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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon. My name is Chastity. And I will be your conference operator today. At this time I would like to welcome everyone to the Holly Partners second quarter 2008 earnings conference call. (Operator Instructions).
Thank you. I will now turn the conference over to Neale Hickerson. Please go ahead, sir.
NEALE HICKERSON, VP, IR, HOLLY ENERGY PARTNERS LP: Well, thank you, and good morning, everyone. Welcome to our Holly Energy Partners second quarter earnings call. I'm Neale Hickerson, Vice President of Investor Relations at HEP. With us today from HEP are Matt Clifton, Chairman and CEO; Bruce Shaw, Senior Vice President and Chief Financial Officer; David Blair, Senior Vice President; and Scott Surplus, Vice President and Controller.
We issued a press release this morning announcing the results for our second quarter, ended June 30, 2008. This press release can be found on the HEP Website at www.hollycorp.com.
This afternoon we'll begin with Bruce's comments regarding our financial performance for the quarter. Matt will then have some comments on our quarter, our year to date, and some additional comments regarding HEP. At the conclusion of those remarks, we'll have some time available for questions.
Before we turn things over to Bruce and Matt for their comments, we're required to make the following Safe Harbor Disclosure Statement. Also, please note the Safe Harbor Statement in our press release from this morning. The following is a Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements in this earnings call related to matters that are not historical facts are forward-looking statements based on management's beliefs and assumptions using currently available information and expectations as of this date and are not guarantees of future performance and do involve certain risk and uncertainties, including those contained in our filings from time to time with the Securities and Exchange Commission. Although the Partnership believes that the expectations reflected in these statements is reasonable, it cannot give any assurances that these will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied, or forecasted in these statements. The Partnership assumes no duty to publicly update or revise such statements, whether as a result of new information, future events, or otherwise.
And now, let me turn things over to Bruce Shaw.
BRUCE SHAW, EVP, CFO, HOLLY ENERGY PARTNERS LP: Thanks, Neale. As Neale mentioned, my comments will cover financial highlights for the quarter. Our distributable cash flow for the second quarter ended June 30, 2008 was $14 million versus $12.4 million for the same period last year, up about 12.9%. As you know, we declared an increase in our distribution to $0.745 per unit on July 25, a 5.7% increase over the $0.705 per unit we declared this time last year, our fourteenth consecutive increase.
Our net income for the quarter was $3.8 million, or $0.18 per unit, versus $11 million, or $0.64 per unit, for the same time period last year. Our strong growth in distributable cash flow, despite the decrease in net income for the quarter, is due to our contractual minimum commitments that we have in place with both Holly and Alon. The majority of payments we received from Holly and Alon, under their minimum commitments, are counted as deferred revenue until such time as they can be recognized.
It's important to remind everyone of what we consider to be a very important positive attribute of HEP, and that is the downside protection provided by these minimum commitments. You may recall a slide regarding these minimum commitments as a part of our Webcast presentation during last quarter's call on April 29. Our current minimum commitments from our major customers exceed $100 million on an annualized basis, which represents over 75% of our expected total annual revenues. It's clear from our very strong quarterly distributable cash flow during outages experienced by our major customers this quarter that these minimum commitments are functioning as designed. We recognized lower revenues in the quarter because of the continued partial operation of Alon's Big Spring refinery and unscheduled downtime at Holly's Navajo refinery that resulted in lower volumes for our pipelines and terminals. These decreases were partially offset by an increase in revenues attributable to our crude pipeline assets that we purchased from Holly in the first quarter. Operating expenses of approximately $10 million for the quarter were about $1.8 million greater than those in 2Q '07 due to our recent crude pipeline acquisition from Holly. However, they were approximately $0.5 million lower than the expected run rate for the quarter as a result of lower variable cost due to lower pipeline and terminal volumes transported. Deferred revenue recorded for the first quarter for shipments below committed volumes was $5.6 million, including $0.9 million for Holly's intermediate pipelines and $4.7 million for third-party pipelines. Offsetting this amount was total forfeitures of $0.7 million, including $0.2 million for Holly's intermediate pipeline shipments and $0.5 million for third-party pipeline movements. The net of these amounts resulted in an increase of approximately $4.9 million in deferred revenue for the quarter. EBITDA for the quarter was $15.2 million, which is lower than expectations and the $17.5 million last year, primarily due to the lower transportation volumes that I discussed earlier. If you include the …