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February 21, 2018
HollyFrontier Corporation Reports Quarterly Net Income

 

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 %
                         

 

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

Source: HollyFrontier Corporation

 

 

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