HollyFrontier Corporation
HollyFrontier Corp (Form: 8-K, Received: 08/02/2017 06:41:16)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 2, 2017 ( August 2, 2017 )

 
HOLLYFRONTIER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or other
jurisdiction of incorporation)
001-03876
(Commission File Number)
75-1056913
(I.R.S. Employer
Identification Number)

2828 N. Harwood, Suite 1300
Dallas, TX
(Address of principal
executive offices)
 

75201
(Zip code)

Registrant’s telephone number, including area code: (214) 871-3555

Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company         ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ¨
  



Item 2.02. Results of Operations and Financial Condition.

On August 2, 2017 , HollyFrontier Corporation (the “Company”) issued a press release announcing the Company’s second quarter 2017 results. The press release also announced a regular quarterly dividend of $0.33 per share. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and incorporated herein in its entirety.

The information contained in, or incorporated into, this Item 2.02 is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any registration statement or other filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference to such filing.


Item 9.01 Financial Statements and Exhibits .

(d)    Exhibits .
99.1
—    Press Release of the Company issued August 2, 2017 .*

* Furnished herewith pursuant to Item 2.02.







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOLLYFRONTIER CORPORATION

By:     /s/ Richard L. Voliva III            
Richard L. Voliva III
Executive Vice President and
Chief Financial Officer

Date: August 2, 2017




EXHIBIT INDEX



Exhibit
Number      Exhibit Title

99.1
—    Press Release of the Company issued August 2, 2017 .*

* Furnished herewith pursuant to Item 2.02.




Press Release
August 2, 2017
HFCLOGO05.JPG

HollyFrontier Corporation Reports Quarterly Results and Announces Regular Cash Dividend

Dallas, Texas, August 2, 2017 ‑‑ HollyFrontier Corporation (NYSE:HFC) (“HollyFrontier” or the “Company”) today reported second quarter net income attributable to HollyFrontier stockholders of $57.8 million or $0.33 per diluted share for the quarter ended June 30, 2017 , compared to net loss of $(409.4) million or $(2.33) per diluted share for the quarter ended June 30, 2016 .

The second quarter included several special items that together reduced net income by a total of $58.2 million. On a pre-tax basis, these items included a lower of cost or market inventory valuation charge of $84.0 million, long-lived asset impairment charges of $23.2 million, incremental cost of products sold attributable to our Petro-Canada Lubricants Inc. (“PCLI”) inventory value step-up of $5.1 million and PCLI integration costs totaling $3.7 million, partially offset by a $30.5 million reduction to RINs costs as a result of our Cheyenne refinery's small refinery exemption.

Excluding these items, net income for the current quarter was $116.1 million ($0.66 per diluted share) compared to $49.0 million ($0.28 per diluted share) for the same period of 2016 , which excludes net after-tax charges totaling $458.4 million. Special items for the second quarter of 2016 included pre-tax goodwill and asset impairment charges of $654.1 million that was partially offset by a lower of cost or market inventory valuation adjustment of $138.5 million. Adjusted for these items, the increase in net income for the current quarter was principally driven by higher product sales volumes and margins combined with earnings attributable to our recently acquired PCLI operations totaling $12.7 million. For the current quarter, production levels averaged approximately 483,000 barrels per day (“BPD”) and crude oil charges averaged 467,000 BPD. On a per barrel basis, consolidated refinery gross margin was $11.47 per produced barrel, a 29% increase compared to $8.88 for the second quarter of 2016 . Total operating expenses for the quarter were $315.7 million compared to $251.3 million for the second quarter of last year and include $52.7 million in costs attributable to our PCLI operations.

HollyFrontier’s President & CEO, George Damiris, commented, “Excellent operational performance, margin improvement and our PCLI operations contributed to stronger earnings for the second quarter of 2017. Thanks to the efforts of HollyFrontier employees, our refining segment reached a new quarterly production record, which drove operating and free cash flow. With no major planned downtime until November, our refineries remain well positioned for strong operational and financial performance for the remainder of the year.”

For the second quarter of 2017 , net cash provided by operations totaled $512.8 million . During the period, we declared and paid a dividend of $0.33 per share to shareholders totaling $58.8 million . At June 30, 2017 , our cash and cash equivalents totaled $460.3 million , a $330.8 million increase over cash and cash equivalents of $129.5 million at March 31, 2017. Additionally, our consolidated debt was $2,228.0 million . Our debt, exclusive of Holly Energy Partners' debt, which is nonrecourse to HollyFrontier, was $991.2 million at June 30, 2017 .

HollyFrontier also announced today that its Board of Directors declared a regular quarterly dividend of $0.33 per share. The dividend will be paid on September 20, 2017 to holders of record of common stock on August 23, 2017.

The Company has scheduled a webcast conference call for today, August 2, 2017 , at 8:30 AM Eastern Time to discuss second quarter financial results. This webcast may be accessed at: https://event.webcasts.com/starthere.jsp?ei=1154338&tp_key=25e3e5850f. An audio archive of this webcast will be available using the above noted link through August 16, 2017.

1




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 36% interest (including the 2% 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 recent and 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.


2



RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)
 
Three Months Ended
June 30,
 
Change from 2016
 
2017
 
2016
 
Change
 
Percent
 
(In thousands, except per share data)
Sales and other revenues
$
3,458,864

 
$
2,714,638

 
$
744,226

 
27
 %
Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
2,753,440

 
2,248,155

 
505,285

 
22

Lower of cost or market inventory valuation adjustment
83,982

 
(138,473
)
 
222,455

 
(161
)
 
2,837,422

 
2,109,682

 
727,740

 
34

Operating expenses
315,652

 
251,336

 
64,316

 
26

General and administrative expenses
59,576

 
29,655

 
29,921

 
101

Depreciation and amortization
105,282

 
90,423

 
14,859

 
16

Goodwill and asset impairment
19,247

 
654,084

 
(634,837
)
 
(97
)
Total operating costs and expenses
3,337,179

 
3,135,180

 
201,999

 
6

Income (loss) from operations
121,685

 
(420,542
)
 
542,227

 
(129
)
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Earnings of equity method investments
4,053

 
3,623

 
430

 
12

Interest income
176

 
527

 
(351
)
 
(67
)
Interest expense
(29,645
)
 
(14,251
)
 
(15,394
)
 
108

Gain on foreign currency transactions
10,328

 

 
10,328

 

Other, net
(528
)
 
128

 
(656
)
 
(513
)
 
(15,616
)
 
(9,973
)
 
(5,643
)
 
57

Income (loss) before income taxes
106,069

 
(430,515
)
 
536,584

 
(125
)
Income tax expense (benefit)
31,996

 
(38,045
)
 
70,041

 
(184
)
Net income (loss)
74,073

 
(392,470
)
 
466,543

 
(119
)
Less net income attributable to noncontrolling interest
16,306

 
16,898

 
(592
)
 
(4
)
Net income (loss) attributable to HollyFrontier stockholders
$
57,767

 
$
(409,368
)
 
$
467,135

 
(114
)%
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to HollyFrontier stockholders:
 
 
 
 
 
 
 
Basic
$
0.33

 
$
(2.33
)
 
$
2.66

 
(114
)%
Diluted
$
0.33

 
$
(2.33
)
 
$
2.66

 
(114
)%
Cash dividends declared per common share
$
0.33

 
$
0.33

 
$

 
 %
Average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
176,147

 
175,865

 
282

 
 %
Diluted
176,302

 
175,865

 
437

 
 %
EBITDA
$
224,514

 
$
(343,266
)
 
$
567,780

 
(165
)%
Adjusted EBITDA
$
306,069

 
$
172,345

 
$
133,724

 
78
 %


3



 
Six Months Ended
June 30,
 
Change from 2016
 
2017
 
2016
 
Change
 
Percent
 
(In thousands, except per share data)
Sales and other revenues
$
6,539,347

 
$
4,733,362

 
$
1,805,985

 
38
 %
Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

5,394,597

 
3,873,318

 
1,521,279

 
39

Lower of cost or market inventory valuation adjustment

95,805

 
(194,594
)
 
290,399

 
(149
)
 
5,490,402

 
3,678,724

 
1,811,678

 
49

Operating expenses
622,769

 
503,919

 
118,850

 
24

General and administrative expenses
116,646

 
55,276

 
61,370

 
111

Depreciation and amortization
201,322

 
178,303

 
23,019

 
13

Goodwill and asset impairment
19,247

 
654,084

 
(634,837
)
 
(97
)
Total operating costs and expenses
6,450,386

 
5,070,306

 
1,380,080

 
27

Income (loss) from operations
88,961

 
(336,944
)
 
425,905

 
(126
)
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Earnings of equity method investments
5,893

 
6,388

 
(495
)
 
(8
)
Interest income
995

 
602

 
393

 
65

Interest expense
(56,803
)
 
(26,338
)
 
(30,465
)
 
116

Loss on early extinguishment of debt
(12,225
)
 
(8,718
)
 
(3,507
)
 
40

Gain on foreign currency swaps
24,545

 

 
24,545

 

Loss on foreign currency transactions
395

 

 
395

 

Other, net
(263
)
 
193

 
(456
)
 
(236
)
 
(37,463
)
 
(27,873
)
 
(9,590
)
 
34

Income (loss) before income taxes
51,498

 
(364,817
)
 
416,315

 
(114
)
Income tax expense (benefit)
15,207

 
(15,737
)
 
30,944

 
(197
)
Net income (loss)
36,291

 
(349,080
)
 
385,371

 
(110
)
Less net income attributable to noncontrolling interest
23,992

 
39,035

 
(15,043
)
 
(39
)
Net income (loss) attributable to HollyFrontier stockholders
$
12,299

 
$
(388,115
)
 
$
400,414

 
(103
)%
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to HollyFrontier stockholders:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
(2.20
)
 
$
2.27

 
(103
)%
Diluted
$
0.07

 
$
(2.20
)
 
$
2.27

 
(103
)%
Cash dividends declared per common share
$
0.66

 
$
0.66

 
$

 
 %
Average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
176,141

 
176,301

 
(160
)
 
 %
Diluted
176,490

 
176,301

 
189

 
 %
EBITDA
$
296,861

 
$
(191,095
)
 
$
487,956

 
(255
)%
Adjusted EBITDA
$
391,529

 
$
268,395

 
$
123,134

 
46
 %


Balance Sheet Data
 
June 30,
 
December 31,
 
2017
 
2016
 
(In thousands)
Cash, cash equivalents and total investments in marketable securities
$
460,326

 
$
1,134,727

Working capital
$
1,073,315

 
$
1,767,780

Total assets
$
9,643,035

 
$
9,435,661

Long-term debt
$
2,227,951

 
$
2,235,137

Total equity
$
5,242,084

 
$
5,301,985



4




Segment Information

Our operations are organized into three reportable segments, Refining, PCLI and HEP. Our operations that are not included in the Refining, PCLI 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 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. Additionally, the Refining segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma.

On February 1, 2017, we acquired PCLI, a Canadian-based producer of lubricant products such as base oils, white oils, specialty products and finished lubricants. The PCLI segment involves production operations, located in Mississauga, Ontario, and marketing of its products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China.

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 the UNEV Pipeline (an HEP consolidated subsidiary), a 50% ownership interest in each of the Frontier Pipeline, Osage Pipeline and the Cheyenne Pipeline and a 25% ownership interest in 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. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP's periodic public filings.

5



 
Refining
 
PCLI
 
HEP
 
Corporate and Other
 
Consolidations and Eliminations
 
Consolidated Total
 
(In thousands)
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Sales and other revenues
$
3,141,137

 
$
309,566

 
$
109,143

 
$
15

 
$
(100,997
)
 
$
3,458,864

Operating expenses
$
245,265

 
$
52,652

 
$
34,097

 
$
1,322

 
$
(17,684
)
 
$
315,652

Depreciation and amortization
$
75,656

 
$
7,302

 
$
19,541

 
$
2,990

 
$
(207
)
 
$
105,282

Income (loss) from operations
$
86,603

 
$
17,511

 
$
52,890

 
$
(34,746
)
 
$
(573
)
 
$
121,685

Net income (loss)
$
86,603

 
$
12,640

 
$
43,260

 
$
(68,378
)
 
$
(52
)
 
$
74,073

Capital expenditures
$
52,190

 
$
8,757

 
$
12,259

 
$
4,087

 
$

 
$
77,293

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Sales and other revenues
$
2,699,022

 
$

 
$
94,896

 
$
47

 
$
(79,327
)
 
$
2,714,638

Operating expenses
$
225,683

 
$

 
$
29,212

 
$
1,152

 
$
(4,711
)
 
$
251,336

Depreciation and amortization
$
72,023

 
$

 
$
15,308

 
$
3,299

 
$
(207
)
 
$
90,423

Income (loss) from operations
$
(436,214
)
 
$

 
$
47,514

 
$
(31,197
)
 
$
(645
)
 
$
(420,542
)
Net income (loss)
$
(436,214
)
 
$

 
$
39,921

 
$
3,843

 
$
(20
)
 
$
(392,470
)
Capital expenditures
$
105,875

 
$

 
$
33,201

 
$
1,396

 
$

 
$
140,472

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Sales and other revenues
$
6,003,213

 
$
511,506

 
$
214,777

 
$
42

 
$
(190,191
)
 
$
6,539,347

Operating expenses
$
502,380

 
$
88,681

 
$
66,586

 
$
2,335

 
$
(37,213
)
 
$
622,769

Depreciation and amortization
$
145,324

 
$
12,376

 
$
37,914

 
$
6,122

 
$
(414
)
 
$
201,322

Income (loss) from operations
$
36,348

 
$
29,905

 
$
105,028

 
$
(81,181
)
 
$
(1,139
)
 
$
88,961

Net income (loss)
$
36,348

 
$
21,056

 
$
71,543

 
$
(92,561
)
 
$
(95
)
 
$
36,291

Capital expenditures
$
99,864

 
$
10,352

 
$
20,524

 
$
6,310

 
$

 
$
137,050

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Sales and other revenues
$
4,698,609

 
$

 
$
196,906

 
$
157

 
$
(162,310
)
 
$
4,733,362

Operating expenses
$
453,512

 
$

 
$
56,968

 
$
2,407

 
$
(8,968
)
 
$
503,919

Depreciation and amortization
$
140,901

 
$

 
$
31,337

 
$
6,479

 
$
(414
)
 
$
178,303

Income (loss) from operations
$
(380,281
)
 
$

 
$
102,648

 
$
(58,052
)
 
$
(1,259
)
 
$
(336,944
)
Net income (loss)
$
(380,281
)
 
$

 
$
87,293

 
$
(56,060
)
 
$
(32
)
 
$
(349,080
)
Capital expenditures
$
210,582

 
$

 
$
75,385

 
$
4,078

 
$

 
$
290,045

 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and total investments in marketable securities
$
2,311

 
$
68,346

 
$
16,339

 
$
373,330

 
$

 
$
460,326

Total assets
$
6,354,911

 
$
1,194,478

 
$
1,904,951

 
$
471,367

 
$
(282,672
)
 
$
9,643,035

Long-term debt
$

 
$

 
$
1,236,739

 
$
991,212

 
$

 
$
2,227,951

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and total investments in marketable securities
$
49

 
$

 
$
3,657

 
$
1,131,021

 
$

 
$
1,134,727

Total assets
$
6,513,806

 
$

 
$
1,920,487

 
$
1,306,169

 
$
(304,801
)
 
$
9,435,661

Long-term debt
$

 
$

 
$
1,243,912

 
$
991,225

 
$

 
$
2,235,137


6



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 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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Mid-Continent Region (El Dorado and Tulsa Refineries)
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
290,460

 
270,590

 
256,370

 
252,070

Refinery throughput (BPD)  (2)
 
304,840

 
292,320

 
263,730

 
272,240

Refinery production (BPD) (3)
 
293,860

 
280,590

 
263,400

 
261,340

Sales of produced refined products (BPD)
 
281,670

 
264,660

 
254,830

 
249,010

Sales of refined products (BPD) (4)
 
308,280

 
285,780

 
281,970

 
274,000

Refinery utilization (5)
 
111.7
%
 
104.1
%
 
98.6
%
 
97.0
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (6)
 
 
 
 
 
 
 
 
Net sales
 
$
65.01

 
$
60.24

 
$
65.76

 
$
53.89

Cost of products (7)
 
55.63

 
52.55

 
57.59

 
46.13

Refinery gross margin (8)
 
9.38

 
7.69

 
8.17

 
7.76

Refinery operating expenses (9)
 
4.48

 
4.56

 
5.21

 
4.95

Net operating margin (8)
 
$
4.90

 
$
3.13

 
$
2.96

 
$
2.81

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (10)
 
$
4.14

 
$
4.13

 
$
5.03

 
$
4.53

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
62
%
 
58
%
 
60
%
 
55
%
Sour crude oil
 
18
%
 
17
%
 
19
%
 
19
%
Heavy sour crude oil
 
15
%
 
17
%
 
15
%
 
19
%
Other feedstocks and blends
 
5
%
 
8
%
 
6
%
 
7
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
50
%
 
47
%
 
50
%
 
48
%
Diesel fuels
 
34
%
 
35
%
 
32
%
 
35
%
Jet fuels
 
6
%
 
6
%
 
7
%
 
6
%
Fuel oil
 
1
%
 
1
%
 
1
%
 
1
%
Asphalt
 
3
%
 
3
%
 
3
%
 
2
%
Lubricants
 
4
%
 
5
%
 
5
%
 
5
%
LPG and other
 
2
%
 
3
%
 
2
%
 
3
%
Total
 
100
%
 
100
%
 
100
%
 
100
%



7



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Southwest Region (Navajo Refinery)
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
102,120

 
101,660

 
88,370

 
99,890

Refinery throughput (BPD)  (2)
 
112,720

 
111,610

 
96,200

 
110,370

Refinery production (BPD) (3)
 
111,240

 
110,520

 
94,770

 
109,020

Sales of produced refined products (BPD)
 
108,390

 
110,360

 
92,460

 
111,870

Sales of refined products (BPD) (4)
 
110,350

 
111,570

 
100,570

 
112,660

Refinery utilization (5)
 
102.1
%
 
101.7
%
 
88.4
%
 
99.9
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (6)
 
 
 
 
 
 
 
 
Net sales
 
$
65.97

 
$
61.86

 
$
66.46

 
$
53.67

Cost of products (7)
 
54.63

 
50.71

 
56.32

 
44.66

Refinery gross margin (8)
 
11.34

 
11.15

 
10.14

 
9.01

Refinery operating expenses (9)
 
4.96

 
4.77

 
5.76

 
4.50

Net operating margin (8)
 
$
6.38

 
$
6.38

 
$
4.38

 
$
4.51

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (10)
 
$
4.77

 
$
4.72

 
$
5.54

 
$
4.56

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
25
%
 
27
%
 
22
%
 
30
%
Sour crude oil
 
66
%
 
64
%
 
70
%
 
60
%
Other feedstocks and blends
 
9
%
 
9
%
 
8
%
 
10
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
52
%
 
54
%
 
52
%
 
55
%
Diesel fuels
 
42
%
 
41
%
 
41
%
 
40
%
Fuel oil
 
2
%
 
2
%
 
3
%
 
2
%
Asphalt
 
1
%
 
1
%
 
1
%
 
1
%
LPG and other
 
3
%
 
2
%
 
3
%
 
2
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
74,510

 
56,340

 
74,610

 
57,880

Refinery throughput (BPD)  (2)
 
80,740

 
54,680

 
82,240

 
61,950

Refinery production (BPD) (3)
 
78,110

 
51,550

 
79,630

 
58,900

Sales of produced refined products (BPD)
 
75,840

 
56,090

 
78,300

 
61,370

Sales of refined products (BPD) (4)
 
76,070

 
61,950

 
78,740

 
65,960

Refinery utilization (5)
 
76.8
%
 
67.9
%
 
76.9
%
 
69.7
%


8



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
 
 
 
 
 
 
 
 
Average per produced barrel (6)
 
 
 
 
 
 
 
 
Net sales
 
$
68.52

 
$
62.26

 
$
67.14

 
$
53.86

Cost of products (7)
 
49.05

 
52.22

 
52.47

 
45.04

Refinery gross margin (8)
 
19.47

 
10.04

 
14.67

 
8.82

Refinery operating expenses (9)
 
10.34

 
11.48

 
10.20

 
10.51

Net operating margin (8)
 
$
9.13

 
$
(1.44
)
 
$
4.47

 
$
(1.69
)
 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (10)
 
$
9.71

 
$
11.78

 
$
9.71

 
$
10.41

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
32
%
 
45
%
 
35
%
 
42
%
Heavy sour crude oil
 
39
%
 
35
%
 
36
%
 
34
%
Black wax crude oil
 
21
%
 
20
%
 
20
%
 
17
%
Other feedstocks and blends
 
8
%
 
%
 
9
%
 
7
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
59
%
 
58
%
 
59
%
 
60
%
Diesel fuels
 
33
%
 
36
%
 
33
%
 
34
%
Fuel oil
 
3
%
 
1
%
 
2
%
 
2
%
Asphalt
 
3
%
 
1
%
 
4
%
 
1
%
LPG and other
 
2
%
 
4
%
 
2
%
 
3
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
Consolidated
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
467,090

 
428,590

 
419,350

 
409,840

Refinery throughput (BPD)  (2)
 
498,300

 
458,610

 
442,170

 
444,560

Refinery production (BPD) (3)
 
483,210

 
442,660

 
437,800

 
429,260

Sales of produced refined products (BPD)
 
465,900

 
431,110

 
425,590

 
422,250

Sales of refined products (BPD) (4)
 
494,700

 
459,300

 
461,280

 
452,620

Refinery utilization (5)
 
102.2
%
 
96.7
%
 
91.8
%
 
92.5
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (6)
 
 
 
 
 
 
 
 
Net sales
 
$
65.80

 
$
60.92

 
$
66.17

 
$
53.83

Cost of products (7)
 
54.33

 
52.04

 
56.37

 
45.58

Refinery gross margin (8)
 
11.47

 
8.88

 
9.80

 
8.25

Refinery operating expenses (9)
 
5.54

 
5.51

 
6.25

 
5.64

Net operating margin (8)
 
$
5.93

 
$
3.37

 
$
3.55

 
$
2.61

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (10)
 
$
5.18

 
$
5.18

 
$
6.01

 
$
5.35

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
49
%
 
49
%
 
48
%
 
47
%
Sour crude oil
 
26
%
 
27
%
 
26
%
 
27
%
Heavy sour crude oil
 
16
%
 
15
%
 
15
%
 
16
%
Black wax crude oil
 
3
%
 
2
%
 
4
%
 
2
%
Other feedstocks and blends
 
6
%
 
7
%
 
7
%
 
8
%
Total
 
100
%
 
100
%
 
100
%
 
100
%


9



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Consolidated
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
52
%
 
50
%
 
52
%
 
51
%
Diesel fuels
 
36
%
 
37
%
 
34
%
 
36
%
Jet fuels
 
4
%
 
4
%
 
5
%
 
4
%
Fuel oil
 
1
%
 
1
%
 
1
%
 
1
%
Asphalt
 
2
%
 
2
%
 
2
%
 
2
%
Lubricants
 
3
%
 
3
%
 
3
%
 
3
%
LPG and other
 
2
%
 
3
%
 
3
%
 
3
%
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). 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.
(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)
Excludes lower of cost or market inventory valuation adjustments of $84.0 million and $138.5 million for the three months ended June 30, 2017 and 2016 , respectively, and $95.8 million and $194.6 million for the six months ended June 30, 2017 and 2016 , respectively.
(9)
Represents operating expenses of our refineries, exclusive of depreciation and amortization.
(10)
Represents refinery operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.

PCLI Operating Data

The following table sets forth information about our our PCLI operations for the period from February 1, 2017 (date of acquisition) through June 30, 2017 .
    
 
 
Three Months Ended June 30,
 
Period From February 1, 2017 Through June 30, 2017
PCLI
 
 
 
 
Throughput (BPD) (1)
 
21,470

 
21,750

Production (BPD) (2)
 
20,880

 
21,230

Sales of produced products (BPD)
 
23,720

 
20,690


(1)
Throughput represents the barrels per day of feedstocks (principally vacuum gas oil and hydrocracker bottoms) input into our PCLI production facilities.
(2)
Production represents the barrels per day of products yielded from our PCLI production facilities.


10



Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA excluding lower of cost or market inventory valuation adjustments and PCLI acquisition and integration costs, incremental cost of products sold attributable to our PCLI inventory value step-up and net gain on foreign currency swaps ("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 Refinery small refinery exemption and (vi) net gain on foreign currency swaps.

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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands)
Net income (loss) attributable to HollyFrontier stockholders
 
$
57,767

 
$
(409,368
)
 
$
12,299

 
$
(388,115
)
   Add income tax provision
 
31,996

 
(38,045
)
 
15,207

 
(15,737
)
   Add interest expense (1)
 
29,645

 
14,251

 
69,028

 
35,056

   Subtract interest income
 
(176
)
 
(527
)
 
(995
)
 
(602
)
   Add depreciation and amortization
 
105,282

 
90,423

 
201,322

 
178,303

EBITDA
 
$
224,514

 
$
(343,266
)
 
$
296,861

 
$
(191,095
)
   Add (subtract) lower of cost or market inventory valuation adjustment
 
83,982

 
(138,473
)
 
95,805

 
(194,594
)
   Add Incremental cost of products sold attributable to PCLI inventory value step-up
 
5,089

 

 
15,327

 

   Add PCLI acquisition and integration costs
 
3,693

 

 
19,290

 

   Add goodwill and asset impairment
 
19,247

 
654,084

 
19,247

 
654,084

Subtract RINs cost reduction
 
(30,456
)
 

 
(30,456
)
 

   Subtract gain on foreign currency swaps
 

 

 
(24,545
)
 

Adjusted EBITDA
 
$
306,069

 
$
172,345

 
$
391,529

 
$
268,395

 
 
 
 
 
 
 
 
 
Adjusted EBITDA attributable to our PCLI segment is calculated as follows:
 
 
 
 
 
 
 
 
PCLI income from operations (see segment data on page 6)
 
$
17,511

 
 
 
$
29,905

 
 
   Add depreciation and amortization (see segment data on page 6)
 
7,302

 
 
 
12,376

 
 
PCLI EBITDA
 
$
24,813

 
 
 
$
42,281

 
 
   Add Incremental cost of products sold attributable to PCLI inventory value step-up
 
5,089

 
 
 
15,327

 
 
Adjusted PCLI EBITDA
 
$
29,902

 
 
 
$
57,608

 
 

(1) Includes loss on early extinguishment of debt of $12.2 million and $8.7 million for the six months ended June 30, 2017 and 2016 , respectively.


11



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 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.

Refinery Gross and Net Operating Margins

Below are reconciliations to our consolidated statements of income for (i) net sales, cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 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.

Reconciliation of produced refined product sales to total sales and other revenues
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(Dollars in thousands, except per barrel amounts)
Consolidated
 
 
 
 
 
 
 
 
Average sales price per produced barrel sold
 
$
65.80

 
$
60.92

 
$
66.17

 
$
53.83

Times sales of produced refined products (BPD)
 
465,900

 
431,110

 
425,590

 
422,250

Times number of days in period
 
91

 
91

 
181

 
182

Produced refined product sales
 
$
2,789,716

 
$
2,389,953

 
$
5,097,194

 
$
4,136,809

 
 
 
 
 
 
 
 
 
Total produced refined product sales
 
$
2,789,716

 
$
2,389,953

 
$
5,097,194

 
$
4,136,809

Add refined product sales from purchased products and rounding (1)     
 
172,841

 
161,860

 
433,131

 
293,460

Total refined product sales
 
2,962,557

 
2,551,813

 
5,530,325

 
4,430,269

Add direct sales of excess crude oil (2)     
 
121,566

 
100,782

 
380,307

 
191,700

Add other refining segment revenue (3)     
 
57,014

 
46,427

 
92,581

 
76,640

Total refining segment revenue
 
3,141,137

 
2,699,022

 
6,003,213

 
4,698,609

Add PCLI segment sales and other revenues
 
309,566

 

 
511,506

 

Add HEP segment sales and other revenues
 
109,143

 
94,896

 
214,777