HollyFrontier 2010 Annual Report Download

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2010 ANNUAL REPORT

Table of contents

  • Page 1
    2010 ANNUAL REPORT

  • Page 2
    ... Oklahoma and a 31,000 bpsd refinery located 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 tankage and refined...

  • Page 3
    ...100 225,980 1,661 NAVAJO REFINERY 2010 Sales of Refinery Produced Products WOODS CROSS REFINERY 2010 Sales of Refinery Produced Products TULSA REFINERY 2010 Sales of Refinery Produced Products 92,550 BPD 27,810 BPD 107,780 BPD GASOLINES DIESEL FUELS JET FUELS FUEL OIL ASPHALT LPG & OTHERS 57...

  • Page 4
    ...the year, we continued enhancing our Navajo and Woods Cross Refineries. At the Navajo Refinery, in Artesia, New Mexico, we completed unit modifications and had successful test runs of heavy Canadian crude oil that will be supplied to the refinery from Cushing, Oklahoma. We expect to increase the use...

  • Page 5
    ...element of our Company's growth and success. 106 Significantly Advanced the UNEV Pipeline. Construction is well underway on our UNEV pipeline project linking our refinery in Utah to the Las Vegas market. The pipelines terminal facilities in Cedar City, Utah and North Las Vegas, Nevada are complete...

  • Page 6
    ... 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 LOUISIANA DALLAS TUCSON EL PASO NORTHERN MEXICO ARTESIA LOVINGTON STOCK PERFORMANCE...

  • Page 7
    ... Court, Suite 1600, Dallas, Texas (Address of principle executive offices) Registrant' s telephone number, including area code (214) 871-3555 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value registered on the New York Stock Exchange. Securities registered...

  • Page 8
    ... III 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...

  • Page 9
    ... with Frontier Oil Corporation, including our ability to complete the merger in the anticipated timeframe or at all, the diversion of management in connection with the merger and our ability to realize fully or at all the anticipated benefits of the merger; and other financial, operational and legal...

  • Page 10
    ... 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...

  • Page 11
    ...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...

  • Page 12
    ... Notes...Holly Asphalt...Holly Credit Agreement ...HPI ...HRM-Tulsa...LIBOR ...LIFO ...MDEQ...MRC ...MSAT2 ...Magellan ...Merger...NEP...NPDES...Navajo Refinery...Non-Guarantor Non-Restricted Subsidiaries ...Non-Guarantor Restricted Subsidiaries...ODEQ ...OHSB...OSHA ...OSHRC ...Plains...Plan ...PPI...

  • Page 13
    ... SDWA...SFPP ...SLC Pipeline...Sinclair...Sinclair Tulsa...Sunoco ...Tulsa Refinery ...Tulsa Refinery east facility...Tulsa Refinery west facility ...UNEV Pipeline ...VIE...Woods Cross Refinery...WRB ...26 12 9 8 43 8 8 8 8 9 8 9 13 Terms used in the financial statements and footnotes are as...

  • Page 14
    ... located in west Texas and New Mexico, on-site crude tankage located within the Woods Cross and Navajo 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
    ... Mexico. Our Woods Cross Refinery, located just north of Salt Lake City, Utah has a crude capacity of 31,000 BPSD and is operated by Holly Refining & Marketing Company - Woods Cross, one of our wholly-owned subsidiaries. The Woods Cross Refinery processes regional sweet and Canadian sour crude oils...

  • Page 16
    ...effective December 1, 2009 (our Tulsa Refinery east facility acquisition), increasing our consolidated crude capacity to 256,000 BPSD. (6) Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided...

  • Page 17
    ...commercial and specialty markets. Asphalt is sold to governmental entities or contractors. LPG' s are sold to LPG wholesalers and LPG retailers and carbon black oil is sold for further processing or blended into fuel oil. Navajo Refinery Facilities The Navajo Refinery has a crude oil capacity of 100...

  • Page 18
    ... turnaround in February 2010. We distribute refined products from the Navajo Refinery to markets in Arizona, New Mexico, west Texas and northern Mexico primarily through two of HEP' s pipelines that extend from Artesia, New Mexico to El Paso, Texas and from El Paso to Albuquerque and to Mexico...

  • Page 19
    ... companies located in west Texas, eastern New Mexico, northern New Mexico, the Gulf Coast and the West Coast. We supply approximately 17% - 20% of the refined products consumed in the Arizona market, comprised primarily of Phoenix and Tucson, via the SFPP Pipeline. New Mexico Markets The Artesia...

  • Page 20
    ... by rail directly to our customers or marketed through Holly Asphalt to governmental entities, contractors or manufacturers. LPG' s are sold to LPG wholesalers and LPG retailers and carbon black oil is sold for further processing. Crude Oil and Feedstock Supplies The Navajo Refinery is situated...

  • Page 21
    ... water treatment plant. These projects are expected to cost approximately $17 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...

  • Page 22
    ... 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 pipeline systems. Markets and Competition The Woods Cross Refinery is one...

  • Page 23
    ...the Las Vegas, Nevada market for refined products is supplied by various West Coast refiners and suppliers via Kinder Morgan' s CalNev common carrier pipeline system. Principal Products and Customers Set forth below is information regarding the principal products produced at our Woods Cross Refinery...

  • Page 24
    ... fourth quarter of 2009 (our December 2009 Tulsa Refinery east facility acquisition), increasing crude capacity to 125,000 BPSD. (6) Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under...

  • Page 25
    ... of tank capacity that are currently out of service and could be made available for future use. The Tulsa Refinery east facility is located on a 466-acre site also in Tulsa, Oklahoma situated along the Arkansas River. The principal process units at the Tulsa Refinery east facility consist of crude...

  • Page 26
    ...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 and is one of four refineries of specialty aromatic oils in North America. The refinery' s asphalt and...

  • Page 27
    ... by our Navajo, Woods Cross and Tulsa Refineries and third-party suppliers. We sell additional modified asphalt and commodity emulsions into the Arizona and California markets through a third-party processing agreement in Phoenix. Our products are shipped via third-party trucking companies to...

  • Page 28
    ... and refinery tankage in Texas, New Mexico, Arizona, Utah, Oklahoma, Idaho and Washington. HEP generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by leasing certain pipeline capacity to Alon by charging fees for terminalling refined...

  • Page 29
    ... 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. Transportation Agreements Agreements with HEP HEP serves our refineries in New Mexico, Utah and Oklahoma under...

  • 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
    ... west facility and a refined product, asphalt and LPG truck loading rack, a truck unloading rack and a rail loading rack at our Tulsa Refinery east facility; • a Roswell, New Mexico jet fuel terminal leased through September 2011; • on-site crude oil tankage at our Navajo, Woods Cross and Tulsa...

  • Page 32
    ...to facilitate compliance with the new emission standards. Our Navajo and Woods Cross Refineries as well as our Tulsa Refinery east facility produce non-road and highway diesel that meets the ultimate 15 PPM sulfur standard. Currently, however, our Tulsa Refinery west facility does not produce diesel...

  • Page 33
    ... include the owner or operator of the disposal site or sites where the release occurred and companies that disposed of...projects that relate to recovery, treatment and monitoring activities resulting from past releases of refined product and crude oil into the environment. As of December 31, 2010...

  • Page 34
    ... the construction of new refinery processing units (or the purchase and refurbishment of used units from another refinery) and the expansion of existing ones. Projects are generally initiated to increase the yields of higher-value products, increase the amount of lower cost crude oils that -28-

  • Page 35
    ... or maintain the operations of our 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...

  • Page 36
    ... adverse effect on our revenues and results of operations. We may incur significant costs to comply with new or changing environmental, energy, health and safety laws and regulations, and face potential exposure for environmental matters. Refinery and pipeline operations are subject to federal...

  • Page 37
    ... 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 38
    ...and trade programs. These cap and trade programs generally work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing plants, to acquire and on an annual basis surrender emission allowances. The number of allowances...

  • Page 39
    ... our products could adversely affect our earnings and profitability. 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 -33-

  • Page 40
    ... 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 41
    ... 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 42
    ... 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 through its pipelines, by leasing certain pipeline capacity to Alon, by charging fees for terminalling refined...

  • Page 43
    ...requirements. Uncertainty surrounding continued hostilities in the Middle East or other sustained military campaigns may affect our operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products, and the possibility that infrastructure facilities could...

  • Page 44
    ... substantial expenditures of management time and financial resources to identify and correct any such failure. Additionally, the failure to comply with Section 404 or the report by us of a "material weakness" may cause investors to lose confidence in our financial statements and our stock price may...

  • Page 45
    ... effect on our liquidity and limit our ability to purchase enough crude oil to operate our refineries at desired capacity. An unfavorable credit profile, or a significant increase in the price of crude oil, could affect the way crude oil suppliers view our ability to make payments and induce them to...

  • Page 46
    ... 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 47
    ...the FERC in proceedings brought by us and other parties against 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 48
    ... Occupational Safety and Health Administration ("OSHA") regulations, commenced an inspection in relation to the tank fire that took place on March 2, 2010 at the Navajo facility in Artesia, New Mexico. On August 31, 2010, OHSB issued two citations to Navajo Refining Company, LLC ("Navajo"), alleging...

  • Page 49
    ... Process Safety Management ("PSM") standard and the General Duty Clause. OSHA proposed penalties totaling $0.2 million. Sinclair filed a notice of contest, challenging the citations. Our subsidiary, Holly Refining & Marketing - Tulsa LLC ("HRM-Tulsa"), entered into an Asset Sale & Purchase Agreement...

  • Page 50
    ... and other factors. Our credit agreement and senior notes limit the payment of dividends. See Note 12 in the "Notes to Consolidated Financial Statements" under Item 8, "Financial Statements and Supplementary Data." There were no common stock repurchases during the fourth quarter of 2010. -44-

  • Page 51
    ... 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. 2010 FINANCIAL DATA(1) For the period Sales and other revenues ...Income from...

  • Page 52
    ... operating three refineries in Artesia and Lovington, New Mexico (operated as one refinery), Woods Cross, Utah and Tulsa, Oklahoma. As of December 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...

  • Page 53
    ...of the merger agreement which has been approved unanimously by both our and Frontier' s board of directors, Frontier shareholders will receive 0.4811 shares of Holly common stock for each share of Frontier common stock if the Merger is completed. See "Recent Developments" in Company Overview section...

  • Page 54
    Balance Sheet Data 2010 Cash, cash equivalents and investments in marketable securities ...Working capital ...Total assets ...Long-term debt - Holly Corporation ...Long-term debt - Holly Energy Partners ...Total equity...December 31, 2009 (In thousands) $ 230,444 $ 313,580 $ 3,701,475 $ 328,290 $ ...

  • Page 55
    ...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...

  • Page 56
    ... at our Navajo and Woods Cross Refineries. Additionally, 2009 levels reflect lower production 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...

  • Page 57
    ...production from our Tulsa Refinery facilities acquired in June and December 2009 and production gains resulting from our recent Navajo and Woods Cross Refinery capacity expansions. Also impacting production levels was scheduled downtime for major maintenance turnarounds at the Navajo Refinery in the...

  • Page 58
    ... of crude oil and feedstocks. Gross refining margin does not include the effects of depreciation or amortization. See "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 statement of...

  • Page 59
    ..., 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 December 31, 2010. At December...

  • Page 60
    ... 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 and...

  • Page 61
    ... 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 approximately 400,000 barrels of crude oil tankage at our Tulsa Refinery west facility as well as certain crude oil pipeline receiving...

  • Page 62
    ... initiatives in 2009 including refinery expansion projects. During the year ended December 31, 2009, we paid cash consideration of $267.1 million in connection with the Tulsa Refinery west and east facility acquisitions, invested $175.9 million in marketable securities and received proceeds of...

  • Page 63
    ...24 million for projects at the Navajo Refinery, $13 million for projects at the Woods Cross Refinery, $70 million for projects at the Tulsa Refinery, $69 million for our portion of the UNEV Pipeline project, $3 million for asphalt plant projects and $6 million for marketing-related and miscellaneous...

  • Page 64
    .... 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...

  • Page 65
    ... units in the open market for restricted unit grants. Additionally in 2008, we paid an aggregate of $0.9 million in deferred financing costs related to the amendment and restatement of the Holly Credit Agreement and the HEP Credit Agreement. Under our common stock repurchase program, we purchased...

  • Page 66
    ... with third parties for the transportation of crude oil, natural gas and feedstocks to our refineries under contracts expiring between 2016 and 2024. (6) We have entered into a long-term supply agreement to secure a hydrogen supply source for our Woods Cross hydrotreater unit. The contract commits...

  • 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, 2010, the excess of current cost over the LIFO inventory value of our crude oil and refined product inventories was $284 million. An...

  • Page 68
    ... financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit. Commodity Price Risk Management Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as...

  • Page 69
    ...Credit Agreement debt. In May 2010, HEP repaid $16 million of the HEP Credit Agreement debt and also settled a corresponding portion of its interest rate swap agreement...sheet locations and related fair values of outstanding derivative instruments. Derivative Instruments December 31, 2010 Derivatives ...

  • Page 70
    ... but not the fair value. At December 31, 2010, borrowings outstanding under the HEP Credit Agreement were $159 million. By means of its cash ...market interest rates on our investment portfolio. Our operations are subject to normal hazards of operations, including fire, explosion and weather-related...

  • Page 71
    ...) 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...

  • Page 72
    ... 31, 2009 2008 2010 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
    ...sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost. (4) Other refining segment revenue includes revenues associated with Holly Asphalt and revenue derived from feedstock and sulfur credit sales. Years Ended...

  • Page 74
    ... of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost. (4) Other refining segment cost of products sold includes the cost of products for Holly Asphalt and costs attributable to feedstock and sulfur credit sales. 2010...

  • Page 75
    ... of reported numbers. (2) Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of Holly Asphalt. Years Ended December 31, 2009 2008 $ 5.24 151,580 365 289,711 $ 5.14 111,950 366 210,912 2010 Average refinery operating...

  • 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. (4) Other refining segment revenue includes the revenues associated with Holly Asphalt and revenue derived from feedstock and sulfur credit sales. Years...

  • Page 77
    ... Statements and Supplementary Data MANAGEMENT'S REPORT ON ITS ASSESSMENT OF THE COMPANY'S INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Holly Corporation (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting. All internal control...

  • Page 78
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Holly Corporation We have audited Holly Corporation' s (the "Company") internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the...

  • Page 79
    ... to Consolidated Financial Statements Page Reference Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2010 and 2009...Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008...Consolidated Statements of Cash Flows...

  • Page 80
    ... 31, 2010, in conformity with U.S. generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Holly Corporation' s internal control over financial reporting as of December 31, 2010, based on...

  • Page 81
    ... 31, 2010 ASSETS Current assets: Cash and cash equivalents (HEP: $403 and $2,508, respectively) ...Marketable securities ...Accounts receivable, net: Product and transportation (HEP: $22,508 and $18,767, respectively) ...Crude oil resales ...Inventories: Crude oil and refined products...Materials...

  • Page 82
    ... 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 83
    ... - Holly Corporation ...Additions to properties, plants and equipment - Holly Energy Partners...Acquisition of Tulsa Refinery facilities - Holly Corporation...Acquisition of logistics assets from Sinclair Oil Company - Holly Energy Partners ...Investment in SLC Pipeline - Holly Energy Partners...

  • Page 84
    ... from joint venture partner...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 units for restricted grants ...Purchase of treasury stock...Other ...Balance at...

  • Page 85
    ... (loss) before income taxes...Income tax expense (benefit) ...Other comprehensive income (loss)...Total comprehensive income ...Less noncontrolling interest in comprehensive income (loss)...Comprehensive income attributable to Holly Corporation stockholders ...See accompanying notes. $ 133,051...

  • Page 86
    ... "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 87
    ...quantities to certain locations. In many cases, we enter into 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...

  • Page 88
    ... information. Revenue Recognition: Refined product sales and related cost of sales are recognized when products are shipped and title has passed to customers. HEP recognizes pipeline transportation revenues as products are shipped through its pipelines. All revenues are reported inclusive of...

  • Page 89
    ... (see Note 12). On December 1, 2009, we acquired the Tulsa Refinery east facility, a 75,000 BPSD refinery from an affiliate of Sinclair Oil Company ("Sinclair") also located in Tulsa, Oklahoma for $183.3 million, including crude oil, refined product and other inventories valued at $46.4 million. The...

  • Page 90
    ... 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...

  • Page 91
    ... 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 92
    ...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 93
    ... the HEP Credit Agreement and for general partnership purposes. Transactions prior to Reconsolidation 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...

  • Page 94
    ... for awards of options, restricted stock, or other performance awards. 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 HEP' s share-based compensation plans for the...

  • Page 95
    ... 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...

  • Page 96
    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 ...

  • Page 97
    ...Inventory consists of the following components: December 31, 2010 (In thousands) 2009 $ 60,874 42,783 155,925 22,823 21,108 $ 303,513 Crude oil...Other raw materials and unfinished products (1) ...Finished products (2) ...Process chemicals (3) ...Repairs and maintenance supplies and other ...Total...

  • Page 98
    ...-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 (the "UNEV Pipeline"). Under the agreement, we own a 75% interest in the joint venture pipeline with Sinclair, our joint venture partner...

  • Page 99
    ... 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 and...

  • Page 100
    ... 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 In October 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...

  • Page 101
    ... Activities Commodity Price Risk Management Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into...

  • Page 102
    ...locations and related fair values of outstanding derivative instruments. Derivative Instruments December 31, 2010... swap contract ($171 million LIBOR based debt interest payments) Derivatives not ...2010, we recognized a $1.3 million charge to cost of products sold and a $0.4 million charge to operating...

  • Page 103
    ... operations as of December 31, 2010 and 2009 are as follows: Assets Deferred taxes Accrued employee benefits...Accrued postretirement benefits ...Accrued environmental costs...Inventory differences ...Deferred turnaround costs...Prepayments and other...Total current(1) ...Properties, plants...

  • Page 104
    ...: 2010 Years Ended December 31, 2009 2008 Common shares outstanding at beginning of year ...Common shares issued to Sinclair in connection with Tulsa Refinery east facility acquisition Issuance of common stock upon exercise of stock options...Issuance of restricted stock, excluding restricted stock...

  • Page 105
    ... Act of 1974. Benefits are based on the employee' s years of service and compensation. The retirement plan is closed to employees hired subsequent to 2006 and not covered by collective bargaining agreements with labor unions. To the extent a non-union employee was hired prior to January 1, 2007...

  • Page 106
    ... agreements with labor unions. To the extent a union employee was hired prior to July 1, 2010, the employee may elect to continue their participation in the retirement plan or to participate in our defined contribution plan whereby their participation in future benefits of the retirement plan...

  • Page 107
    ...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 $0.6 million, $0.7 million and $1.1 million for the years ended December 31, 2010, 2009 and 2008, respectively, in connection...

  • Page 108
    ... 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 109
    ... 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...

  • Page 110
    ... 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...

  • Page 111
    ...Holly Corp. Before Consolidation Eliminations of HEP (In thousands) Non-Guarantor Non-Restricted Subsidiaries (HEP Segment) December 31, 2010 ASSETS Current assets: Cash and cash equivalents Marketable... of inv in HEP Equity - Holly Corporation Equity - noncontrolling interest Total liabilities and...

  • Page 112
    ... $ 3 Holly Corp. Before Consolidation Eliminations of HEP (In thousands) $ $ 8,287,415 Non-Guarantor Non-Restricted Subsidiaries (HEP Segment) $ 182,114 Year Ended December 31, 2010 Sales and other revenues Operating costs and expenses: Cost of products sold Operating expenses General and...

  • Page 113
    ...- Holly Purchase of treasury stock Contribution from joint venture partner Dividends Purchase price in excess of transferred basis in assets Distributions to noncontrolling interest Excess tax expense from equity based compensation Deferred financing costs Purchase of units for HEP restricted grants...

  • Page 114
    ... 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 115
    ... Oil Corporation ("Frontier"). Subject to the terms and conditions of the merger agreement which has been approved unanimously by both our and Frontier' s board of directors, Frontier shareholders will receive 0.4811 shares of Holly common stock for each share of Frontier common stock if the merger...

  • Page 116
    ... proxy statement for the annual meeting of stockholders to be held on May 12, 2011 and is incorporated herein by reference. New York Stock Exchange Certification In 2010, Matthew P. Clifton, as our Chief Executive Officer, provided to the New York Stock Exchange the annual CEO certification...

  • Page 117
    ... 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 118
    ... 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, 2010 and 2009...Consolidated Statements of Income...

  • Page 119
    ... report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated. Signature /s/ Matthew P. Clifton Matthew P. Clifton /s/ Bruce R. Shaw Bruce R. Shaw /s/ Scott C. Surplus Scott C. Surplus /s/ Denise C. McWatters Denise C. McWatters...

  • Page 120
    ... Amendment No. 1 to Asset Sale and Purchase Agreement, dated December 1, 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 December 7, 2009, File No...

  • Page 121
    ... 4.1 of Holly Energy Partners, L.P.' s Current Report on Form 8-K filed March 11, 2010, File No. 1-32225). First Supplemental Indenture, dated April 14, 2010, among Holly Energy Storage-Tulsa LLC, Holly Energy Storage-Lovington LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other...

  • Page 122
    ...Restated Intermediate Pipelines Agreement, dated 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...

  • Page 123
    ...Current Report dated December 7, 2009, File No. 103876). Pipeline Systems Operating Agreement, dated 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...

  • Page 124
    ... (East Tulsa), dated March 31, 2010, by and among Holly Refining & Marketing-Tulsa, LLC, HEP Tulsa LLC and Holly Energy StorageTulsa LLC (incorporated by reference to Exhibit 10.4 of Registrant' s Current Report on Form 8-K filed April 6, 2010, File No. 1-03876). Holly Corporation Stock Option Plan...

  • Page 125
    ... Holly Corporation and Matthew P. Clifton (incorporated by reference to Exhibit 10.8 of Registrant' s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, File No. 1-03876). Executive Restricted Stock Agreement, dated March 12, 2010, by and between Holly Corporation and David...

  • Page 126
    ... Exhibit 10.2 of Registrant' s Current Report on Form 8-K filed May 11, 2010, File No. 1-03876). Amended and Restated Credit Agreement, dated August 27, 2007, between Holly Energy Partners - Operating, L.P., Union Bank of California, N.A., as administrative agent, issuing bank and sole lead arranger...

  • Page 127
    ... Holly Energy Partners - Operating, L.P., certain of its subsidiaries, and Union Bank of California, N.A., as administrative agent (entered into in connection with the Amended and Restated Credit Agreement) (incorporated by reference to Exhibit 10.12 of Holly Energy Partners, L.P.' s Annual Report...

  • Page 128
    ... - Woods Cross LLC Holly Refining Communications, Inc. Holly Transportation LLC Holly UNEV Pipeline Company Holly Utah Holdings, Inc. Holly Western Asphalt Company Hollymarks, LLC HRM Realty, LLC Lea Refining Company Lorefco, Inc. Lovington-Artesia, L.L.C.(6) HRM Montana Montana Retail Corporation...

  • Page 129
    ... of Holly Refining & Marketing Company LLC. (3) Officer of Holly Logistic Services, L.L.C. EXECUTIVE OFFICERS Matthew P. Clifton (1)(2) Chairman of the Board and Chief Executive Officer David L. Lamp (2) President George J. Damiris (2) Senior Vice President, Supply and Marketing Bruce R. Shaw...

  • Page 130
    100 Crescent Court Suite 1600 Dallas, Texas 75201-6915 HOLLY-AR-10