EX-99.1 2 hfcq42019earningsrelea.htm EXHIBIT 99.1 Exhibit


Press Release
February 20, 2020
hfclogo11.jpg

HollyFrontier Corporation Reports 2019 Fourth Quarter and Full Year Results

•
Reported net income attributable to HollyFrontier stockholders of $772.4 million or $4.61 per diluted share and adjusted net income of $821.5 million or $4.90 per diluted share, for the year

•
Reported EBITDA of $1,702.6 million and adjusted EBITDA of $1,714.5 million, for the year

•
Returned $758.3 million to shareholders through dividends and share repurchases in the year

Dallas, Texas, February 20, 2020‑‑ 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.


1


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.


2


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
)%



3


 
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




4


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.




5


 
 
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




6


 
 
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


7


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
%






8


 
 
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
%
 
 
 
 
 
 
 
 
 

9


 
 
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.




10


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
)


11


 
 
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.



12


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



13


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.

14


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


15


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.

16



(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
%


FOR FURTHER INFORMATION, Contact:

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


17