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HollyFrontier Corporation Reports Quarterly Results

10/31/2019
  • Reported net income attributable to HollyFrontier stockholders of $261.8 million, or $1.58 per diluted share, and adjusted net income of $278.0 million, or $1.68 per diluted share, for the third quarter
  • Reported EBITDA of $521.7 million and adjusted EBITDA of $523.1 million for the third quarter
  • Returned $259.5 million to shareholders through dividends and share repurchases in the third quarter

DALLAS--(BUSINESS WIRE)-- HollyFrontier Corporation (NYSE:HFC) (“HollyFrontier” or the “Company”) today reported third quarter net income attributable to HollyFrontier stockholders of $261.8 million, or $1.58 per diluted share, for the quarter ended September 30, 2019, compared to $342.5 million, or $1.93 per diluted share, for the quarter ended September 30, 2018.

The third quarter results reflect special items that collectively decreased net income by a total of $16.2 million. These items include a lower of cost or market inventory valuation adjustment that decreased pre-tax earnings by $34.1 million, a RINs cost reduction as a result of the small refinery exemptions granted to our Cheyenne and Woods Cross refineries for the 2018 calendar year of $36.6 million and Sonneborn integration and regulatory costs of $3.9 million. Excluding these items, net income for the current quarter was $278.0 million ($1.68 per diluted share) compared to $350.7 million ($1.98 per diluted share) for the third quarter of 2018, which excludes certain items that collectively decreased net income by $8.3 million for the three months ended September 30, 2018. Total operating expenses for the quarter were $345.6 million compared to $317.2 million for the third quarter of last year.

HollyFrontier’s President & CEO, George Damiris, commented, “HollyFrontier's solid third quarter results were driven by record throughput volumes and healthy gasoline and diesel margins across our refining system. We returned over $259 million to shareholders through dividends and share repurchases, signaling our strong commitment to return free cash flow to our shareholders. We are currently undergoing turnarounds at our El Dorado and Cheyenne refineries and plan to return to normal operations later in the fourth quarter.”

The Refining and Marketing segment reported adjusted EBITDA of $424.6 million compared to $507.2 million for the third quarter of 2018. This decrease was primarily driven by lower product margins and weaker laid-in crude advantage across our refining system which resulted in a consolidated refinery gross margin of $17.23 per produced barrel, a 11% decrease compared to $19.41 for the third quarter of 2018. Crude oil charge averaged 476,030 barrels per day (“BPD”) for the current quarter compared to 441,990 BPD for the third quarter 2018.

Our Lubricants and Specialty Products segment reported EBITDA of $38.0 million, compared to $42.4 million in the prior year, despite improvements in base oil markets. Rack Forward EBITDA was $51.3 million, compared to $57.1 million in the prior year, driven by an unfavorable product sales mix and the impact of macroeconomic headwinds on end markets in the quarter.

Holly Energy Partners, L.P. (“HEP”) reported EBITDA of $123.1 million for the third quarter 2019 compared to $86.9 million in the third quarter of 2018. Third quarter results reflected strong third-party volumes and higher spot revenues on its crude oil pipeline systems in Wyoming and Utah. Reported EBITDA in third quarter 2019 includes a $35.2 million gain on sales-type leases that eliminates on HFC consolidation.

For the third quarter of 2019, net cash provided by operations totaled $441.9 million. During the period, we declared and paid a dividend of $0.33 per share to shareholders totaling $54.5 million and spent $205.0 million in stock repurchases. At September 30, 2019, our cash and cash equivalents totaled $981.9 million, a $67.3 million increase over cash and cash equivalents of $914.6 million at June 30, 2019. Additionally, our consolidated debt was $2,425.2 million. Our debt, exclusive of HEP debt, which is nonrecourse to HollyFrontier, was $993.4 million at September 30, 2019.

The Company has scheduled a webcast conference call for today, October 31, 2019, at 9:30 AM Eastern Time to discuss third quarter financial results. This webcast may be accessed at: https://event.on24.com/wcc/r/2080006/F990110BD66EA00A36965449876CB61F. An audio archive of this webcast will be available using the above noted link through November 14, 2019.

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 owns and operates refineries located in Kansas, Oklahoma, New Mexico, Wyoming and Utah and 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 produces base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and exports products to more than 80 countries. HollyFrontier also owns a 57% limited partner interest and a non-economic general partner interest in Holly Energy Partners, L.P., a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries.

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 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 and cyber 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
September 30,

 

Change from 2018

 

2019

 

2018

 

Change

 

Percent

 

(In thousands, except per share data)

Sales and other revenues

$

4,424,828

 

 

$

4,770,799

 

 

$

(345,971

)

 

(7

)%

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of products sold:

 

 

 

 

 

 

 

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

3,403,767

 

 

3,752,234

 

 

(348,467

)

 

(9

)

Lower of cost or market inventory valuation adjustment

34,062

 

 

17,837

 

 

16,225

 

 

91

 

 

3,437,829

 

 

3,770,071

 

 

(332,242

)

 

(9

)

Operating expenses

345,578

 

 

317,196

 

 

28,382

 

 

9

 

Selling, general and administrative expenses

87,626

 

 

71,130

 

 

16,496

 

 

23

 

Depreciation and amortization

127,016

 

 

108,885

 

 

18,131

 

 

17

 

Total operating costs and expenses

3,998,049

 

 

4,267,282

 

 

(269,233

)

 

(6

)

Income from operations

426,779

 

 

503,517

 

 

(76,738

)

 

(15

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Earnings of equity method investments

1,334

 

 

1,114

 

 

220

 

 

20

 

Interest income

6,164

 

 

5,136

 

 

1,028

 

 

20

 

Interest expense

(36,027

)

 

(32,399

)

 

(3,628

)

 

11

 

Gain on foreign currency transactions

395

 

 

281

 

 

114

 

 

41

 

Other, net

2,356

 

 

741

 

 

1,615

 

 

218

 

 

(25,778

)

 

(25,127

)

 

(651

)

 

3

 

Income before income taxes

401,001

 

 

478,390

 

 

(77,389

)

 

(16

)

Income tax expense

103,021

 

 

116,258

 

 

(13,237

)

 

(11

)

Net income

297,980

 

 

362,132

 

 

(64,152

)

 

(18

)

Less net income attributable to noncontrolling interest

36,167

 

 

19,666

 

 

16,501

 

 

84

 

Net income attributable to HollyFrontier stockholders

$

261,813

 

 

$

342,466

 

 

$

(80,653

)

 

(24

)%

 

 

 

 

 

 

 

 

Earnings per share attributable to HollyFrontier stockholders:

 

 

 

 

 

 

 

Basic

$

1.60

 

 

$

1.95

 

 

$

(0.35

)

 

(18

)%

Diluted

$

1.58

 

 

$

1.93

 

 

$

(0.35

)

 

(18

)%

Cash dividends declared per common share

$

0.33

 

 

$

0.33

 

 

$

 

 

%

Average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

163,676

 

 

175,097

 

 

(11,421

)

 

(7

)%

Diluted

165,011

 

 

176,927

 

 

(11,916

)

 

(7

)%

EBITDA

$

521,713

 

 

$

594,872

 

 

$

(73,159

)

 

(12

)%

Adjusted EBITDA

$

523,082

 

 

$

612,709

 

 

$

(89,627

)

 

(15

)%

 

Nine Months Ended
September 30,

 

Change from 2018

 

2019

 

2018

 

Change

 

Percent

 

(In thousands, except per share data)

Sales and other revenues

$

13,104,690

 

 

$

13,370,462

 

 

$

(265,772

)

 

(2

)%

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of products sold:

 

 

 

 

 

 

 

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

10,307,856

 

 

10,695,275

 

 

(387,419

)

 

(4

)

Lower of cost or market inventory valuation adjustment

(150,483

)

 

(192,927

)

 

42,444

 

 

(22

)

 

10,157,373

 

 

10,502,348

 

 

(344,975

)

 

(3

)

Operating expenses

1,010,422

 

 

933,699

 

 

76,723

 

 

8

 

Selling, general and administrative expenses

260,977

 

 

204,469

 

 

56,508

 

 

28

 

Depreciation and amortization

375,345

 

 

323,605

 

 

51,740

 

 

16

 

Goodwill impairment

152,712

 

 

 

 

152,712

 

 

 

Total operating costs and expenses

11,956,829

 

 

11,964,121

 

 

(7,292

)

 

 

Income from operations

1,147,861

 

 

1,406,341

 

 

(258,480

)

 

(18

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Earnings of equity method investments

5,217

 

 

4,127

 

 

1,090

 

 

26

 

Interest income

17,127

 

 

10,660

 

 

6,467

 

 

61

 

Interest expense

(106,938

)

 

(97,446

)

 

(9,492

)

 

10

 

Gain on foreign currency transactions

4,873

 

 

5,516

 

 

(643

)

 

(12

)

Other, net

3,005

 

 

3,451

 

 

(446

)

 

(13

)

 

(76,716

)

 

(73,692

)

 

(3,024

)

 

4

 

Income before income taxes

1,071,145

 

 

1,332,649

 

 

(261,504

)

 

(20

)

Income tax expense

279,862

 

 

318,742

 

 

(38,880

)

 

(12

)

Net income

791,283

 

 

1,013,907

 

 

(222,624

)

 

(22

)

Less net income attributable to noncontrolling interest

79,500

 

 

57,843

 

 

21,657

 

 

37

 

Net income attributable to HollyFrontier stockholders

$

711,783

 

 

$

956,064

 

 

$

(244,281

)

 

(26

)%

 

 

 

 

 

 

 

 

Earnings per share attributable to HollyFrontier stockholders:

 

 

 

 

 

 

 

Basic

$

4.23

 

 

$

5.42

 

 

$

(1.19

)

 

(22

)%

Diluted

$

4.20

 

 

$

5.37

 

 

$

(1.17

)

 

(22

)%

Cash dividends declared per common share

$

0.99

 

 

$

0.99

 

 

$

 

 

%

Average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

167,935

 

 

175,865

 

 

(7,930

)

 

(5

)%

Diluted

169,125

 

 

177,557

 

 

(8,432

)

 

(5

)%

EBITDA

$

1,456,801

 

 

$

1,685,197

 

 

$

(228,396

)

 

(14

)%

Adjusted EBITDA

$

1,451,864

 

 

$

1,413,620

 

 

$

38,244

 

 

3

%

Balance Sheet Data

 

September 30,

 

December 31,

 

2019

 

2018

 

(In thousands)

Cash and cash equivalents

$

981,856

 

 

$

1,154,752

 

Working capital

$

1,827,420

 

 

$

2,128,224

 

Total assets

$

12,191,328

 

 

$

10,994,601

 

Long-term debt

$

2,425,234

 

 

$

2,411,540

 

Total equity

$

6,541,363

 

 

$

6,459,059

 

Segment Information

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 HollyFrontier Asphalt Company LLC (“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 Petro-Canada Lubricants Inc.’s (“PCLI”) 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 Lubricants 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 operations of Red Giant Oil, one of the largest suppliers of locomotive engine oil in North America and the operations of Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

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. The HEP segment also includes a 75% interest in UNEV Pipeline, LLC (an HEP consolidated subsidiary), and a 50% ownership interest in each of Osage Pipeline Company, LLC and Cheyenne Pipeline LLC. 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.

 

 

Refining

 

Lubricants

and Specialty

Products

 

HEP

 

Corporate,

Other and

Eliminations

 

Consolidated

Total

 

 

(In thousands)

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Sales and other revenues:

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

3,865,399

 

 

$

529,561

 

 

$

29,868

 

 

$

 

 

$

4,424,828

 

Intersegment revenues

 

81,571

 

 

8,157

 

 

106,027

 

 

(195,755

)

 

 

 

 

$

3,946,970

 

 

$

537,718

 

 

$

135,895

 

 

$

(195,755

)

 

$

4,424,828

 

Cost of products sold (exclusive of lower of cost or market inventory)

 

$

3,177,167

 

 

$

397,926

 

 

$

 

 

$

(171,326

)

 

$

3,403,767

 

Lower of cost or market inventory valuation adjustment

 

$

34,062

 

 

$

 

 

$

 

 

$

 

 

$

34,062

 

Operating expenses

 

$

276,869

 

 

$

57,974

 

 

$

44,924

 

 

$

(34,189

)

 

$

345,578

 

Selling, general and administrative expenses

 

$

31,707

 

 

$

43,875

 

 

$

2,714

 

 

$

9,330

 

 

$

87,626

 

Depreciation and amortization

 

$

76,765

 

 

$

22,700

 

 

$

24,121

 

 

$

3,430

 

 

$

127,016

 

Income (loss) from operations

 

$

350,400

 

 

$

15,243

 

 

$

64,136

 

 

$

(3,000

)

 

$

426,779

 

Income before interest and income taxes (1)

 

$

350,400

 

 

$

15,325

 

 

$

100,778

 

 

$

(35,639

)

 

$

430,864

 

Net income attributable to noncontrolling interest

 

$

 

 

$

 

 

$

1,004

 

 

$

35,163

 

 

$

36,167

 

Capital expenditures

 

$

53,506

 

 

$

8,697

 

 

$

6,076

 

 

$

6,310

 

 

$

74,589

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

Sales and other revenues:

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

4,270,835

 

 

$

474,260

 

 

$

25,596

 

 

$

108

 

 

$

4,770,799

 

Intersegment revenues

 

101,334

 

 

1,626

 

 

100,188

 

 

(203,148

)

 

 

 

 

$

4,372,169

 

 

$

475,886

 

 

$

125,784

 

 

$

(203,040

)

 

$

4,770,799

 

Cost of products sold (exclusive of lower of cost or market inventory)

 

$

3,572,593

 

 

$

359,742

 

 

$

 

 

$

(180,101

)

 

$

3,752,234

 

Lower of cost or market inventory valuation adjustment

 

$

17,837

 

 

$

 

 

$

 

 

$

 

 

$

17,837

 

Operating expenses

 

$

262,010

 

 

$

40,288

 

 

$

35,995

 

 

$

(21,097

)

 

$

317,196

 

Selling, general and administrative expenses

 

$

30,394

 

 

$

33,514

 

 

$

2,498

 

 

$

4,724

 

 

$

71,130

 

Depreciation and amortization

 

$

70,793

 

 

$

11,139

 

 

$

24,367

 

 

$

2,586

 

 

$

108,885

 

Income (loss) from operations

 

$

418,542

 

 

$

31,203

 

 

$

62,924

 

 

$

(9,152

)

 

$

503,517

 

Income before interest and income taxes

 

$

418,542

 

 

$

31,262

 

 

$

64,076

 

 

$

(8,227

)

 

$

505,653

 

Net income attributable to noncontrolling interest

 

$

 

 

$

 

 

$

751

 

 

$

18,915

 

 

$

19,666

 

Capital expenditures

 

$

47,088

 

 

$

8,094

 

 

$

9,541

 

 

$

5,214

 

 

$

69,937

 

 

 

Refining

 

Lubricants

and Specialty

Products

 

HEP

 

Corporate,

Other and

Eliminations

 

Consolidated

Total

 

 

(In thousands)

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Sales and other revenues:

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

11,446,841

 

 

$

1,568,241

 

 

$

89,388

 

 

$

220

 

 

$

13,104,690

 

Intersegment revenues

 

244,799

 

 

8,157

 

 

311,755

 

 

(564,711

)

 

 

 

 

$

11,691,640

 

 

$

1,576,398

 

 

$

401,143

 

 

$

(564,491

)

 

$

13,104,690

 

Cost of products sold (exclusive of lower of cost or market inventory)

 

$

9,598,539

 

 

$

1,202,296

 

 

$

 

 

$

(492,979

)

 

$

10,307,856

 

Lower of cost or market inventory valuation adjustment

 

$

(150,483

)

 

$

 

 

$

 

 

$

 

 

$

(150,483

)

Operating expenses

 

$

794,081

 

 

$

170,655

 

 

$

123,045

 

 

$

(77,359

)

 

$

1,010,422

 

Selling, general and administrative expenses

 

$

88,322

 

 

$

125,681

 

 

$

7,322

 

 

$

39,652

 

 

$

260,977

 

Depreciation and amortization

 

$

227,405

 

 

$

65,891

 

 

$

72,192

 

 

$

9,857

 

 

$

375,345

 

Goodwill impairment

 

$

 

 

$

152,712

 

 

$

 

 

$

 

 

$

152,712

 

Income (loss) from operations

 

$

1,133,776

 

 

$

(140,837

)

 

$

198,584

 

 

$

(43,662

)

 

$

1,147,861

 

Income before interest and income taxes (1)

 

$

1,133,776

 

 

$

(140,518

)

 

$

238,910

 

 

$

(71,212

)

 

$

1,160,956

 

Net income attributable to noncontrolling interest

 

$

 

 

$

 

 

$

3,524

 

 

$

75,976

 

 

$

79,500

 

Capital expenditures

 

$

129,167

 

 

$

25,887

 

 

$

23,828

 

 

$

16,175

 

 

$

195,057

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

Sales and other revenues:

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

11,915,797

 

 

$

1,376,531

 

 

$

77,799

 

 

$

335

 

 

$

13,370,462

 

Intersegment revenues

 

284,538

 

 

11,884

 

 

295,629

 

 

(592,051

)

 

 

 

 

$

12,200,335

 

 

$

1,388,415

 

 

$

373,428

 

 

$

(591,716

)

 

$

13,370,462

 

Cost of products sold (exclusive of lower of cost or market inventory)

 

$

10,179,509

 

 

$

1,040,414

 

 

$

 

 

$

(524,648

)

 

$

10,695,275

 

Lower of cost or market inventory valuation adjustment

 

$

(192,927

)

 

$

 

 

$

 

 

$

 

 

$

(192,927

)

Operating expenses

 

$

764,415

 

 

$

125,101

 

 

$

106,731

 

 

$

(62,548

)

 

$

933,699

 

Selling, general and administrative expenses

 

$

82,966

 

 

$

99,425

 

 

$

8,293

 

 

$

13,785

 

 

$

204,469

 

Depreciation and amortization

 

$

210,957

 

 

$

30,023

 

 

$

74,117

 

 

$

8,508

 

 

$

323,605

 

Income (loss) from operations

 

$

1,155,415

 

 

$

93,452

 

 

$

184,287

 

 

$

(26,813

)

 

$

1,406,341

 

Income before interest and income taxes

 

$

1,155,415

 

 

$

94,377

 

 

$

188,485

 

 

$

(18,842

)

 

$

1,419,435

 

Net income attributable to noncontrolling interest

 

$

 

 

$

 

 

$

3,115

 

 

$

54,728

 

 

$

57,843

 

Capital expenditures

 

$

132,050

 

 

$

23,138

 

 

$

41,111

 

 

$

12,779

 

 

$

209,078

 

(1)

HEP segment includes a $35.2 million gain due to new throughput agreements on specific HEP assets that meet the definition of sales-type leases. This gain is eliminated in HFC consolidation.

 

 

Refining

 

Lubricants

and Specialty

Products

 

HEP

 

Corporate,

Other and

Eliminations

 

Consolidated

Total

 

 

(In thousands)

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,443

 

 

$

170,116

 

 

$

7,469

 

 

$

782,828

 

 

$

981,856

 

Total assets

 

$

7,321,741

 

 

$

2,139,092

 

 

$

2,089,110

 

 

$

641,385

 

 

$

12,191,328

 

Long-term debt

 

$

 

 

$

 

 

$

1,431,869

 

 

$

993,365

 

 

$

2,425,234

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,236

 

 

$

80,931

 

 

$

3,045

 

 

$

1,063,540

 

 

$

1,154,752

 

Total assets

 

$

6,465,155

 

 

$

1,506,209

 

 

$

2,142,027

 

 

$

881,210

 

 

$

10,994,601

 

Long-term debt

 

$

 

 

$

 

 

$

1,418,900

 

 

$

992,640

 

 

$

2,411,540

 

Refining Segment Operating Data

The following tables set forth information, including non-GAAP (Generally Accepted Accounting Principles) 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.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Mid-Continent Region (El Dorado and Tulsa Refineries)

 

 

 

 

 

 

 

 

Crude charge (BPD) (1)

 

294,380

 

 

262,550

 

 

257,590

 

 

260,150

 

Refinery throughput (BPD) (2)

 

307,720

 

 

276,560

 

 

272,440

 

 

274,330

 

Sales of produced refined products (BPD) (3)

 

290,930

 

 

255,840

 

 

260,780

 

 

259,890

 

Refinery utilization (4)

 

113.2

%

 

101.0

%

 

99.1

%

 

100.1

%

 

 

 

 

 

 

 

 

 

Average per produced barrel (5)

 

 

 

 

 

 

 

 

Refinery gross margin

 

$

14.61

 

 

$

16.43

 

 

$

14.55

 

 

$

12.99

 

Refinery operating expenses (6)

 

5.05

 

 

5.48

 

 

5.48

 

 

5.18

 

Net operating margin

 

$

9.56

 

 

$

10.95

 

 

$

9.07

 

 

$

7.81

 

 

 

 

 

 

 

 

 

 

Refinery operating expenses per throughput barrel (7)

 

$

4.77

 

 

$

5.07

 

 

$

5.25

 

 

$

4.90

 

 

 

 

 

 

 

 

 

 

Feedstocks:

 

 

 

 

 

 

 

 

Sweet crude oil

 

59

%

 

59

%

 

56

%

 

54

%

Sour crude oil

 

21

%

 

21

%

 

23

%

 

24

%

Heavy sour crude oil

 

16

%

 

15

%

 

16

%

 

17

%

Other feedstocks and blends

 

4

%

 

5

%

 

5

%

 

5

%

Total

 

100

%

 

100

%

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

Sales of produced refined products:

 

 

 

 

 

 

 

 

Gasolines

 

49

%

 

49

%

 

51

%

 

51

%

Diesel fuels

 

34

%

 

34

%

 

32

%

 

33

%

Jet fuels

 

6

%

 

6

%

 

7

%

 

6

%

Fuel oil

 

1

%

 

1

%

 

1

%

 

1

%

Asphalt

 

4

%

 

4

%

 

3

%

 

3

%

Base oils

 

4

%

 

4

%

 

4

%

 

4

%

LPG and other

 

2

%

 

2

%

 

2

%

 

2

%

Total

 

100

%

 

100

%

 

100

%

 

100

%

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Southwest Region (Navajo Refinery)

 

 

 

 

 

 

 

 

Crude charge (BPD) (1)

 

106,860

 

 

109,560

 

 

107,330

 

 

109,200

 

Refinery throughput (BPD) (2)

 

117,250

 

 

117,880

 

 

117,660

 

 

118,300

 

Sales of produced refined products (BPD) (3)

 

116,890

 

 

122,210

 

 

120,760

 

 

120,900

 

Refinery utilization (4)

 

106.9

%

 

109.6

%

 

107.3

%

 

109.2

%

 

 

 

 

 

 

 

 

 

Average per produced barrel (5)

 

 

 

 

 

 

 

 

Refinery gross margin

 

$

18.61

 

 

$

22.60

 

 

$

19.35

 

 

$

17.84

 

Refinery operating expenses (6)

 

5.25

 

 

4.53

 

 

4.90

 

 

4.63

 

Net operating margin

 

$

13.36

 

 

$

18.07

 

 

$

14.45

 

 

$

13.21

 

 

 

 

 

 

 

 

 

 

Refinery operating expenses per throughput barrel (7)

 

$

5.23

 

 

$

4.69

 

 

$

5.03

 

 

$

4.73

 

 

 

 

 

 

 

 

 

 

Feedstocks:

 

 

 

 

 

 

 

 

Sweet crude oil

 

22

%

 

28

%

 

21

%

 

31

%

Sour crude oil

 

69

%

 

65

%

 

70

%

 

61

%

Other feedstocks and blends

 

9

%

 

7

%

 

9

%

 

8

%

Total

 

100

%

 

100

%

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

Sales of produced refined products:

 

 

 

 

 

 

 

 

Gasolines

 

50

%

 

49

%

 

51

%

 

50

%

Diesel fuels

 

40

%

 

41

%

 

39

%

 

40

%

Fuel oil

 

3

%

 

3

%

 

3

%

 

3

%

Asphalt

 

5

%

 

5

%

 

5

%

 

4

%

LPG and other

 

2

%

 

2

%

 

2

%

 

3

%

Total

 

100

%

 

100

%

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Rocky Mountain Region (Cheyenne and Woods Cross Refineries)

 

 

 

 

 

 

 

 

Crude charge (BPD) (1)

 

74,790

 

 

69,880

 

 

78,530

 

 

71,000

 

Refinery throughput (BPD) (2)

 

81,830

 

 

76,120

 

 

85,300

 

 

78,410

 

Sales of produced refined products (BPD) (3)

 

77,680

 

 

69,720

 

 

77,890

 

 

74,850

 

Refinery utilization (4)

 

77.1

%

 

72.0

%

 

81.0

%

 

73.2

%

 

 

 

 

 

 

 

 

 

Average per produced barrel (5)

 

 

 

 

 

 

 

 

Refinery gross margin

 

$

24.97

 

 

$

24.75

 

 

$

19.73

 

 

$

24.95

 

Refinery operating expenses (6)

 

11.95

 

 

12.80

 

 

11.39

 

 

11.97

 

Net operating margin

 

$

13.02

 

 

$

11.95

 

 

$

8.34

 

 

$

12.98

 

 

 

 

 

 

 

 

 

 

Refinery operating expenses per throughput barrel (7)

 

$

11.34

 

 

$

11.72

 

 

$

10.40

 

 

$

11.42

 

 

 

 

 

 

 

 

 

 

Feedstocks:

 

 

 

 

 

 

 

 

Sweet crude oil

 

38

%

 

24

%

 

36

%

 

25

%

Heavy sour crude oil

 

30

%

 

44

%

 

33

%

 

44

%

Black wax crude oil

 

23

%

 

24

%

 

23

%

 

22

%

Other feedstocks and blends

 

9

%

 

8

%

 

8

%

 

9

%

Total

 

100

%

 

100

%

 

-

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Rocky Mountain Region (Cheyenne and Woods Cross Refineries)

 

 

 

 

 

 

 

 

Sales of produced refined products:

 

 

 

 

 

 

 

 

Gasolines

 

54

%

 

54

%

 

53

%

 

56

%

Diesel fuels

 

32

%

 

34

%

 

34

%

 

33

%

Fuel oil

 

4

%

 

2

%

 

4

%

 

3

%

Asphalt

 

5

%

 

7

%

 

5

%

 

5

%

LPG and other

 

5

%

 

3

%

 

4

%

 

3

%

Total

 

100

%

 

100

%

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

Crude charge (BPD) (1)

 

476,030

 

 

441,990

 

 

443,450

 

 

440,350

 

Refinery throughput (BPD) (2)

 

506,800

 

 

470,560

 

 

475,400

 

 

471,040

 

Sales of produced refined products (BPD) (3)

 

485,500

 

 

447,770

 

 

459,440

 

 

455,640

 

Refinery utilization (4)

 

104.2

%

 

96.7

%

 

97.0

%

 

96.4

%

 

 

 

 

 

 

 

 

 

Average per produced barrel (5)

 

 

 

 

 

 

 

 

Refinery gross margin

 

$

17.23

 

 

$

19.41

 

 

$

16.69

 

 

$

16.25

 

Refinery operating expenses (6)

 

6.20

 

 

6.36

 

 

6.33

 

 

6.15

 

Net operating margin

 

$

11.03

 

 

$

13.05

 

 

$

10.36

 

 

$

10.10

 

 

 

 

 

 

 

 

 

 

Refinery operating expenses per throughput barrel (7)

 

$

5.94

 

 

$

6.05

 

 

$

6.12

 

 

$

5.94

 

 

 

 

 

 

 

 

 

 

Feedstocks:

 

 

 

 

 

 

 

 

Sweet crude oil

 

47

%

 

45

%

 

44

%

 

43

%

Sour crude oil

 

29

%

 

29

%

 

30

%

 

30

%

Heavy sour crude oil

 

14

%

 

16

%

 

15

%

 

17

%

Black wax crude oil

 

4

%

 

4

%

 

4

%

 

4

%

Other feedstocks and blends

 

6

%

 

6

%

 

7

%

 

6

%

Total

 

100

%

 

100

%

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of produced refined products:

 

 

 

 

 

 

 

 

Gasolines

 

50

%

 

50

%

 

51

%

 

52

%

Diesel fuels

 

35

%

 

36

%

 

35

%

 

35

%

Jet fuels

 

4

%

 

3

%

 

4

%

 

3

%

Fuel oil

 

2

%

 

2

%

 

2

%

 

2

%

Asphalt

 

4

%

 

5

%

 

4

%

 

4

%

Base oils

 

2

%

 

2

%

 

2

%

 

2

%

LPG and other

 

3

%

 

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”). Our consolidated crude capacity is 457,000 BPSD.

(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)

Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes of refined products produced at our refineries.

(7)

Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.

Lubricants and Specialty Products Segment Operating Data

We acquired our Sonneborn business on February 1, 2019. For the nine months ended September 30, 2019 our lubricants and specialty product operating results reflect the operations of our Sonneborn business for the period February 1, 2019 through September 30, 2019.

The following table sets forth information about our lubricants and specialty products operations.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Lubricants and Specialty Products

 

 

 

 

 

 

 

 

Throughput (BPD)

 

23,190

 

 

21,410

 

 

19,920

 

 

20,530

 

Sales of produced products (BPD)

 

36,160

 

 

31,970

 

 

34,740

 

 

21,340

 

 

 

 

 

 

 

 

 

 

Sales of produced products:

 

 

 

 

 

 

 

 

Finished products

 

50

%

 

49

%

 

50

%

 

48

%

Base oils

 

24

%

 

28

%

 

27

%

 

31

%

Other

 

26

%

 

23

%

 

23

%

 

21

%

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:

 

 

Rack Back (1)

 

Rack Forward (2)

 

Eliminations (3)

 

Total

Lubricants and

Specialty Products

 

 

(In thousands)

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

Sales and other revenues

 

$

196,355

 

 

$

477,261

 

 

$

(135,898

)

 

$

537,718

 

Cost of products sold

 

$

175,976

 

 

$

357,848

 

 

$

(135,898

)

 

$

397,926

 

Operating expenses

 

$

27,825

 

 

$

30,149

 

 

$

 

 

$

57,974

 

Selling, general and administrative expenses

 

$

5,862

 

 

$

38,013

 

 

$

 

 

$

43,875

 

Depreciation and amortization

 

$

11,390

 

 

$

11,310

 

 

$

 

 

$

22,700

 

Income (loss) from operations

 

$

(24,698

)

 

$

39,941

 

 

$

 

 

$

15,243

 

Income (loss) before interest and income taxes

 

$

(24,698

)

 

$

40,023

 

 

$

 

 

$

15,325

 

EBITDA

 

$

(13,308

)

 

$

51,333

 

 

$

 

 

$

38,025

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2018

 

 

 

 

 

 

 

 

Sales and other revenues

 

$

197,226

 

 

$

424,386

 

 

$

(145,726

)

 

$

475,886

 

Cost of products sold

 

$

177,748

 

 

$

327,720

 

 

$

(145,726

)

 

$

359,742

 

Operating expenses

 

$

26,748

 

 

$

13,540

 

 

$

 

 

$

40,288

 

Selling, general and administrative expenses

 

$

7,439

 

 

$

26,075

 

 

$

 

 

$

33,514

 

Depreciation and amortization

 

$

6,345

 

 

$

4,794

 

 

$

 

 

$

11,139

 

Income (loss) from operations

 

$

(21,054

)

 

$

52,257

 

 

$

 

 

$

31,203

 

Income (loss) before interest and income taxes

 

$

(21,054

)

 

$

52,316

 

 

$

 

 

$

31,262

 

EBITDA

 

$

(14,709

)

 

$

57,110

 

 

$

 

 

$

42,401

 

 

 

Rack Back (1)

 

Rack Forward (2)

 

Eliminations (3)

 

Total

Lubricants and

Specialty Products

 

 

(In thousands)

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

Sales and other revenues

 

$

486,035

 

 

$

1,428,786

 

 

$

(338,423

)

 

$

1,576,398

 

Cost of products sold

 

$

453,519

 

 

$

1,087,200

 

 

$

(338,423

)

 

$

1,202,296

 

Operating expenses

 

$

87,970

 

 

$

82,685

 

 

$

 

 

$

170,655

 

Selling, general and administrative expenses

 

$

25,707

 

 

$

99,974

 

 

$

 

 

$

125,681

 

Depreciation and amortization

 

$

32,991

 

 

$

32,900

 

 

$

 

 

$

65,891

 

Goodwill impairment

 

$

152,712

 

 

$

 

 

$

 

 

$

152,712

 

Income (loss) from operations

 

$

(266,864

)

 

$

126,027

 

 

$

 

 

$

(140,837

)

Income (loss) before interest and income taxes

 

$

(266,864

)

 

$

126,346

 

 

$

 

 

$

(140,518

)

EBITDA

 

$

(233,873

)

 

$

159,246

 

 

$

 

 

$

(74,627

)

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2018

 

 

 

 

 

 

 

 

Sales and other revenues

 

$

546,300

 

 

$

1,248,886

 

 

$

(406,771

)

 

$

1,388,415

 

Cost of products sold

 

$

482,842

 

 

$

964,343

 

 

$

(406,771

)

 

$

1,040,414

 

Operating expenses

 

$

82,729

 

 

$

42,372

 

 

$

 

 

$

125,101

 

Selling, general and administrative expenses

 

$

22,146

 

 

$

77,279

 

 

$

 

 

$

99,425

 

Depreciation and amortization

 

$

17,986

 

 

$

12,037

 

 

$

 

 

$

30,023

 

Income (loss) from operations

 

$

(59,403

)

 

$

152,855

 

 

$

 

 

$

93,452

 

Income (loss) before interest and income taxes

 

$

(59,403

)

 

$

153,780

 

 

$

 

 

$

94,377

 

EBITDA

 

$

(41,417

)

 

$

165,817

 

 

$

 

 

$

124,400

 

(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, referred to as EBITDA, is calculated as net income attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax expense, and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus or minus (i) lower of cost or market inventory valuation adjustments, (ii) goodwill impairment, (iii) acquisition integration and regulatory costs, (iv) incremental cost of products sold attributable to our Sonneborn inventory value step-up, (v) RINs cost reduction related to our Cheyenne and Woods Cross small refinery exemptions, (vi) Woods Cross refinery outage damages and (vii) Woods Cross refinery estimated insurance claims on outage damages.

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 September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(In thousands)

Net income attributable to HollyFrontier stockholders

 

$

261,813

 

 

$

342,466

 

 

$

711,783

 

 

$

956,064

 

Add interest expense

 

36,027

 

 

32,399

 

 

106,938

 

 

97,446

 

Subtract interest income

 

(6,164

)

 

(5,136

)

 

(17,127

)

 

(10,660

)

Add income tax expense

 

103,021

 

 

116,258

 

 

279,862

 

 

318,742

 

Add depreciation and amortization

 

127,016

 

 

108,885

 

 

375,345

 

 

323,605

 

EBITDA

 

$

521,713

 

 

$

594,872

 

 

$

1,456,801

 

 

$

1,685,197

 

Add (subtract) lower of cost or market inventory valuation adjustment

 

34,062

 

 

17,837

 

 

(150,483

)

 

(192,927

)

Add goodwill impairment

 

 

 

 

 

152,712

 

 

 

Add acquisition integration and regulatory costs

 

3,887

 

 

 

 

20,076

 

 

3,595

 

Add incremental cost of products sold attributable to Sonneborn inventory value step-up

 

 

 

 

 

9,338

 

 

 

Subtract RINs cost reduction

 

(36,580

)

 

 

 

(36,580

)

 

(96,971

)

Add Woods Cross refinery outage damages

 

 

 

 

 

 

 

24,566

 

Subtract Woods Cross refinery estimated insurance claims on outage damages

 

 

 

 

 

 

 

(9,840

)

Adjusted EBITDA

 

$

523,082

 

 

$

612,709

 

 

$

1,451,864

 

 

$

1,413,620

 

EBITDA and Adjusted EBITDA attributable to our Refining segment is presented below:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Refining Segment

 

2019

 

2018

 

2019

 

2018

 

 

(In thousands)

Income from operations (1)

 

$

350,400

 

 

$

418,542

 

 

$

1,133,776

 

 

$

1,155,415

 

Add depreciation and amortization

 

76,765

 

 

70,793

 

 

227,405

 

 

210,957

 

EBITDA

 

427,165

 

 

489,335

 

 

1,361,181

 

 

1,366,372

 

Add (subtract) lower of cost or market inventory valuation adjustment

 

34,062

 

 

17,837

 

 

(150,483

)

 

(192,927

)

Subtract RINs cost reduction

 

(36,580

)

 

 

 

(36,580

)

 

(96,971

)

Add Woods Cross refinery outage damages

 

 

 

 

 

 

 

24,566

 

Subtract Woods Cross refinery estimated insurance claims on outage damages

 

 

 

 

 

 

 

(9,840

)

Adjusted EBITDA

 

$

424,647

 

 

$

507,172

 

 

$

1,174,118

 

 

$

1,091,200

 

(1)

Income from operations of our Refining segment represents income plus (i) interest expense net of interest income and (ii) income tax provision.

EBITDA and Adjusted EBITDA attributable to our Lubricants and Specialty Products segment is set forth below.

Lubricants and Specialty Products Segment

 

Rack Back

 

Rack Forward

 

Total Lubricants

and Specialty

Products

 

 

(In thousands)

Three months ended September 30, 2019

 

 

 

 

 

 

Income (loss) before interest and income taxes (1)

 

$

(24,698

)

 

$

40,023

 

 

$

15,325

 

Add depreciation and amortization

 

11,390

 

 

11,310

 

 

22,700

 

EBITDA

 

$

(13,308

)

 

$

51,333

 

 

$

38,025

 

 

 

 

 

 

 

 

Three months ended September 30, 2018

 

 

 

 

 

 

Income (loss) before interest and income taxes (1)

 

$

(21,054

)

 

$

52,316

 

 

$

31,262

 

Add depreciation and amortization

 

6,345

 

 

4,794

 

 

11,139

 

EBITDA

 

$

(14,709

)

 

$

57,110

 

 

$

42,401

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

 

 

 

 

 

 

Income (loss) before interest and income taxes (1)

 

$

(266,864

)

 

$

126,346

 

 

$

(140,518

)

Add depreciation and amortization

 

32,991

 

 

32,900

 

 

65,891

 

EBITDA

 

$

(233,873

)

 

$

159,246

 

 

$

(74,627

)

Add goodwill impairment

 

152,712

 

 

 

 

152,712

 

Add incremental cost of products sold attributable to Sonneborn inventory value step-up

 

 

 

9,338

 

 

9,338

 

Adjusted EBITDA

 

$

(81,161

)

 

$

168,584

 

 

$

87,423

 

 

 

 

 

 

 

 

Nine months ended September 30, 2018

 

 

 

 

 

 

Income (loss) before interest and income taxes (1)

 

$

(59,403

)

 

$

153,780

 

 

$

94,377

 

Add depreciation and amortization

 

17,986

 

 

12,037

 

 

30,023

 

EBITDA

 

$

(41,417

)

 

$

165,817

 

 

$

124,400

 

(1)

Income (loss) from operations of our Lubricants and Specialty Products segment represents income (loss) plus (i) interest expense net of interest income and (ii) income tax provision.

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 September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(Dollars in thousands, except per barrel amounts)

Consolidated

 

 

 

 

 

 

 

 

Net operating margin per produced barrel sold

 

$

11.03

 

 

$

13.05

 

 

$

10.36

 

 

$

10.10

 

Add average refinery operating expenses per produced barrel sold

 

6.20

 

 

6.36

 

 

6.33

 

 

6.15

 

Refinery gross margin per produced barrel sold

 

$

17.23

 

 

$

19.41

 

 

$

16.69

 

 

$

16.25

 

Times produced barrels sold (BPD)

 

485,500

 

 

447,770

 

 

459,440

 

 

455,640

 

Times number of days in period

 

92

 

 

92

 

 

273

 

 

273

 

Refining segment gross margin

 

$

769,595

 

 

$

799,592

 

 

$

2,093,379

 

 

$

2,021,333

 

Subtract rounding

 

208

 

 

(16

)

 

(278

)

 

(507

)

Total refining segment gross margin

 

769,803

 

 

799,576

 

 

2,093,101

 

 

2,020,826

 

Add refining segment cost of products sold

 

3,177,167

 

 

3,572,593

 

 

9,598,539

 

 

10,179,509

 

Refining segment sales and other revenues

 

3,946,970

 

 

4,372,169

 

 

11,691,640

 

 

12,200,335

 

Add lubricants and specialty products segment sales and other revenues

 

537,718

 

 

475,886

 

 

1,576,398

 

 

1,388,415

 

Add HEP segment sales and other revenues

 

135,895

 

 

125,784

 

 

401,143

 

 

373,428

 

Subtract corporate, other and eliminations

 

(195,755

)

 

(203,040

)

 

(564,491

)

 

(591,716

)

Sales and other revenues

 

$

4,424,828

 

 

$

4,770,799

 

 

$

13,104,690

 

 

$

13,370,462

 

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

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(Dollars in thousands, except per barrel amounts)

Consolidated

 

 

 

 

 

 

 

 

Average operating expenses per produced barrel sold

 

$

6.20

 

 

$

6.36

 

 

$

6.33

 

 

$

6.15

 

Times produced barrels sold (BPD)

 

485,500

 

 

447,770

 

 

459,440

 

 

455,640

 

Times number of days in period

 

92

 

 

92

 

 

273

 

 

273

 

Refining segment operating expenses

 

$

276,929

 

 

$

261,999

 

 

$

793,954

 

 

$

764,997

 

Add (subtract) rounding

 

(60

)

 

11

 

 

127

 

 

(582

)

Total refining segment operating expenses

 

276,869

 

 

262,010

 

 

794,081

 

 

764,415

 

Add lubricants and specialty products segment operating expenses

 

57,974

 

 

40,288

 

 

170,655

 

 

125,101

 

Add HEP segment operating expenses

 

44,924

 

 

35,995

 

 

123,045

 

 

106,731

 

Subtract corporate, other and eliminations

 

(34,189

)

 

(21,097

)

 

(77,359

)

 

(62,548

)

Operating expenses (exclusive of depreciation and amortization)

 

$

345,578

 

 

$

317,196

 

 

$

1,010,422

 

 

$

933,699

 

Reconciliation of net income 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, goodwill impairment, acquisition integration and regulatory costs, incremental cost of products sold due to Sonneborn inventory value step-up, RINs cost reductions and refinery outage damages and related estimated insurance claims. 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 September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(In thousands, except per share amounts)

Consolidated

 

 

 

 

 

 

 

 

GAAP:

 

 

 

 

 

 

 

 

Income before income taxes

 

$

401,001

 

 

$

478,390

 

 

$

1,071,145

 

 

$

1,332,649

 

Income tax expense

 

103,021

 

 

116,258

 

 

279,862

 

 

318,742

 

Net income

 

297,980

 

 

362,132

 

 

791,283

 

 

1,013,907

 

Less net income attributable to noncontrolling interest

 

36,167

 

 

19,666

 

 

79,500

 

 

57,843

 

Net income attributable to HollyFrontier stockholders

 

261,813

 

 

342,466

 

 

711,783

 

 

956,064

 

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments to arrive at adjusted results:

 

 

 

 

 

 

 

 

Lower of cost or market inventory valuation adjustment

 

34,062

 

 

17,837

 

 

(150,483

)

 

(192,927

)

Goodwill impairment

 

 

 

 

 

152,712

 

 

 

Acquisition integration and regulatory costs

 

3,887

 

 

 

 

20,076

 

 

3,595

 

Incremental cost of products sold attributable to Sonneborn inventory value step-up

 

 

 

 

 

9,338

 

 

 

RINs cost reduction

 

(36,580

)

 

 

 

(36,580

)

 

(96,971

)

Woods Cross refinery outage damages

 

 

 

 

 

 

 

24,566

 

Woods Cross refinery estimated insurance claims on outage damages

 

 

 

 

 

 

 

(9,840

)

Total adjustments to income before income taxes

 

1,369

 

 

17,837

 

 

(4,937

)

 

(271,577

)

Adjustment to income tax expense (1)

 

(14,818

)

 

9,554

 

 

(36,553

)

 

(62,386

)

Total adjustments, net of tax

 

16,187

 

 

8,283

 

 

31,616

 

 

(209,191

)

 

 

 

 

 

 

 

 

 

Adjusted results - Non-GAAP:

 

 

 

 

 

 

 

 

Adjusted income before income taxes

 

402,370

 

 

496,227

 

 

1,066,208

 

 

1,061,072

 

Adjusted income tax expense (2)

 

88,203

 

 

125,812

 

 

243,309

 

 

256,356

 

Adjusted net income

 

314,167

 

 

370,415

 

 

822,899

 

 

804,716

 

Less net income attributable to noncontrolling interest

 

36,167

 

 

19,666

 

 

79,500

 

 

57,843

 

Adjusted net income attributable to HollyFrontier stockholders

 

$

278,000

 

 

$

350,749

 

 

$

743,399

 

 

$

746,873

 

Adjusted earnings per share attributable to HollyFrontier stockholders - diluted (3)

 

$

1.68

 

 

$

1.98

 

 

$

4.39

 

 

$

4.19

 

Average number of common shares outstanding - diluted

 

165,011

 

 

176,927

 

 

169,125

 

 

177,557

 

(1)

Represents adjustment to GAAP income tax expense to arrive at adjusted income tax expense, which is computed as follows:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

Non-GAAP income tax expense (2)

 

$

88,203

 

 

$

125,812

 

 

$

243,309

 

 

$

256,356

 

Subtract GAAP income tax expense

 

103,021

 

 

116,258

 

 

279,862

 

 

318,742

 

Non-GAAP adjustment to income tax expense

 

$

(14,818

)

 

$

9,554

 

 

$

(36,553

)

 

$

(62,386

)

(2)

Non-GAAP income tax expense is computed by a) adjusting HFC's consolidated estimated Annual Effective Tax Rate (“AETR”) for GAAP purposes for the effects of the above Non-GAAP adjustments, b) applying the resulting Adjusted Non-GAAP AETR to Non-GAAP adjusted income before income taxes and c) adjusting for discrete tax items applicable to the period.

(3)

Adjusted earnings per share attributable to HollyFrontier stockholders - diluted is calculated as adjusted net income attributable to HollyFrontier stockholders divided by the average number of shares of common stock outstanding assuming dilution.

Reconciliation of effective tax rate to adjusted effective tax rate

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(Dollars in thousands)

GAAP:

 

 

 

 

 

 

 

 

Income before income taxes

 

$

401,001

 

 

$

478,390

 

 

$

1,071,145

 

 

$

1,332,649

 

Income tax expense

 

$

103,021

 

 

$

116,258

 

 

$

279,862

 

 

$

318,742

 

Effective tax rate for GAAP financial statements

 

25.7

%

 

24.3

%

 

26.1

%

 

23.9

%

Adjusted - Non-GAAP:

 

 

 

 

 

 

 

 

Effect of Non-GAAP adjustments

 

(3.8

)%

 

1.1

%

 

(3.3

)%

 

0.3

%

Effective tax rate for adjusted results

 

21.9

%

 

25.4

%

 

22.8

%

 

24.2

%

 

Richard L. Voliva III, Executive Vice President and Chief Financial Officer
Craig Biery, Director, Investor Relations
HollyFrontier Corporation
214-954-6510

Source: HollyFrontier Corporation