HollyFrontier Corporation Reports 2019 Fourth Quarter and Full Year Results

HollyFrontier Corporation (NYSE:HFC) (“HollyFrontier” or the “Company”) today reported fourth quarter net income attributable to HollyFrontier stockholders of $60.6 million or $0.37 per diluted share for the quarter ended December 31, 2019, compared to $141.9 million or $0.81 per diluted share for the quarter ended December 31, 2018.

The fourth quarter results reflect special items that collectively decreased net income by a total of $17.4 million. These items include a lower of cost or market inventory valuation adjustment that decreased pre-tax earnings by $30.7 million, a biodiesel blender's tax credit of $18.0 million and Sonneborn integration and regulatory costs of $4.1 million. Excluding these items, net income for the fourth quarter was $78.0 million ($0.48 per diluted share) compared to $393.9 million ($2.25 per diluted share) for the fourth quarter of 2018, which excludes certain items that collectively decreased net income by $252.0 million for the three months ended December 31, 2018.

HollyFrontier’s President & CEO, Michael Jennings, commented, “Despite heavy maintenance across our refining system in the fourth quarter, HFC achieved healthy financial results in 2019. The resulting strong cash flow generation allowed us to invest over $500 million into our assets, complete the acquisition of Sonneborn and return $758 million in cash to shareholders through dividends and share repurchases during the year. Looking forward to 2020, we are optimistic that demand for gasoline and diesel will strengthen into the summer driving season, margins for finished lubricants will remain strong and the base oil market will improve as existing capacity absorbs growing demand for premium base oils.”

The Refining segment reported adjusted EBITDA of $171.6 million compared to $583.4 million for the fourth quarter of 2018. This decrease was primarily driven by heavy planned refinery maintenance, lower product margins and depressed crude differentials which resulted in a consolidated refinery gross margin of $13.58 per produced barrel, a 39% decrease compared to $22.17 for the fourth quarter of 2018. Crude oil charge averaged 380,560 barrels per day (“BPD”) for the current quarter compared to 405,580 BPD for the fourth quarter 2018.

Our Lubricants and Specialty Products segment reported EBITDA of $34.6 million, compared to $(3.5) million in the fourth quarter 2018. Rack Forward EBITDA was $61.4 million, compared to $48.9 million in the prior year, driven by contributions from our Sonneborn finished lubricants business.

Holly Energy Partners, L.P. ("HEP") reported EBITDA of $87.8 million for the fourth quarter 2019 compared to $89.9 million in the fourth quarter of 2018.

For the fourth quarter of 2019, net cash provided by operations totaled $137.2 million. During the period, we declared and paid a dividend of $0.35 per share to shareholders totaling $57.2 million and spent $61.1 million in stock repurchases. At December 31, 2019, our cash and cash equivalents totaled $885.2 million, a $96.7 million decrease over cash and cash equivalents of $981.9 million at September 30, 2019. Additionally, our consolidated long-term debt was $2,455.6 million. Our debt, exclusive of HEP debt, which is nonrecourse to HollyFrontier, was $993.6 million at December 31, 2019.

The Company has scheduled a webcast conference call for today, February 20, 2020, at 8:30 AM Eastern Time to discuss fourth quarter financial results. This webcast may be accessed at: https://event.on24.com/wcc/r/2151024/A720AA4739D7D845E99819FC98FCD935. An audio archive of this webcast will be available using the above noted link through March 5, 2020.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier owns and operates refineries located in Kansas, Oklahoma, New Mexico, Wyoming and Utah and markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier produces base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and exports products to more than 80 countries. HollyFrontier also owns a 57% limited partner interest and a non-economic general partner interest in Holly Energy Partners, L.P., a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries.

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are “forward-looking statements” based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Any differences could be caused by a number of factors, including, but not limited to, risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in the Company’s markets, the demand for and supply of crude oil, refined products and lubricant and specialty 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 or lubricant and specialty 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 and consummating construction projects, the ability of the Company to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any existing or future acquired operations, the possibility of terrorist or cyberattacks 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 2018
		2019				2018				Change				Percent
		(In thousands, except per share data)
Sales and other revenues		$	4,381,888			$	4,344,204			$	37,684			1	%
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)		3,610,528				3,245,507				365,021				11
Lower of cost or market inventory valuation adjustment		30,708				329,232				(298,524		)		(91	)
		3,641,236				3,574,739				66,497				2
Operating expenses		383,630				352,139				31,491				9
Selling, general and administrative expenses		93,259				85,955				7,304				8
Depreciation and amortization		134,580				113,719				20,861				18
Total operating costs and expenses		4,252,705				4,126,552				126,153				3
Income from operations		129,183				217,652				(88,469		)		(41	)
Other income (expense):
Earnings of equity method investments		(37		)		1,698				(1,735		)		(102	)
Interest income		5,012				6,232				(1,220		)		(20	)
Interest expense		(36,383		)		(33,917		)		(2,466		)		7
Gain on foreign currency transactions		576				681				(105		)		(15	)
Other, net		2,008				(528		)		2,536				(480	)
		(28,824		)		(25,834		)		(2,990		)		12
Income before income taxes		100,359				191,818				(91,459		)		(48	)
Income tax expense		19,290				28,501				(9,211		)		(32	)
Net income		81,069				163,317				(82,248		)		(50	)
Less net income attributable to noncontrolling interest		20,464				21,421				(957		)		(4	)
Net income attributable to HollyFrontier stockholders		$	60,605			$	141,896			$	(81,291	)		(57	)%
Earnings per share attributable to HollyFrontier stockholders:
Basic		$	0.38			$	0.82			$	(0.44	)		(54	)%
Diluted		$	0.37			$	0.81			$	(0.44	)		(54	)%
Cash dividends declared per common share		$	0.35			$	0.33			$	0.02			6	%
Average number of common shares outstanding:
Basic		161,398				172,485				(11,087		)		(6	)%
Diluted		162,898				174,259				(11,361		)		(7	)%
EBITDA		$	245,846			$	311,801			$	(65,955	)		(21	)%
Adjusted EBITDA		$	262,660			$	641,033			$	(378,373	)		(59	)%

		Years Ended December 31,								Change from 2018
		2019				2018				Change				Percent
		(In thousands, except per share data)
Sales and other revenues		$	17,486,578			$	17,714,666			$	(228,088	)		(1	)%
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)		13,918,384				13,940,782				(22,398		)		—
Lower of cost or market inventory valuation adjustment		(119,775		)		136,305				(256,080		)		(188	)
		13,798,609				14,077,087				(278,478		)		(2	)
Operating expenses		1,394,052				1,285,838				108,214				8
Selling, general and administrative expenses		354,236				290,424				63,812				22
Depreciation and amortization		509,925				437,324				72,601				17
Goodwill impairment		152,712				—				152,712				—
Total operating costs and expenses		16,209,534				16,090,673				118,861				1
Income from operations		1,277,044				1,623,993				(346,949		)		(21	)
Other income (expense):
Earnings of equity method investments		5,180				5,825				(645		)		(11	)
Interest income		22,139				16,892				5,247				31
Interest expense		(143,321		)		(131,363		)		(11,958		)		9
Gain on foreign currency transactions		5,449				6,197				(748		)		(12	)
Other, net		5,013				2,923				2,090				72
		(105,540		)		(99,526		)		(6,014		)		6
Income before income taxes		1,171,504				1,524,467				(352,963		)		(23	)
Income tax expense		299,152				347,243				(48,091		)		(14	)
Net income		872,352				1,177,224				(304,872		)		(26	)
Less net income attributable to noncontrolling interest		99,964				79,264				20,700				26
Net income attributable to HollyFrontier stockholders		$	772,388			$	1,097,960			$	(325,572	)		(30	)%
Earnings per share attributable to HollyFrontier stockholders:
Basic		$	4.64			$	6.25			$	(1.61	)		(26	)%
Diluted		$	4.61			$	6.19			$	(1.58	)		(26	)%
Cash dividends declared per common share		$	1.34			$	1.32			$	0.02			2	%
Average number of common shares outstanding:
Basic		166,287				175,009				(8,722		)		(5	)%
Diluted		167,385				176,661				(9,276		)		(5	)%
EBITDA		$	1,702,647			$	1,996,998			$	(294,351	)		(15	)%
Adjusted EBITDA		$	1,714,524			$	2,054,653			$	(340,129	)		(17	)%

Balance Sheet Data

		Years Ended December 31,
		2019				2018
		(In thousands)
Cash and cash equivalents		$	885,162			$	1,154,752
Working capital		$	1,620,261			$	2,128,224
Total assets		$	12,164,841			$	10,994,601
Long-term debt		$	2,455,640			$	2,411,540
Total equity		$	6,509,426			$	6,459,059

Segment Information

Our operations are organized into three reportable segments: Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column.

The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and HollyFrontier Asphalt Company LLC (“HFC Asphalt”) (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma.

The Lubricants and Specialty Products segment includes Petro-Canada Lubricants Inc.’s (“PCLI”) production operations, located in Mississauga, Ontario, that include lubricant products such as base oils, white oils, specialty products and finished lubricants and the operations of our Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America, the operations of Red Giant Oil, one of the largest suppliers of locomotive engine oil in North America and the operations of Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

The HEP segment involves all of the operations of HEP, a consolidated variable interest entity, which owns and operates logistics assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The HEP segment also includes a 75% interest in UNEV Pipeline, LLC (an HEP consolidated subsidiary), and a 50% ownership interest in each of Osage Pipeline Company, LLC, Cheyenne Pipeline LLC and Cushing Connect Pipeline & Terminal LLC. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP's periodic public filings.

		Refining				Lubricants and Specialty Products				HEP				Corporate, Other and Eliminations				Consolidated Total
		(In thousands)
Three Months Ended December 31, 2019
Sales and other revenues:
Revenues from external customers		$	3,837,269			$	512,980			$	31,639			$	—			$	4,381,888
Intersegment revenues		67,879				3,150				99,995				(171,024		)		—
		$	3,905,148			$	516,130			$	131,634			$	(171,024	)		$	4,381,888
Cost of products sold (exclusive of lower of cost or market inventory adjustment)		$	3,381,967			$	377,740			$	—			$	(149,179	)		$	3,610,528
Lower of cost or market inventory valuation adjustment		$	30,708			$	—			$	—			$	—			$	30,708
Operating expenses		$	301,407			$	60,868			$	38,951			$	(17,596	)		$	383,630
Selling, general and administrative expenses		$	32,196			$	42,914			$	2,929			$	15,220			$	93,259
Depreciation and amortization		$	82,527			$	22,890			$	24,514			$	4,649			$	134,580
Income (loss) from operations		$	76,343			$	11,718			$	65,240			$	(24,118	)		$	129,183
Income (loss) before interest and income taxes		$	76,343			$	11,681			$	65,532			$	(21,826	)		$	131,730
Net income attributable to noncontrolling interest		$	—			$	—			$	1,457			$	19,007			$	20,464
Earnings of equity method investments		$	—			$	—			$	(37	)		$	—			$	(37	)
Capital expenditures		$	69,835			$	15,110			$	6,284			$	7,477			$	98,706
Three Months Ended December 31, 2018
Sales and other revenues:
Revenues from external customers		$	3,890,507			$	422,975			$	30,613			$	109			$	4,344,204
Intersegment revenues		85,721				1,313				102,179				(189,213		)		—
		$	3,976,228			$	424,288			$	132,792			$	(189,104	)		$	4,344,204
Cost of products sold (exclusive of lower of cost or market inventory adjustment)		$	3,071,340			$	341,126			$	—			$	(166,959	)		$	3,245,507
Lower of cost or market inventory valuation adjustment		$	329,232			$	—			$	—			$	—			$	329,232
Operating expenses		$	290,794			$	42,719			$	39,699			$	(21,073	)		$	352,139
Selling, general and administrative expenses		$	30,675			$	44,325			$	2,748			$	8,207			$	85,955
Depreciation and amortization		$	73,482			$	13,232			$	24,375			$	2,630			$	113,719
Income (loss) from operations		$	180,705			$	(17,114	)		$	65,970			$	(11,909	)		$	217,652
Income (loss) before interest and income taxes		$	180,705			$	(16,737	)		$	67,719			$	(12,184	)		$	219,503
Net income attributable to noncontrolling interest		$	—			$	—			$	1,405			$	20,016			$	21,421
Earnings of equity method investments		$	—			$	—			$	1,698			$	—			$	1,698
Capital expenditures		$	70,741			$	14,309			$	13,030			$	3,871			$	101,951

		Refining				Lubricants and Specialty Products				HEP				Corporate, Other and Eliminations				Consolidated Total
		(In thousands)
Year Ended December 31, 2019
Sales and other revenues:
Revenues from external customers		$	15,284,110			$	2,081,221			$	121,027			$	220			$	17,486,578
Intersegment revenues		312,678				11,307				411,750				(735,735		)		—
		$	15,596,788			$	2,092,528			$	532,777			$	(735,515	)		$	17,486,578
Cost of products sold (exclusive of lower of cost or market inventory adjustment)		$	12,980,506			$	1,580,036			$	—			$	(642,158	)		$	13,918,384
Lower of cost or market inventory valuation adjustment		$	(119,775	)		$	—			$	—			$	—			$	(119,775	)
Operating expenses		$	1,095,488			$	231,523			$	161,996			$	(94,955	)		$	1,394,052
Selling, general and administrative expenses		$	120,518			$	168,595			$	10,251			$	54,872			$	354,236
Depreciation and amortization		$	309,932			$	88,781			$	96,706			$	14,506			$	509,925
Goodwill impairment		$	—			$	152,712			$	—			$	—			$	152,712
Income (loss) from operations		$	1,210,119			$	(129,119	)		$	263,824			$	(67,780	)		$	1,277,044
Income (loss) before interest and income taxes (1)		$	1,210,119			$	(128,837	)		$	304,442			$	(93,038	)		$	1,292,686
Net income attributable to noncontrolling interest		$	—			$	—			$	4,981			$	94,983			$	99,964
Earnings of equity method investments		$	—			$	—			$	5,180			$	—			$	5,180
Capital expenditures		$	199,002			$	40,997			$	30,112			$	23,652			$	293,763
Year Ended December 31, 2018
Sales and other revenues:
Revenues from external customers		$	15,806,304			$	1,799,506			$	108,412			$	444			$	17,714,666
Intersegment revenues		370,259				13,197				397,808				(781,264		)		—
		$	16,176,563			$	1,812,703			$	506,220			$	(780,820	)		$	17,714,666
Cost of products sold (exclusive of lower of cost or market inventory adjustment)		$	13,250,849			$	1,381,540			$	—			$	(691,607	)		$	13,940,782
Lower of cost or market inventory valuation adjustment		$	136,305			$	—			$	—			$	—			$	136,305
Operating expenses		$	1,055,209			$	167,820			$	146,430			$	(83,621	)		$	1,285,838
Selling, general and administrative expenses		$	113,641			$	143,750			$	11,041			$	21,992			$	290,424
Depreciation and amortization		$	284,439			$	43,255			$	98,492			$	11,138			$	437,324
Income (loss) from operations		$	1,336,120			$	76,338			$	250,257			$	(38,722	)		$	1,623,993
Income (loss) before interest and income taxes		$	1,336,120			$	77,640			$	256,204			$	(31,026	)		$	1,638,938
Net income attributable to noncontrolling interest		$	—			$	—			$	4,520			$	74,744			$	79,264
Earnings of equity method investments		$	—			$	—			$	5,825			$	—			$	5,825
Capital expenditures		$	202,791			$	37,448			$	54,141			$	16,649			$	311,029

(1)

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

		Refining				Lubricants and Specialty Products				HEP				Corporate, Other and Eliminations				Consolidated Total
		(In thousands)
December 31, 2019
Cash and cash equivalents		$	9,755			$	169,277			$	13,287			$	692,843			$	885,162
Total assets		$	7,189,094			$	2,223,418			$	2,205,437			$	546,892			$	12,164,841
Long-term debt		$	—			$	—			$	1,462,031			$	993,609			$	2,455,640
December 31, 2018
Cash and cash equivalents		$	7,236			$	80,931			$	3,045			$	1,063,540			$	1,154,752
Total assets		$	6,465,155			$	1,506,209			$	2,142,027			$	881,210			$	10,994,601
Long-term debt		$	—			$	—			$	1,418,900			$	992,640			$	2,411,540

Refining Segment Operating Data

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

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1)		243,400				216,870				254,010				249,240
Refinery throughput (BPD) (2)		256,790				236,240				268,500				264,730
Sales of produced refined products (BPD) (3)		254,950				243,680				259,310				255,800
Refinery utilization (4)		93.6		%		83.4		%		97.7		%		95.9		%
Average per produced barrel (5)
Refinery gross margin		$	11.15			$	19.01			$	13.71			$	14.44
Refinery operating expenses (6)		6.66				6.55				5.77				5.51
Net operating margin		$	4.49			$	12.46			$	7.94			$	8.93
Refinery operating expenses per throughput barrel (7)		$	6.61			$	6.76			$	5.58			$	5.32
Feedstocks:
Sweet crude oil		54		%		56		%		55		%		54		%
Sour crude oil		26		%		25		%		24		%		24		%
Heavy sour crude oil		15		%		11		%		16		%		16		%
Other feedstocks and blends		5		%		8		%		5		%		6		%
Total		100		%		100		%		100		%		100		%
Sales of produced refined products:
Gasolines		53		%		52		%		51		%		51		%
Diesel fuels		30		%		30		%		32		%		33		%
Jet fuels		6		%		7		%		7		%		6		%
Fuel oil		1		%		1		%		1		%		1		%
Asphalt		4		%		3		%		3		%		3		%
Base oils		3		%		4		%		4		%		4		%
LPG and other		3		%		3		%		2		%		2		%
Total		100		%		100		%		100		%		100		%

		Three Months Ended December 31,										Years Ended December 31,
		2019					2018					2019					2018
Southwest Region (Navajo Refinery)
Crude charge (BPD) (1)		85,240					110,160					101,760					109,440
Refinery throughput (BPD) (2)		94,710					119,640					111,870					118,630
Sales of produced refined products (BPD) (3)		106,770					119,390					117,230					120,520
Refinery utilization (4)		85.2		%			110.2		%			101.8		%			109.4		%
Average per produced barrel (5)
Refinery gross margin		$	17.71				$	22.68				$	18.97				$	19.05
Refinery operating expenses (6)		5.78					5.37					5.10					4.81
Net operating margin		$	11.93				$	17.31				$	13.87				$	14.24
Refinery operating expenses per throughput barrel (7)		$	6.52				$	5.36				$	5.35				$	4.89
Feedstocks:
Sweet crude oil		23		%			14		%			21		%			27		%
Sour crude oil		67		%			78		%			70		%			65		%
Other feedstocks and blends		10		%			8		%			9		%			8		%
Total		100		%			100		%			100		%			100		%
Sales of produced refined products:
Gasolines		54		%			51		%			52		%			50		%
Diesel fuels		33		%			39		%			37		%			40		%
Fuel oil		2		%			3		%			3		%			3		%
Asphalt		5		%			4		%			5		%			4		%
LPG and other		6		%			3		%			3		%			3		%
Total		100		%			100		%			100		%			100		%
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1)		51,920					78,550					71,830					72,890
Refinery throughput (BPD) (2)		57,230					84,670					78,230					79,980
Sales of produced refined products (BPD) (3)		57,090					80,600					72,650					76,300
Refinery utilization (4)		53.5			%		81.0			%		74.1			%		75.1			%
Average per produced barrel (5)
Refinery gross margin		$	16.69				$	30.96				$	19.13				$	26.55
Refinery operating expenses (6)		16.85					11.45					12.47					11.83
Net operating margin		$	(0.16		)		$	19.51				$	6.66				$	14.72
Refinery operating expenses per throughput barrel (7)		$	16.81				$	10.90				$	11.58				$	11.28
Feedstocks:
Sweet crude oil		37			%		34			%		36			%		28			%
Heavy sour crude oil		25			%		38			%		32			%		42			%
Black wax crude oil		29			%		21			%		24			%		21			%
Other feedstocks and blends		9			%		7			%		8			%		9			%
Total		100			%		100			%		100			%		100			%

		Three Months Ended December 31,										Years Ended December 31,
		2019					2018					2019					2018
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Sales of produced refined products:
Gasolines		53			%		52			%		53			%		55			%
Diesel fuels		35			%		32			%		34			%		33			%
Fuel oil		4			%		4			%		4			%		3			%
Asphalt		4			%		6			%		5			%		5			%
LPG and other		4			%		6			%		4			%		4			%
Total		100			%		100			%		100			%		100			%
Consolidated
Crude charge (BPD) (1)		380,560					405,580					427,600					431,570
Refinery throughput (BPD) (2)		408,730					440,550					458,600					463,340
Sales of produced refined products (BPD) (3)		418,800					443,670					449,190					452,630
Refinery utilization (4)		83.3			%		88.7			%		93.6			%		94.4			%
Average per produced barrel (5)
Refinery gross margin		$	13.58				$	22.17				$	15.96				$	17.71
Refinery operating expenses (6)		7.82					7.12					6.68					6.39
Net operating margin		$	5.76				$	15.05				$	9.28				$	11.32
Refinery operating expenses per throughput barrel (7)		$	8.02				$	7.17				$	6.54				$	6.24
Feedstocks:
Sweet crude oil		44			%		40			%		44			%		43			%
Sour crude oil		32			%		35			%		30			%		30			%
Heavy sour crude oil		13			%		13			%		15			%		17			%
Black wax crude oil		4			%		4			%		4			%		4			%
Other feedstocks and blends		7			%		8			%		7			%		6			%
Total		100			%		100			%		100			%		100			%
Consolidated
Sales of produced refined products:
Gasolines		53		%			52		%			52		%			52		%
Diesel fuels		32		%			33		%			34		%			34		%
Jet fuels		4		%			4		%			4		%			3		%
Fuel oil		1		%			2		%			2		%			2		%
Asphalt		4		%			4		%			4		%			4		%
Base oils		2		%			2		%			2		%			2		%
LPG and other		4		%			3		%			2		%			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)		Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold.
(4)		Represents crude charge divided by total crude capacity ("BPSD"). Our consolidated crude capacity is 457,000 BPSD.
(5)		Represents average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” below.
(6)		Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes of refined products produced at our refineries.
(7)		Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.

Lubricants and Specialty Products Segment Operating Data

We acquired our Sonneborn business on February 1, 2019. For the year ended December 31, 2019, our lubricants and specialty product operating results reflect the operations of our Sonneborn business for the period February 1, 2019 through December 31, 2019.

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

		Three Months Ended December 31,						Years Ended December 31,
		2019			2018			2019			2018
Lubricants and Specialty Products
Throughput (BPD)		21,229			16,790			20,251			19,590
Sales of produced products (BPD)		34,392			27,550			34,827			30,510
Sales of produced products:
Finished products		47	%		51	%		49	%		48	%
Base oils		25	%		30	%		27	%		31	%
Other		28	%		19	%		24	%		21	%
Total		100	%		100	%		100	%		100	%

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

		Rack Back (1)				Rack Forward (2)				Eliminations (3)				Total Lubricants and Specialty Products
		(In thousands)
Three Months Ended December 31, 2019
Sales and other revenues		$	175,488			$	455,134			$	(114,492	)		$	516,130
Cost of products sold		$	167,141			$	325,091			$	(114,492	)		$	377,740
Operating expenses		$	29,014			$	31,854			$	—			$	60,868
Selling, general and administrative expenses		$	6,147			$	36,767			$	—			$	42,914
Depreciation and amortization		$	4,010			$	18,880			$	—			$	22,890
Income (loss) from operations		$	(30,824	)		$	42,542			$	—			$	11,718
Income (loss) before interest and income taxes		$	(30,824	)		$	42,505			$	—			$	11,681
EBITDA		$	(26,814	)		$	61,385			$	—			$	34,571
Three Months Ended December 31, 2018
Sales and other revenues		$	136,592			$	401,170			$	(113,474	)		$	424,288
Cost of products sold		$	150,617			$	303,983			$	(113,474	)		$	341,126
Operating expenses		$	28,426			$	14,293			$	—			$	42,719
Selling, general and administrative expenses		$	9,940			$	34,385			$	—			$	44,325
Depreciation and amortization		$	8,969			$	4,263			$	—			$	13,232
Income (loss) from operations		$	(61,360	)		$	44,246			$	—			$	(17,114	)
Income (loss) before interest and income taxes		$	(61,360	)		$	44,623			$	—			$	(16,737	)
EBITDA		$	(52,391	)		$	48,886			$	—			$	(3,505	)

		Rack Back (1)				Rack Forward (2)				Eliminations (3)				Total Lubricants and Specialty Products
		(In thousands)
Year Ended December 31, 2019
Sales and other revenues		$	661,523			$	1,883,920			$	(452,915	)		$	2,092,528
Cost of products sold		$	620,660			$	1,412,291			$	(452,915	)		$	1,580,036
Operating expenses		$	116,984			$	114,539			$	—			$	231,523
Selling, general and administrative expenses		$	31,854			$	136,741			$	—			$	168,595
Depreciation and amortization		$	37,001			$	51,780			$	—			$	88,781
Goodwill impairment		$	152,712			$	—			$	—			$	152,712
Income (loss) from operations		$	(297,688	)		$	168,569			$	—			$	(129,119	)
Income (loss) before interest and income taxes		$	(297,688	)		$	168,851			$	—			$	(128,837	)
EBITDA		$	(260,687	)		$	220,631			$	—			$	(40,056	)
Year Ended December 31, 2018
Sales and other revenues		$	682,892			$	1,650,056			$	(520,245	)		$	1,812,703
Cost of products sold		$	633,459			$	1,268,326			$	(520,245	)		$	1,381,540
Operating expenses		$	111,155			$	56,665			$	—			$	167,820
Selling, general and administrative expenses		$	32,086			$	111,664			$	—			$	143,750
Depreciation and amortization		$	26,955			$	16,300			$	—			$	43,255
Income (loss) from operations		$	(120,763	)		$	197,101			$	—			$	76,338
Income (loss) before interest and income taxes		$	(120,763	)		$	198,403			$	—			$	77,640
EBITDA		$	(93,808	)		$	214,703			$	—			$	120,895

(1)		Rack Back consists of the PCLI base oil production activities, by-product sales to third parties and intra-segment base oil sales to rack forward.
(2)		Rack Forward activities include the purchase of base oils from Rack Back and the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties.
(3)		Intra-segment sales of Rack Back produced base oils to rack forward are eliminated under the “Eliminations” column.

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

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

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

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

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

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
		(In thousands)
Net income attributable to HollyFrontier stockholders		$	60,605			$	141,896			$	772,388			$	1,097,960
Add (subtract) income tax expense (benefit)		19,290				28,501				299,152				347,243
Add interest expense		36,383				33,917				143,321				131,363
Subtract interest income		(5,012		)		(6,232		)		(22,139		)		(16,892		)
Add depreciation and amortization		134,580				113,719				509,925				437,324
EBITDA		$	245,846			$	311,801			$	1,702,647			$	1,996,998
Add (subtract) lower of cost or market inventory valuation adjustment		30,708				329,232				(119,775		)		136,305
Add goodwill impairment		—				—				152,712				—
Add acquisition integration and regulatory costs		4,118				—				24,194				3,595
Add incremental cost of products sold attributable to Sonneborn inventory value step-up		—				—				9,338				—
Subtract RINs cost reduction		—				—				(36,580		)		(96,971		)
Subtract biodiesel blender's tax credit		(18,012		)		—				(18,012		)		—
Add Woods Cross refinery outage damages		—				—				—				24,566
Subtract Woods Cross refinery insurance claims on outage damages		—				—				—				(9,840		)
Adjusted EBITDA		$	262,660			$	641,033			$	1,714,524			$	2,054,653

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

		Three Months Ended December 31,								Years Ended December 31,
Refining Segment		2019				2018				2019				2018
		(In thousands)
Income from operations (1)		$	76,343			$	180,705			$	1,210,119			$	1,336,120
Add depreciation and amortization		82,527				73,482				309,932				284,439
EBITDA		158,870				254,187				1,520,051				1,620,559
Add (subtract) lower of cost or market inventory valuation adjustment		30,708				329,232				(119,775		)		136,305
Subtract RINs cost reduction		—				—				(36,580		)		(96,971		)
Subtract biodiesel blender's tax credit		(18,012		)		—				(18,012		)		—
Add Woods Cross refinery outage damages		—				—				—				24,566
Subtract Woods Cross refinery insurance claims on outage damages		—				—				—				(9,840		)
Adjusted EBITDA		$	171,566			$	583,419			$	1,345,684			$	1,674,619

(1)

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

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

Lubricants and Specialty Products Segment		Rack Back				Rack Forward				Total Lubricants and Specialty Products
		(In thousands)
Three Months Ended December 31, 2019
Income (loss) before interest and income taxes (1)		$	(30,824	)		$	42,505			$	11,681
Add depreciation and amortization		4,010				18,880				22,890
EBITDA		$	(26,814	)		$	61,385			$	34,571
Three Months Ended December 31, 2018
Income (loss) before interest and income taxes (1)		$	(61,360	)		$	44,623			$	(16,737	)
Add depreciation and amortization		8,969				4,263				13,232
EBITDA		$	(52,391	)		$	48,886			$	(3,505	)
Year Ended December 31, 2019
Income (loss) before interest and income taxes (1)		$	(297,688	)		$	168,851			$	(128,837	)
Add depreciation and amortization		37,001				51,780				88,781
EBITDA		(260,687		)		220,631				(40,056		)
Add goodwill impairment		152,712				—				152,712
Add incremental cost of products sold attributable to Sonneborn inventory value step-up		—				9,338				9,338
Adjusted EBITDA		$	(107,975	)		$	229,969			$	121,994
Year Ended December 31, 2018
Income (loss) before interest and income taxes (1)		$	(120,763	)		$	198,403			$	77,640
Add depreciation and amortization		26,955				16,300				43,255
EBITDA		$	(93,808	)		$	214,703			$	120,895

(1)

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

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

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

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

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

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
		(Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per produced barrel sold		$	5.76			$	15.05			$	9.28			$	11.32
Add average refinery operating expenses per produced barrel sold		7.82				7.12				6.68				6.39
Refinery gross margin per produced barrel sold		$	13.58			$	22.17			$	15.96			$	17.71
Times produced barrels sold (BPD)		418,800				443,670				449,190				452,630
Times number of days in period		92				92				365				365
Refining segment gross margin		$	523,232			$	904,927			$	2,616,711			$	2,925,868
Add (subtract) rounding		(51		)		(39		)		(429		)		(154		)
Total refining segment gross margin		523,181				904,888				2,616,282				2,925,714
Add refining segment cost of products sold		3,381,967				3,071,340				12,980,506				13,250,849
Refining segment sales and other revenues		3,905,148				3,976,228				15,596,788				16,176,563
Add lubricants and specialty products segment sales and other revenues		516,130				424,288				2,092,528				1,812,703
Add HEP segment sales and other revenues		131,634				132,792				532,777				506,220
Subtract corporate, other and eliminations		(171,024		)		(189,104		)		(735,515		)		(780,820		)
Sales and other revenues		$	4,381,888			$	4,344,204			$	17,486,578			$	17,714,666

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

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
		(Dollars in thousands, except per barrel amounts)
Consolidated
Average operating expenses per produced barrel sold		$	7.82			$	7.12			$	6.68			$	6.39
Times produced barrels sold (BPD)		418,800				443,670				449,190				452,630
Times number of days in period		92				92				365				365
Refining segment operating expenses		$	301,301			$	290,622			$	1,095,215			$	1,055,692
Add (subtract) rounding		106				172				273				(483		)
Total refining segment operating expenses		301,407				290,794				1,095,488				1,055,209
Add lubricants and specialty products segment operating expenses		60,868				42,719				231,523				167,820
Add HEP segment operating expenses		38,951				39,699				161,996				146,430
Subtract corporate, other and eliminations		(17,596		)		(21,073		)		(94,955		)		(83,621		)
Operating expenses (exclusive of depreciation and amortization)		$	383,630			$	352,139			$	1,394,052			$	1,285,838

Reconciliation of net income attributable to HollyFrontier stockholders to adjusted net income attributable to HollyFrontier stockholders

Adjusted net income attributable to HollyFrontier stockholders is a non-GAAP financial measure that excludes non-cash lower of cost or market inventory valuation adjustments, goodwill impairment, acquisition integration and regulatory costs, incremental cost of products sold due to Sonneborn inventory value step-up, RINs cost reductions, biodiesel credit and refinery outage damages and related estimated insurance claims. We believe this measure is helpful to investors and others in evaluating our financial performance and to compare our results to that of other companies in our industry. Similarly titled performance measures of other companies may not be calculated in the same manner.

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
		(Dollars in thousands, except per share amounts)
Consolidated
GAAP:
Income before income taxes		$	100,359			$	191,818			$	1,171,504			$	1,524,467
Income tax expense		19,290				28,501				299,152				347,243
Net income		81,069				163,317				872,352				1,177,224
Less net income attributable to noncontrolling interest		20,464				21,421				99,964				79,264
Net income attributable to HollyFrontier stockholders		60,605				141,896				772,388				1,097,960
Non-GAAP adjustments to arrive at adjusted results:
Lower of cost or market inventory valuation adjustment		30,708				329,232				(119,775		)		136,305
RINs cost reduction		—				—				(36,580		)		(96,971		)
Biodiesel blender's tax credit		(18,012		)		—				(18,012		)		—
Woods Cross refinery outage damages		—				—				—				24,566
Woods Cross refinery insurance claims on outage damages		—				—				—				(9,840		)
Acquisition integration and regulatory costs		4,118				—				24,194				3,595
Goodwill impairment		—				—				152,712				—
Incremental cost of products sold attributable to Sonneborn inventory value step up		—				—				9,338				—
Total adjustments to income before income taxes		16,814				329,232				11,877				57,655
Adjustment to income tax expense (1)		(566		)		77,198				(37,270		)		14,746
Total adjustments, net of tax		17,380				252,034				49,147				42,909
Adjusted results - Non-GAAP:
Adjusted income before income taxes		117,173				521,050				1,183,381				1,582,122
Adjusted income tax expense (2)		18,724				105,699				261,882				361,989
Adjusted net income		98,449				415,351				921,499				1,220,133
Less net income attributable to noncontrolling interest		20,464				21,421				99,964				79,264
Adjusted net income attributable to HollyFrontier stockholders		$	77,985			$	393,930			$	821,535			$	1,140,869
Adjusted earnings per share attributable to HollyFrontier stockholders - diluted (3)		$	0.48			$	2.25			$	4.90			$	6.44
Average number of common shares outstanding - diluted		162,898				174,259				167,385				176,661

(1)

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

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
		(Dollars in thousands)
Non-GAAP income tax expense benefit (2)		$	18,724			$	105,699			$	261,882			$	361,989
Subtract GAAP income tax expense		19,290				28,501				299,152				347,243
Non-GAAP adjustment to income tax expense		$	(566	)		$	77,198			$	(37,270	)		$	14,746

(2)		Non-GAAP income tax expense is computed by a) adjusting HFC's consolidated estimated Annual Effective Tax Rate (“AETR”) for GAAP purposes for the effects of the above Non-GAAP adjustments, b) applying the resulting Adjusted Non-GAAP AETR to Non-GAAP adjusted income before income taxes and c) adjusting for discrete tax items applicable to the period.
(3)		Adjusted earnings per share attributable to HollyFrontier stockholders - diluted is calculated as adjusted net income attributable to HollyFrontier stockholders divided by the average number of shares of common stock outstanding assuming dilution.

Reconciliation of effective tax rate to adjusted effective tax rate

		Three Months Ended December 31,								Years Ended December 31,
		2019				2018				2019				2018
		(Dollars in thousands)
GAAP:
Income before income taxes		$	100,359			$	191,818			$	1,171,504			$	1,524,467
Income tax expense		$	19,290			$	28,501			$	299,152			$	347,243
Effective tax rate for GAAP financial statements		19.2		%		14.9		%		25.5		%		22.8		%
Adjusted - Non-GAAP:
Effect of Non-GAAP adjustments		(3.2		)%		5.4		%		(3.4		)%		0.1		%
Effective tax rate for adjusted results		16.0		%		20.3		%		22.1		%		22.9		%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200220005228/en/