November 7, 2012

HollyFrontier Corporation Reports Record Quarterly Net Income

DALLAS--(BUSINESS WIRE)-- HollyFrontier Corporation (NYSE: HFC) ("HollyFrontier" or the "Company") today reported third quarter net income attributable to HollyFrontier stockholders of $600.4 million or $2.94 per diluted share for the quarter ended September 30, 2012, compared to $523.1 million or $2.48 per diluted share for the quarter ended September 30, 2011. For the nine months ended September 30, 2012, net income attributable to HollyFrontier stockholders totaled $1,335.6 million or $6.44 per diluted share compared to $800.0 million or $5.63 per diluted share for the nine months ended September 30, 2011.

For the third quarter, net income attributable to our stockholders increased by $77.3 million, or 15% compared to the same period of 2011, principally reflecting higher third quarter refining margins. Refinery gross margins were $30.55 per produced barrel, a 9% increase compared to $28.10 for the third quarter of 2011. Production levels averaged approximately 457,000 barrels per day ("BPD") and crude oil charges averaged approximately 433,000 BPD for the current quarter. Operating expenses for the quarter were $233.9 million or $5.11 per barrel compared to $227.9 million or $5.07 per barrel for the third quarter of last year.

HollyFrontier's President & CEO, Mike Jennings, commented, "We had a tremendous quarter with third quarter results reaching new record levels. Exceptionally high inland to coastal crude oil differentials as well as robust heavy crude oil differentials helped drive our refined product margins to all time highs. Looking forward, we believe that the structural crude advantages currently driving our strong operating margins will continue to positively impact our operating income, allowing us to continue to pay both regular and special dividends. We remain focused on increasing total shareholder return while maintaining a strong balance sheet."

For the third quarter of 2012, net cash provided by operations totaled $742.3 million. During the period, we paid dividends to shareholders of $132.7 million consisting of our $0.15 regular and a $0.50 special dividend. In addition, we declared a second third quarter special dividend of $0.50 that was paid early in the fourth quarter. At September 30, 2012, our combined balance of cash and short-term investments totaled $2.3 billion and our consolidated debt was $1.3 billion. Our debt, exclusive of Holly Energy Partners' debt which is nonrecourse to HollyFrontier, was $471.8 million at September 30, 2012, which reflects the redemption of our $200 million 8.5% senior notes that were called in September 2012. We had no cash borrowings or outstanding principal under our credit facility during the quarter.

The Company has scheduled a webcast conference call for today, November 7, 2012, at 11:00 AM Eastern Time to discuss third quarter financial results. This webcast may be accessed at: https://event.webcasts.com/starthere.jsp?ei=1009187. An audio archive of this webcast will be available using the above noted link through November 19, 2012.

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 31,000 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. A subsidiary of HollyFrontier also owns a 44% interest (including the 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 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

   
September 30, Change from 2011
2012     2011 Change     Percent
(In thousands, except per share data)
Sales and other revenues $ 5,204,798 $ 5,173,398 $ 31,400 0.6 %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 3,898,736 3,989,927 (91,191 ) (2.3 )
Operating expenses (exclusive of depreciation and amortization) 233,859 227,883 5,976 2.6
General and administrative expenses (exclusive of depreciation and amortization) 28,787 43,141 (14,354 ) (33.3 )
Depreciation and amortization   65,112     43,240     21,872   50.6
Total operating costs and expenses   4,226,494     4,304,191     (77,697 ) (1.8 )
Income from operations 978,304 869,207 109,097 12.6
Other income (expense):
Earnings of equity method investments 852 532 320 60.2
Interest income 2,219 204 2,015 987.7
Interest expense (21,103 ) (25,074 ) 3,971 (15.8 )
Merger transaction costs      

(9,100

)

  9,100   (100.0 )
  (18,032 )   (33,438 )   15,406   (46.1 )
Income before income taxes 960,272 835,769 124,503 14.9
Income tax provision   349,622     304,758     44,864   14.7
Net income 610,650 531,011 79,639 15.0
Less net income attributable to noncontrolling interest   10,277     7,923     2,354   29.7
Net income attributable to HollyFrontier stockholders $ 600,373   $ 523,088   $ 77,285   14.8 %
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 2.95   $ 2.50   $ 0.45   18.0 %
Diluted $ 2.94   $ 2.48   $ 0.46   18.5 %
Cash dividends declared per common share $ 1.15   $ 0.59   $ 0.56   94.9 %
Average number of common shares outstanding:
Basic 203,557 209,583 (6,026 ) (2.9 )%
Diluted 204,434 210,579 (6,145 ) (2.9 )%
EBITDA $ 1,033,991 $ 895,956 $ 138,035 15.4 %
 
 
Nine Months Ended
September 30, Change from 2011
2012 2011 Change Percent
(In thousands, except per share data)
Sales and other revenues $ 14,943,217 $ 10,467,116 $ 4,476,101 42.8 %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 11,767,417 8,421,639 3,345,778 39.7
Operating expenses (exclusive of depreciation and amortization) 698,212 501,971 196,241 39.1
General and administrative expenses (exclusive of depreciation and amortization) 88,421 78,641 9,780 12.4
Depreciation and amortization   178,162     106,380     71,782   67.5
Total operating costs and expenses   12,732,212     9,108,631     3,623,581   39.8
Income from operations 2,211,005 1,358,485 852,520 62.8
Other income (expense):
Earnings of equity method investments 2,455 1,739 716 41.2
Interest income 3,360 946 2,414 255.2
Interest expense (81,360 )

(56,471

)

(24,889

)

44.1
Gain on sale of marketable securities 326 326
Merger transaction costs      

(15,114

)

 

15,114

 

(100.0

)
  (75,219 )  

(68,900

)

 

(6,319

)

9.2
Income before income taxes 2,135,786 1,289,585 846,201 65.6
Income tax provision   775,746     465,730     310,016   66.6
Net income 1,360,040 823,855 536,185 65.1
Less net income attributable to noncontrolling interest   24,472     23,838     634   2.7
Net income attributable to HollyFrontier stockholders $ 1,335,568   $ 800,017   $ 535,551   66.9 %
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 6.46   $ 5.66   $ 0.80   14.1 %
Diluted $ 6.44   $ 5.63   $ 0.81   14.4 %
Cash dividends declared per common share $ 2.40   $ 0.74   $ 1.66   224.3 %
Average number of common shares outstanding:
Basic 206,657 141,353 65,304 46.2 %
Diluted 207,546 142,092 65,454 46.1 %
EBITDA $ 2,367,476 $ 1,427,652 $ 939,824 65.8 %
 

Our consolidated financial and operating results reflect the operations of the merged Frontier businesses beginning July 1, 2011.

Balance Sheet Data

 
      September 30,     December 31,
2012 2011
(In thousands)
Cash, cash equivalents and investments in marketable securities $ 2,343,336 $ 1,840,610
Working capital $ 2,554,761 $ 2,030,063
Total assets $ 10,345,936 $ 9,576,243
Long-term debt $ 1,346,227 $ 1,214,742
Total equity $ 6,359,496 $ 5,835,900
 

Segment Information

Our operations are organized into two reportable segments, Refining and HEP. Our operations that are not included in the Refining and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Consolidations and Eliminations. The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and NK Asphalt and involves the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. The petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States and northern Mexico. Additionally, specialty lubricant products produced at our Tulsa West facility are marketed throughout North America and are distributed in Central and South America. NK Asphalt manufactures and markets asphalt and asphalt products in Arizona, New Mexico, Oklahoma, Kansas, Missouri, Texas and northern Mexico.

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 and terminal, tankage and loading rack facilities in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. Revenues are generated by charging tariffs for transporting petroleum products and crude oil through its pipelines and by charging fees for terminalling petroleum products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals. The HEP segment also includes a 75% interest in the UNEV Pipeline (an HEP consolidated subsidiary) and a 25% interest in the SLC 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.

                  Consolidations    
Corporate and Consolidated

Refining (1)

HEP (2)

and Other Eliminations Total
(In thousands)
Three Months Ended September 30, 2012
Sales and other revenues $ 5,192,649 $ 72,496 $ 352 $ (60,699 ) $ 5,204,798
Depreciation and amortization $ 47,890 $ 12,636 $ 4,793 $ (207 ) $ 65,112
Income (loss) from operations $ 973,651 $ 37,137 $ (31,871 ) $ (613 ) $ 978,304
Capital expenditures $ 70,069 $ 5,683 $ 3,765 $ $ 79,517
 
Three Months Ended September 30, 2011
Sales and other revenues $ 5,164,853 $ 49,131 $ 299 $ (40,885 ) $ 5,173,398
Depreciation and amortization $ 35,070 $ 7,505 $ 872 $ (207 ) $ 43,240
Income (loss) from operations $ 884,997 $ 24,587 $ (40,135 ) $ (242 ) $ 869,207
Capital expenditures $ 46,294 $ 68,101 $ 3,523 $ $ 117,918
 
Nine Months Ended September 30, 2012
Sales and other revenues $ 14,907,849 $ 207,250 $ 912 $ (172,794 ) $ 14,943,217
Depreciation and amortization $ 133,087 $ 38,683 $ 7,013 $ (621 ) $ 178,162
Income (loss) from operations $ 2,207,253 $ 100,843 $ (89,899 ) $ (7,192 ) $ 2,211,005
Capital expenditures $ 171,865 $ 29,302 $ 6,370 $ $ 207,537
 
Nine Months Ended September 30, 2011
Sales and other revenues $ 10,432,720 $ 144,916 $ 1,100 $ (111,620 ) $ 10,467,116
Depreciation and amortization $ 81,875 $ 22,407 $ 2,719 $ (621 ) $ 106,380
Income (loss) from operations $ 1,357,739 $ 75,700 $ (73,689 ) $ (1,265 ) $ 1,358,485
Capital expenditures $ 92,078 $ 175,795 $ 6,350 $ $ 274,223
 
September 30, 2012
Cash, cash equivalents and investments in marketable securities $ 557 $ 1,993 $ 2,340,786 $ $ 2,343,336
Total assets $ 6,567,224 $ 1,409,151 $ 2,426,067 $ (56,506 ) $ 10,345,936
Long-term debt $ $ 874,434 $ 487,843

$

(16,050

)

$ 1,346,227
 
December 31, 2011
Cash, cash equivalents and investments in marketable securities $ $ 6,369 $ 1,834,241 $ $ 1,840,610
Total assets $ 6,280,426 $ 1,418,660 $ 1,997,601 $ (120,444 ) $ 9,576,243
Long-term debt $ $ 598,761 $ 705,331 $ (89,350 ) $ 1,214,742
 
(1)     The Refining segment reflects the operations of the El Dorado and Cheyenne Refineries beginning July 1, 2011 (date of Holly-Frontier merger).
(2) HEP acquired our 75% interest in the UNEV Pipeline in July 2012. We have recast our HEP segment information to include the UNEV Pipeline operations for all periods presented. For the three and nine months ended September 30, 2012, UNEV Pipeline revenues were $3.0 million and $10.8 million, respectively. The UNEV Pipeline was previously included in Corporate and Other.
 

Refining Operating Data

The following tables set forth information, including non-GAAP performance measures about our refinery operations. The cost of products and refinery gross margin do not include the effect of 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     Nine Months Ended
September 30, September 30,
2012     2011

2012

   

2011 (10)

Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1) 256,850 263,260 252,110 160,230

Refinery throughput (BPD) (2)

278,990 283,970 270,380 168,150
Refinery production (BPD) (3) 268,310 272,790 262,830 162,900
Sales of produced refined products (BPD) 246,360 263,180 249,320 159,230
Sales of refined products (BPD) (4) 248,690 268,680 253,050 161,750
Refinery utilization (5) 98.8 % 101.3 % 97.0 % 94.0 %
 
Average per produced barrel (6)
Net sales $ 121.83 $ 122.82 $ 120.19 $ 122.74
Cost of products (7)   92.84     96.18     96.49     100.32  
Refinery gross margin 28.99 26.64 23.70 22.42
Refinery operating expenses (8)   4.71     4.57     4.72     5.09  
Net operating margin $ 24.28   $ 22.07   $ 18.98   $ 17.33  
 
Refinery operating expenses per throughput barrel (9) $ 4.16 $ 4.23 $ 4.35 $ 4.82
 
Feedstocks:
Sweet crude oil 69 % 75 % 70 % 84 %
Sour crude oil 9 % 7 % 8 % 4 %
Heavy sour crude oil 14 % 11 % 15 % 7 %
Other feedstocks and blends   8 %   7 %   7 %   5 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 50 % 44 % 47 % 41 %
Diesel fuels 26 % 35 % 29 % 33 %
Jet fuels 10 % 7 % 10 % 7 %
Fuel oil 1 % 1 %
Asphalt 2 % 2 % 2 % 4 %
Lubricants 5 % 4 % 5 % 7 %
Gas oil/intermediates

2

%

4 %
LPG and other   6 %   6 %   6 %   4 %
Total   100 %   100 %   100 %   100 %
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012    

2011 (10)

Southwest Region (Navajo Refinery)
Crude charge (BPD) (1) 101,480 92,270 91,890 82,860
Refinery throughput (BPD) (2) 110,080 100,290 100,558 91,220
Refinery production (BPD) (3) 108,810 100,100 98,980 90,230
Sales of produced refined products (BPD) 106,370 99,530 97,470 91,310
Sales of refined products (BPD) (4) 110,760 102,940 102,450 95,980
Refinery utilization (5) 101.5 % 92.3 % 91.9 % 82.9 %
 
Average per produced barrel (6)
Net sales $ 122.16 $ 120.67 $ 123.64 $ 119.84
Cost of products (7)   92.26     92.33     97.37     97.37  
Refinery gross margin 29.90 28.34 26.27 22.47
Refinery operating expenses (8)   5.14     5.30     5.57     5.56  
Net operating margin $ 24.76   $ 23.04   $ 20.70   $ 16.91  
 
Refinery operating expenses per throughput barrel (9) $ 4.97 $ 5.26 $ 5.40 $ 5.57
 
Feedstocks:
Sweet crude oil 2 % 4 % 2 % 4 %
Sour crude oil 75 % 70 % 78 % 72 %
Heavy sour crude oil 16 % 18 % 11 % 15 %
Other feedstocks and blends   7 %   8 %   9 %   9 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 52 % 50 % 52 % 51 %
Diesel fuels 36 % 34 % 37 % 34 %
Jet fuels 1 % 1 %
Fuel oil 7 % 7 % 6 % 6 %
Asphalt 2 % 5 % 2 % 5 %
LPG and other   3 %   3 %   3 %   3 %
Total   100 %   100 %   100 %   100 %
 
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1) 75,040 70,060 73,660 41,050
Refinery throughput (BPD) (2) 82,030 75,860 81,550 44,340
Refinery production (BPD) (3) 79,500 73,620 79,650 43,030
Sales of produced refined products (BPD) 81,200 72,400 79,360 42,390
Sales of refined products (BPD) (4) 83,080 74,410 81,590 43,090
Refinery utilization (5) 90.4 % 84.4 % 88.7 % 84.6 %
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012    

2011 (10)

Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Average per produced barrel (6)
Net sales $ 120.44 $ 119.40 $ 117.51 $ 119.07
Cost of products (7)   84.35     86.35     88.87     90.00  
Refinery gross margin 36.09 33.05 28.64 29.07
Refinery operating expenses (8)   6.30     6.55     6.30     6.44  
Net operating margin $ 29.79   $ 26.50   $ 22.34   $ 22.63  
 
Refinery operating expenses per throughput barrel (9) $ 6.24 $ 6.25 $ 6.13 $ 6.16
 
Feedstocks:
Sweet crude oil 51 % 49 % 44 % 53 %
Sour crude oil 2 % 3 % 2 % 2 %
Heavy sour crude oil 28 % 31 % 33 % 20 %
Black wax crude oil 11 % 10 % 11 % 18 %
Other feedstocks and blends   8 %   7 %   10 %   7 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 56 % 50 % 55 % 55 %
Diesel fuels 31 % 34 % 31 % 32 %
Jet fuels 1 %
Fuel oil 2 % 1 % 2 % 2 %
Asphalt 7 % 7 % 6 % 5 %
LPG and other   4 %   8 %   6 %   5 %
Total   100 %   100 %   100 %   100 %
 
Consolidated
Crude charge (BPD) (1) 433,370 425,590 417,660 284,140

Refinery throughput (BPD) (2)

471,100 460,120 452,488 303,710
Refinery production (BPD) (3) 456,620 446,510 441,460 296,160
Sales of produced refined products (BPD) 433,930 435,110 426,150 292,930
Sales of refined products (BPD) (4) 442,530 446,030 437,090 300,820
Refinery utilization (5) 97.8 % 96.1 % 94.3 % 89.1 %
 
Average per produced barrel (6)
Net sales $ 121.66 $ 121.76 $ 120.48 $ 121.31
Cost of products (7)   91.11     93.66     95.28     97.91  
Refinery gross margin 30.55 28.10 25.20 23.40
Refinery operating expenses (8)   5.11     5.07     5.21     5.43  
Net operating margin $ 25.44   $ 23.03   $ 19.99   $ 17.97  
 
Refinery operating expenses per throughput barrel (9) $ 4.71 $ 4.79 $ 4.91 $ 5.24
 
Feedstocks:
Sweet crude oil 50 % 55 % 49 % 55 %
Sour crude oil 23 % 20 % 22 % 24 %
Heavy sour crude oil 17 % 15 % 16 % 12 %
Black wax crude oil 2 % 2 % 2 % 3 %
Other feedstocks and blends   8 %   8 %   11 %   6 %
Total   100 %   100 %   100 %   100 %
 
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012

2011 (10)

Consolidated
Sales of produced refined products:
Gasolines 51 % 47 % 50 % 47 %
Diesel fuels 29 % 35 % 31 % 33 %
Jet fuels 6 % 4 % 6 % 4 %
Fuel oil 3 % 2 % 2 % 2 %
Asphalt 3 % 4 % 3 % 4 %
Lubricants 3 % 2 % 3 % 4 %
Gas oil / intermediates 1 % 2 %
LPG and other   5 %   5 %   5 %   4 %
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) Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries.
(4) Includes refined products purchased for resale.
(5) Represents crude charge divided by total crude capacity (BPSD). As a result of our merger effective July 1, 2011, our consolidated crude capacity increased from 256,000 BPSD to 443,000 BPSD.
(6) Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" below.
(7) Transportation, terminal and refinery storage costs billed from HEP are included in cost of products.
(8) Represents operating expenses of our refineries, exclusive of depreciation and amortization.
(9) Represents refinery operating expenses, exclusive of depreciation and amortization divided by refinery throughput.
(10) We merged with Frontier effective July 1, 2011. Refining operating data for the nine months ended September 30, 2011 include crude oil processed and products yielded from the El Dorado and Cheyenne Refineries for the period from July 1, 2011 through September 30, 2011 only, and averaged over the 273 days in the nine months ended September 30, 2011.
 

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

Reconciliations of earnings before interest, taxes, depreciation and amortization ("EBITDA") to amounts reported under generally accepted accounting principles in financial statements.

Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under accounting principles generally accepted in the United States; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative 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 is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants.

Set forth below is our calculation of EBITDA.

      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
(In thousands)
 
Net income attributable to HollyFrontier stockholders $ 600,373 $ 523,088 $ 1,335,568 $ 800,017
Add income tax provision 349,622 304,758 775,746 465,730
Add interest expense 21,103 25,074 81,360 56,471
Subtract interest income (2,219 ) (204 ) (3,360 ) (946 )
Add depreciation and amortization   65,112     43,240     178,162     106,380  
EBITDA $ 1,033,991   $ 895,956   $ 2,367,476   $ 1,427,652  
 

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 barrel is the difference between average net sales price and average cost of products per barrel of produced refined products. Net operating margin per barrel is the difference between refinery gross margin and refinery operating expenses per barrel of produced refined products. These two margins do not include the effect of 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.

Refinery Gross and Net Operating Margins

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

Reconciliations of refined product sales from produced products sold to total sales and other revenues

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
(Dollars in thousands, except per barrel amounts)
 
Consolidated
Average sales price per produced barrel sold $ 121.66 $ 121.76 $ 120.48 $ 121.31
Times sales of produced refined products (BPD) 433,930 435,110 426,150 292,930
Times number of days in period   92     92     274     273  
Refined product sales from produced products sold $ 4,856,857   $ 4,874,067   $ 14,067,859   $ 9,701,147  
 
Total refined product sales $ 4,856,857 $ 4,874,067 $ 14,067,859 $ 9,701,147
Add refined product sales from purchased products and rounding (1)   100,674     127,520     376,813     266,355  
Total refined product sales 4,957,531 5,001,587 14,444,672 9,967,502
Add direct sales of excess crude oil (2) 187,196 148,989 378,036 422,890
Add other refining segment revenue (3)   47,922     14,277     85,141     42,328  
Total refining segment revenue 5,192,649 5,164,853 14,907,849 10,432,720
Add HEP segment sales and other revenues 72,496 49,131 207,250 144,916
Add corporate and other revenues 352 299 912 1,100
Subtract consolidations and eliminations   (60,699 )   (40,885 )   (172,794 )   (111,620 )
Sales and other revenues $ 5,204,798   $ 5,173,398   $ 14,943,217   $ 10,467,116  
 

Reconciliation of average cost of products per produced barrel sold to total cost of products sold

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
(Dollars in thousands, except per barrel amounts)
Consolidated
Average cost of products per produced barrel sold $ 91.11 $ 93.66 $ 95.28 $ 97.91
Times sales of produced refined products (BPD) 433,930 435,110 426,150 292,930
Times number of days in period   92     92     274     273  
Cost of products for produced products sold $ 3,637,253   $ 3,749,221   $ 11,125,379   $ 7,829,852  
 
Total cost of products for produced products sold $ 3,637,253 $ 3,749,221 $ 11,125,379 $ 7,829,852
Add refined product costs from purchased products sold and rounding (1)   100,078     128,857     377,476     268,390  
Total cost of refined products sold 3,737,331 3,878,078 11,502,855 8,098,242
Add crude oil cost of direct sales of excess crude oil (2) 182,252 147,223 367,795 416,084
Add other refining segment cost of products sold (4)   38,678     4,696     61,580     17,032  
Total refining segment cost of products sold 3,958,261 4,029,997 11,932,230 8,531,358
Subtract consolidations and eliminations   (59,525 )   (40,070 )   (164,813 )   (109,719 )
Costs of products sold (exclusive of depreciation and amortization) $ 3,898,736   $ 3,989,927   $ 11,767,417   $ 8,421,639  
 

Reconciliation of average refinery operating expenses per produced barrel sold to total operating expenses

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
(Dollars in thousands, except per barrel amounts)
Consolidated
Average refinery operating expenses per produced barrel sold $ 5.11 $ 5.07 $ 5.21 $ 5.43
Times sales of produced refined products (BPD) 433,930 435,110 426,150 292,930
Times number of days in period   92     92     274     273  
Refinery operating expenses for produced products sold $ 203,999   $ 202,953   $ 608,346   $ 434,237  
 
Total refinery operating expenses for produced products sold $ 203,999 $ 202,953 $ 608,346 $ 434,237
Add other refining segment operating expenses and rounding (5)   8,848     10,080     26,933     26,156  
Total refining segment operating expenses 212,847 213,033 635,279 460,393
Add HEP segment operating expenses 21,324 15,015 61,799 41,872
Add corporate and other costs 42 291 1,302 117
Subtract consolidations and eliminations   (354 )   (456 )   (168 )   (411 )
Operating expenses (exclusive of depreciation and amortization) $ 233,859   $ 227,883   $ 698,212   $ 501,971  
 

Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
(Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per barrel $ 25.44 $ 23.03 $ 19.99 $ 17.97
Add average refinery operating expenses per produced barrel   5.11     5.07     5.21     5.43  
Refinery gross margin per barrel 30.55 28.10 25.20 23.40
Add average cost of products per produced barrel sold   91.11     93.66     95.28     97.91  
Average sales price per produced barrel sold $ 121.66 $ 121.76 $ 120.48 $ 121.31
Times sales of produced refined products (BPD) 433,930 435,110 426,150 292,930
Times number of days in period   92     92     274     273  
Refined product sales from produced products sold $ 4,856,857   $ 4,874,067   $ 14,067,859   $ 9,701,147  
 
Total refined product sales from produced products sold $ 4,856,857 $ 4,874,067 $ 14,067,859 $ 9,701,147
Add refined product sales from purchased products and rounding (1)   100,674     127,520     376,813     266,355  
Total refined product sales 4,957,531 5,001,587 14,444,672 9,967,502
Add direct sales of excess crude oil (2) 187,196 148,989 378,036 422,890
Add other refining segment revenue (3)   47,922     14,277     85,141     42,328  
Total refining segment revenue 5,192,649 5,164,853 14,907,849 10,432,720
Add HEP segment sales and other revenues 72,496 49,131 207,250 144,916
Add corporate and other revenues 352 299 912 1,100
Subtract consolidations and eliminations   (60,699 )   (40,885 )   (172,794 )   (111,620 )
Sales and other revenues $ 5,204,798   $ 5,173,398   $ 14,943,217   $ 10,467,116  
 
         

(1)

   

We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery commitments.

(2)

We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, at times we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost.

(3)

Other refining segment revenue includes the incremental revenues associated with NK Asphalt and miscellaneous revenue.

(4)

Other refining segment cost of products sold includes the incremental cost of products for NK Asphalt and miscellaneous costs.

(5)

Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of NK Asphalt.

HollyFrontier Corporation
Douglas S. Aron, 214-871-3555
Executive Vice President and Chief Financial Officer
or
Julia Heidenreich, 214-871-3555
Investor Relations

Source: HollyFrontier Corporation

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