvements that could increase the production of refined products in our...

  • Page 39
    ... Energy LP and HEP own pipelines into the El Paso and New Mexico markets. The refined product transportation pipelines that also supply the markets supplied by the Woods Cross Refinery include Chevron, Pioneer, and Yellowstone Pipelines. The Chevron system transports products from Salt Lake City...

  • Page 40
    ... general partner interest. HEP operates a system of crude oil and petroleum product pipelines, distribution terminals and refinery tankage in Texas, New Mexico, Utah, Arizona, Idaho, Washington and Oklahoma. HEP generates revenues by charging tariffs for transporting petroleum products and crude oil...

  • Page 41
    ... of our senior management team or a key technical employee could significantly harm us. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. To the extent that the services of members of our senior management team and key...

  • Page 42
    ...in our financial statements and our stock price may be adversely affected. A "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company' s annual or interim...

  • Page 43
    ... have a material adverse effect on our liquidity and limit our ability to purchase enough crude oil to operate our refineries at desired capacity. An unfavorable credit profile could affect the way crude oil suppliers view our ability to make payments and induce them to shorten the payment terms of...

  • Page 44
    ... retirement benefits for substantially all of our employees. However, effective January 1, 2007, the retirement plan was frozen to new employees not covered by collective bargaining agreements with labor unions. To the extent an employee not covered by a collective bargaining agreement was hired...

  • Page 45
    ... at both our Navajo and Woods Cross Refineries. At the Tulsa Refinery we have various projects planned to integrate the two facilities to fully utilize their capabilities. All three refineries also have various environmental compliance related projects. The installation of new equipment and the...

  • Page 46
    ..., along with approximately 40 other companies involved in oil refining and marketing and related businesses, in a lawsuit originally filed in May 2006 by the State of New Mexico in the U.S. District Court for the District of New Mexico and subsequently transferred to the U.S. District Court for...

  • Page 47
    ... 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...

  • Page 48
    ... conference is scheduled to take place March 16 - 17, 2010 in Dallas, Texas. 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...

  • Page 49
    .... Our credit agreement limits the payment of dividends. See Note 12 in the "Notes to Consolidated Financial Statements" under Item 8, "Financial Statements and Supplementary Data." Under our common stock repurchase program, repurchases are made from time to time in the open market or privately...

  • Page 50
    ...Item 7, "Management' s Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. 2009(1)(4) FINANCIAL DATA For the period Sales and other revenues ...Income from...

  • Page 51
    ... and Lovington, New Mexico (operated as one refinery), Woods Cross, Utah and Tulsa, Oklahoma. As of December 31, 2009, 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...

  • Page 52
    connection pipelines located in west Texas and New Mexico, on-site crude tankage located within both of our refinery complexes, a jet fuel products pipeline and leased terminal between Artesia and Roswell, New Mexico and crude oil and product pipelines that support our refinery in Woods Cross, Utah....

  • Page 53
    ... Sheet Data Years Ended December 31, 2008 2009 (In thousands) Cash, cash equivalents and investments in marketable securities ...Working capital(3) ...Total assets ...Long-term debt - Holly Corporation ...Long-term debt - Holly Energy Partners ...Total equity(2) ... $ 125,819 $ 257,899 $ 3,145...

  • Page 54
    ... for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations and from HEP' s interest the SLC Pipeline. Refining Operating Data Our refinery operations include the Navajo, Woods Cross and Tulsa...

  • Page 55
    ... 31, 2009 increased by 37% over 2008 due to production attributable to the operations of our recently acquired Tulsa Refinery facilities and production gains resulting from our recent Navajo and Woods Cross Refinery capacity expansions. Also impacting production levels was scheduled downtime for...

  • Page 56
    ... attributable to HEP operations. General and Administrative Expenses General and administrative expenses increased 9% from $55.3 million in 2008 to $60.3 million in 2009, due principally to costs associated with the support and integration of our Tulsa Refinery, increased payroll costs and increased...

  • Page 57
    ... of 2008 and a scheduled major maintenance turnaround at our Woods Cross Refinery during the third quarter of 2008. Additionally, sales and other revenues for the year ended December 31, 2008 include $19.3 million in HEP revenues attributable to pipeline and transportation services provided to...

  • Page 58
    ... "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" following Item 7A of Part II of this Form 10-K for a reconciliation to the income statements of prices of refined products sold and costs of products purchased. Operating Expenses Operating expenses, exclusive of...

  • Page 59
    ... in HEP, are not significant. Navajo Pipeline Co., L.P., Navajo Refining Company, L.L.C. and Woods Cross Refining Company, L.L.C., three of our subsidiaries, have agreed to indemnify HEP' s controlling partner to the extent it makes any payment in satisfaction of debt service due on up to a $171...

  • Page 60
    ... HEP' s controlling partner to the extent it makes any payment in satisfaction of debt service on up to $35 million of the principal amount of the HEP Senior Notes. Holly Financing Obligation On October 20, 2009, we sold approximately 400,000 barrels of crude oil tankage at our Tulsa Refinery west...

  • Page 61
    ...sufficient resources to fund currently planned capital projects and 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...

  • Page 62
    ....5 million for projects at the Navajo Refinery, $12.6 million for projects at the Woods Cross Refinery, $63.2 for projects at the Tulsa Refinery, $60 million for our portion of the UNEV pipeline project, $2.1 million for asphalt plant projects and $3.6 million for marketing-related and miscellaneous...

  • Page 63
    ... We are also proceeding with a project to add asphalt tankage at the Navajo Refinery and at the Holly Asphalt facility in Artesia, New Mexico to enhance asphalt economics by storing asphalt during the winter months when asphalt prices are generally lower. These asphalt tank additions and an approved...

  • Page 64
    .... Like our Navajo Refinery, our Woods Cross Refinery has until the end of 2012 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...

  • Page 65
    ... obligations to HEP under our long-term transportation agreements as these related-party transactions are eliminated in the Consolidated Financial Statements. A description of these agreements is provided under "Holly Energy Partners, L.P." under Items 1 and 2, "Business and Properties." Also...

  • Page 66
    ... 12,276 25,121 115,074 $ 333,168 96,913 8,711 52,176 68,379 559,347 Holly Energy Partners Long-term debt - principal(7) ...Long-term debt - interest(8) ...Pipeline operating and right of way leases ...Other agreements...Total ... 391,000 71,415 47,646 7,626 517,687 $1,379,169 $ 15,643 6,264 837...

  • Page 67
    ... in years when price levels were generally lower; therefore, our results of operation are less sensitive to current market price reductions. As of December 31, 2009, the excess of current cost over the LIFO inventory value of our crude oil and refined product inventories was $207 million. An...

  • Page 68
    ... Borrowed Rate ("LIBOR") changes on the $171 million HEP Credit Agreement advance that was used to finance HEP' s purchase of the Crude Pipelines and Tankage Assets from us. This interest rate swap effectively converts the $171 million LIBOR based debt to fixed rate debt having an interest rate of...

  • Page 69
    ...December 1, 2013. Prior to the execution of HEP' s Fixed Rate ...reviews publicly available information on its counterparties in order to review... The market risk...31, 2009, outstanding principal under the Holly and HEP... rate Holly and HEP Senior Notes, changes in interest rates would generally affect fair...

  • Page 70
    ...million to the Holly Senior Notes and a $5.5 million change to the HEP Senior Notes. For the variable rate HEP Credit Agreement, changes in ...market interest rates on our investment portfolio. Our operations are subject to normal hazards of operations, including fire, explosion and weather-related...

  • Page 71
    ...(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...

  • Page 72
    ... 31, 2008 2007 2009 Average per produced barrel: Navajo Refinery Refinery gross margin...Less refinery operating expenses ...Net operating margin ...Woods Cross Refinery Refinery gross margin...Less refinery operating expenses ...Net operating margin ...Tulsa Refinery Refinery gross margin...Less...

  • Page 73
    ... and other revenues Years Ended December 31, 2008 2007 2009 Navajo Refinery Average sales price per produced barrel sold...Times sales of produced refined products sold (BPD)...Times number of days in period ...Refined product sales from produced products sold ...Woods Cross Refinery Average sales...

  • Page 74
    ... Ended December 31, 2008 2007 2009 Navajo Refinery Average cost of products per produced barrel sold ...Times sales of produced refined products sold (BPD)...Times number of days in period ...Cost of products for produced products sold ...Woods Cross Refinery Average cost of products per produced...

  • Page 75
    ... 2007 2009 Navajo Refinery Average refinery operating expenses per produced barrel sold ...Times sales of produced refined products sold (BPD)...Times number of days in period ...Refinery operating expenses for produced products sold...Woods Cross Refinery Average refinery operating expenses per...

  • Page 76
    ...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...

  • Page 77
    ... internal control over financial reporting. The Company acquired two refinery facilities located in Tulsa, Oklahoma during 2009, one from an affiliate of Sunoco, Inc. on June 1, 2009 and another from an affiliate of Sinclair Oil Company on December 1, 2009. Management has excluded the operations of...

  • Page 78
    ... the internal controls of the two refinery facilities located in Tulsa, Oklahoma, one acquired from an affiliate of Sunoco, Inc. and another from an affiliate of Sinclair Oil Company which are included in the December 31, 2009 consolidated financial statements of Holly Corporation and represent...

  • Page 79
    ... Board (United States), the consolidated balance sheets of Holly Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income, cash flows, stockholders' equity and comprehensive income for each of the three years in the period ended December 31, 2009 and our report...

  • Page 80
    ... to Consolidated Financial Statements Page Reference Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2009 and 2008...Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007...Consolidated Statements of Cash Flows...

  • Page 81
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Holly Corporation We have audited the accompanying consolidated balance sheets of Holly Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income, cash flows, ...

  • Page 82
    HOLLY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2009 ASSETS Current assets: Cash and cash equivalents ...Marketable securities ...Accounts receivable: Product and transportation...Crude oil resales...December 31, 2008 $ 124,596 1,223 292,310 470,145 762...

  • Page 83
    ... Equity in earnings of SLC Pipeline ...Interest income...Interest expense...Acquisition costs - Tulsa refineries...Impairment of equity securities ...Gain on sale of Holly Petroleum, Inc...Equity in earnings of Holly Energy Partners ...Income from continuing operations before income taxes ...Income...

  • Page 84
    ... of Tulsa Refinery facilities - Holly Corporation...Acquisition of logistics assets from Sinclair Oil Company - Holly Energy Partners ...Investment in SLC Pipeline - Holly Energy Partners...Proceeds from sale of interest in Rio Grande Pipeline Company, net of transferred cash - Holly Energy Partners...

  • Page 85
    ......Issuance of common stock upon exercise of stock options ...Tax benefit from stock options ...Issuance of restricted stock, net of forfeitures ...Other equity based compensation ...Purchase of treasury stock ...Balance at December 31, 2007 ...Reconsolidation of Holly Energy Partners (March 1, 2008...

  • Page 86
    HOLLY CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) 2009 Years Ended December 31, 2008 2007 Net...for-sale securities ...Retirement medical obligation adjustment ...Minimum pension liability adjustment ...Other comprehensive loss of Holly Energy Partners: Change in fair...

  • Page 87
    ... "Navajo Refinery"). The Navajo Refinery can process sour (high sulfur) crude oils and serves markets in the southwestern United States and northern Mexico. Our refinery located just north of Salt Lake City, Utah (the "Woods Cross Refinery") is operated by Holly Refining & Marketing Company - Woods...

  • Page 88
    ...net settlement agreements relating to the buy/sell arrangements, which may mitigate credit risk. Inventories: Inventories are stated at the lower of cost, using the last-in, first-out ("LIFO") method for crude oil and refined products and the average cost method for materials and supplies, or market...

  • Page 89
    ... 31, 2009, we determined that the fair value of the reporting unit' s goodwill exceeded the carrying value and therefore no impairment has occurred. In addition to goodwill, our consolidated HEP assets include a third-party transportation agreement that currently generates minimum annual cash...

  • Page 90
    ... to Holly Corporation stockholders. Revenue Recognition: Refined product sales and related cost of sales are recognized when products are shipped and title has passed to customers. Pipeline transportation revenues are recognized as products are shipped on our pipelines. All revenues are reported...

  • Page 91
    ... condition, results of operations and cash flows. NOTE 2: Tulsa Refinery Acquisition On June 1, 2009, we acquired the Tulsa Refinery west facility, an 85,000 BPSD refinery located in Tulsa, Oklahoma from Sunoco for $157.8 million in cash, including crude oil, refined product and other inventories...

  • Page 92
    ...Pipeline") that connects our Navajo Refinery facility located in Lovington, New Mexico to a terminus of Centurion Pipeline L.P.' s pipeline extending between west Texas and Cushing, Oklahoma (the "Centurion Pipeline") and a 37-mile, 8-inch crude oil pipeline that connects HEP' s New Mexico crude oil...

  • Page 93
    ... SLC Pipeline commenced operations effective March 2009 and allows various refineries in the Salt Lake City area, including our Woods Cross Refinery, to ship crude oil into the Salt Lake City area from the Utah terminus of the Frontier Pipeline as well as crude oil flowing from Wyoming and Utah via...

  • Page 94
    ...that deliver crude oil to our Navajo Refinery in southeast New Mexico, gathering and connection pipelines located in west Texas and New Mexico, on-site crude tankage located within the Navajo and Woods Cross Refinery complexes, a jet fuel products pipeline between Artesia and Roswell, New Mexico and...

  • Page 95
    ... under the HEP Credit Agreement and for general partnership purposes. We have related party transactions with HEP for pipeline and terminal expenses, certain employee costs, insurance costs and administrative costs under our long-term transportation agreements and our omnibus agreement with HEP...

  • Page 96
    ... share-based compensation plans for HEP directors and select Holly Logistic Services, L.L.C. executives and employees. Compensation cost attributable to HEP' s share-based compensation plans for the year ended December 31, 2009 and 2008 was $1.2 million and $1.7 million, respectively. Stock Options...

  • Page 97
    ... for the years ended December 31, 2009, 2008 and 2007, 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...

  • Page 98
    ...Vesting and transfer of ownership to recipients...Granted ...Forfeited ...Outstanding at December 31, 2009 (non-vested)...Grants 169,669 (72,059) 122,555 (4,995) 215,170 For the year ended December 31, 2009 we issued 110,971 shares of our common stock having a fair value of $2.2 million related to...

  • Page 99
    ... 31, 2009 and 2008, we received a total of $230.3 million and $945.5 million, respectively, related to sales and maturities of our investments in marketable debt securities. NOTE 8: Inventories Inventories are stated at the lower of cost, using the LIFO method for crude oil and refined products and...

  • Page 100
    ... 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"). Under the agreement, we own a 75% interest in the joint venture pipeline and Sinclair owns the remaining 25% interest. The initial capacity of...

  • Page 101
    ... in HEP, are not significant. Navajo Pipeline Co., L.P., Navajo Refining Company, L.L.C. and Woods Cross Refining Company, L.L.C., three of our subsidiaries, have agreed to indemnify HEP' s controlling partner to the extent it makes any payment in satisfaction of debt service due on up to a $171...

  • Page 102
    ... amount of the HEP Senior Notes. 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...

  • Page 103
    ... execution ...agreements are recorded as a reduction of interest expense. Additional information on HEP' s interest rate swaps at December 31, 2009... is as follows: Interest Rate Swaps Asset Fixed-to-variable interest rate swap - $60 million of 6.25% HEP Senior Notes Balance Sheet Location Location...

  • Page 104
    ... for continuing operations as of December 31, 2009 and 2008 are as follows: Assets Deferred taxes Accrued employee benefits...Accrued postretirement benefits ...Accrued environmental costs...Inventory differences ...Prepayments and other...Total current(1) ...Properties, plants and equipment...

  • Page 105
    ... any assessment of penalties. We do not expect that unrecognized tax benefits for tax positions taken with respect to 2009 and prior years will significantly change over the next twelve months. We are subject to U.S. federal income tax, New Mexico income tax and to income tax of multiple other state...

  • Page 106
    ...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...Other comprehensive loss attributable to Holly Corporation stockholders ...Tax Expense (Benefit) (In thousands) After...

  • Page 107
    ... Employee Retirement Income Security Act of 1974. Benefits are based on the employee' s years of service and compensation. Effective January 1, 2007, the retirement plan was frozen to new employees not covered by collective bargaining agreements with labor unions. To the extent an employee was hired...

  • Page 108
    ... 2008, respectively. The measurement dates used for our retirement plan were December 31, 2009 and 2008. The weighted average assumptions used to determine end of period benefit obligations: December 31, 2009 Discount rate ...Rate of future compensation increases ...6.20% 4.00% 2008 6.50% 4.00% Net...

  • Page 109
    ...plan benefits for certain executives will be maintained at the levels provided in the retirement plan before the application of Internal Revenue Code limitations. We expensed $0.7 million, $1.1 million and $0.9 million for the years ended December 31, 2009, 2008 and 2007, respectively, in connection...

  • Page 110
    ... 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...

  • Page 111
    ... in Consolidations and Eliminations. The Refining segment includes the operations of our Navajo, Woods Cross, and Tulsa Refineries and Holly Asphalt Company. The Refining segment involves the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline...

  • Page 112
    ...161,258 $ 1,663,945 (1) The Refining segment reflects the operations of our Tulsa Refinery west and east facilities beginning on our respective acquisition dates of June 1, 2009 and December 1, 2009, respectively. (2) HEP segment revenues from external customers were $45.5 million and $19.3 million...

  • Page 113
    ...Holly Corp. Before Consolidation Eliminations of HEP(1) (In thousands) Non-Guarantor Non-Restricted Subsidiaries (HEP Segment) December 31, 2009...taxes Distributions in excess of inv in HEP Equity - Holly Corporation Equity - Noncontrolling interest Total liabilities and equity Parent Eliminations...

  • Page 114
    ...2008 ASSETS Current assets: Cash and cash equivalents Marketable securities Accounts receivable Intercompany accounts receivable (payable)...operations Total current liabilities Long-term debt Non-current liabilities Deferred income taxes Distributions in excess of inv in HEP Equity - Holly Corporation...

  • Page 115
    ... $ 58 Holly Corp. Non-Guarantor Before Non-Restricted Consolidation Subsidiaries (1) Eliminations of HEP (HEP Segment) (In thousands) $ $ 4,789,185 $ 146,561 Year Ended December 31, 2009 Sales and other revenues Operating costs and expenses: Cost of products sold Operating expenses General and...

  • Page 116
    ... Subsidiaries $ Holly Corp. Non-Guarantor Before Non-Restricted Consolidation Subsidiaries (1) Eliminations of HEP (HEP Segment) (In thousands) $ $ 4,791,742 $ - Year Ended December 31, 2007 Sales and other revenues Operating costs and expenses: Cost of products sold Operating expenses General and...

  • Page 117
    ... of marketable securities Acquisition of Tulsa Refinery Holly Corporation Investment in SLC Pipeline Proceeds from the sale of assets Proceeds from sale of RGPC Net cash provided by (used for) investing activities Cash flows from financing activities Net borrowings under credit agreement Issuance...

  • Page 118
    ... credit agreement Issuance of common stock upon exercise of options Dividends Distributions to noncontrolling interest Purchase of treasury stock Contribution from joint venture partner Excess tax benefit from equity based compensation Deferred financing costs Purchase of units for restricted grants...

  • Page 119
    ...) 154,117 94,369 (1) Includes Holly Corporation' s investment in HEP based on the equity method of accounting. NOTE 21: Significant Customers All revenues were domestic revenues, except for sales of gasoline and diesel fuel for export into Mexico by the Refining segment. The export sales were to...

  • Page 120
    ... 31, 2008 Sales and other revenues...Operating costs and expenses ...Income from operations ...Income from continuing operations before income taxes...Net income attributable to Holly Corporation stockholders...Net income per share attributable to Holly Corporation stockholders - basic.. Net income...

  • Page 121
    ... Certification In 2009, Matthew P. Clifton, as our Chief Executive Officer, provided to the New York Stock Exchange the annual CEO certification regarding our compliance with the New York Stock Exchange' s corporate governance listing standards. Item 11. Executive Compensation The information...

  • Page 122
    ... of Certain Beneficial Owners and Management and Related Stockholder Matters The equity compensation plan information required by Item 201(d) and the information required by Item 403 of Regulation S-K in response to this item is set forth in our definitive proxy statement for the annual meeting of...

  • Page 123
    ... and Financial Statement Schedules (a) Documents filed as part of this report (1) Index to Consolidated Financial Statements Page in Form 10-K Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2009 and 2008...Consolidated Statements of Income...

  • Page 124
    ...R. Shaw Bruce R. Shaw Senior Vice President and Chief Financial Officer (Principal Financial Officer) Vice President and Controller (Principal Accounting Officer) Vice President, General Counsel and Secretary Director February 26, 2010 /s/ Scott C. Surplus Scott C. Surplus /s/ Denise C. McWatters...

  • Page 125
    Signature /s/ Jack P. Reid Jack P. Reid Director Capacity Date February 26, 2010 /s/ Paul T. Stoffel Paul T. Stoffel Director February 26, 2010 -119-

  • Page 126
    ... Asset Sale and Purchase Agreement, dated October 19, 2009 by and between Holly Refining & Marketing-Tulsa LLC, HEP Tulsa LLC and Sinclair Tulsa Refining Company (incorporated by reference to Exhibit 2.1 of Registrant' s Current Report on Form 8-K filed October 21, 2009, File No. 1-03876). Amendment...

  • Page 127
    ...Agreement, dated as of June 1, 2009, by and among Holly Corporation, Navajo Refining Company, L.L.C., Holly Energy Partners, L.P., Holly Energy Partners - Operating, L.P., HEP Pipeline, L.L.C., Lovington-Artesia, L.L.C., HEP Logistics Holdings, L.P., Holly Logistic Services, L.L.C. and HEP Logistics...

  • Page 128
    ... and Restated Crude Pipelines and Tankage Agreement, dated as of December 1, 2009, by and among Navajo Refining Company, L.L.C., Holly Refining & Marketing Company - Woods Cross, Holly Refining & Marketing Company, Holly Energy Partners-Operating, L.P., HEP Pipeline, L.L.C. and HEP Woods Cross...

  • Page 129
    ...2008, File No. 13876). Holly Energy Partners, L.P. Employee Form of Change in Control Agreement (incorporated by reference to Exhibit 10.3 of Registrant' s Current Report on Form 8-K filed February 20, 2008, File No. 1-3876). Form of Executive Restricted Stock Agreement (incorporated by reference to...

  • Page 130
    ... Credit Agreement dated April 7, 2009 (incorporated by reference to Exhibit 10.5 of Registrant' s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, File No. 1-03876). Amended and Restated Credit Agreement, dated August 27, 2007, between Holly Energy Partners - Operating, L.P., Union...

  • Page 131
    ...Amended and Restated Credit Agreement) (incorporated by reference to Exhibit 10.15 of Holly Energy Partners, L.P.' s Annual Report on Form 10-K filed February 17, 2009, File No. 1-32225). Form of Indemnification Agreement entered into with directors and officers of Holly Corporation (incorporated by...

  • Page 132
    ...Tulsa LLC (6) HEP Woods Cross, L.L.C. (6) Holly Energy Finance Corp. (6) Holly Energy Partners, L.P. (5) Holly Energy Partners - Operating, L.P. (5), (6) Holly Logistics Services, L.L.C. Holly Petroleum, Inc. Holly Payroll Services, Inc. Holly Realty, LLC Holly Refining & Marketing - Tulsa LLC Holly...

  • Page 133
    ..., New Mexico 88210 (575) 748-3311 Holly Refining & Marketing Company Tulsa LLC 1700 South Union Avenue Tulsa, OK 74107 (918) 594-6000 Holly Refining & Marketing Company Woods Cross 393 South 800 West Woods Cross, Utah 84087-1435 (801) 299-6600 AUDITORS Ernst & Young LLP Dallas, Texas STOCK TRANSFER...

  • Page 134
    CORPORATION 100 Crescent Court Suite 1600 Dallas, Texas 75201-6915 HOLLY-AR-09