Press Release Details

HollyFrontier Corporation Reports Quarterly Net Income

02/21/2018

DALLAS--(BUSINESS WIRE)-- HollyFrontier Corporation (NYSE: HFC) (“HollyFrontier” or the “Company”) today reported fourth quarter net income attributable to HollyFrontier stockholders of $521.1 million or $2.92 per diluted share for the quarter ended December 31, 2017 compared to $53.2 million or $0.30 per diluted share for the quarter ended December 31, 2016.

The fourth quarter results reflect special items that collectively increased net income by a total of $396.5 million. On a pre-tax basis, these items include a lower of cost or market inventory valuation adjustment of $93.4 million, a $27.0 million reduction to RINs costs as a result of our Woods Cross refinery's small refinery exemption and HollyFrontier's pro-rata share of Holly Energy Partners' remeasurement gain on pipeline acquisitions of $21.4 million, slightly offset by $4.4 million of integration costs related to our Petro-Canada Lubricants Inc. (“PCLI”) acquisition. Additionally, the effect of the Tax Cuts and Jobs Act enacted in December 2017 reduced income taxes by approximately $307.0 million.

Excluding these items, net income for the current quarter was $124.6 million ($0.70 per diluted share) compared to a net loss of ($10.0) million (($0.06) per diluted share) for the fourth quarter 2016, which excludes an inventory valuation adjustment and PCLI pre-acquisition costs that collectively increased net income by $63.2 million. Adjusted for these items, net income for the quarter increased $134.6 million compared to the same period of 2016 driven by both higher sales volumes and refining margins combined with earnings attributable to our recently acquired PCLI operations. For the current quarter, crude oil charges averaged 461,110 barrels per day (“BPD”) compared to 432,070 BPD for the fourth quarter of 2016. On a per barrel basis, consolidated refinery gross margin was $12.54 per produced barrel sold, an 85% increase compared to $6.77 for the fourth quarter of 2016. Total operating expenses for the quarter were $349.8 million compared to $258.7 million for the fourth quarter of last year and include $64.0 million in costs attributable to our PCLI operations.

HollyFrontier’s President & CEO, George Damiris, commented, “In comparison to last year, HollyFrontier's significant financial improvement for the fourth quarter reflects both better refinery operations and the improved macroeconomic environment. Additionally, Lubricants and Specialty Products had a strong fourth quarter led by the Rack Forward Business. We are excited about 2018 based on our improving refinery reliability, our positive outlook for both product cracks and crude spreads, as well as the growth potential of converting a higher percentage of base oil sales into finished products."

For the fourth quarter of 2017, net cash provided by operations totaled $166.0 million. During the period, we declared and paid a dividend of $0.33 per share to shareholders totaling $59.0 million. At December 31, 2017, our cash and cash equivalents totaled $630.8 million and our consolidated debt was $2.5 billion. Our debt, exclusive of Holly Energy Partners' debt which is nonrecourse to HollyFrontier, was $991.7 million at December 31, 2017.

The Company has scheduled a webcast conference call for today, February 21, 2018, at 8:30 AM Eastern Time to discuss fourth quarter financial results. This webcast may be accessed at: https://event.webcasts.com/starthere.jsp?ei=1177986&tp_key=757b7364b3. An audio archive of this webcast will be available using the above noted link through March 7, 2018.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day (“BPSD”) refinery located in El Dorado, Kansas, two refinery facilities with a combined capacity of 125,000 BPSD located in Tulsa, Oklahoma, a 100,000 BPSD refinery located in Artesia, New Mexico, a 52,000 BPSD refinery located in Cheyenne, Wyoming and a 45,000 BPSD refinery in Woods Cross, Utah. HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier, through its subsidiary, owns Petro-Canada Lubricants Inc. whose Mississauga, Ontario facility produces 15,600 barrels per day of base oils and other specialized lubricant products, and also owns a 57% limited partner interest and a non-economic general partner interest in Holly Energy Partners, L.P.

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are “forward-looking statements” based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Any differences could be caused by a number of factors, including, but not limited to, risks and uncertainties with respect to the following:

  • the actions of actual or potential competitive suppliers of refined petroleum products in the Company’s markets;
  • the demand for and supply of crude oil and refined products;
  • the spread between market prices for refined products and market prices for crude oil;
  • the possibility of constraints on the transportation of refined products;
  • the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines;
  • effects of governmental and environmental regulations and policies;
  • the availability and cost of financing to the Company;
  • the effectiveness of the Company’s capital investments and marketing strategies;
  • the Company’s efficiency in carrying out construction projects;
  • the ability of the Company to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate any future acquired operations;
  • the possibility of terrorist attacks and the consequences of any such attacks;
  • general economic conditions; and
  • other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings.

The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)

   
Three Months Ended
December 31, Change from 2016
2017   2016 Change   Percent
(In thousands, except per share data)
Sales and other revenues $ 3,992,705 $ 2,955,068 $ 1,037,637 35 %
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 3,184,672 2,550,772 633,900 25
Lower of cost or market inventory valuation adjustment (93,362 ) (97,656 ) 4,294   (4 )
3,091,310 2,453,116 638,194 26
Operating expenses 349,797 258,688 91,109 35
Selling, general and administrative expenses 80,215 37,378 42,837 115
Depreciation and amortization 105,731   93,594   12,137   13
Total operating costs and expenses 3,627,053   2,842,776   784,277   28
Income from operations 365,652 112,292 253,360 226
 
Other income (expense):
Earnings of equity method investments 1,545 4,058 (2,513 ) (62 )
Interest income 1,667 1,111 556 50
Interest expense (32,063 ) (26,304 ) (5,759 ) 22
Loss on foreign currency swap (6,520 ) 6,520 (100 )
Loss on foreign currency transactions (2,596 ) (2,596 )
Remeasurement gain on HEP pipeline interest acquisitions 36,254 36,254
Other, net 803   (1,221 ) 2,024   (166 )
5,610   (28,876 ) 34,486   (119 )
Income before income taxes 371,262 83,416 287,846 345
Income tax (benefit) expense (185,972 ) 12,952   (198,924 ) (1,536 )
Net income 557,234 70,464 486,770 691
Less net income attributable to noncontrolling interest 36,152   17,299   18,853   109
Net income attributable to HollyFrontier stockholders $ 521,082   $ 53,165   $ 467,917   880 %
 
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 2.94   $ 0.30   $ 2.64   880 %
Diluted $ 2.92   $ 0.30   $ 2.62   873 %
Cash dividends declared per common share $ 0.33   $ 0.33   $   %
Average number of common shares outstanding:
Basic 176,265 175,936 329 %
Diluted 177,457 176,137 1,320 1 %
EBITDA $ 471,237 $ 184,904 $ 286,333 155 %
Adjusted EBITDA $ 333,921 $ 100,654 $ 233,267 232 %
 
   
Years Ended December 31, Change from 2016
2017   2016 Change   Percent
(In thousands, except per share data)
Sales and other revenues $ 14,251,299 $ 10,535,700 $ 3,715,599 35 %
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 11,467,799 8,765,927 2,701,872 31
Lower of cost or market inventory valuation adjustment (108,685 ) (291,938 ) 183,253   (63 )
11,359,114 8,473,989 2,885,125 34
Operating expenses 1,294,234 1,018,839 275,395 27
Selling, general and administrative expenses 264,874 125,648 139,226 111
Depreciation and amortization 409,937 363,027 46,910 13
Goodwill and asset impairment 19,247   654,084   (634,837 ) (97 )
Total operating costs and expenses 13,347,406   10,635,587   2,711,819   25
Income (loss) from operations 903,893 (99,887 ) 1,003,780 (1,005 )
 
Other income (expense):
Earnings of equity method investments 12,510 14,213 (1,703 ) (12 )
Interest income 3,736 2,491 1,245 50
Interest expense (117,597 ) (72,192 ) (45,405 ) 63
Loss on early extinguishment of debt (12,225 ) (8,718 )

 

(3,507 ) 40
Gain (loss) on foreign currency swap 24,545 (6,520 ) 31,065 (476 )
Gain on foreign currency transactions 16,921 16,921
Remeasurement gain on HEP pipeline interest acquisitions 36,254 36,254
Other, net 826   (921 ) 1,747   (190 )
(35,030 ) (71,647 ) 36,617   (51 )
Income (loss) before income taxes 868,863 (171,534 ) 1,040,397 (607 )
Income tax (benefit) expense (12,379 ) 19,411   (31,790 ) (164 )
Net income (loss) 881,242 (190,945 ) 1,072,187 (562 )
Less net income attributable to noncontrolling interest 75,847   69,508   6,339   9
Net income (loss) attributable to HollyFrontier stockholders $ 805,395   $ (260,453 ) $ 1,065,848   (409 )%
 
Earnings (loss) per share attributable to HollyFrontier stockholders:
Basic $ 4.54   $ (1.48 ) $ 6.02   (407 )%
Diluted $ 4.52   $ (1.48 ) $ 6.00   (405 )%
Cash dividends declared per common share $ 1.32   $ 1.32   $   %
Average number of common shares outstanding:
Basic 176,174 176,101 73 %
Diluted 177,196 176,101 1,095 1 %
EBITDA $ 1,329,039 $ 200,404 $ 1,128,635 563 %
Adjusted EBITDA $ 1,179,479 $ 575,956 $ 603,523 105 %
 

Balance Sheet Data

 
December 31,
2017   2016
(In thousands)
Cash, cash equivalents and short-term marketable securities $ 630,757 $ 1,134,727
Working capital $ 1,640,118 $ 1,767,780
Total assets $ 10,692,154 $ 9,435,661
Long-term debt $ 2,498,993 $ 2,235,137
Total equity $ 5,896,940 $ 5,301,985
 

Segment Information

Effective fourth quarter of 2017, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages and allocates resources to our business. Accordingly, our Tulsa refineries' lubricants operations, previously reported in the Refining segment, are now combined with the operations of our Petro-Canada lubricants business (acquired February 1, 2017) and reported in the Lubricants and Specialty Products segment. Our prior period segment information has been retrospectively adjusted to reflect our current segment presentation.

Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under Corporate, Other and Eliminations column. The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and HFC Asphalt (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. HFC Asphalt operates various terminals in Arizona, New Mexico and Oklahoma.

The Lubricants and Specialty Products segment involves PCLI's production operations, located in Mississauga, Ontario, that include lubricant products such as base oils, white oils, specialty products and finished lubricants and the operations of our Petro-Canada business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa Refineries that are marketed throughout North America and are distributed in Central and South America.

The HEP segment involves all of the operations of HEP, a consolidated variable interest entity, which owns and operates logistics assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery process units in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. At December 31, 2017, the HEP segment also includes a 75% interest in UNEV Pipeline (an HEP consolidated subsidiary), and a 50% ownership interest in each of the Osage Pipeline and Cheyenne Pipeline. 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. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP's periodic public filings.

         

Lubricants

Corporate,

and Specialty

Other and Consolidated
Refining Products HEP Eliminations Total
(In thousands)
Three Months Ended December 31, 2017
Sales and other revenues:
Revenues from external customers $ 3,546,444 $ 415,693 $ 29,399 $ 1,169 $ 3,992,705
Intersegment revenues 70,262     99,822   (170,084 )  
$ 3,616,706 $ 415,693 $ 129,221 $ (168,915 ) $ 3,992,705
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) $ 3,059,588 $ 275,003 $ $ (149,919 ) $ 3,184,672
Lower of cost or market inventory valuation adjustment $ (92,114 ) $ (1,248 ) $ $ $ (93,362 )
Operating expenses $ 264,820 $ 67,666 $ 35,021 $ (17,710 ) $ 349,797
Selling, general and administrative expenses $ 31,608 $ 33,659 $ 5,451 $ 9,497 $ 80,215
Depreciation and amortization $ 70,500 $ 11,324 $ 21,145 $ 2,762 $ 105,731
Income (loss) from operations $ 282,304 $ 29,289 $ 67,604 $ (13,545 ) $ 365,652
Earnings of equity method investments $ $ $ 1,545 $ $ 1,545
Capital expenditures $ 46,295 $ 10,691 $ 14,135 $ 8,021 $ 79,142
 
         

Lubricants

Corporate,

and Specialty

Other and Consolidated
Refining Products HEP Eliminations Total
(In thousands)
Three Months Ended December 31, 2016
Sales and other revenues
Revenues from external customers $ 2,823,701 $ 112,685 $ 18,833 $ (151 ) $ 2,955,068
Intersegment revenues 74,317     93,693   (168,010 )  
$ 2,898,018 $ 112,685 $ 112,526 $ (168,161 ) $ 2,955,068
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) $ 2,608,746 $ 89,087 $ $ (147,061 ) $ 2,550,772
Lower of cost or market inventory valuation adjustment $ (96,436 ) $ (1,220 ) $ $ $ (97,656 )
Operating expenses $ 239,869 $ 3,229 $ 34,819 $ (19,229 ) $ 258,688
Selling, general and administrative expenses $ 25,045 $ 786 $ 3,914 $ 7,633 $ 37,378
Depreciation and amortization $ 71,745 $ 228 $ 18,841 $ 2,780 $ 93,594
Income (loss) from operations $ 49,049 $ 20,575 $ 54,952 $ (12,284 ) $ 112,292
Earnings of equity method investments $ $ $ 4,058 $ $ 4,058
Capital expenditures $ 77,722 $ 638 $ 11,480 $ 2,473 $ 92,313
 

Year Ended December 31, 2017

Sales and other revenues
Revenues from external customers $ 12,579,672 $ 1,594,036 $ 77,225 $ 366 $ 14,251,299
Intersegment revenues 338,390     377,137   (715,527 )  
$ 12,918,062 $ 1,594,036 $ 454,362 $ (715,161 ) $ 14,251,299
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) $ 11,009,345 $ 1,093,984 $ $ (635,530 ) $ 11,467,799
Lower of cost or market inventory valuation adjustment $ (107,479 ) $ (1,206 ) $ $ $ (108,685 )
Operating expenses $ 1,006,675 $ 222,461 $ 137,605 $ (72,507 ) $ 1,294,234
Selling, general and administrative expenses $ 103,067 $ 105,112 $ 14,323 $ 42,372 $ 264,874
Depreciation and amortization $ 289,434 $ 31,894 $ 77,660 $ 10,949 $ 409,937
Goodwill and asset impairment $ 19,247 $ $ $ $ 19,247
Income (loss) from operations $ 597,773 $ 141,791 $ 224,774 $ (60,445 ) $ 903,893
Earnings of equity method investments $ $ $ 12,510 $ $ 12,510
Capital expenditures $ 176,533 $ 31,464 $ 44,810 $ 19,452 $ 272,259
 
Year Ended December 31, 2016
Sales and other revenues
Revenues from external customers $ 10,002,831 $ 464,359 $ 68,927 $ (417 ) $ 10,535,700
Intersegment revenues 317,884     333,116   (651,000 )  
$ 10,320,715 $ 464,359 $ 402,043 $ (651,417 ) $ 10,535,700
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) $ 9,003,505 $ 377,136 $ $ (614,714 ) $ 8,765,927
Lower of cost or market inventory valuation adjustment $ (287,848 ) $ (4,090 ) $ $ $ (291,938 )
Operating expenses $ 909,724 $ 13,867 $ 123,984 $ (28,736 ) $ 1,018,839
Selling, general and administrative expenses $ 92,297 $ 2,899 $ 12,532 $ 17,920 $ 125,648
Depreciation and amortization $ 281,701 $ 620 $ 68,811 $ 11,895 $ 363,027
Goodwill and asset impairment $ 654,084 $ $ $ $ 654,084
Income (loss) from operations $ (332,748 ) $ 73,927 $ 196,716 $ (37,782 ) $ (99,887 )
Earnings of equity method investments $ $ $ 14,213 $ $ 14,213
Capital expenditures $ 357,407 $ 5,708 $ 107,595 $ 9,080 $ 479,790
 
December 31, 2017
Cash, cash equivalents and short-term marketable securities $ 7,488 $ 41,756 $ 7,776 $ 573,737 $ 630,757
Total assets $ 6,474,666 $ 1,610,472 $ 2,191,984 $ 415,032 $ 10,692,154
Long-term debt $ $ $ 1,507,308 $ 991,685 $ 2,498,993
 
December 31, 2016
Cash, cash equivalents and short-term marketable securities $ 49 $ $ 3,657 $ 1,131,021 $ 1,134,727
Total assets $ 6,048,091 $ 465,715 $ 1,920,487 $ 1,001,368 $ 9,435,661
Long-term debt $ $ $ 1,243,912 $ 991,225 $ 2,235,137
 

Refining Segment Operating Data

The following tables set forth information, including non-GAAP performance measures about our refinery operations. Refinery gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” below.

During the fourth quarter of 2017, we revised the following refining segment operating data computations: refinery gross margin; net operating margin; and operating expenses to better align with similar measurements provided by other companies in our industry and to facilitate comparison of our refining performance relative to our peers. Effective with this change, these measurements are now inclusive of all refining segment activities including HFC asphalt operations and revenues and costs related to products purchased for resale and excess crude oil sales. All prior period data has been retrospectively adjusted to reflect our current presentation.

   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016

Mid-Continent Region (El Dorado and Tulsa Refineries)

Crude charge (BPD) (1) 270,180 272,520 261,380 262,170
Refinery throughput (BPD) (2) 289,050 289,990 277,940 280,920
Sales of produced refined products (BPD) (3) 277,560 285,800 260,800 262,300
Refinery utilization (4) 103.9 % 104.8 % 100.5 % 100.8 %
 
Average per produced barrel sold (5)
Refinery gross margin (6) $ 11.42 $ 6.04 $ 9.91 $ 7.44
Refinery operating expenses (7) 5.09   4.27   5.15   4.73  
Net operating margin $ 6.33   $ 1.77   $ 4.76   $ 2.71  
 
Refinery operating expenses per throughput barrel (8) $ 4.89 $ 4.21 $ 4.83 $ 4.42
 
Feedstocks:
Sweet crude oil 59 % 59 % 61 % 58 %
Sour crude oil 19 % 19 % 17 % 18 %
Heavy sour crude oil 16 % 16 % 16 % 17 %
Other feedstocks and blends 6 % 6 % 6 % 7 %
Total 100 % 100 % 100 % 100 %
 
Sales of produced refined products:
Gasolines 53 % 52 % 50 % 50 %
Diesel fuels 32 % 31 % 33 % 33 %
Jet fuels 7 % 8 % 7 % 7 %
Fuel oil 1 % 1 % 1 % 1 %
Asphalt 2 % 2 % 3 % 3 %
Base oils 3 % 4 % 4 % 4 %
LPG and other 2 % 2 % 2 % 2 %
Total 100 % 100 % 100 % 100 %
 
   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
Southwest Region (Navajo Refinery)
Crude charge (BPD) (1) 110,980 92,450 100,040 98,090
Refinery throughput (BPD) (2) 121,400 100,720 109,280 107,690
Sales of produced refined products (BPD) (3) 122,710 105,180 111,630 111,390
Refinery utilization (4) 111.0 % 92.5 % 100 % 98.1 %
 
Average per produced barrel sold (5)
Refinery gross margin (6) $ 12.91 $ 9.14 $ 12.40 $ 9.49
Refinery operating expenses (7) 4.71   5.35   5.20   5.05  
Net operating margin $ 8.20   $ 3.79   $ 7.20   $ 4.44  
 
Refinery operating expenses per throughput barrel (8) $ 4.76 $ 5.59 $ 5.31 $ 5.23
 
Feedstocks:
Sweet crude oil 31 % 25 % 25 % 28 %
Sour crude oil 61 % 67 % 66 % 63 %
Other feedstocks and blends 8 % 8 % 9 % 9 %
Total 100 % 100 % 100 % 100 %
 
Sales of produced refined products:
Gasolines 51 % 52 % 51 % 52 %
Diesel fuels 40 % 38 % 39 % 39 %
Fuel oil 3 % 4 % 3 % 3 %
Asphalt 3 % 3 % 4 % 3 %
LPG and other 3 % 3 % 3 % 3 %
Total 100 % 100 % 100 % 100 %
 
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1) 79,950 67,100 77,380 63,650
Refinery throughput (BPD) (2) 87,000 75,930 84,790 68,870
Sales of produced refined products (BPD) (3) 82,590 73,190 79,840 66,950
Refinery utilization (4) 82.4 % 69.2 % 79.8 % 65.6 %
 
Average per produced barrel sold (5)
Refinery gross margin (6) $ 15.77 $ 6.22 $ 15.78 $ 8.80
Refinery operating expenses (7) 10.75   11.27   10.46   10.17  
Net operating margin $ 5.02   $ (5.05 ) $ 5.32   $ (1.37 )
 
Refinery operating expenses per throughput barrel (8) $ 10.20 $ 10.86 $ 9.85 $ 9.89
 
Feedstocks:
Sweet crude oil 35 % 37 % 34 % 39 %
Heavy sour crude oil 34 % 32 % 35 % 35 %
Black wax crude oil 23 % 19 % 22 % 18 %
Other feedstocks and blends 8 % 12 % 9 % 8 %
Total 100 % 100 % 100 % 100 %
 
Sales of produced refined products:
Gasolines 59 % 60 % 58 % 59 %
Diesel fuels 30 % 30 % 32 % 32 %
Fuel oil 3 % 3 % 3 % 2 %
Asphalt 4 % 5 % 4 % 4 %
LPG and other   4 % 2 % 3 % 3 %
Total   100 % 100 % 100 % 100 %
 
   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
Consolidated
Crude charge (BPD) (1) 461,110 432,070 438,800 423,910
Refinery throughput (BPD) (2) 497,450 466,640 472,010 457,480
Sales of produced refined products (BPD) (3) 482,860 464,160 452,270 440,640
Refinery utilization (4) 100.9 % 94.5 % 96.0 % 92.8 %
 
Average per produced barrel sold (5)
Refinery gross margin (6) $ 12.54 $ 6.77 $ 11.56 $ 8.16
Refinery operating expenses (7) 5.96   5.62   6.10   5.64  
Net operating margin $ 6.58   $ 1.15   $ 5.46   $ 2.52  
 
Refinery operating expenses per throughput barrel (8) $ 5.79 $ 5.59 $ 5.84 $ 5.43
 
Feedstocks:
Sweet crude oil 48 % 48 % 48 % 48 %
Sour crude oil 26 % 26 % 25 % 26 %
Heavy sour crude oil 15 % 16 % 16 % 16 %
Black wax crude oil 4 % 3 % 4 % 3 %
Other feedstocks and blends 7 % 7 % 7 % 7 %
Total 100 % 100 % 100 % 100 %
 
Consolidated
Sales of produced refined products:
Gasolines 53 % 54 % 52 % 52 %
Diesel fuels 34 % 32 % 34 % 34 %
Jet fuels 4 % 5 % 4 % 4 %
Fuel oil 2 % 2 % 2 % 2 %
Asphalt 3 % 3 % 4 % 3 %
Base oils 2 % 2 % 2 % 3 %
LPG and other 2 % 2 % 2 % 2 %
Total 100 % 100 % 100 % 100 %
 
(1)   Crude charge represents the barrels per day of crude oil processed at our refineries.
(2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.
(3) Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold.
(4) Represents crude charge divided by total crude capacity (BPSD). Effective July 1, 2016, our consolidated crude capacity increased from 443,000 BPSD to 457,000 BPSD upon completion of our Woods Cross Refinery expansion project.
(5) Represents average amount per produced barrel 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” below.
(6) Excludes lower of cost or market inventory valuation adjustments of $93.4 million and $108.7 million for the three months and year ended December 31, 2017, respectively and $97.7 million and $291.9 million for the three months and year ended December 31, 2016, respectively.
(7) Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes of refined products produced at our refineries.
(8) Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.
 

Lubricants and Specialty Products Segment Operating Data

The following table sets forth information about our lubricants and specialty products operations and includes the operations of PCLI and affiliated entities for the period February 1, 2017 (date of acquisition) through December 31, 2017.

   
Three Months Ended December 31, Years Ended December 31,
Lubricants and Specialty Products 2017   2016 2017   2016
Throughput (BPD) 20,990 21,710
Sales of produced refined products (BPD) 29,670 11,230 31,480 12,030
 
Sales of produced refined products:
Finished products 46 % 46 % 45 % 50 %
Base oils 28 % 54 % 31 % 50 %
Other 26 % % 24 % %
Total 100 % 100 % 100 % 100 %
 

Our Lubricants and Specialty Products segment includes base oil production activities, by-product sales to third parties and intra-segment base oil sales to rack forward, referred to as “rack back.” "Rack forward" includes the purchase of base oils and the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties. Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below:

       
Total Lubricants
and Specialty

Rack Back (1)

Rack Forward (2)

Eliminations (3)

Products
(In thousands)
Three Months Ended December 31, 2017
Sales and other revenues $ 186,478 $ 361,681 $ (132,466 ) $ 415,693
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 153,141 254,328 (132,466 ) 275,003
Lower of cost or market inventory valuation adjustment (1,248 ) (1,248 )
Operating expenses 30,051 37,615 67,666
Selling, general and administrative expenses 11,713 21,946 33,659
Depreciation and amortization 8,996   2,328     11,324  
Income (loss) from operations $ (17,423 ) $ 46,712   $   $ 29,289  
 
Three Months Ended December 31, 2016
Sales and other revenues $ $ 112,685 $ $ 112,685
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 89,087 89,087
Lower of cost or market inventory valuation adjustment (1,220 ) (1,220 )
Operating expenses 3,229 3,229
Selling, general and administrative expenses 786 786
Depreciation and amortization   228     228  
Income from operations $   $ 20,575   $   $ 20,575  
 
Year Ended December 31, 2017
Sales and other revenues $ 621,153 $ 1,415,842 $ (442,959 ) $ 1,594,036
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 504,782 1,032,161 (442,959 ) 1,093,984
Lower of cost or market inventory valuation adjustment (1,206 ) (1,206 )
Operating expenses 95,303 127,158 222,461
Selling, general and administrative expenses 27,618 77,494 105,112
Depreciation and amortization 23,471   8,423     31,894  
Income (loss) from operations $ (30,021 ) $ 171,812   $   $ 141,791  
 
       
Total Lubricants
and Specialty

Rack Back (1)

Rack Forward (2)

Eliminations (3)

Products
(In thousands)
Year Ended December 31, 2016
Sales and other revenues $ $ 464,359 $ $ 464,359
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 377,136 377,136
Lower of cost or market inventory valuation adjustment (4,090 ) (4,090 )
Operating expenses 13,867 13,867
Selling, general and administrative expenses 2,899 2,899
Depreciation and amortization   620     620  
Income from operations $   $ 73,927   $   $ 73,927  
 
(1)   Rack back consists of the PCLI base oil production activities, by-product sales to third parties and intra-segment base oil sales to rack forward.
(2) Rack forward activities include the purchase of base oils from rack back and the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties.
(3) Intra-segment sales of rack back produced base oils to rack forward are eliminated under the “Eliminations” column.
 

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA excluding special items ("Adjusted EBITDA") to amounts reported under generally accepted accounting principles ("GAAP") in financial statements.

Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus or minus (i) lower of cost or market inventory valuation adjustments (ii) incremental cost of products sold attributable to our PCLI inventory value step-up (iii) PCLI acquisition and integration costs (iv) goodwill and asset impairment charges (v) our RINs cost reduction related to our Cheyenne and Woods Cross Refinery small refinery exemptions (vi) net gain on foreign currency swaps and (vii) HollyFrontier's pro-rata share of HEP's remeasurement gain on pipeline interest acquisitions.

EBITDA and Adjusted EBITDA are not calculations provided for under accounting principles generally accepted in the United States; however, the amounts included in these calculations are derived from amounts included in our consolidated financial statements. EBITDA and Adjusted EBITDA should not be considered as alternatives 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 and Adjusted EBITDA are not necessarily comparable to similarly titled measures of other companies. These are presented here because they are widely used financial indicators used by investors and analysts to measure performance. EBITDA and Adjusted EBITDA are also used by our management for internal analysis and as a basis for financial covenants.

Set forth below is our calculation of EBITDA and adjusted EBITDA.

   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
(In thousands)
Net income (loss) attributable to HollyFrontier stockholders $ 521,082 $ 53,165 $ 805,395 $ (260,453 )
Add (subtract) income tax provision (benefit) (185,972 ) 12,952 (12,379 ) 19,411
Add interest expense (1) 32,063 26,304 129,822 80,910
Subtract interest income (1,667 ) (1,111 ) (3,736 ) (2,491 )
Add depreciation and amortization 105,731   93,594   409,937   363,027  
EBITDA $ 471,237 $ 184,904 $ 1,329,039 $ 200,404
Subtract lower of cost or market inventory valuation adjustment (93,362 ) (97,656 ) (108,685 ) (291,938 )
Add PCLI acquisition and integration costs 4,436 13,406 27,942 13,406
Add goodwill and asset impairment 19,247 654,084
Add incremental cost of products sold attributable to PCLI inventory value step-up 15,327
Subtract RINs cost reduction (27,000 ) (57,456 )
Subtract HollyFrontier's pro-rata share of HEP's remeasurement gain on pipeline interest acquisitions (21,390 ) (21,390 )
Subtract gain on foreign currency swaps       (24,545 )    
Adjusted EBITDA $ 333,921   $ 100,654   $ 1,179,479   $ 575,956  
 

(1) Includes loss on early extinguishment of debt of $12.2 million and $8.7 million for the years ended December 31, 2017 and 2016, respectively.

 

Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements.

Refinery gross margin and net operating margin are non-GAAP performance measures that are used by our management and others to compare our refining performance to that of other companies in our industry. We believe these margin measures are helpful to investors in evaluating our refining performance on a relative and absolute basis. Refinery gross margin per produced barrel sold is total refining segment revenues less total refining segment cost of products sold, exclusive of lower of cost or market inventory valuation adjustments, divided by sales volumes of produced refined products sold. Net operating margin per barrel sold is the difference between refinery gross margin and refinery operating expenses per produced barrel sold. These two margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments or 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.

Below are reconciliations to our consolidated statements of income for refinery net operating and gross margin and operating expenses, in each case averaged per produced barrel sold. Due to rounding of reported numbers, some amounts may not calculate exactly.

Reconciliation of average refining segment net operating margin per produced barrel sold to refinery gross margin to total sales and other revenues

   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
(Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per produced barrel sold $ 6.58 $ 1.15 $ 5.46 $ 2.52
Add average refinery operating expenses per produced barrel sold 5.96   5.62   6.10   5.64  
Refinery gross margin per produced barrel sold 12.54 6.77 11.56 8.16
Times produced barrels sold (BPD) 482,860 464,160 452,270 440,640
Times number of days in period 92   92   365   366
Refining segment gross margin 557,066 289,097 1,908,308 1,315,998
Add rounding 52   175   409   1,212  
Total refining segment gross margin 557,118 289,272 1,908,717 1,317,210
Add refining segment cost of products sold 3,059,588   2,608,746   11,009,345   9,003,505  
Refining segment sales and other revenues 3,616,706 2,898,018 12,918,062 10,320,715
Add lubricants and specialty products segment sales and other revenues 415,693 112,685 1,594,036 464,359
Add HEP segment sales and other revenues 129,221 112,526 454,362 402,043
Subtract corporate, other and eliminations (168,915 ) (168,161 ) (715,161 ) (651,417 )
Sales and other revenues $ 3,992,705   $ 2,955,068   $ 14,251,299   $ 10,535,700  
 

Reconciliation of average refining segment operating expenses per produced barrel sold to total operating expenses

   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
(Dollars in thousands, except per barrel amounts)
Consolidated
Average operating expenses per produced barrel sold $ 5.96 $ 5.62 $ 6.10 $ 5.64
Times barrels of produced products sold (BPD) 482,860 464,160 452,270 440,640
Times number of days in period 92   92   365   366  
Refining segment operating expenses 264,762 239,989 1,006,979 909,587
Add (subtract) rounding 58   (120 ) (304 ) 137  
Total refining segment operating expenses 264,820 239,869 1,006,675 909,724
Add lubricants and specialty products segment operating expenses 67,666 3,229 222,461 13,867
Add HEP segment operating expenses 35,021 34,819 137,605 123,984
Subtract corporate, other and eliminations (17,710 ) (19,229 ) (72,507 ) (28,736 )
Operating expenses (exclusive of depreciation and amortization) $ 349,797   $ 258,688   $ 1,294,234   $ 1,018,839  
 

Reconciliation of net income (loss) attributable to HollyFrontier stockholders to adjusted net income attributable to HollyFrontier stockholders

Adjusted net income attributable to HollyFrontier stockholders is a non-GAAP financial measure that excludes non-cash lower of cost or market inventory valuation adjustments, PCLI acquisition and integration costs, goodwill and asset impairment charges, incremental costs of products sold due to PCLI inventory value step-up, RINs cost reductions, remeasurement gain on HEP's pipeline interest acquisitions and gain of foreign currency swaps. We believe this measure is helpful to investors and others in evaluating our financial performance and to compare our results to that of other companies in our industry. Similarly titled performance measures of other companies may not be calculated in the same manner.

   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
(Dollars in thousands, except per share amounts)
GAAP:
Income (loss) before income taxes $ 371,262 $ 83,416 $ 868,863 $ (171,534 )
Income tax expense (benefit) (185,972 ) 12,952   (12,379 ) 19,411  
Net income (loss) 557,234 70,464 881,242 (190,945 )
Less net income attributable to noncontrolling interest 36,152   17,299   75,847   69,508  
Net income (loss) attributable to HollyFrontier stockholders 521,082   53,165   805,395   (260,453 )
 
NonGAAP adjustments to arrive at adjusted results:
Lower of cost or market inventory valuation adjustment (93,362 ) (97,656 ) (108,685 ) (291,938 )
PCLI acquisition and integration costs 4,436 13,406 27,942 13,406
Goodwill and asset impairment 23,249 654,084
Incremental cost of products sold attributable to PCLI inventory value step-up 15,327
RINs cost reduction(5) (27,000 ) (57,456 )
Remeasurement gain on HEP's pipeline interest acquisitions (36,254 ) (36,254 )
Gain on foreign currency swaps (24,545 )
HEP's loss on early extinguishment of debt     12,225    
Total adjustments to income (loss) before income taxes (152,180 ) (84,250 ) (148,197 ) 375,552
Adjustment to income tax expense (benefit) 259,160 (21,062 ) 260,514 25,491
Adjustment to net income attributable to noncontrolling interest (9) (14,864 )   (7,162 )  
Total adjustments, net of tax (396,476 ) (63,188 ) (401,549 ) 350,061  
 
Adjusted results - NonGAAP:
Adjusted income (loss) before income taxes 219,082 (834 ) 720,666 204,018
Adjusted income tax expense (benefit) 73,188   (8,110 ) 248,135   44,902  
Adjusted net income 145,894 7,276 472,531 159,116
Adjusted net income attributable to noncontrolling interest 21,288   17,299   68,685   69,508  
Adjusted net income (loss) attributable to HollyFrontier stockholders $ 124,606   $ (10,023 ) $ 403,846   $ 89,608  
Adjusted earnings (loss) per share attributable to HollyFrontier stockholders $ 0.70   $ (0.06 ) $ 2.32   $ 0.51  
 

Reconciliation of effective tax rate to adjusted effective tax rate

   
Three Months Ended December 31, Years Ended December 31,
2017   2016 2017   2016
 
GAAP
Income (loss) before income taxes $ 371,262 $ 83,416 $ 868,863 $ (171,534 )
Income tax expense (benefit) $ (185,972 ) $ 12,952 $ (12,379 ) $ 19,411
Effective tax rate for GAAP financial statements (50.1)% 15.5 % (1.4 )% (11.3 )%
 
Effect of NonGAAP adjustments 83.5 % 956.0 % 35.8 % 33.0 %
Adjusted - NonGAAP
Effective tax rate for adjusted results 33.4 % 972.0 % 34.4 % 22.0 %
 

Source: HollyFrontier Corporation

HollyFrontier Corporation

Richard L. Voliva III, 214-954-6510

Executive Vice President and Chief Financial Officer

or

Craig Biery, 214-954-6510

Director, Investor Relations