Hollyfrontier corporation reports quarterly results
Dallas--(business wire)--hollyfrontier corporation (nyse:hfc) (“hollyfrontier” or the “company”) today reported third quarter net income attributable to hollyfrontier stockholders of $261.8 million, or $1.58 per diluted share, for the quarter ended september 30, 2019, compared to $342.5 million, or $1.93 per diluted share, for the quarter ended september 30, 2018. the third quarter results reflect special items that collectively decreased net income by a total of $16.2 million. these items include a lower of cost or market inventory valuation adjustment that decreased pre-tax earnings by $34.1 million, a rins cost reduction as a result of the small refinery exemptions granted to our cheyenne and woods cross refineries for the 2018 calendar year of $36.6 million and sonneborn integration and regulatory costs of $3.9 million. excluding these items, net income for the current quarter was $278.0 million ($1.68 per diluted share) compared to $350.7 million ($1.98 per diluted share) for the third quarter of 2018, which excludes certain items that collectively decreased net income by $8.3 million for the three months ended september 30, 2018. total operating expenses for the quarter were $345.6 million compared to $317.2 million for the third quarter of last year. hollyfrontier’s president & ceo, george damiris, commented, “hollyfrontier's solid third quarter results were driven by record throughput volumes and healthy gasoline and diesel margins across our refining system. we returned over $259 million to shareholders through dividends and share repurchases, signaling our strong commitment to return free cash flow to our shareholders. we are currently undergoing turnarounds at our el dorado and cheyenne refineries and plan to return to normal operations later in the fourth quarter.” the refining and marketing segment reported adjusted ebitda of $424.6 million compared to $507.2 million for the third quarter of 2018. this decrease was primarily driven by lower product margins and weaker laid-in crude advantage across our refining system which resulted in a consolidated refinery gross margin of $17.23 per produced barrel, a 11% decrease compared to $19.41 for the third quarter of 2018. crude oil charge averaged 476,030 barrels per day (“bpd”) for the current quarter compared to 441,990 bpd for the third quarter 2018. our lubricants and specialty products segment reported ebitda of $38.0 million, compared to $42.4 million in the prior year, despite improvements in base oil markets. rack forward ebitda was $51.3 million, compared to $57.1 million in the prior year, driven by an unfavorable product sales mix and the impact of macroeconomic headwinds on end markets in the quarter. holly energy partners, l.p. (“hep”) reported ebitda of $123.1 million for the third quarter 2019 compared to $86.9 million in the third quarter of 2018. third quarter results reflected strong third-party volumes and higher spot revenues on its crude oil pipeline systems in wyoming and utah. reported ebitda in third quarter 2019 includes a $35.2 million gain on sales-type leases that eliminates on hfc consolidation. for the third quarter of 2019, net cash provided by operations totaled $441.9 million. during the period, we declared and paid a dividend of $0.33 per share to shareholders totaling $54.5 million and spent $205.0 million in stock repurchases. at september 30, 2019, our cash and cash equivalents totaled $981.9 million, a $67.3 million increase over cash and cash equivalents of $914.6 million at june 30, 2019. additionally, our consolidated debt was $2,425.2 million. our debt, exclusive of hep debt, which is nonrecourse to hollyfrontier, was $993.4 million at september 30, 2019. the company has scheduled a webcast conference call for today, october 31, 2019, at 9:30 am eastern time to discuss third quarter financial results. this webcast may be accessed at: https://event.on24.com/wcc/r/2080006/f990110bd66ea00a36965449876cb61f. an audio archive of this webcast will be available using the above noted link through november 14, 2019. 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 of refined petroleum products in the company’s markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and market prices for crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, effects of governmental and environmental regulations and policies, the availability and cost of financing to the company, the effectiveness of the company’s capital investments and marketing strategies, the company’s efficiency in carrying out construction projects, the ability of the company to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate any future acquired operations, the possibility of terrorist and cyber attacks and the consequences of any such attacks, general economic conditions and other financial, operational and legal risks and uncertainties detailed from time to time in the company’s securities and exchange commission filings. the forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. results of operations financial data (all information in this release is unaudited) three months ended september 30, change from 2018 2019 2018 change percent (in thousands, except per share data) sales and other revenues $ 4,424,828 $ 4,770,799 $ (345,971 ) (7 )% operating costs and expenses: cost of products sold: cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 3,403,767 3,752,234 (348,467 ) (9 ) lower of cost or market inventory valuation adjustment 34,062 17,837 16,225 91 3,437,829 3,770,071 (332,242 ) (9 ) operating expenses 345,578 317,196 28,382 9 selling, general and administrative expenses 87,626 71,130 16,496 23 depreciation and amortization 127,016 108,885 18,131 17 total operating costs and expenses 3,998,049 4,267,282 (269,233 ) (6 ) income from operations 426,779 503,517 (76,738 ) (15 ) other income (expense): earnings of equity method investments 1,334 1,114 220 20 interest income 6,164 5,136 1,028 20 interest expense (36,027 ) (32,399 ) (3,628 ) 11 gain on foreign currency transactions 395 281 114 41 other, net 2,356 741 1,615 218 (25,778 ) (25,127 ) (651 ) 3 income before income taxes 401,001 478,390 (77,389 ) (16 ) income tax expense 103,021 116,258 (13,237 ) (11 ) net income 297,980 362,132 (64,152 ) (18 ) less net income attributable to noncontrolling interest 36,167 19,666 16,501 84 net income attributable to hollyfrontier stockholders $ 261,813 $ 342,466 $ (80,653 ) (24 )% earnings per share attributable to hollyfrontier stockholders: basic $ 1.60 $ 1.95 $ (0.35 ) (18 )% diluted $ 1.58 $ 1.93 $ (0.35 ) (18 )% cash dividends declared per common share $ 0.33 $ 0.33 $ — — % average number of common shares outstanding: basic 163,676 175,097 (11,421 ) (7 )% diluted 165,011 176,927 (11,916 ) (7 )% ebitda $ 521,713 $ 594,872 $ (73,159 ) (12 )% adjusted ebitda $ 523,082 $ 612,709 $ (89,627 ) (15 )% nine months ended september 30, change from 2018 2019 2018 change percent (in thousands, except per share data) sales and other revenues $ 13,104,690 $ 13,370,462 $ (265,772 ) (2 )% operating costs and expenses: cost of products sold: cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 10,307,856 10,695,275 (387,419 ) (4 ) lower of cost or market inventory valuation adjustment (150,483 ) (192,927 ) 42,444 (22 ) 10,157,373 10,502,348 (344,975 ) (3 ) operating expenses 1,010,422 933,699 76,723 8 selling, general and administrative expenses 260,977 204,469 56,508 28 depreciation and amortization 375,345 323,605 51,740 16 goodwill impairment 152,712 — 152,712 — total operating costs and expenses 11,956,829 11,964,121 (7,292 ) — income from operations 1,147,861 1,406,341 (258,480 ) (18 ) other income (expense): earnings of equity method investments 5,217 4,127 1,090 26 interest income 17,127 10,660 6,467 61 interest expense (106,938 ) (97,446 ) (9,492 ) 10 gain on foreign currency transactions 4,873 5,516 (643 ) (12 ) other, net 3,005 3,451 (446 ) (13 ) (76,716 ) (73,692 ) (3,024 ) 4 income before income taxes 1,071,145 1,332,649 (261,504 ) (20 ) income tax expense 279,862 318,742 (38,880 ) (12 ) net income 791,283 1,013,907 (222,624 ) (22 ) less net income attributable to noncontrolling interest 79,500 57,843 21,657 37 net income attributable to hollyfrontier stockholders $ 711,783 $ 956,064 $ (244,281 ) (26 )% earnings per share attributable to hollyfrontier stockholders: basic $ 4.23 $ 5.42 $ (1.19 ) (22 )% diluted $ 4.20 $ 5.37 $ (1.17 ) (22 )% cash dividends declared per common share $ 0.99 $ 0.99 $ — — % average number of common shares outstanding: basic 167,935 175,865 (7,930 ) (5 )% diluted 169,125 177,557 (8,432 ) (5 )% ebitda $ 1,456,801 $ 1,685,197 $ (228,396 ) (14 )% adjusted ebitda $ 1,451,864 $ 1,413,620 $ 38,244 3 % balance sheet data september 30, december 31, 2019 2018 (in thousands) cash and cash equivalents $ 981,856 $ 1,154,752 working capital $ 1,827,420 $ 2,128,224 total assets $ 12,191,328 $ 10,994,601 long-term debt $ 2,425,234 $ 2,411,540 total equity $ 6,541,363 $ 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 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 terminals in arizona, new mexico and oklahoma. the lubricants and specialty products segment involves 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 process 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 and cheyenne pipeline 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 september 30, 2019 sales and other revenues: revenues from external customers $ 3,865,399 $ 529,561 $ 29,868 $ — $ 4,424,828 intersegment revenues 81,571 8,157 106,027 (195,755 ) — $ 3,946,970 $ 537,718 $ 135,895 $ (195,755 ) $ 4,424,828 cost of products sold (exclusive of lower of cost or market inventory) $ 3,177,167 $ 397,926 $ — $ (171,326 ) $ 3,403,767 lower of cost or market inventory valuation adjustment $ 34,062 $ — $ — $ — $ 34,062 operating expenses $ 276,869 $ 57,974 $ 44,924 $ (34,189 ) $ 345,578 selling, general and administrative expenses $ 31,707 $ 43,875 $ 2,714 $ 9,330 $ 87,626 depreciation and amortization $ 76,765 $ 22,700 $ 24,121 $ 3,430 $ 127,016 income (loss) from operations $ 350,400 $ 15,243 $ 64,136 $ (3,000 ) $ 426,779 income before interest and income taxes (1) $ 350,400 $ 15,325 $ 100,778 $ (35,639 ) $ 430,864 net income attributable to noncontrolling interest $ — $ — $ 1,004 $ 35,163 $ 36,167 capital expenditures $ 53,506 $ 8,697 $ 6,076 $ 6,310 $ 74,589 three months ended september 30, 2018 sales and other revenues: revenues from external customers $ 4,270,835 $ 474,260 $ 25,596 $ 108 $ 4,770,799 intersegment revenues 101,334 1,626 100,188 (203,148 ) — $ 4,372,169 $ 475,886 $ 125,784 $ (203,040 ) $ 4,770,799 cost of products sold (exclusive of lower of cost or market inventory) $ 3,572,593 $ 359,742 $ — $ (180,101 ) $ 3,752,234 lower of cost or market inventory valuation adjustment $ 17,837 $ — $ — $ — $ 17,837 operating expenses $ 262,010 $ 40,288 $ 35,995 $ (21,097 ) $ 317,196 selling, general and administrative expenses $ 30,394 $ 33,514 $ 2,498 $ 4,724 $ 71,130 depreciation and amortization $ 70,793 $ 11,139 $ 24,367 $ 2,586 $ 108,885 income (loss) from operations $ 418,542 $ 31,203 $ 62,924 $ (9,152 ) $ 503,517 income before interest and income taxes $ 418,542 $ 31,262 $ 64,076 $ (8,227 ) $ 505,653 net income attributable to noncontrolling interest $ — $ — $ 751 $ 18,915 $ 19,666 capital expenditures $ 47,088 $ 8,094 $ 9,541 $ 5,214 $ 69,937 refining lubricants and specialty products hep corporate, other and eliminations consolidated total (in thousands) nine months ended september 30, 2019 sales and other revenues: revenues from external customers $ 11,446,841 $ 1,568,241 $ 89,388 $ 220 $ 13,104,690 intersegment revenues 244,799 8,157 311,755 (564,711 ) — $ 11,691,640 $ 1,576,398 $ 401,143 $ (564,491 ) $ 13,104,690 cost of products sold (exclusive of lower of cost or market inventory) $ 9,598,539 $ 1,202,296 $ — $ (492,979 ) $ 10,307,856 lower of cost or market inventory valuation adjustment $ (150,483 ) $ — $ — $ — $ (150,483 ) operating expenses $ 794,081 $ 170,655 $ 123,045 $ (77,359 ) $ 1,010,422 selling, general and administrative expenses $ 88,322 $ 125,681 $ 7,322 $ 39,652 $ 260,977 depreciation and amortization $ 227,405 $ 65,891 $ 72,192 $ 9,857 $ 375,345 goodwill impairment $ — $ 152,712 $ — $ — $ 152,712 income (loss) from operations $ 1,133,776 $ (140,837 ) $ 198,584 $ (43,662 ) $ 1,147,861 income before interest and income taxes (1) $ 1,133,776 $ (140,518 ) $ 238,910 $ (71,212 ) $ 1,160,956 net income attributable to noncontrolling interest $ — $ — $ 3,524 $ 75,976 $ 79,500 capital expenditures $ 129,167 $ 25,887 $ 23,828 $ 16,175 $ 195,057 nine months ended september 30, 2018 sales and other revenues: revenues from external customers $ 11,915,797 $ 1,376,531 $ 77,799 $ 335 $ 13,370,462 intersegment revenues 284,538 11,884 295,629 (592,051 ) — $ 12,200,335 $ 1,388,415 $ 373,428 $ (591,716 ) $ 13,370,462 cost of products sold (exclusive of lower of cost or market inventory) $ 10,179,509 $ 1,040,414 $ — $ (524,648 ) $ 10,695,275 lower of cost or market inventory valuation adjustment $ (192,927 ) $ — $ — $ — $ (192,927 ) operating expenses $ 764,415 $ 125,101 $ 106,731 $ (62,548 ) $ 933,699 selling, general and administrative expenses $ 82,966 $ 99,425 $ 8,293 $ 13,785 $ 204,469 depreciation and amortization $ 210,957 $ 30,023 $ 74,117 $ 8,508 $ 323,605 income (loss) from operations $ 1,155,415 $ 93,452 $ 184,287 $ (26,813 ) $ 1,406,341 income before interest and income taxes $ 1,155,415 $ 94,377 $ 188,485 $ (18,842 ) $ 1,419,435 net income attributable to noncontrolling interest $ — $ — $ 3,115 $ 54,728 $ 57,843 capital expenditures $ 132,050 $ 23,138 $ 41,111 $ 12,779 $ 209,078 (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) september 30, 2019 cash and cash equivalents $ 21,443 $ 170,116 $ 7,469 $ 782,828 $ 981,856 total assets $ 7,321,741 $ 2,139,092 $ 2,089,110 $ 641,385 $ 12,191,328 long-term debt $ — $ — $ 1,431,869 $ 993,365 $ 2,425,234 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 september 30, nine months ended september 30, 2019 2018 2019 2018 mid-continent region (el dorado and tulsa refineries) crude charge (bpd) (1) 294,380 262,550 257,590 260,150 refinery throughput (bpd) (2) 307,720 276,560 272,440 274,330 sales of produced refined products (bpd) (3) 290,930 255,840 260,780 259,890 refinery utilization (4) 113.2 % 101.0 % 99.1 % 100.1 % average per produced barrel (5) refinery gross margin $ 14.61 $ 16.43 $ 14.55 $ 12.99 refinery operating expenses (6) 5.05 5.48 5.48 5.18 net operating margin $ 9.56 $ 10.95 $ 9.07 $ 7.81 refinery operating expenses per throughput barrel (7) $ 4.77 $ 5.07 $ 5.25 $ 4.90 feedstocks: sweet crude oil 59 % 59 % 56 % 54 % sour crude oil 21 % 21 % 23 % 24 % heavy sour crude oil 16 % 15 % 16 % 17 % other feedstocks and blends 4 % 5 % 5 % 5 % total 100 % 100 % 100 % 100 % sales of produced refined products: gasolines 49 % 49 % 51 % 51 % diesel fuels 34 % 34 % 32 % 33 % jet fuels 6 % 6 % 7 % 6 % fuel oil 1 % 1 % 1 % 1 % asphalt 4 % 4 % 3 % 3 % base oils 4 % 4 % 4 % 4 % lpg and other 2 % 2 % 2 % 2 % total 100 % 100 % 100 % 100 % three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 southwest region (navajo refinery) crude charge (bpd) (1) 106,860 109,560 107,330 109,200 refinery throughput (bpd) (2) 117,250 117,880 117,660 118,300 sales of produced refined products (bpd) (3) 116,890 122,210 120,760 120,900 refinery utilization (4) 106.9 % 109.6 % 107.3 % 109.2 % average per produced barrel (5) refinery gross margin $ 18.61 $ 22.60 $ 19.35 $ 17.84 refinery operating expenses (6) 5.25 4.53 4.90 4.63 net operating margin $ 13.36 $ 18.07 $ 14.45 $ 13.21 refinery operating expenses per throughput barrel (7) $ 5.23 $ 4.69 $ 5.03 $ 4.73 feedstocks: sweet crude oil 22 % 28 % 21 % 31 % sour crude oil 69 % 65 % 70 % 61 % other feedstocks and blends 9 % 7 % 9 % 8 % total 100 % 100 % 100 % 100 % sales of produced refined products: gasolines 50 % 49 % 51 % 50 % diesel fuels 40 % 41 % 39 % 40 % fuel oil 3 % 3 % 3 % 3 % asphalt 5 % 5 % 5 % 4 % lpg and other 2 % 2 % 2 % 3 % total 100 % 100 % 100 % 100 % rocky mountain region (cheyenne and woods cross refineries) crude charge (bpd) (1) 74,790 69,880 78,530 71,000 refinery throughput (bpd) (2) 81,830 76,120 85,300 78,410 sales of produced refined products (bpd) (3) 77,680 69,720 77,890 74,850 refinery utilization (4) 77.1 % 72.0 % 81.0 % 73.2 % average per produced barrel (5) refinery gross margin $ 24.97 $ 24.75 $ 19.73 $ 24.95 refinery operating expenses (6) 11.95 12.80 11.39 11.97 net operating margin $ 13.02 $ 11.95 $ 8.34 $ 12.98 refinery operating expenses per throughput barrel (7) $ 11.34 $ 11.72 $ 10.40 $ 11.42 feedstocks: sweet crude oil 38 % 24 % 36 % 25 % heavy sour crude oil 30 % 44 % 33 % 44 % black wax crude oil 23 % 24 % 23 % 22 % other feedstocks and blends 9 % 8 % 8 % 9 % total 100 % 100 % - 100 % three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 rocky mountain region (cheyenne and woods cross refineries) sales of produced refined products: gasolines 54 % 54 % 53 % 56 % diesel fuels 32 % 34 % 34 % 33 % fuel oil 4 % 2 % 4 % 3 % asphalt 5 % 7 % 5 % 5 % lpg and other 5 % 3 % 4 % 3 % total 100 % 100 % 100 % 100 % consolidated crude charge (bpd) (1) 476,030 441,990 443,450 440,350 refinery throughput (bpd) (2) 506,800 470,560 475,400 471,040 sales of produced refined products (bpd) (3) 485,500 447,770 459,440 455,640 refinery utilization (4) 104.2 % 96.7 % 97.0 % 96.4 % average per produced barrel (5) refinery gross margin $ 17.23 $ 19.41 $ 16.69 $ 16.25 refinery operating expenses (6) 6.20 6.36 6.33 6.15 net operating margin $ 11.03 $ 13.05 $ 10.36 $ 10.10 refinery operating expenses per throughput barrel (7) $ 5.94 $ 6.05 $ 6.12 $ 5.94 feedstocks: sweet crude oil 47 % 45 % 44 % 43 % sour crude oil 29 % 29 % 30 % 30 % heavy sour crude oil 14 % 16 % 15 % 17 % black wax crude oil 4 % 4 % 4 % 4 % other feedstocks and blends 6 % 6 % 7 % 6 % total 100 % 100 % 100 % 100 % sales of produced refined products: gasolines 50 % 50 % 51 % 52 % diesel fuels 35 % 36 % 35 % 35 % jet fuels 4 % 3 % 4 % 3 % fuel oil 2 % 2 % 2 % 2 % asphalt 4 % 5 % 4 % 4 % base oils 2 % 2 % 2 % 2 % lpg and other 3 % 2 % 2 % 2 % total 100 % 100 % 100 % 100 % (1) crude charge represents the barrels per day of crude oil processed at our refineries. (2) refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries. (3) represents barrels sold of refined products produced at our refineries (including hfc asphalt) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold. (4) represents crude charge divided by total crude capacity (“bpsd”). 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 nine months ended september 30, 2019 our lubricants and specialty product operating results reflect the operations of our sonneborn business for the period february 1, 2019 through september 30, 2019. the following table sets forth information about our lubricants and specialty products operations. three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 lubricants and specialty products throughput (bpd) 23,190 21,410 19,920 20,530 sales of produced products (bpd) 36,160 31,970 34,740 21,340 sales of produced products: finished products 50 % 49 % 50 % 48 % base oils 24 % 28 % 27 % 31 % other 26 % 23 % 23 % 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 september 30, 2019 sales and other revenues $ 196,355 $ 477,261 $ (135,898 ) $ 537,718 cost of products sold $ 175,976 $ 357,848 $ (135,898 ) $ 397,926 operating expenses $ 27,825 $ 30,149 $ — $ 57,974 selling, general and administrative expenses $ 5,862 $ 38,013 $ — $ 43,875 depreciation and amortization $ 11,390 $ 11,310 $ — $ 22,700 income (loss) from operations $ (24,698 ) $ 39,941 $ — $ 15,243 income (loss) before interest and income taxes $ (24,698 ) $ 40,023 $ — $ 15,325 ebitda $ (13,308 ) $ 51,333 $ — $ 38,025 three months ended september 30, 2018 sales and other revenues $ 197,226 $ 424,386 $ (145,726 ) $ 475,886 cost of products sold $ 177,748 $ 327,720 $ (145,726 ) $ 359,742 operating expenses $ 26,748 $ 13,540 $ — $ 40,288 selling, general and administrative expenses $ 7,439 $ 26,075 $ — $ 33,514 depreciation and amortization $ 6,345 $ 4,794 $ — $ 11,139 income (loss) from operations $ (21,054 ) $ 52,257 $ — $ 31,203 income (loss) before interest and income taxes $ (21,054 ) $ 52,316 $ — $ 31,262 ebitda $ (14,709 ) $ 57,110 $ — $ 42,401 rack back (1) rack forward (2) eliminations (3) total lubricants and specialty products (in thousands) nine months ended september 30, 2019 sales and other revenues $ 486,035 $ 1,428,786 $ (338,423 ) $ 1,576,398 cost of products sold $ 453,519 $ 1,087,200 $ (338,423 ) $ 1,202,296 operating expenses $ 87,970 $ 82,685 $ — $ 170,655 selling, general and administrative expenses $ 25,707 $ 99,974 $ — $ 125,681 depreciation and amortization $ 32,991 $ 32,900 $ — $ 65,891 goodwill impairment $ 152,712 $ — $ — $ 152,712 income (loss) from operations $ (266,864 ) $ 126,027 $ — $ (140,837 ) income (loss) before interest and income taxes $ (266,864 ) $ 126,346 $ — $ (140,518 ) ebitda $ (233,873 ) $ 159,246 $ — $ (74,627 ) nine months ended september 30, 2018 sales and other revenues $ 546,300 $ 1,248,886 $ (406,771 ) $ 1,388,415 cost of products sold $ 482,842 $ 964,343 $ (406,771 ) $ 1,040,414 operating expenses $ 82,729 $ 42,372 $ — $ 125,101 selling, general and administrative expenses $ 22,146 $ 77,279 $ — $ 99,425 depreciation and amortization $ 17,986 $ 12,037 $ — $ 30,023 income (loss) from operations $ (59,403 ) $ 152,855 $ — $ 93,452 income (loss) before interest and income taxes $ (59,403 ) $ 153,780 $ — $ 94,377 ebitda $ (41,417 ) $ 165,817 $ — $ 124,400 (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 cost 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) woods cross refinery outage damages and (vii) 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 september 30, nine months ended september 30, 2019 2018 2019 2018 (in thousands) net income attributable to hollyfrontier stockholders $ 261,813 $ 342,466 $ 711,783 $ 956,064 add interest expense 36,027 32,399 106,938 97,446 subtract interest income (6,164 ) (5,136 ) (17,127 ) (10,660 ) add income tax expense 103,021 116,258 279,862 318,742 add depreciation and amortization 127,016 108,885 375,345 323,605 ebitda $ 521,713 $ 594,872 $ 1,456,801 $ 1,685,197 add (subtract) lower of cost or market inventory valuation adjustment 34,062 17,837 (150,483 ) (192,927 ) add goodwill impairment — — 152,712 — add acquisition integration and regulatory costs 3,887 — 20,076 3,595 add incremental cost of products sold attributable to sonneborn inventory value step-up — — 9,338 — subtract rins cost reduction (36,580 ) — (36,580 ) (96,971 ) add woods cross refinery outage damages — — — 24,566 subtract woods cross refinery estimated insurance claims on outage damages — — — (9,840 ) adjusted ebitda $ 523,082 $ 612,709 $ 1,451,864 $ 1,413,620 ebitda and adjusted ebitda attributable to our refining segment is presented below: three months ended september 30, nine months ended september 30, refining segment 2019 2018 2019 2018 (in thousands) income from operations (1) $ 350,400 $ 418,542 $ 1,133,776 $ 1,155,415 add depreciation and amortization 76,765 70,793 227,405 210,957 ebitda 427,165 489,335 1,361,181 1,366,372 add (subtract) lower of cost or market inventory valuation adjustment 34,062 17,837 (150,483 ) (192,927 ) subtract rins cost reduction (36,580 ) — (36,580 ) (96,971 ) add woods cross refinery outage damages — — — 24,566 subtract woods cross refinery estimated insurance claims on outage damages — — — (9,840 ) adjusted ebitda $ 424,647 $ 507,172 $ 1,174,118 $ 1,091,200 (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 september 30, 2019 income (loss) before interest and income taxes (1) $ (24,698 ) $ 40,023 $ 15,325 add depreciation and amortization 11,390 11,310 22,700 ebitda $ (13,308 ) $ 51,333 $ 38,025 three months ended september 30, 2018 income (loss) before interest and income taxes (1) $ (21,054 ) $ 52,316 $ 31,262 add depreciation and amortization 6,345 4,794 11,139 ebitda $ (14,709 ) $ 57,110 $ 42,401 nine months ended september 30, 2019 income (loss) before interest and income taxes (1) $ (266,864 ) $ 126,346 $ (140,518 ) add depreciation and amortization 32,991 32,900 65,891 ebitda $ (233,873 ) $ 159,246 $ (74,627 ) 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 $ (81,161 ) $ 168,584 $ 87,423 nine months ended september 30, 2018 income (loss) before interest and income taxes (1) $ (59,403 ) $ 153,780 $ 94,377 add depreciation and amortization 17,986 12,037 30,023 ebitda $ (41,417 ) $ 165,817 $ 124,400 (1) income (loss) from operations 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 september 30, nine months ended september 30, 2019 2018 2019 2018 (dollars in thousands, except per barrel amounts) consolidated net operating margin per produced barrel sold $ 11.03 $ 13.05 $ 10.36 $ 10.10 add average refinery operating expenses per produced barrel sold 6.20 6.36 6.33 6.15 refinery gross margin per produced barrel sold $ 17.23 $ 19.41 $ 16.69 $ 16.25 times produced barrels sold (bpd) 485,500 447,770 459,440 455,640 times number of days in period 92 92 273 273 refining segment gross margin $ 769,595 $ 799,592 $ 2,093,379 $ 2,021,333 subtract rounding 208 (16 ) (278 ) (507 ) total refining segment gross margin 769,803 799,576 2,093,101 2,020,826 add refining segment cost of products sold 3,177,167 3,572,593 9,598,539 10,179,509 refining segment sales and other revenues 3,946,970 4,372,169 11,691,640 12,200,335 add lubricants and specialty products segment sales and other revenues 537,718 475,886 1,576,398 1,388,415 add hep segment sales and other revenues 135,895 125,784 401,143 373,428 subtract corporate, other and eliminations (195,755 ) (203,040 ) (564,491 ) (591,716 ) sales and other revenues $ 4,424,828 $ 4,770,799 $ 13,104,690 $ 13,370,462 reconciliation of average refining segment operating expenses per produced barrel sold to total operating expenses three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (dollars in thousands, except per barrel amounts) consolidated average operating expenses per produced barrel sold $ 6.20 $ 6.36 $ 6.33 $ 6.15 times produced barrels sold (bpd) 485,500 447,770 459,440 455,640 times number of days in period 92 92 273 273 refining segment operating expenses $ 276,929 $ 261,999 $ 793,954 $ 764,997 add (subtract) rounding (60 ) 11 127 (582 ) total refining segment operating expenses 276,869 262,010 794,081 764,415 add lubricants and specialty products segment operating expenses 57,974 40,288 170,655 125,101 add hep segment operating expenses 44,924 35,995 123,045 106,731 subtract corporate, other and eliminations (34,189 ) (21,097 ) (77,359 ) (62,548 ) operating expenses (exclusive of depreciation and amortization) $ 345,578 $ 317,196 $ 1,010,422 $ 933,699 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 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 september 30, nine months ended september 30, 2019 2018 2019 2018 (in thousands, except per share amounts) consolidated gaap: income before income taxes $ 401,001 $ 478,390 $ 1,071,145 $ 1,332,649 income tax expense 103,021 116,258 279,862 318,742 net income 297,980 362,132 791,283 1,013,907 less net income attributable to noncontrolling interest 36,167 19,666 79,500 57,843 net income attributable to hollyfrontier stockholders 261,813 342,466 711,783 956,064 non-gaap adjustments to arrive at adjusted results: lower of cost or market inventory valuation adjustment 34,062 17,837 (150,483 ) (192,927 ) goodwill impairment — — 152,712 — acquisition integration and regulatory costs 3,887 — 20,076 3,595 incremental cost of products sold attributable to sonneborn inventory value step-up — — 9,338 — rins cost reduction (36,580 ) — (36,580 ) (96,971 ) woods cross refinery outage damages — — — 24,566 woods cross refinery estimated insurance claims on outage damages — — — (9,840 ) total adjustments to income before income taxes 1,369 17,837 (4,937 ) (271,577 ) adjustment to income tax expense (1) (14,818 ) 9,554 (36,553 ) (62,386 ) total adjustments, net of tax 16,187 8,283 31,616 (209,191 ) adjusted results - non-gaap: adjusted income before income taxes 402,370 496,227 1,066,208 1,061,072 adjusted income tax expense (2) 88,203 125,812 243,309 256,356 adjusted net income 314,167 370,415 822,899 804,716 less net income attributable to noncontrolling interest 36,167 19,666 79,500 57,843 adjusted net income attributable to hollyfrontier stockholders $ 278,000 $ 350,749 $ 743,399 $ 746,873 adjusted earnings per share attributable to hollyfrontier stockholders - diluted (3) $ 1.68 $ 1.98 $ 4.39 $ 4.19 average number of common shares outstanding - diluted 165,011 176,927 169,125 177,557 (1) represents adjustment to gaap income tax expense to arrive at adjusted income tax expense, which is computed as follows: three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (in thousands) non-gaap income tax expense (2) $ 88,203 $ 125,812 $ 243,309 $ 256,356 subtract gaap income tax expense 103,021 116,258 279,862 318,742 non-gaap adjustment to income tax expense $ (14,818 ) $ 9,554 $ (36,553 ) $ (62,386 ) (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 september 30, nine months ended september 30, 2019 2018 2019 2018 (dollars in thousands) gaap: income before income taxes $ 401,001 $ 478,390 $ 1,071,145 $ 1,332,649 income tax expense $ 103,021 $ 116,258 $ 279,862 $ 318,742 effective tax rate for gaap financial statements 25.7 % 24.3 % 26.1 % 23.9 % adjusted - non-gaap: effect of non-gaap adjustments (3.8 )% 1.1 % (3.3 )% 0.3 % effective tax rate for adjusted results 21.9 % 25.4 % 22.8 % 24.2 %
