UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172021
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ____________
Commission File Number 1-3876
_________________________________________________________________
HOLLYFRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware | | 75-1056913 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.) |
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2828 N. Harwood, Suite 1300 Dallas, Texas
| | 75201 |
Dallas, Texas | | 75201 |
(Address of principal executive offices) | | (Zip Code) |
(214) 871-3555
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock $0.01 par value | HFC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý☒ | Accelerated filer | ¨☐ | Non-accelerated filer | ¨☐ | Smaller reporting company | ¨☐ |
Emerging growth company | ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
177,273,061162,496,235 shares of Common Stock, par value $.01$.01 per share, were outstanding on October 31, 2017.
29, 2021.
HOLLYFRONTIER CORPORATION
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PART I. FINANCIAL INFORMATION | |
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September 30, 20172021 (Unaudited) and December 31, 20162020 | |
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Three and Nine Months Ended September 30, 20172021 and 20162020 | |
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Three and Nine Months Ended September 30, 20172021 and 20162020 | |
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Nine Months Ended September 30, 20172021 and 20162020 | |
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Three and Nine Months Ended September 30, 2021 and 2020 | |
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Index to Exhibits | |
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Signatures | |
FORWARD-LOOKING STATEMENTS
References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. This document contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, those under “Results of Operations,” “Liquidity and Capital Resources” and “Risk Management” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those in Part II, Item 1 “Legal Proceedings” are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are 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. AllUnless specifically noted, all statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to:
•our ability to successfully integrate the operation of the Puget Sound refinery with our existing operations;
•(i) our ability to successfully close the Sinclair acquisition, which requires receipt of approval from our stockholders and certain regulatory approvals (including clearance by antitrust authorities necessary to complete the Sinclair acquisition on the terms and timeline desired); (ii) disruption the Sinclair acquisition may cause to customers, vendors, business partners and our ongoing business; (iii) once closed, our ability to integrate the operations of Sinclair with our existing operations and fully realize the expected synergies of the Sinclair acquisition on the expected timeline; and (iv) the cost and potential for a delay in closing as a result of litigation challenging the Sinclair transactions;
•the demand for and supply of crude oil and refined products, including uncertainty regarding the effects of the continuing COVID-19 pandemic on future demand;
•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 our 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 or lubricant and specialty products;
•the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines;pipelines, whether due to infection in the workforce or in response to reductions in demand;
•the effects of current and/or future governmental and environmental regulations and policies;policies, including the effects of current and/or future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;
•the availability and cost of our financing;
•the effectiveness of our capital investments and marketing strategies;
•our efficiency in carrying out and consummating construction projects;projects, including our ability to complete announced capital projects, such as the conversion of the Cheyenne Refinery to a renewable diesel facility and the construction of the Artesia renewable diesel unit and pretreatment unit, on time and within capital guidance;
•our ability to timely obtain or maintain permits, including those necessary for operations or capital projects;
•our ability to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any recentexisting or future acquired operations, including Petro-Canada Lubricants Inc.;operations;
•the possibility of terrorist attacksor cyberattacks and the consequences of any such attacks;
•general economic conditions;conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
•a prolonged economic slowdown due to the COVID-19 pandemic which could result in an impairment of goodwill and/or additional long-lived asset impairments; and
•other financial, operational and legal risks and uncertainties detailed from time to time in our SEC filings.
Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including without limitation the forward-looking statements that are referred to above. This summary discussionYou should be readnot put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in conjunction withmind the discussion of the known material risk factors and other cautionary statements set forth under the heading “Risk Factors” included in Item 1A ofin our Annual Report on Form 10-K for the year ended December 31, 20162020 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterquarters ended March 31, 20172021 and June 30, 2021 and in this Quarterly Report on Form 10-Q, and in conjunction with the discussion in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headingheadings “Outlook” and “Liquidity and Capital Resources.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. 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.
PART I. FINANCIAL INFORMATION
DEFINITIONS
Within this report, the following terms have these specific meanings:
“BPD” means the number of barrels per calendar day of crude oil or petroleum products.
“BPSD” means the number of barrels per stream day (barrels of capacity in a 24 hour period) of crude oil or petroleum products.
“Biodiesel” meansBase oil” is a clean alternative fuellubricant grade oil initially produced from renewable biological resources.refining crude oil or through chemical synthesis that is used in producing lubricant products such as lubricating greases, motor oil and metal processing fluids.
“Black wax crude oil” is a low sulfur, low gravity crude oil produced in the Uintah Basin in Eastern Utah that has certain characteristics that require specific facilities to transport, store and refine into transportation fuels.
“Cracking” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules.
“Crude oil distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the desired products.
“Ethanol” means a high octane gasoline blend stock that is used to make various grades of gasoline.
“FCC,” or fluid catalytic cracking, means a refinery process that breaks down large complex hydrocarbon molecules into smaller more useful ones using a circulating bed of catalyst at relatively high temperatures.
“Hydrodesulfurization” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen and a catalyst at relatively high temperatures.
“Hydrogen plant” means a refinery unit that converts natural gas and steam to high purity hydrogen, which is then used in the hydrodesulfurization, hydrocracking and isomerization processes.
“Isomerization” means a refinery process for rearranging the structure of C5/C6 molecules without changing their size or chemical composition and is used to improve the octane of C5/C6 gasoline blendstocks.
“LPG” means liquid petroleum gases.
“Lubricant” or “lube” means a solvent neutral paraffinic product used in commercial heavy duty engine oils, passenger car oils and specialty products for industrial applications such as heat transfer, metalworking, rubber and other general process oil.
“MSAT2” means Control of Hazardous Air Pollutants from Mobile Sources, a rule issued by the U.S. Environmental Protection Agency to reduce hazardous emissions from motor vehicles and motor vehicle fuels.
“MMBTU” means one million British thermal units.
“Rack back” represents the portion of our Lubricants and Specialty Products business operations that entails the processing of feedstocks into base oils.
“Rack forward” represents the portion of our Lubricants and Specialty Products business operations that entails the processing of base oils into finished lubricants and the packaging, distribution and sale to customers.
“Refinery gross margin” means the difference between average net sales price and average product costscost per produced barrel of refined products sold. This does not include the associated depreciation and amortization costs.
“Renewable diesel” means a diesel fuel derived from vegetable oils or animal fats that is produced through various processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the presence of a catalyst.
“RINs” means renewable identification numbers and refers to serial numbers assigned to credits generated from biodieselrenewable fuel production under the Environmental Protection Agency’s Renewable Fuel Standard 2 (“RFS2”RFS”) regulations, that mandate increased volumes ofwhich require blending renewable fuels blended into the nation’s fuel supply. In lieu of blending, refiners may purchase these transferable credits in order to comply with the regulations.
“Sour crude oil” means crude oil containing quantities of sulfur greater than 0.4 percent by weight, while “sweet crude oil” means crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight.
“Vacuum distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products.
“White oil” is an extremely pure, highly-refined petroleum product that has a wide variety of applications ranging from pharmaceutical to cosmetic products.
“WTI” means West Texas Intermediate and is a grade of crude oil used as a common benchmark in oil pricing. WTI is a sweet crude oil and has a relatively low density.
PART I. FINANCIAL INFORMATION
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Item 1. | Financial Statements |
Item 1. Financial Statements HOLLYFRONTIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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| | September 30, 2021 | | December 31, 2020 |
| | (Unaudited) | | |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents (HEP:$12,816 and $21,990, respectively) | | $ | 1,481,562 | | | $ | 1,368,318 | |
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Accounts receivable: Product and transportation (HEP: $12,121 and $14,543, respectively) | | 772,769 | | | 590,526 | |
Crude oil resales | | 76,392 | | | 39,510 | |
| | 849,161 | | | 630,036 | |
Inventories: Crude oil and refined products | | 1,698,706 | | | 989,296 | |
Materials, supplies and other (HEP: $1,054 and $895, respectively) | | 188,374 | | | 184,180 | |
| | 1,887,080 | | | 1,173,476 | |
Income taxes receivable | | 98,404 | | | 91,348 | |
Prepayments and other (HEP: $2,571 and $8,591, respectively) | | 38,816 | | | 47,583 | |
Total current assets | | 4,355,023 | | | 3,310,761 | |
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Properties, plants and equipment, at cost (HEP: $2,194,659 and $2,119,295, respectively) | | 7,812,670 | | | 7,299,517 | |
Less accumulated depreciation (HEP: $(695,124) and $(644,149), respectively) | | (2,946,119) | | | (2,726,378) | |
| | 4,866,551 | | | 4,573,139 | |
Operating lease right-of-use assets (HEP: $70,034 and $72,480, respectively) | | 395,947 | | | 350,548 | |
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Other assets: Turnaround costs | | 345,314 | | | 314,816 | |
Goodwill (HEP: $312,873 and $312,873, respectively) | | 2,293,305 | | | 2,293,935 | |
Intangibles and other (HEP: $218,012 and $224,430, respectively) | | 641,041 | | | 663,665 | |
| | 3,279,660 | | | 3,272,416 | |
Total assets | | $ | 12,897,181 | | | $ | 11,506,864 | |
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LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable (HEP: $26,008 and $28,565, respectively) | | $ | 1,460,769 | | | $ | 1,000,959 | |
Income taxes payable | | 19,887 | | | 1,801 | |
Operating lease liabilities (HEP: $3,761 and $3,827, respectively) | | 106,686 | | | 97,937 | |
Accrued liabilities (HEP: $16,931 and $29,518, respectively) | | 456,866 | | | 274,459 | |
Total current liabilities | | 2,044,208 | | | 1,375,156 | |
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Long-term debt (HEP: $1,333,309 and $1,405,603, respectively) | | 3,072,352 | | | 3,142,718 | |
Noncurrent operating lease liabilities (HEP: $66,648 and $68,454, respectively) | | 314,650 | | | 285,785 | |
Deferred income taxes (HEP: $397 and $449, respectively) | | 870,610 | | | 713,703 | |
Other long-term liabilities (HEP: $44,277 and $55,105, respectively) | | 265,822 | | | 267,299 | |
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Equity: | | | | |
HollyFrontier stockholders’ equity: | | | | |
Preferred stock, $1.00 par value – 5,000,000 shares authorized; none issued | | — | | | — | |
Common stock $.01 par value – 320,000,000 shares authorized; 256,046,051 shares issued as of September 30, 2021 and December 31, 2020 | | 2,560 | | | 2,560 | |
Additional capital | | 4,232,504 | | | 4,207,672 | |
Retained earnings | | 4,453,366 | | | 3,913,179 | |
Accumulated other comprehensive income | | 4,460 | | | 13,462 | |
Common stock held in treasury, at cost – 93,553,647 and 93,632,391 shares as of September 30, 2021 and December 31, 2020, respectively | | (2,966,150) | | | (2,968,512) | |
Total HollyFrontier stockholders’ equity | | 5,726,740 | | | 5,168,361 | |
Noncontrolling interest | | 602,799 | | | 553,842 | |
Total equity | | 6,329,539 | | | 5,722,203 | |
Total liabilities and equity | | $ | 12,897,181 | | | $ | 11,506,864 | |
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| | September 30, 2017 | | December 31, 2016 |
| | (Unaudited) | | |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents (HEP: $7,476 and $3,657, respectively) | | $ | 630,742 |
| | $ | 710,579 |
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Marketable securities | | — |
| | 424,148 |
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Total cash, cash equivalents and short-term marketable securities | | 630,742 |
| | 1,134,727 |
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Accounts receivable: Product and transportation (HEP: $7,330 and $7,846, respectively) | | 644,695 |
| | 449,036 |
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Crude oil resales | | 69,653 |
| | 30,163 |
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| | 714,348 |
| | 479,199 |
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Inventories: Crude oil and refined products | | 1,261,245 |
| | 970,361 |
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Materials, supplies and other (HEP: $888 and $1,402, respectively) | | 158,597 |
| | 165,315 |
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| | 1,419,842 |
| | 1,135,676 |
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Income taxes receivable | | — |
| | 68,371 |
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Prepayments and other (HEP: $1,407 and $1,486, respectively) | | 32,129 |
| | 33,036 |
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Total current assets | | 2,797,061 |
| | 2,851,009 |
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Properties, plants and equipment, at cost (HEP: $1,730,903 and $1,702,703, respectively) | | 6,175,414 |
| | 5,546,856 |
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Less accumulated depreciation (HEP: $(389,133) and $(337,135), respectively) | | (1,738,583 | ) | | (1,538,408 | ) |
| | 4,436,831 |
| | 4,008,448 |
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Other assets: Turnaround costs | | 238,877 |
| | 217,340 |
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Goodwill (HEP: $288,991 and $288,991, respectively) | | 2,213,805 |
| | 2,022,463 |
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Intangibles and other (HEP: $212,692 and $208,975, respectively) | | 461,781 |
| | 336,401 |
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| | 2,914,463 |
| | 2,576,204 |
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Total assets | | $ | 10,148,355 |
| | $ | 9,435,661 |
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LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable (HEP: $13,659 and $10,518, respectively) | | $ | 1,101,668 |
| | $ | 935,387 |
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Income taxes payable | | 64,255 |
| | — |
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Accrued liabilities (HEP: $31,333 and $37,793, respectively) | | 235,092 |
| | 147,842 |
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Total current liabilities | | 1,401,015 |
| | 1,083,229 |
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Long-term debt (HEP: $1,245,066 and $1,243,912, respectively) | | 2,236,514 |
| | 2,235,137 |
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Deferred income taxes (HEP: $522 and $509, respectively) | | 842,122 |
| | 620,414 |
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Other long-term liabilities (HEP: $61,361 and $62,971, respectively) | | 202,927 |
| | 194,896 |
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Equity: | | | | |
HollyFrontier stockholders’ equity: | | | | |
Preferred stock, $1.00 par value – 5,000,000 shares authorized; none issued | | — |
| | — |
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Common stock $.01 par value – 320,000,000 shares authorized; 256,009,012 and 255,962,866 shares issued as of September 30, 2017 and December 31, 2016, respectively | | 2,560 |
| | 2,560 |
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Additional capital | | 4,067,836 |
| | 4,026,805 |
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Retained earnings | | 2,884,524 |
| | 2,776,728 |
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Accumulated other comprehensive income | | 31,440 |
| | 10,612 |
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Common stock held in treasury, at cost – 78,732,977 and 78,617,600 shares as of September 30, 2017 and December 31, 2016, respectively | | (2,137,496 | ) | | (2,135,311 | ) |
Total HollyFrontier stockholders’ equity | | 4,848,864 |
| | 4,681,394 |
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Noncontrolling interest | | 616,913 |
| | 620,591 |
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Total equity | | 5,465,777 |
| | 5,301,985 |
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Total liabilities and equity | | $ | 10,148,355 |
| | $ | 9,435,661 |
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Parenthetical amounts represent asset and liability balances attributable to Holly Energy Partners, L.P. (“HEP”) as of September 30, 20172021 and December 31, 2016.2020. HEP is a consolidated variable interest entity.
See accompanying notes.
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)
(In thousands, except per share data)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
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Sales and other revenues | | $ | 4,685,059 | | | $ | 2,819,400 | | | $ | 12,766,475 | | | $ | 8,282,875 | |
Operating costs and expenses: | | | | | | | | |
Cost of products sold (exclusive of depreciation and amortization): | | | | | | | | |
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) | | 3,822,858 | | | 2,377,238 | | | 10,608,892 | | | 6,647,960 | |
Lower of cost or market inventory valuation adjustment | | — | | | (62,849) | | | (318,862) | | | 227,711 | |
| | 3,822,858 | | | 2,314,389 | | | 10,290,030 | | | 6,875,671 | |
Operating expenses (exclusive of depreciation and amortization) | | 352,520 | | | 332,496 | | | 1,086,620 | | | 964,200 | |
Selling, general and administrative expenses (exclusive of depreciation and amortization) | | 91,056 | | | 74,453 | | | 250,785 | | | 237,559 | |
Depreciation and amortization | | 121,220 | | | 125,280 | | | 369,341 | | | 396,033 | |
Long-lived asset impairment | | — | | | — | | | — | | | 436,908 | |
Total operating costs and expenses | | 4,387,654 | | | 2,846,618 | | | 11,996,776 | | | 8,910,371 | |
Income (loss) from operations | | 297,405 | | | (27,218) | | | 769,699 | | | (627,496) | |
Other income (expense): | | | | | | | | |
Earnings of equity method investments | | 3,689 | | | 1,316 | | | 8,875 | | | 5,186 | |
Interest income | | 1,018 | | | 1,011 | | | 3,078 | | | 6,590 | |
Interest expense | | (26,892) | | | (30,589) | | | (94,220) | | | (85,923) | |
Gain on business interruption insurance settlement | | — | | | 81,000 | | | — | | | 81,000 | |
Gain on tariff settlement | | — | | | — | | | 51,500 | | | — | |
Gain on sales-type leases | | — | | | — | | | — | | | 33,834 | |
Loss on early extinguishment of debt | | — | | | — | | | — | | | (25,915) | |
Gain (loss) on foreign currency transactions | | (3,492) | | | 1,030 | | | (4,226) | | | (918) | |
Gain on sale of assets and other | | 85,779 | | | 1,368 | | | 95,596 | | | 4,790 | |
| | 60,102 | | | 55,136 | | | 60,603 | | | 18,644 | |
Income (loss) before income taxes | | 357,507 | | | 27,918 | | | 830,302 | | | (608,852) | |
Income tax expense (benefit): | | | | | | | | |
Current | | (12,784) | | | 35,826 | | | (10,794) | | | (41,221) | |
Deferred | | 67,550 | | | (31,253) | | | 160,738 | | | (147,283) | |
| | 54,766 | | | 4,573 | | | 149,944 | | | (188,504) | |
Net income (loss) | | 302,741 | | | 23,345 | | | 680,358 | | | (420,348) | |
Less net income attributable to noncontrolling interest | | 21,954 | | | 25,746 | | | 82,504 | | | 63,353 | |
Net income (loss) attributable to HollyFrontier stockholders | | $ | 280,787 | | | $ | (2,401) | | | $ | 597,854 | | | $ | (483,701) | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | 1.71 | | | $ | (0.01) | | | $ | 3.63 | | | $ | (2.99) | |
Diluted | | $ | 1.71 | | | $ | (0.01) | | | $ | 3.63 | | | $ | (2.99) | |
Average number of common shares outstanding: | | | | | | | | |
Basic | | 162,551 | | | 162,015 | | | 162,518 | | | 161,927 | |
Diluted | | 162,551 | | | 162,015 | | | 162,518 | | | 161,927 | |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Sales and other revenues | | $ | 3,719,247 |
| | $ | 2,847,270 |
| | $ | 10,258,594 |
| | $ | 7,580,632 |
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Operating costs and expenses: | | | | | | | | |
Cost of products sold (exclusive of depreciation and amortization): | | | | | | | | |
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) | | 2,888,530 |
| | 2,341,837 |
| | 8,283,127 |
| | 6,215,155 |
|
Lower of cost or market inventory valuation adjustment | | (111,128 | ) | | 312 |
| | (15,323 | ) | | (194,282 | ) |
| | 2,777,402 |
| | 2,342,149 |
| | 8,267,804 |
| | 6,020,873 |
|
Operating expenses (exclusive of depreciation and amortization) | | 321,668 |
| | 256,232 |
| | 944,437 |
| | 760,151 |
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) | | 68,013 |
| | 32,994 |
| | 184,659 |
| | 88,270 |
|
Depreciation and amortization | | 102,884 |
| | 91,130 |
| | 304,206 |
| | 269,433 |
|
Goodwill and asset impairment | | — |
| | — |
| | 19,247 |
| | 654,084 |
|
Total operating costs and expenses | | 3,269,967 |
| | 2,722,505 |
| | 9,720,353 |
| | 7,792,811 |
|
Income (loss) from operations | | 449,280 |
| | 124,765 |
| | 538,241 |
| | (212,179 | ) |
Other income (expense): | | | | | | | | |
Earnings of equity method investments | | 5,072 |
| | 3,767 |
| | 10,965 |
| | 10,155 |
|
Interest income | | 1,074 |
| | 778 |
| | 2,069 |
| | 1,380 |
|
Interest expense | | (28,731 | ) | | (19,550 | ) | | (85,534 | ) | | (45,888 | ) |
Loss on early extinguishment of debt | | — |
| | — |
| | (12,225 | ) | | (8,718 | ) |
Gain on foreign currency swap | | — |
| | — |
| | 24,545 |
| | — |
|
Gain on foreign currency transactions | | 19,122 |
| | — |
| | 19,517 |
| | — |
|
Other, net | | 286 |
| | 107 |
| | 23 |
| | 300 |
|
| | (3,177 | ) | | (14,898 | ) | | (40,640 | ) | | (42,771 | ) |
Income (loss) before income taxes | | 446,103 |
| | 109,867 |
| | 497,601 |
| | (254,950 | ) |
Income tax expense (benefit): | | | | | | | | |
Current | | 72,307 |
| | 10,094 |
| | 80,242 |
| | (32,272 | ) |
Deferred | | 86,079 |
| | 12,102 |
| | 93,351 |
| | 38,731 |
|
| | 158,386 |
| | 22,196 |
| | 173,593 |
| | 6,459 |
|
Net income (loss) | | 287,717 |
| | 87,671 |
| | 324,008 |
| | (261,409 | ) |
Less net income attributable to noncontrolling interest | | 15,703 |
| | 13,174 |
| | 39,695 |
| | 52,209 |
|
Net income (loss) attributable to HollyFrontier stockholders | | $ | 272,014 |
| | $ | 74,497 |
| | $ | 284,313 |
| | $ | (313,618 | ) |
Earnings (loss) per share attributable to HollyFrontier stockholders: | | | | | | | | |
Basic | | $ | 1.53 |
| | $ | 0.42 |
| | $ | 1.60 |
| | $ | (1.78 | ) |
Diluted | | $ | 1.53 |
| | $ | 0.42 |
| | $ | 1.60 |
| | $ | (1.78 | ) |
Cash dividends declared per common share | | $ | 0.33 |
| | $ | 0.33 |
| | $ | 0.99 |
| | $ | 0.99 |
|
Average number of common shares outstanding: | | | | | | | | |
Basic | | 176,149 |
| | 175,871 |
| | 176,143 |
| | 176,157 |
|
Diluted | | 176,530 |
| | 175,993 |
| | 176,616 |
| | 176,157 |
|
See accompanying notes.
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
Net income (loss) | | $ | 302,741 | | | $ | 23,345 | | | $ | 680,358 | | | $ | (420,348) | |
Other comprehensive income (loss): | | | | | | | | |
Foreign currency translation adjustment | | (6,636) | | | 7,727 | | | (10,411) | | | (2,149) | |
Hedging instruments: | | | | | | | | |
Change in fair value of cash flow hedging instruments | | 1,012 | | | (2,094) | | | (17,030) | | | (7,329) | |
Reclassification adjustments to net income (loss) on settlement of cash flow hedging instruments | | (52) | | | 4,586 | | | 18,772 | | | 3,411 | |
Net unrealized gain (loss) on hedging instruments | | 960 | | | 2,492 | | | 1,742 | | | (3,918) | |
Pension and other post-retirement benefit obligations: | | | | | | | | |
Actuarial loss on pension plans | | — | | | — | | | — | | | (45) | |
Pension plans gain reclassified to net income | | (101) | | | — | | | (306) | | | — | |
Actuarial gain on post-retirement healthcare plans | | — | | | — | | | — | | | 3 | |
Post-retirement healthcare plans gain reclassified to net income | | (838) | | | — | | | (2,513) | | | — | |
Retirement restoration plan loss reclassified to net income | | 9 | | | — | | | 27 | | | — | |
Net change in pension and other post-retirement benefit obligations | | (930) | | | — | | | (2,792) | | | (42) | |
Other comprehensive income (loss) before income taxes | | (6,606) | | | 10,219 | | | (11,461) | | | (6,109) | |
Income tax expense (benefit) | | (1,413) | | | 2,342 | | | (2,459) | | | (1,437) | |
Other comprehensive income (loss) | | (5,193) | | | 7,877 | | | (9,002) | | | (4,672) | |
Total comprehensive income (loss) | | 297,548 | | | 31,222 | | | 671,356 | | | (425,020) | |
Less noncontrolling interest in comprehensive income | | 21,954 | | | 25,746 | | | 82,504 | | | 63,353 | |
Comprehensive income (loss) attributable to HollyFrontier stockholders | | $ | 275,594 | | | $ | 5,476 | | | $ | 588,852 | | | $ | (488,373) | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Net income (loss) | | $ | 287,717 |
| | $ | 87,671 |
| | $ | 324,008 |
| | $ | (261,409 | ) |
Other comprehensive income: | | | | | | | | |
Foreign currency translation adjustment | | 16,702 |
| | — |
| | 24,287 |
| | — |
|
Securities available-for-sale: | | | | | | | | |
Unrealized gain (loss) on marketable securities | | — |
| | (29 | ) | | (4 | ) | | 61 |
|
Reclassification adjustments to net income on sale or maturity of marketable securities | | — |
| | — |
| | — |
| | 23 |
|
Net unrealized gain (loss) on marketable securities | | — |
| | (29 | ) | | (4 | ) | | 84 |
|
Hedging instruments: | | | | | | | | |
Change in fair value of cash flow hedging instruments | | (2,094 | ) | | (1,310 | ) | | 2,708 |
| | (19,307 | ) |
Reclassification adjustments to net income on settlement of cash flow hedging instruments | | 5,115 |
| | 4,141 |
| | 5,049 |
| | 37,450 |
|
Amortization of unrealized loss attributable to discontinued cash flow hedges | | 270 |
| | 270 |
| | 810 |
| | 810 |
|
Net unrealized gain on hedging instruments | | 3,291 |
| | 3,101 |
| | 8,567 |
| | 18,953 |
|
Other comprehensive income before income taxes | | 19,993 |
| | 3,072 |
| | 32,850 |
| | 19,037 |
|
Income tax expense | | 7,140 |
| | 1,119 |
| | 11,841 |
| | 7,436 |
|
Other comprehensive income | | 12,853 |
| | 1,953 |
| | 21,009 |
| | 11,601 |
|
Total comprehensive income (loss) | | 300,570 |
| | 89,624 |
| | 345,017 |
| | (249,808 | ) |
Less noncontrolling interest in comprehensive income (loss) | | 15,663 |
| | 13,353 |
| | 39,638 |
| | 52,028 |
|
Comprehensive income (loss) attributable to HollyFrontier stockholders | | $ | 284,907 |
| | $ | 76,271 |
| | $ | 305,379 |
| | $ | (301,836 | ) |
See accompanying notes.
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 |
Cash flows from operating activities: | | | | |
Net income (loss) | | $ | 680,358 | | | $ | (420,348) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 369,341 | | | 396,033 | |
Long-lived asset impairment | | — | | | 436,908 | |
Lower of cost or market inventory valuation adjustment | | (318,862) | | | 227,711 | |
Earnings of equity method investments, inclusive of distributions | | — | | | (238) | |
Loss on early extinguishment of debt | | — | | | 25,915 | |
Gain on sales-type leases | | — | | | (33,834) | |
Gain on sale of assets | | (89,831) | | | (257) | |
Deferred income taxes | | 160,738 | | | (147,283) | |
Equity-based compensation expense | | 29,663 | | | 22,221 | |
Change in fair value – derivative instruments | | (19,483) | | | (3,727) | |
(Increase) decrease in current assets: | | | | |
Accounts receivable | | (220,645) | | | 325,796 | |
Inventories | | (399,630) | | | 104,640 | |
Income taxes receivable | | (7,336) | | | (64,162) | |
Prepayments and other | | 10,369 | | | 14,403 | |
Increase (decrease) in current liabilities: | | | | |
Accounts payable | | 438,541 | | | (387,259) | |
Income taxes payable | | 18,164 | | | (21,379) | |
Accrued liabilities | | 215,817 | | | (22,037) | |
Turnaround expenditures | | (116,646) | | | (73,822) | |
Other, net | | (11,064) | | | 11,769 | |
Net cash provided by operating activities | | 739,494 | | | 391,050 | |
| | | | |
Cash flows from investing activities: | | | | |
Additions to properties, plants and equipment | | (471,412) | | | (174,366) | |
Additions to properties, plants and equipment – HEP | | (76,933) | | | (38,642) | |
Proceeds from sale of assets | | 106,352 | | | 1,094 | |
Investment in equity company - HEP | | — | | | (2,438) | |
Distributions from equity method investments in excess of equity earnings | | 3,517 | | | 701 | |
Net cash used for investing activities | | (438,476) | | | (213,651) | |
| | | | |
Cash flows from financing activities: | | | | |
Borrowings under credit agreements | | 210,500 | | | 219,500 | |
Repayments under credit agreements | | (283,500) | | | (237,000) | |
Proceeds from issuance of senior notes - HFC | | — | | | 748,925 | |
Proceeds from issuance of senior notes - HEP | | — | | | 500,000 | |
Redemption of senior notes - HEP | | — | | | (522,500) | |
Purchase of treasury stock | | (613) | | | (3,350) | |
Dividends | | (57,663) | | | (171,603) | |
Distributions to noncontrolling interests | | (57,217) | | | (70,941) | |
Contributions from noncontrolling interests | | 21,285 | | | 15,382 | |
| | | | |
Payments on finance leases | | (2,047) | | | (2,149) | |
Deferred financing costs | | (14,500) | | | (13,511) | |
Other, net | | (414) | | | 454 | |
Net cash provided by (used for) financing activities | | (184,169) | | | 463,207 | |
| | | | |
Effect of exchange rate on cash flow | | (3,605) | | | (880) | |
| | | | |
Cash and cash equivalents: | | | | |
Increase for the period | | 113,244 | | | 639,726 | |
Beginning of period | | 1,368,318 | | | 885,162 | |
End of period | | $ | 1,481,562 | | | $ | 1,524,888 | |
| | | | |
Supplemental disclosure of cash flow information: | | | | |
Cash (paid) received during the period for: | | | | |
Interest | | $ | (87,229) | | | $ | (83,325) | |
Income taxes, net | | $ | 20,959 | | | $ | (52,270) | |
Increase in accrued and unpaid capital expenditures | | $ | 4,339 | | | $ | 19,533 | |
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Cash flows from operating activities: | | | | |
Net income (loss) | | $ | 324,008 |
| | $ | (261,409 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 304,206 |
| | 269,433 |
|
Goodwill and asset impairment | | 19,247 |
| | 654,084 |
|
Lower of cost or market inventory valuation adjustment | | (15,323 | ) | | (194,282 | ) |
Earnings of equity method investments, inclusive of distributions | | 816 |
| | 313 |
|
(Gain) loss on sale of assets | | 540 |
| | (107 | ) |
Loss on early extinguishment of debt attributable to unamortized discount | | 2,475 |
| | 8,718 |
|
Deferred income taxes | | 93,351 |
| | 38,731 |
|
Equity-based compensation expense | | 26,430 |
| | 16,696 |
|
Change in fair value – derivative instruments | | 2,073 |
| | (12,319 | ) |
Excess tax expense from equity-based compensation | | — |
| | (4,051 | ) |
(Increase) decrease in current assets: | | | | |
Accounts receivable | | (116,986 | ) | | (43,959 | ) |
Inventories | | (43,822 | ) | | (54,643 | ) |
Income taxes receivable | | 68,371 |
| | (42,683 | ) |
Prepayments and other | | (5,268 | ) | | 18,236 |
|
Increase (decrease) in current liabilities: | | | | |
Accounts payable | | 88,010 |
| | 114,771 |
|
Income taxes payable | | 60,661 |
| | (8,142 | ) |
Accrued liabilities | | 83,918 |
| | 39,527 |
|
Turnaround expenditures | | (111,513 | ) | | (104,224 | ) |
Other, net | | 4,219 |
| | 9,584 |
|
Net cash provided by operating activities | | 785,413 |
| | 444,274 |
|
| | | | |
Cash flows from investing activities: | | | | |
Additions to properties, plants and equipment | | (162,442 | ) | | (291,362 | ) |
Additions to properties, plants and equipment – HEP | | (30,675 | ) | | (96,115 | ) |
Purchase of equity method investment - HEP | | — |
| | (42,550 | ) |
Purchase of PCLI, net of cash acquired | | (870,627 | ) | | — |
|
Purchases of marketable securities | | (41,565 | ) | | (155,091 | ) |
Sales and maturities of marketable securities | | 465,716 |
| | 187,358 |
|
Other, net | | 2,297 |
| | 606 |
|
Net cash used for investing activities | | (637,296 | ) | | (397,154 | ) |
| | | | |
Cash flows from financing activities: | | | | |
Borrowings under credit agreements | | 654,000 |
| | 625,500 |
|
Repayments under credit agreements | | (457,000 | ) | | (957,500 | ) |
Proceeds from issuance of senior notes - HFC | | — |
| | 246,690 |
|
Proceeds from issuance of senior notes - HEP | | 101,750 |
| | 394,000 |
|
Proceeds from issuance of term loan - HFC | | — |
| | 350,000 |
|
Redemption of senior notes - HEP | | (309,750 | ) | | — |
|
Repayment of financing obligation | | — |
| | (39,500 | ) |
Proceeds from issuance of common units - HEP | | 52,285 |
| | 22,791 |
|
Purchase of treasury stock | | — |
| | (133,430 | ) |
Dividends | | (176,519 | ) | | (175,194 | ) |
Distributions to noncontrolling interest | | (81,797 | ) | | (66,571 | ) |
Other, net | | (13,421 | ) | | (14,118 | ) |
Net cash provided by (used for) financing activities | | (230,452 | ) | | 252,668 |
|
| | | | |
Effect of exchange rate on cash flow | | 2,498 |
| | — |
|
| | | | |
Cash and cash equivalents: | | | | |
Increase (decrease) for the period | | (79,837 | ) | | 299,788 |
|
Beginning of period | | 710,579 |
| | 66,533 |
|
End of period | | $ | 630,742 |
| | $ | 366,321 |
|
| | | | |
Supplemental disclosure of cash flow information: | | | | |
Cash (paid) received during the period for: | | | | |
Interest | | $ | (84,380 | ) | | $ | (39,671 | ) |
Income taxes, net | | $ | 50,957 |
| | $ | (23,557 | ) |
See accompanying notes.
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| HollyFrontier Stockholders' Equity | | | | |
| Common Stock | | Additional Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Treasury Stock | | Non-controlling Interest | | Total Equity |
| |
Balance at December 31, 2020 | $ | 2,560 | | | $ | 4,207,672 | | | $ | 3,913,179 | | | $ | 13,462 | | | $ | (2,968,512) | | | $ | 553,842 | | | $ | 5,722,203 | |
Net income | — | | | — | | | 148,217 | | | — | | | — | | | 34,633 | | | 182,850 | |
Dividends ($0.35 declared per common share) | — | | | — | | | (57,663) | | | — | | | — | | | — | | | (57,663) | |
Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | (19,977) | | | (19,977) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (8,804) | | | — | | | — | | | (8,804) | |
Issuance of common stock under incentive compensation plans | — | | | 56 | | | — | | | — | | | (56) | | | — | | | — | |
Equity-based compensation | — | | | 9,088 | | | — | | | — | | | — | | | 682 | | | 9,770 | |
Purchase of treasury stock | — | | | — | | | — | | | — | | | (12) | | | — | | | (12) | |
Purchase of HEP units for restricted grants | — | | | — | | | — | | | — | | | — | | | (68) | | | (68) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 9,747 | | | 9,747 | |
Balance at March 31, 2021 | $ | 2,560 | | | $ | 4,216,816 | | | $ | 4,003,733 | | | $ | 4,658 | | | $ | (2,968,580) | | | $ | 578,859 | | | $ | 5,838,046 | |
Net income | — | | | — | | | 168,850 | | | — | | | — | | | 25,917 | | | 194,767 | |
| | | | | | | | | | | | | |
Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | (18,211) | | | (18,211) | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 4,995 | | | — | | | — | | | 4,995 | |
Issuance of common stock under incentive compensation plans | — | | | (2,629) | | | — | | | — | | | 2,629 | | | — | | | — | |
Equity-based compensation | — | | | 10,845 | | | — | | | — | | | — | | | 527 | | | 11,372 | |
Purchase of treasury stock | — | | | — | | | — | | | — | | | (479) | | | — | | | (479) | |
Purchase of HEP units for restricted grants | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 9,779 | | | 9,779 | |
Other | — | | | — | | | (23) | | | — | | | — | | | — | | | (23) | |
Balance at June 30, 2021 | $ | 2,560 | | | $ | 4,225,032 | | | $ | 4,172,560 | | | $ | 9,653 | | | $ | (2,966,430) | | | $ | 596,869 | | | $ | 6,040,244 | |
Net income | — | | | — | | | 280,787 | | | — | | | — | | | 21,954 | | | 302,741 | |
| | | | | | | | | | | | | |
Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | (19,029) | | | (19,029) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (5,193) | | | — | | | — | | | (5,193) | |
| | | | | | | | | | | | | |
Issuance of common stock under incentive compensation plans | — | | | (402) | | | — | | | — | | | 402 | | | — | | | — | |
Equity-based compensation | — | | | 7,874 | | | — | | | — | | | — | | | 647 | | | 8,521 | |
Purchase of treasury stock | — | | | — | | | — | | | — | | | (122) | | | — | | | (122) | |
| | | | | | | | | | | | | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 2,358 | | | 2,358 | |
Other | — | | | — | | | 19 | | | — | | | — | | | — | | | 19 | |
Balance at September 30, 2021 | $ | 2,560 | | | $ | 4,232,504 | | | $ | 4,453,366 | | | $ | 4,460 | | | $ | (2,966,150) | | | $ | 602,799 | | | $ | 6,329,539 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| HollyFrontier Stockholders' Equity | | | | |
| Common Stock | | Additional Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Treasury Stock | | Non-controlling Interest | | Total Equity |
| |
Balance at December 31, 2019 | $ | 2,560 | | | $ | 4,204,547 | | | $ | 4,744,120 | | | $ | 14,774 | | | $ | (2,987,808) | | | $ | 531,233 | | | $ | 6,509,426 | |
Net income (loss) | — | | | — | | | (304,623) | | | — | | | — | | | 11,337 | | | (293,286) | |
Dividends ($0.35 declared per common share) | — | | | — | | | (57,248) | | | — | | | — | | | — | | | (57,248) | |
Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | (33,918) | | | (33,918) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (26,923) | | | — | | | — | | | (26,923) | |
Issuance of common stock under incentive compensation plans | — | | | (2,037) | | | — | | | — | | | 2,037 | | | — | | | — | |
Equity-based compensation | — | | | 5,824 | | | — | | | — | | | — | | | 506 | | | 6,330 | |
Purchase of treasury stock | — | | | — | | | — | | | — | | | (1,062) | | | — | | | (1,062) | |
Purchase of HEP units for restricted grants | — | | | — | | | — | | | — | | | — | | | (145) | | | (145) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 7,304 | | | 7,304 | |
Balance at March 31, 2020 | $ | 2,560 | | | $ | 4,208,334 | | | $ | 4,382,249 | | | $ | (12,149) | | | $ | (2,986,833) | | | $ | 516,317 | | | $ | 6,110,478 | |
Net income (loss) | — | | | — | | | (176,677) | | | — | | | — | | | 26,270 | | | (150,407) | |
Dividends ($0.35 declared per common share) | — | | | — | | | (57,182) | | | — | | | — | | | — | | | (57,182) | |
Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | (17,090) | | | (17,090) | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 14,374 | | | — | | | — | | | 14,374 | |
Issuance of common stock under incentive compensation plans | — | | | (527) | | | — | | | — | | | 527 | | | — | | | — | |
Equity-based compensation | — | | | 7,484 | | | — | | | — | | | — | | | 475 | | | 7,959 | |
Purchase of treasury stock | — | | — | | — | | — | | (181) | | — | | (181) |
Purchase of HEP units for restricted grants | — | | — | | — | | — | | — | | (2) | | (2) |
Contributions from noncontrolling interests | — | | — | | — | | — | | — | | 5,959 | | 5,959 |
Other | — | | 603 | | — | | — | | — | | — | | 603 |
Balance at June 30, 2020 | $ | 2,560 | | | $ | 4,215,894 | | | $ | 4,148,390 | | | $ | 2,225 | | | $ | (2,986,487) | | | $ | 531,929 | | | $ | 5,914,511 | |
Net income (loss) | — | | | — | | | (2,401) | | | — | | | — | | | 25,746 | | | 23,345 | |
Dividends ($0.35 declared per common share) | — | | | — | | | (57,173) | | | — | | | — | | | — | | | (57,173) | |
Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | (19,933) | | | (19,933) | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 7,877 | | | — | | | — | | | 7,877 | |
| | | | | | | | | | | | | |
Issuance of common stock under incentive compensation plans | — | | | (6,131) | | | — | | | — | | | 6,131 | | | — | | | — | |
Equity-based compensation | — | | | 7,365 | | | — | | | — | | | — | | | 567 | | | 7,932 | |
Purchase of treasury stock | — | | | — | | | — | | | — | | | (2,107) | | | — | | | (2,107) | |
Purchase of HEP units for restricted grants | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 2,119 | | | 2,119 | |
Balance at September 30, 2020 | $ | 2,560 | | | $ | 4,217,128 | | | $ | 4,088,816 | | | $ | 10,102 | | | $ | (2,982,463) | | | $ | 540,426 | | | $ | 5,876,569 | |
See accompanying notes.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
NOTE 1: | Description of Business and Presentation of Financial Statements |
NOTE 1:Description of Business and Presentation of Financial Statements
References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In these financial statements, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person, with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. These financial statements contain certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.
We are principally an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modified asphalt. We own and operate petroleum refineries that serve markets throughout the Mid-Continent, Southwest United States, the Rocky Mountains extending into the Pacific Northwest and Rocky Mountain regions of the United States.in other neighboring Plains states. In addition, we ownproduce base oils and operate a lubricant production facilityother specialized lubricants in the United States, Canada and the Netherlands, with retail and wholesale marketing of itsour products through a global sales network with locations in Canada, the United States, Europe, China and China. Latin America.
As of September 30, 2017,2021, we:
•owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”), two2 refinery facilities located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), a refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”), a refinery located in Cheyenne, Wyoming (the “Cheyenne Refinery”) and a refinery in Woods Cross, Utah (the “Woods Cross Refinery”);
•owned anda facility in Cheyenne, Wyoming, which operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”)as a petroleum refinery until early August 2020, at which operates various asphalt terminals in Arizona, New Mexico and Oklahoma;time its assets began to be converted to renewable diesel production (the “Cheyenne Refinery”);
•owned and operated Petro-Canada Lubricants Inc. (“PCLI”) located in Mississauga, Ontario, which produces base oils and other specialized lubricant products;
•owned and operated manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which produce specialty lubricant products for our Sonneborn business, such as white oils, petrolatums and waxes;
•owned and operated Red Giant Oil Company LLC (“Red Giant Oil”), which supplies locomotive engine oil and has storage and distribution facilities in Iowa and Wyoming, along with a blending and packaging facility in Texas;
•owned and operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”), which operates various asphalt terminals in Arizona, New Mexico and Oklahoma; and
•owned a 36%57% limited partner interest and a non-economic general partner interest in HEP, a consolidated variable interest entity (“VIE”), which includes. HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our 2% general partner interest.
refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States.
On October 29, 2016,August 2, 2021, HollyFrontier, Hippo Parent Corporation, a wholly owned subsidiary of HollyFrontier (“New Parent”), Hippo Merger Sub, Inc., a wholly owned subsidiary of New Parent, The Sinclair Companies (“Sinclair”), and Hippo Holding LLC, a wholly owned subsidiary of Sinclair (the “Target Company”), entered into a business combination agreement, pursuant to which HollyFrontier will acquire the Target Company.
On May 4, 2021, HollyFrontier Puget Sound Refining LLC, a wholly owned subsidiary of HollyFrontier Corporation, entered into a sale and purchase agreement with Equilon Enterprises LLC d/b/a Shell Oil Products US (“Shell”) to acquire Shell’s Puget Sound refinery and related assets, including the on-site cogeneration facility and related logistics assets (the “Puget Sound Refinery”). The acquisition closed on November 1, 2021.
See Note 2 for additional information on these acquisitions.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
On April 27, 2021, our wholly-ownedwholly owned subsidiary, 99521107037619 Canada Inc., entered into a Share Purchase Agreement (“SPA”) with Suncor Energy Inc. (“Suncor”) to acquire 100%contract for sale of the outstanding capital stockreal property in Mississauga, Ontario for base consideration of PCLI.$98.8 million, or CAD 125 million. The acquisitiontransaction closed on February 1, 2017. See Note 2September 15, 2021, and we recorded a gain on sale of assets totaling $86.0 million for additional information.the three months ended September 30, 2021, which was recognized in “Gain on sale of assets and other” in our consolidated statements of operations.
During the first quarter of 2021, we initiated a restructuring within our Lubricants and Specialty Products segment. As a result of this restructuring, we recorded $7.8 million in employee severance costs for the nine months ended September 30, 2021, which were recognized primarily as selling, general and administrative expenses in our Lubricants and Specialty Products segment.
In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we recognized $6.7 million and $23.1 million, in decommissioning expense and $0.2 million and $0.9 million, in employee severance costs for the three and nine months ended September 30, 2021, respectively, which were recognized in operating expenses in our Corporate and Other segment.
We recognized $12.3 million in decommissioning expense during the three and nine months ended September 30, 2020. In addition, during the three and nine months ended September 30, 2020, we recorded $2.4 million and $3.5 million, respectively, in employee severance costs. These decommissioning and severance costs were recognized in operating expenses and were reported in our Refining segment. Also, during the second quarter of 2020, we recorded a long-lived asset impairment charge of $232.2 million related to our Cheyenne Refinery asset group.
During the second quarter of 2020, we initiated and completed a corporate restructuring. As a result of this restructuring, we recorded $3.7 million in employee severance costs, which were recognized primarily as operating expenses in our Refining segment and selling, general and administrative expenses in our Corporate and Other segment.
We have prepared these consolidated financial statements without audit. In management’s opinion, these consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our consolidated financial position as of September 30, 2017,2021, the consolidated results of operations, and comprehensive income and statements of equity for the three and nine months ended September 30, 20172021 and 20162020 and consolidated cash flows for the nine months ended September 30, 20172021 and 20162020 in accordance with the rules and regulations of the SEC. Although certain notes and other information required by generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162020 that has been filed with the SEC.
Our results of operations for the nine months ended September 30, 20172021 are not necessarily indicative of the results of operations to be realized for the year ending December 31, 2017.2021.
Accounts Receivable: Our accounts receivable consist of amounts due from customers that are primarily companies in the petroleum industry. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances collateral, such as letters of credit or guarantees, is required. We reserve for doubtful accountsexpected credit losses based on our historical loss experience as well as specific accounts identified as high risk, which historically have been minimal.expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for doubtful accountsexpected credit losses when an account is deemed uncollectible. Our allowance for doubtful accountsexpected credit losses was $4.0 million and $2.3$5.1 million at September 30, 20172021 and $3.4 million at December 31, 2016, respectively.2020.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Inventories: Inventories related to our refining operations are stated at the lower of cost, using the last-in, first-out (“LIFO”) method for crude oil and unfinished and finished refined products, or market. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or net realizable value.
Inventories consisting of process chemicals, materials and maintenance supplies and renewable identification numbers (“RINs”) are stated at the lower of weighted-average cost or net realizable value.
InventoriesLeases: At inception, we determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our payment obligation under the leasing arrangement. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our PCLI operationsleases do not contain an implicit rate. Our IBR represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable.
Operating leases are stated atrecorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties, plants and equipment and accrued liabilities and other long-term liabilities on our consolidated balance sheet.
Our lease term includes an option to extend the lowerlease when it is reasonably certain that we will exercise that option. Leases with a term of cost, using12 months or less are not recorded on our balance sheet. For certain equipment leases, we apply a portfolio approach for the first-in, first-out (“FIFO”) method, oroperating lease ROU assets and liabilities. Also, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net realizable value.present value of lease payment obligations. In addition, HEP, as a lessor, does not separate the non-lease (service) component in contracts in which the lease component is the dominant component. HEP treats these combined components as a lease.
Goodwill and Long-lived Assets: As of September 30, 2017,2021, our goodwill balance was $2.2$2.3 billion, with goodwill assigned to our Refining, PCLILubricants and Specialty Products and HEP segments of $1.7 billion, $0.2 billion$1,733.5 million, $247.0 million and $0.3 billion,$312.9 million, respectively. During 2017, we recognized $185.2 million in goodwill as a result of our PCLI acquisition, all of which has been assigned to our PCLI segment. See Note 1615 for additional information on our segments. The carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our Lubricants and Specialty Products segment. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a comparisonquantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of oura reporting unit fair values relative to their respectiveis less than its carrying values.amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying value exceedsamount of the reporting unit is greater than its fair value, fora quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit goodwill over the impliedrelated fair valuevalue.
For purposes of that goodwill based on estimates of the fair value of all assets and liabilities in the reporting unit. As of September 30, 2017,long-lived asset impairment evaluation, we have a cumulative goodwill impairment of $309.3 million, all of which relates to goodwill assigned togrouped our Cheyenne Refinery reporting unit that was fully impaired in the second quarter of 2016.
Additionally, the carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our PCLI segment.
We performed our annual goodwill impairment testing as of July 1, 2017 and determined the fair value of our El Dorado reporting unit exceeded its carrying value by approximately 10%. A reasonable expectation exists that further deterioration in gross margins could result in an impairment of goodwill and the long-lived assets of the El Dorado reporting unit at some point in the futureas follows: (i) our refinery asset groups, which include certain HEP logistics assets, (ii) our Lubricants and such impairment charges could be material. Additionally, testing indicated no impairment of goodwill attributable to our HEP or PCLI reporting units.
Our long-lived assets principally consist of our refining assets that are organized as refiningSpecialty Products asset groups and (iii) our PCLI business. TheHEP asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups also constitute our individual refinery reporting units that are usedrepresent the lowest level for testing and measuring goodwill impairments.which independent cash flows can be identified. Our long-lived assets are evaluated for impairment by identifying whether indicators of impairment exist and if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss measured, if any, is equal to the amount by which the asset group’s carrying value exceeds its fair value. As a result of
We performed our annual goodwill impairment testing inquantitatively as of July 1, 2021 and determined there was no impairment of goodwill attributable to our reporting units.
During the second quarter of 2016,2020, we determined that the carrying value of the long-lived assets of the Cheyenne Refinery had been impaired and recorded long-lived asset impairment charges of $344.8 million.$232.2 million and $204.7 million related to our Cheyenne Refinery and PCLI asset groups, respectively.
During the second quarter of 2017, we incurred long-lived asset impairment charges totaling $23.2 million, including $19.2 million of construction-in-progress consisting primarily of engineering work for a planned expansion of our Woods Cross refinery to add lubricants production capabilities. During the second quarter of 2017, we concluded to no longer pursue this expansion for various reasons including our recent acquisition of PCLI. The remaining $4.0 million in charges relate to property, plant and equipment that we expensed in the form of accelerated depreciation in the income statement.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Revenue Recognition:Refined Revenue on refined product sales and related cost ofexcess crude oil sales are recognized when products are shippeddelivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title has passed to customers. HEP recognizes pipeline transportation revenues as products are shipped through its pipelines.passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported inas cost of products sold.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
For PCLI subsidiaries in CanadaOur lubricants and in the U.S., a portion ofspecialty products business has sales are made toagreements with marketers and distributors under agreements whichthat provide certain rights of return or provisions for PCLIthe repurchase of products previously sold to repurchase product in order to sell directly to end customers. Based on the terms ofthem. Under these agreements, PCLI defers revenues and cost of revenues on sales to Canadian marketersare deferred until the related products have been sold to end customers,customers. Our lubricants and PCLIspecialty products business also has agreements that create an obligation to deliver products at a future date for which consideration has already been received and recorded as deferred revenue. This revenue is recognized when the products are delivered to the customer.
HEP recognizes revenues for sales to its U.S. distributors whenas products are shipped through its pipelines and terminals and as other services are rendered. Additionally, HEP has certain throughput agreements that specify minimum volume requirements, whereby HEP bills a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no future performance obligations, HEP recognizes these deficiency payments as revenue. In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the distributors, netend of allowances for returns relatedthe contractual shortfall make-up period. HEP recognizes the service portion of these deficiency payments as revenue when HEP does not expect it will be required to inventories PCLI is expected to repurchase fromsatisfy these performance obligations in the distributors to sell directly to end customers.future based on the pattern of rights exercised by the customer. Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the date of invoice.
Foreign Currency Translation: The functional currency of our PCLI operations consists of the respective local currency of its Assets and liabilities recorded in foreign operations, which includes the Canadian dollar, the euro and Chinese renminbi. Balance sheet accountscurrencies are translated into U.S. dollars using exchange rates in effect as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the period presented. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income.
In connection with our PCLI acquisition on February 1, 2017, we issuedWe have intercompany notes that were issued to initially fund certain of PCLI’sour foreign businesses. Remeasurement adjustments resulting from the conversion of such intercompany financing from localamounts to functional currencies to the U.S. dollar are recorded as gains and losses as a component of other income (expense) in the income statement.consolidated statements of operations. Such adjustments are not recorded to the PCLILubricants and Specialty Products segment operations, but to corporateCorporate and other.Other. See Note 1615 for additional information on our segments.
Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate changes on deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.
For the nine months ended September 30, 2017, we recorded an income tax expense of $173.6 million compared to $6.5 million for the nine months ended September 30, 2016. This increase was due principally to pre-tax income during the nine months ended September 30, 2017 compared to a pre-tax loss in the same period of 2016. Our effective tax rates, before consideration of earnings attributable to the noncontrolling interest, were 34.9% and 2.5% for the nine months ended September 30, 2017 and 2016, respectively.
Potential interest and penalties related to income tax matters are recognized in income tax expense. We believe we have appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.
For the nine months ended September 30, 2021, we recorded income tax expense of $149.9 million compared to an income tax benefit of $188.5 million for the nine months ended September 30, 2020. This increase was due principally to pre-tax income during the nine months ended September 30, 2021 compared to a pre-tax loss in the same period of 2020. Our effective tax rates were 18.1% and 31.0% for the nine months ended September 30, 2021 and 2020, respectively. The year-over-year decrease in the effective tax rate is due principally to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the nine months ended September 30, 2021 was primarily due to the net operating loss carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act and federal tax credits.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Inventory Repurchase Obligations:We periodically enter into same-party sell / buy transactions, whereby we sell certain refined product inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations. Such sell / buy transactions are accounted for as inventory repurchase obligations under which proceeds received under the initial sell is recognized as an inventory repurchase obligation that is subsequently reversed when the inventory is repurchased. For the nine months ended September 30, 20172021 and 2016,2020, we received proceeds of $36.7$32.7 million and $43.9$32.7 million, respectively, and subsequently repaid $37.9$34.1 million and $44.9$34.4 million, respectively, under these sell / buy transactions.
NOTE 2:Acquisitions
Puget Sound Refinery
On May 4, 2021, our wholly owned subsidiary, HollyFrontier Puget Sound Refining LLC, entered into a sale and purchase agreement with Shell to acquire the Puget Sound Refinery. The acquisition closed on November 1, 2021 for aggregate cash consideration of $613.6 million, which consists of a base cash purchase price of $350 million, hydrocarbon inventory with an estimated closing value of $266.2 million and other closing adjustments and accrued liabilities of $2.6 million (the “Puget Sound Acquisition”). The Puget Sound Refinery is strategically located on approximately 850 acres in Anacortes, Washington, approximately 80 miles north of Seattle and 90 miles south of Vancouver. The 149,000 barrel per day facility is a large, high quality and complex refinery with catalytic cracking and delayed coking units and is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes. In addition to refining assets and an on-site cogeneration facility, the transaction includes a deep-water marine dock, a light product loading rack, a rail terminal and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity.
The Puget Sound Acquisition will be accounted for as a business combination, with the cash purchase price allocated to the acquisition date fair value of assets and liabilities acquired.
Sinclair
HFC Transactions: On August 2, 2021, HollyFrontier, Hippo Parent Corporation, a wholly owned subsidiary of HollyFrontier (“New Accounting Pronouncements
Hedge Accounting
In August 2017, Accounting Standard UpdateParent”), Hippo Merger Sub, Inc., a wholly owned subsidiary of New Parent (“ASU”Parent Merger Sub”) 2017-12, “Derivatives, The Sinclair Companies (“Sinclair”), and Hedging: Targeted ImprovementsHippo Holding LLC, a wholly owned subsidiary of Sinclair (the “Target Company”), entered into a business combination agreement (the “Business Combination Agreement”). Pursuant to Accounting for Hedging Activities,” was issued amending hedge accounting recognition and presentation requirements, including eliminationthe Business Combination Agreement, HollyFrontier will acquire the Target Company by effecting (a) a holding company merger in accordance with Section 251(g) of the requirement to separately measureDelaware General Corporation Law whereby HollyFrontier will merge with and report hedge ineffectiveness,into Parent Merger Sub, with HollyFrontier surviving such merger as a direct wholly owned subsidiary of New Parent (the “HFC Merger”) and eases certain documentation and assessment requirements. This standard has an effective date of January 1, 2019. We do not expect adoption of this standard to have(b) immediately following the HFC Merger, a material impact on our financial condition, results of operations or cash flows.
Post-retirement Benefit Cost
In March 2017, ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost,” was issued amending current GAAP related to the income statement presentationcontribution whereby Sinclair will contribute all of the componentsequity interests of net periodic post-retirement cost (credit)the Target Company to New Parent in exchange for shares of New Parent, resulting in the Target Company becoming a direct wholly owned subsidiary of New Parent (the “Sinclair Oil Acquisition” and together with the HFC Merger, the “HFC Transactions”). This standard has an
Under the terms of the Business Combination Agreement, at the effective datetime of Januarythe HFC Merger, (a) each share of common stock of HollyFrontier, par value $0.01 per share, will be automatically converted into 1 2018. We doshare of common stock of New Parent, par value $0.01 per share (“New Parent Common Stock”) and (b) immediately thereafter, Sinclair will contribute the equity interests in the Target Company to New Parent in exchange for 60,230,036 shares of New Parent Common Stock, subject to adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions (as defined below), HollyFrontier agrees to divest certain Woods Cross Refinery assets and the sales price for such assets does not expect adoptionexceed a threshold provided in the Business Combination Agreement.
On a pro forma basis following the closing, Sinclair is expected to own 26.75% of this standardthe outstanding common stock of New Parent, and HollyFrontier’s current stockholders are expected to have a material impacthold in the aggregate 73.25% of the outstanding common stock of New Parent, based on our financial condition, resultsHollyFrontier’s outstanding shares of operations or cash flows.common stock as of July 30, 2021.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Share-Based Compensation
In March 2016, ASU 2016-09, “ImprovementsConsummation of the HFC Transactions is subject to Employee Share-Based Payment Accounting,” was issued which simplifiessatisfaction or waiver of certain customary conditions, including, among others, receipt of approval for the accounting for employee share-based payment transactions,issuance of New Parent common stock from HollyFrontier’s stockholders; the satisfaction of certain required regulatory consents and approvals, including the accountingexpiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”); and the consummation of the HEP Transactions (as defined below), which will occur immediately prior to the HFC Transactions (the HEP Transactions, together with the HFC Transactions, the “Sinclair Transactions”). On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HollyFrontier and Sinclair each received a request for income taxes, forfeituresadditional information and statutory tax withholding requirements,documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review.
The Business Combination Agreement automatically terminates if the HEP Transactions are terminated and contains other customary termination rights. In the event that certain events occur under specified circumstances outlined in the Business Combination Agreement, HollyFrontier could be required to pay Sinclair a termination fee equal to $200 million or $35 million as reimbursement for expenses.
Upon closing of the Sinclair Transactions, HollyFrontier’s existing senior management team will operate the combined company. Under the definitive agreements, Sinclair will be granted the right to nominate two directors to the New Parent Board of Directors at the closing. The Sinclair stockholders have also agreed to certain customary lock up, voting and standstill restrictions, as well as classification in the statement of cash flows. We adopted this standard effective January 1, 2017 on a prospective basis with the excess tax expense from stock-based compensation recognized as a discrete item in our provision for income taxes. We had no such excess tax expensecustomary registration rights, for the three and nine months ended September 30, 2017.New Parent Common Stock to be issued to the stockholders of Sinclair. The new standard also requires that employee taxes paid when an employer withholds shares for tax-withholding purposescompany will be reported as financing activitiesheadquartered in Dallas, Texas, with combined business offices in Salt Lake City, Utah. Following the statementconsummation of cash flows on a retrospective basis. Previously, this activity was included in operating activities. The impact of this change for the nine months ended September 30, 2017 and 2016 was $0.3 million and $0.1 million, respectively. Finally, consistent with our existing policy, we have elected to account for forfeitures on an estimated basis.
Leases
In February 2016, ASU 2016-02, “Leases,” was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use assetHFC Merger, New Parent will assume HollyFrontier’s listing on the balance sheet. This standard has an effective dateNew York Stock Exchange and will be renamed “HF Sinclair Corporation”.
HEP Transactions: On August 2, 2021, HEP, Sinclair, and Sinclair Transportation Company, a wholly owned subsidiary of January 1, 2019, and we are evaluating the impact of this standard.
Inventories Measurement
In July 2015, ASU 2015-11, “Inventory - Simplifying the Measurement of Inventory,” was issued requiring measurement of inventories, other than inventories accounted for using the LIFO method, to be measured at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business less reasonable, predictable cost of completion, disposal and transportation. We adopted this standard effective January 1, 2017 for our affected inventories, which is primarily our PCLI inventory valued on a FIFO basis, and it had no material effect on our financial condition, results of operations or cash flows.
Revenue Recognition
In May 2014, ASU 2014-09, “Revenue from Contracts with Customers” was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018, and we anticipate using the modified retrospective implementation method, whereby a cumulative effect adjustment is recorded to retained earnings as of the date of initial application. In preparing for adoption, we have evaluated the terms conditions and performance obligations under our existing contracts with customers. Furthermore, we have implemented policies to ensure compliance with this new standard, which we do not expect to have a material impact on our financial condition, results of operations or cash flows.
On October 29, 2016, our wholly-owned subsidiary, 9952110 Canada Inc.Sinclair (“STC”), entered into an SPA with Suncora contribution agreement (the “Contribution Agreement”) pursuant to which the Partnership will acquire 100%all of the outstanding capital stockshares of PCLI. STC in exchange for 21 million newly issued common limited partner units of HEP and cash consideration equal to $325 million (the “HEP Transactions”).
The acquisition closed on February 1, 2017. Cashcash consideration paidfor the HEP Transactions is subject to customary adjustments at that time was approximately $862.0 million, or $1.125 billion in Canadian dollars. PCLI is located in Mississauga, Ontario, Canada and is a producer of lubricant products such as base oils, white oils, specialty products and finished lubricants. PCLI’s operations also include marketing of its products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China.
Aggregate consideration totaled approximately $904.3 million and consists of $862.0 million in cash paid to Suncor at acquisition, a closing datefor working capital settlement of $30.6 million that was paidSTC. The number of HEP common limited partner units to Suncor inbe issued to Sinclair at closing is subject to downward adjustment if, as a condition to obtaining antitrust clearance for the second quarter of 2017, an accrued payable in the amount of $6.5 million and $5.1 million, representingSinclair Transactions, HEP agrees to divest a portion of its equity interest in UNEV Pipeline, LLC and the fair valuesales price for such interests does not exceed the threshold provided in the Contribution Agreement.
The Contribution Agreement contains customary representations, warranties and covenants of replacement restricted stock unit awardsHEP, Sinclair and STC. The HEP Transactions are expected to close in mid-2022, subject to the satisfaction or waiver of certain customary conditions, including, among others, the receipt of certain required regulatory consents and approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and the consummation of the HFC Transactions.
The Contribution Agreement automatically terminates if the HFC Transactions are terminated and contains other customary termination rights, including a termination right for each of the Partnership and Sinclair if, under certain circumstances, the closing does not occur by May 2, 2022 (the “Outside Date”), except that the Outside Date can be extended by either party by up to 2 90 day periods to obtain any required antitrust clearance.
Upon closing of the HEP Transactions, HEP’s existing senior management team will continue to operate HEP. Under the definitive agreements, Sinclair will be granted the right to nominate 1 director to the HEP Board of Directors at the closing. The Sinclair stockholders have also agreed to certain customary lock up restrictions and registration rights for the HEP common limited partner units to be issued to PCLI employees that relatethe stockholders of Sinclair. HEP will continue to pre-acquisition services.operate under the name Holly Energy Partners, L.P.
This transaction is accounted for as a business combination using the acquisition method of accounting, with the purchase price allocated to the fair value of the acquired PCLI assets and liabilities as of the February 1 acquisition date, with the excess purchase price recorded as goodwill assigned to our PCLI segment. This goodwill is not deductible for income tax purposes.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The following summarizes our preliminary value estimatesOn August 2, 2021, in connection with the Sinclair Transactions, HEP and HollyFrontier entered into a Letter Agreement (“Letter Agreement”) pursuant to which, among other things, HEP and HollyFrontier agreed, upon the consummation of the PCLISinclair Transactions, to enter into amendments to certain of the agreements by and among HEP and HollyFrontier, including the master throughput agreement, to include within the scope of such agreements the assets and liabilities acquired:to be acquired by HEP pursuant to the Contribution Agreement.
|
| | | | |
| | (in millions) |
| | |
Cash and cash equivalents | | $ | 21.6 |
|
Accounts receivable and other current assets | | 118.5 |
|
Inventories | | 214.9 |
|
Properties, plants and equipment | | 468.8 |
|
Goodwill | | 185.2 |
|
Intangibles and precious metals | | 103.5 |
|
Accounts payable and accrued liabilities | | (88.7 | ) |
Deferred income tax liabilities | | (106.2 | ) |
Other long-term liabilities | | (13.3 | ) |
Net assets acquired | | $ | 904.3 |
|
Intangibles include trademarks, patents, technical know-how and customer relationships totaling $100.5 millionIn addition, the Letter Agreement provides that are being amortized onif, as a straight-line basis over periods ranging from 10condition to 20 years.
These values are preliminary and reflect revisions to our February 1, 2017 fair value estimates that were initially recorded during the first quarter of 2017. These estimated values are not final and may be subject to additional change once all needed information has become available and we complete our valuations.
Our consolidated financial and operating results reflect the PCLI operations beginning February 1, 2017. Our results of operationsobtaining antitrust clearance for the three months ended September 30, 2017 included PCLISinclair Transactions, HollyFrontier enters into a definitive agreement to divest its Woods Cross Refinery, then HEP would sell certain assets located at, or relating to, the Woods Cross Refinery to HollyFrontier in exchange for cash consideration equal to $232.5 million plus the certain accounts receivable of HEP in respect of such assets, with such sale to be effective immediately prior to the closing of the sale of the Woods Cross Refinery by HollyFrontier. The Letter Agreement also provides that HEP’s right to future revenues and net incomefrom HollyFrontier in respect of $298.1 million and $22.6 million, respectively, and $809.6 million and $43.6 million forsuch Woods Cross Refinery assets will terminate at the period from February 1, 2017 through September 30, 2017.closing of such sale.
As of September 30, 2017, we have incurred $23.5 million in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as general and administrative expenses.
| |
NOTE 3: | Holly Energy Partners |
NOTE 3:Holly Energy Partners
HEP a consolidated VIE, is a publicly held master limited partnership that owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining and marketing operations, as well as other third-party refineries, in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States and Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas.States. Additionally, as of September 30, 2017,2021, HEP owned a 75% interest in UNEV Pipeline, LLC (“UNEV”), the owner of a pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV Pipeline”) and associated product terminals;terminals, and a 50% ownership interest in Frontier Aspen LLC, the ownereach of a pipeline running from Wyoming to Frontier Station, Utah (the “Frontier Pipeline”); a 50% interest in Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”); a 50% interest in Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the “Cheyenne Pipeline”); and a 25% interest in SLCCushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a pipeline (the “SLC Pipeline”) that serves refineries in the Salt Lake City, Utah area.runs from Cushing, Oklahoma to our Tulsa Refineries.
As of At September 30, 2017,2021, we owned a 36%57% limited partner interest and a non-economic general partner interest in HEP, including the 2% general partner interest.HEP. As the general partner of HEP, we have the sole ability to direct the activities that most significantly impact HEP’s financial performance, and therefore as HEP's primary beneficiary, we consolidate HEP.
HEP has two primary customers (including us) and generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by charging fees for terminalling refined products and other hydrocarbons, and by storing and providing other services at its storage tanks and terminals. Under our long-term transportation agreements with HEP (discussed further below), we accounted for 85%79% of HEP’s total revenues for the nine months ended September 30, 2017.2021. We do not provide financial or equity support through any liquidity arrangements and / or debt guarantees to HEP.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
HEP has outstanding debt under a senior secured revolving credit agreement and its senior notes. HEP’s creditors have no recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries. See Note 10 for a description of HEP’s debt obligations.
HEP has risk associated with its operations. If a major customer of HEP were to terminate its contracts or fail to meet desired shipping or throughput levels for an extended period of time, revenue would be reduced and HEP could suffer substantial losses to the extent that a new customer is not found. In the event that HEP incurs a loss, our operating results will reflect HEP’s loss, net of intercompany eliminations, to the extent of our ownership interest in HEP at that point in time.
SLC PipelineCushing Connect Joint Venture
In October 2019, HEP Cushing LLC (“HEP Cushing”), a wholly-owned subsidiary of HEP, and Frontier Aspen
On October 31, 2017, HEP acquired the remaining 75% interest in SLC Pipeline LLC and the remaining 50% interest in Frontier Aspen LLC from subsidiariesPlains Marketing, L.P. (“PMLP”), a wholly owned subsidiary of Plains All American Pipeline, L.P. (“Plains”) for total cash consideration of $250.0 million.
Following close of the SLC Pipeline and Frontier Aspen, formed a 50/50 joint venture, interest acquisitions, HEP holdsCushing Connect, for (i) the development, construction, ownership and operation of a 100% ownership interest in both of these entities and therefore, they shall be consolidated. These acquisitions will be accounted for as business combinations with the purchase price allocated to the acquisition date fair value of the assets and liabilities acquired.
Cheyenne Pipeline
On June 3, 2016, HEP acquired a 50% interest in Cheyenne Pipeline LLC, owner of the Cheyenne Pipeline, in exchange for a contribution of $42.6 million in cash to Cheyenne Pipeline LLC. Cheyenne Pipeline will continue to be operated by an affiliate of Plains, which owns the remaining 50% interest. The 87-milenew 160,000 barrel per day common carrier crude oil pipeline runs from Fort Laramie, Wyoming to Cheyenne, Wyoming and has an 80,000 BPD capacity.
Tulsa Tanks
On March 31, 2016, HEP acquired(the “Cushing Connect Pipeline”) that will connect the Cushing, Oklahoma crude oil tanks located athub to our Tulsa Refineries from Plains for $39.5 million. Previouslyand (ii) the ownership and operation of 1.5 million barrels of crude oil storage in 2009, we sold these tanks to Plains and leased them back, and due to our continuing interestCushing, Oklahoma (the “Cushing Connect Terminal”). The Cushing Connect Terminal was fully in the tanks, we accounted for the transaction as a financing arrangement. Accordingly, the tanks remained on our balance sheet and were depreciated for accounting purposes,service beginning in April 2020, and the proceeds received from Plains were recorded as a financing obligation and presented as a component of outstanding debt.
In accounting for HEP’s March 2016 purchase from Plains,Cushing Connect Pipeline was placed in service at the amount paid was recorded against our outstanding financing obligation balance of $30.8 million, with the excess $8.7 million payment resulting in a loss on early extinguishment of debt.
Magellan Asset Exchange
On February 22, 2016, we acquired a 50% membership interest in Osage Pipe Line Company, LLC (“Osage”) in exchange for a 20-year terminalling services agreement, whereby a subsidiary of Magellan Midstream Partners (“Magellan Midstream”) will provide terminalling services for all of our products originating in Artesia, New Mexico that require terminalling in or through El Paso, Texas. Under the agreement, we will be charged tariffs based on the volumes of refined product processed. Osage is the ownerend of the Osage Pipeline, a 135-mile pipeline that transports crude oil fromthird quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Oklahoma to our El Dorado Refinery in Kansas and also has a connection to the Jayhawk pipeline that services the CHS refinery in McPherson, Kansas. This exchange was accounted for at fair value, whereby the 50% membership interest in the Osage Pipeline was recorded at appraised fair value and an offsetting residual deferred credit in the amount of $38.9 million was recorded, which will be amortized to cost of products sold over the 20-year service period. No gain or loss was recorded for this exchange.Connect assets.
Also on February 22, 2016, we contributed the 50% membership interest in Osage to HEP, and in exchange received HEP’s El Paso terminal. Pursuant to this exchange, HEP agreed to build two connections to Magellan Midstream’s El Paso terminal. In addition, HEP agreed to become operator of the Osage Pipeline. This exchange was accounted for at carry-over basis with no resulting gain or loss.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Cushing Connect entered into a contract with an affiliate of HEP to manage the operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in Cushing Connect will be shared equally among the partners. However, HEP is solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $70 million to $75 million.
Cushing Connect and its two subsidiaries, Cushing Connect Pipeline and Cushing Connect Terminal, are each VIE’s because they do not have sufficient equity at risk to finance their activities without additional financial support. HEP Common Unit Continuous Offering Program
On May 10, 2016,is the primary beneficiary of two of these entities as HEP established a continuous offering program underis constructing and will operate the Cushing Connect Pipeline, and HEP has more ability to direct the activities that most significantly impact the financial performance of Cushing Connect and Cushing Connect Pipeline. Therefore, HEP consolidates these two entities. HEP is not the primary beneficiary of Cushing Connect Terminal, which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amountaccounts for using the equity method of $200 million. During the nine months ended September 30, 2017, HEP issued 1,538,452 units under this program, providing $52.3 million in net proceeds. In connection with this program and to maintain our 2% general partner interest in HEP, we made capital contributions totaling $1.1 million during the nine months ended September 30, 2017. As of September 30, 2017, HEP has issued 2,241,907 units with an aggregate gross sales amount of $77.1 million.accounting.
HEP intends to use the net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. Amounts repaid under HEP’s credit facility may be reborrowed from time to time.
As a result of this transaction and resulting HEP ownership changes, we adjusted additional capital and equity attributable to HEP's noncontrolling interest holders to reallocate HEP's equity among its unitholders.
Incentive Distribution Rights Simplification Agreement
On October 31, 2017, HEP Logistics Holdings, L.P., our wholly-owned subsidiary and general partner of HEP, closed the restructuring transaction set forth in a definitive agreement with HEP to cancel its incentive distribution rights and convert our 2% general partner interest in HEP into a non-economic interest in exchange for 37,250,000 newly issued HEP common units. As of October 31, 2017, our ownership represents approximately 59% of outstanding HEP common units.
Transportation Agreements
HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling agreements expiring from 2017 throughfrom 2022 through 2036. Under these agreements, we pay HEP fees to transport, store and process throughput volumes of refined products, crude oil and feedstocks on HEP’s pipeline, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to HEP including UNEV (a consolidated subsidiary of HEP). Under these agreements, the agreed upon tariff rates are subject to annual tariff rate adjustments on July 1 at a rate based upon the percentage change in Producer Price Index or Federal Energy Regulatory Commission index. As of September 30, 2017,2021, these agreements result inrequire minimum annualized payments to HEP of $352.9 million.
Our transactions with HEP and fees paid under our transportation agreements with HEP and UNEV are eliminated and have no impact on our consolidated financial statements.
Lessor Accounting
Our consolidated statements of $321.3 million.operations reflect lease revenue recognized by HEP for contracts with third parties in which HEP is the lessor.
Lease income recognized was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In thousands) |
Operating lease revenues | | $ | 3,539 | | | $ | 5,080 | | | $ | 11,717 | | | $ | 18,812 | |
| | | | | | | | |
Gain on sales-type leases | | $ | — | | | $ | — | | | $ | — | | | $ | 33,834 | |
Sales-type lease interest income | | $ | 636 | | | $ | 645 | | | $ | 1,912 | | | $ | 1,287 | |
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable | | $ | 648 | | | $ | 335 | | | $ | 1,505 | | | $ | 621 | |
One of HEP’s throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed during the nine months ended September 30, 2020. Certain components of this agreement met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, HEP recognized a gain on sales-type leases totaling $33.8 million during the nine months ended September 30, 2020. This sales-type lease transaction, including the related gain, was a non-cash transaction.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 4:Revenues
Substantially all revenue-generating activities relate to sales of refined product and excess crude oil inventories sold at market prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to HEP logistics services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling agreements with third parties.
Disaggregated revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In thousands) |
Revenues by type | | | | | | | | |
Refined product revenues | | | | | | | | |
Transportation fuels (1) | | $ | 3,428,501 | | | $ | 1,949,381 | | | $ | 9,224,169 | | | $ | 5,812,974 | |
Specialty lubricant products (2) | | 618,310 | | | 421,254 | | | 1,704,930 | | | 1,232,491 | |
Asphalt, fuel oil and other products (3) | | 260,788 | | | 171,844 | | | 641,117 | | | 518,485 | |
Total refined product revenues | | 4,307,599 | | | 2,542,479 | | | 11,570,216 | | | 7,563,950 | |
Excess crude oil revenues (4) | | 343,500 | | | 243,742 | | | 1,089,075 | | | 606,915 | |
Transportation and logistic services | | 25,459 | | | 26,740 | | | 77,809 | | | 72,410 | |
Other revenues (5) | | 8,501 | | | 6,439 | | | 29,375 | | | 39,600 | |
Total sales and other revenues | | $ | 4,685,059 | | | $ | 2,819,400 | | | $ | 12,766,475 | | | $ | 8,282,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In thousands) |
Refined product revenues by market | | | | | | | | |
United States | | | | | | | | |
Mid-Continent | | $ | 2,467,792 | | | $ | 1,254,828 | | | $ | 6,470,231 | | | $ | 3,655,412 | |
Southwest | | 923,319 | | | 580,818 | | | 2,632,833 | | | 1,751,066 | |
Rocky Mountains | | 414,334 | | | 343,905 | | | 1,025,389 | | | 1,087,657 | |
Northeast | | 221,488 | | | 149,855 | | | 593,741 | | | 420,588 | |
Canada | | 199,924 | | | 150,618 | | | 595,208 | | | 454,141 | |
Europe, Asia and Latin America | | 80,742 | | | 62,455 | | | 252,814 | | | 195,086 | |
| | | | | | | | |
Total refined product revenues | | $ | 4,307,599 | | | $ | 2,542,479 | | | $ | 11,570,216 | | | $ | 7,563,950 | |
(1)Transportation fuels consist of gasoline, diesel and jet fuel.
(2)Specialty lubricant products consist of base oil, waxes, finished lubricants and other specialty fluids.
(3)Asphalt, fuel oil and other products revenue include revenues attributable to our Refining and Lubricants and Specialty Products segments of $213.7 million and $47.1 million, respectively, for the three months ended September 30, 2021, $496.9 million and $144.2 million, respectively, for the nine months ended September 30, 2021, $140.2 million and $31.6 million, respectively, for the three months ended September 30, 2020, $421.0 million and $97.5 million respectively, for the nine months ended September 30, 2020.
(4)Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of our refineries.
(5)Other revenues are principally attributable to our Refining segment.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Our consolidated balance sheet reflects contract liabilities related to unearned revenues attributable to future service obligations under HEP’s third-party transportation agreements and production agreements from our Sonneborn operations. The following table presents changes to our contract liabilities during the nine months ended September 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, |
| | | | | | 2021 | | 2020 |
| | | | | | (In thousands) |
Balance at January 1 | | | | | | $ | 6,738 | | | $ | 4,652 | |
Increase | | | | | | 24,745 | | | 21,583 | |
Recognized as revenue | | | | | | (22,224) | | | (18,224) | |
Balance at September 30 | | | | | | $ | 9,259 | | | $ | 8,011 | |
As of September 30, 2021, we have long-term contracts with customers that specify minimum volumes of gasoline, diesel, lubricants and specialty products to be sold ratably at market prices through 2025. Such volumes are typically nominated in the month preceding delivery and delivered ratably throughout the following month. Future prices are subject to market fluctuations and therefore, we have elected the exemption to exclude variable consideration under these contracts under Accounting Standards Codification 606-10-50-14A. Aggregate minimum volumes expected to be sold (future performance obligations) under our long-term product sales contracts with customers are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remainder of 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| | (In thousands) |
Refined product sales volumes (barrels) | | 4,654 | | | 14,543 | | | 12,795 | | | 11,698 | | | 43,690 | |
Additionally, HEP has long-term contracts with third-party customers that specify minimum volumes of product to be transported through its pipelines and terminals that result in fixed-minimum annual revenues through 2025. Annual minimum revenues attributable to HEP’s third-party contracts as of September 30, 2021 are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remainder of 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| | (In thousands) |
HEP contractual minimum revenues | | $ | 5,400 | | | $ | 11,770 | | | $ | 9,676 | | | $ | 12,357 | | | $ | 39,203 | |
| |
NOTE 4: | Fair Value Measurements |
NOTE 5:Fair Value Measurements
Our financial instruments measured at fair value on a recurring basis consist of investments in marketable securities, derivative instruments and RINs credit obligations.
Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability, including assumptions about risk). GAAP categorizes inputs used in fair value measurements into three broad levels as follows:
•(Level 1) Quoted prices in active markets for identical assets or liabilities.
•(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.
•(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The carrying amounts of marketable securities, derivative instruments and RINs credit obligations at September 30, 20172021 and December 31, 20162020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value by Input Level |
| | Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
| | (In thousands) |
September 30, 2021 | | | | | | | | |
Assets: | | | | | | | | |
| | | | | | | | |
Commodity price swaps | | $ | 1,451 | | | $ | — | | | $ | 1,451 | | | $ | — | |
Commodity forward contracts | | 516 | | | — | | | 516 | | | — | |
| | | | | | | | |
Total assets | | $ | 1,967 | | | $ | — | | | $ | 1,967 | | | $ | — | |
| | | | | | | | |
Liabilities: | | | | | | | | |
NYMEX futures contracts | | $ | 8,781 | | | $ | 8,781 | | | $ | — | | | $ | — | |
| | | | | | | | |
Commodity forward contracts | | 537 | | | — | | | 537 | | | — | |
Foreign currency forward contracts | | 1,113 | | | — | | | 1,113 | | | — | |
RINs credit obligations (1) | | 119,583 | | | — | | | 119,583 | | | — | |
Total liabilities | | $ | 130,014 | | | $ | 8,781 | | | $ | 121,233 | | | $ | — | |
| | | | | | Fair Value by Input Level | |
| | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | |
| | (In thousands) | |
September 30, 2017 | | | | | | | | | |
| | December 31, 2020 | | December 31, 2020 | |
Assets: | | | | | | | | | Assets: | |
Commodity price swaps | | $ | 5,556 |
| | $ | — |
| | $ | 5,556 |
| | $ | — |
| |
| Commodity forward contracts | | 1,358 |
| | — |
| | 1,358 |
| | — |
| Commodity forward contracts | | $ | 275 | | | $ | — | | | $ | 275 | | | $ | — | |
Total assets | | $ | 6,914 |
| | $ | — |
| | $ | 6,914 |
| | $ | — |
| Total assets | | $ | 275 | | | $ | — | | | $ | 275 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | Liabilities: | |
NYMEX futures contracts | | $ | 5,881 |
| | $ | 5,881 |
| | $ | — |
| | $ | — |
| NYMEX futures contracts | | $ | 418 | | | $ | 418 | | | $ | — | | | $ | — | |
Commodity price swaps | | 16,030 |
| | — |
| | 12,401 |
| | 3,629 |
| Commodity price swaps | | 359 | | | — | | | 359 | | | — | |
Commodity forward contracts | | 1,611 |
| | — |
| | 1,611 |
| | — |
| Commodity forward contracts | | 196 | | | — | | | 196 | | | — | |
RINs credit obligations (1) | | 22,586 |
| | — |
| | 22,586 |
| | — |
| |
Foreign currency forward contracts | | Foreign currency forward contracts | | 23,005 | | | — | | | 23,005 | | | — | |
Total liabilities | | $ | 46,108 |
| | $ | 5,881 |
| | $ | 36,598 |
| | $ | 3,629 |
| Total liabilities | | $ | 23,978 | | | $ | 418 | | | $ | 23,560 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
December 31, 2016 | | | | | | | | |
Assets: | | | | | | | | |
Marketable securities | | $ | 424,148 |
| | $ | — |
| | $ | 424,148 |
| | $ | — |
|
Commodity price swaps | | 14,563 |
| | — |
| | 14,358 |
| | 205 |
|
Commodity forward contracts | | 5,905 |
| | — |
| | 5,905 |
| | — |
|
HEP interest rate swaps | | 91 |
| | — |
| | 91 |
| | — |
|
Total assets | | $ | 444,707 |
| | $ | — |
| | $ | 444,502 |
| | $ | 205 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
NYMEX futures contracts | | $ | 1,975 |
| | $ | 1,975 |
| | $ | — |
| | $ | — |
|
Commodity price swaps | | 26,845 |
| | — |
| | 24,086 |
| | 2,759 |
|
Commodity forward contracts | | 8,316 |
| | — |
| | 8,316 |
| | — |
|
Foreign currency forward contracts | | 6,519 |
| | — |
| | 6,519 |
| | — |
|
Total liabilities | | $ | 43,655 |
| | $ | 1,975 |
| | $ | 38,921 |
| | $ | 2,759 |
|
(1) Represent obligations for RINs credits for which we did not have sufficient quantities at September 30, 2021 to satisfy our Environmental Protection Agency (“EPA”) regulatory blending requirements.
| |
(1) | Represent obligations for RINs credits for which we do not have sufficient quantities at September 30, 2017 to satisfy our Environmental Protection Agency (“EPA”) regulatory blending requirements. |
Level 1 Instruments
Our NYMEX futures contracts are exchange traded and are measured and recorded at fair value using quoted market prices, a Level 1 input.
Level 2 Instruments
Investments in marketable securities, derivativeDerivative instruments consisting of foreign currency forward contracts, commodity price swaps and forward sales and purchase contracts and HEP’s interest rate swaps are measured and recorded at fair value using Level 2 inputs. The fair valuesvalue of the commodity price and interest rate swap contracts areis based on the net present value of expected future cash flows related to both variable and fixed rate legs of the respective swap agreements. The measurements are computed using market-based observable inputs,input and quoted forward commodity prices with respect to our commodity price swaps andswaps. The fair value of the forward London Interbank Offered Rate (“LIBOR”) yield curve with respect to HEP’s interest rate swaps.sales and purchase contracts are computed using quoted forward commodity prices. RINs credit obligations are valued based on current market RINs prices. The fair value of the marketable securities isforeign currency forward contracts are based on values provided by a third-party,third party, which were derived using market quotes for similar type instruments, a Level 2 input.
Level 3 Instruments
We at times have commodity price swap contracts that relate to forecasted sales of unleaded gasoline and forward commodity sales and purchase contracts for which quoted forward market prices are not readily available. The forward rate used to value these price swaps and forward sales and purchase contracts are derived using a projected forward rate using quoted market rates for similar products, adjusted for regional pricing and grade differentials, a Level 3 input.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The following table presents the changes in fair value of our Level 3 assets and liabilities (all related to derivative instruments) for the three and nine months ended September 30, 2017:
|
| | | | | | | | |
| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
Level 3 Instruments | | |
| | (In thousands) |
Liability balance at beginning of period | | $ | — |
| | $ | (2,554 | ) |
Change in fair value: | | | | |
Recognized in other comprehensive income | | — |
| | 1,625 |
|
Recognized in cost of products sold | | (3,629 | ) | | (3,630 | ) |
Settlement date fair value of contractual maturities: | | | | |
Recognized in sales and other revenues | | — |
| | (165 | ) |
Recognized in cost of products sold | | — |
| | 1,095 |
|
Liability balance at end of period | | $ | (3,629 | ) | | $ | (3,629 | ) |
A hypothetical change of 10% to the estimated future cash flows attributable to our Level 3 commodity price swaps would result in an estimated fair value change of $0.2 million.
| |
NOTE 5: | Earnings Per Share |
NOTE 6:Earnings Per Share
Basic earnings per share is calculated as net income (loss) attributable to HollyFrontier stockholders, adjusted for participating securities’ share in earnings divided by the average number of shares of common stock outstanding. Diluted earnings per share assumes, when dilutive,includes the issuance of the net incremental shares resulting from restricted shares and performance share units.certain share-based awards. The following is a reconciliation of the denominators of the basic and diluted per share computations for net income (loss) attributable to HollyFrontier stockholders:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In thousands, except per share data) |
Net income (loss) attributable to HollyFrontier stockholders | | $ | 280,787 | | | $ | (2,401) | | | $ | 597,854 | | | $ | (483,701) | |
Participating securities’ share in earnings (1) | | 3,553 | | | — | | | 7,888 | | | — | |
Net income (loss) attributable to common shares | | $ | 277,234 | | | $ | (2,401) | | | $ | 589,966 | | | $ | (483,701) | |
Average number of shares of common stock outstanding | | 162,551 | | | 162,015 | | | 162,518 | | | 161,927 | |
| | | | | | | | |
Average number of shares of common stock outstanding assuming dilution | | 162,551 | | | 162,015 | | | 162,518 | | | 161,927 | |
Basic earnings (loss) per share | | $ | 1.71 | | | $ | (0.01) | | | $ | 3.63 | | | $ | (2.99) | |
Diluted earnings (loss) per share | | $ | 1.71 | | | $ | (0.01) | | | $ | 3.63 | | | $ | (2.99) | |
| | | | | | | | |
(1) Unvested restricted stock unit awards and unvested performance share units represent participating securities because they participate in nonforfeitable dividends or distributions with the common stockholders of HollyFrontier. Participating earnings represent the distributed and undistributed earnings of HollyFrontier attributable to the participating securities. Unvested restricted stock unit awards and performance share units do not participate in undistributed net losses as they are not contractually obligated to do so.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In thousands, except per share data) |
Net income (loss) attributable to HollyFrontier stockholders | | $ | 272,014 |
| | $ | 74,497 |
| | $ | 284,313 |
| | $ | (313,618 | ) |
Participating securities’ (restricted stock) share in earnings | | 1,735 |
| | 275 |
| | 1,822 |
| | 647 |
|
Net income (loss) attributable to common shares | | $ | 270,279 |
| | $ | 74,222 |
| | $ | 282,491 |
| | $ | (314,265 | ) |
Average number of shares of common stock outstanding | | 176,149 |
| | 175,871 |
| | 176,143 |
| | 176,157 |
|
Effect of dilutive variable restricted shares and performance share units (1) | | 381 |
| | 122 |
| | 473 |
| | — |
|
Average number of shares of common stock outstanding assuming dilution | | 176,530 |
| | 175,993 |
| | 176,616 |
| | 176,157 |
|
Basic earnings (loss) per share | | $ | 1.53 |
| | $ | 0.42 |
| | $ | 1.60 |
| | $ | (1.78 | ) |
Diluted earnings (loss) per share | | $ | 1.53 |
| | $ | 0.42 |
| | $ | 1.60 |
| | $ | (1.78 | ) |
(1) Excludes anti-dilutive restricted and performance share units of: | | 104 |
| | 204 |
| | 120 |
| | 188 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| |
NOTE 6: | Stock-Based Compensation |
NOTE 7:Stock-Based Compensation
As of September 30, 2017, we
We have twoa principal share-based compensation plans (collectively,plan (the “2020 Long-Term Incentive Plan”), which allows us to grant new equity awards to certain officers, non-employee directors and other key employees of HollyFrontier. The restricted stock unit awards generally vest over a period of one to three years. Upon vesting, restrictions on the “Long-Term Incentive Compensation Plan”).restricted stock units lapse at which time they convert to common shares or cash. The performance share units generally vest over a period of three years and are payable in stock or cash upon meeting certain financial and performance criteria. The number of shares ultimately issued or cash paid for the performance share units can range from zero to 200% of target award amounts. The holders of unvested restricted stock units and performance share units have the right to receive dividends.
The compensation cost charged against income for these plans was $9.1$9.2 million and $6.2$6.9 million for the three months ended September 30, 2017 and 2016, respectively, and $24.5 million and $14.8 million for the nine months ended September 30, 20172021 and 2016, respectively. Our accounting policy2020, respectively, and $32.0 million and $19.8 million, for the recognition of compensation expense for awards with pro-rata vesting is to expense the costs ratably over the vesting periods.nine months ended September 30, 2021 and 2020, respectively.
Additionally, HEP maintains a share-based compensation plan for Holly Logistic Services, L.L.C.’s non-employee directors and certain executives and employees. Compensation cost attributable to HEP’s share-based compensation plan was $0.8$0.6 million and $0.7$0.6 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $1.9 million and $1.5 million, for each of the nine months ended September 30, 20172021 and 2016.2020, respectively.
Restricted Stock and Restricted Stock Units
Under our Long-Term Incentive Compensation Plan,In July 2021, we grant certain officers and other key employees restrictedadopted a stock and restricted stock unit awards with awards generally vesting over a period of two to three years. Restricted stock award recipients are generally entitled to all the rights of absolute ownership of the restricted shares from the date of grant including the right to vote the shares and to receive dividends. Upon vesting, restrictions on the restricted shares lapse atcompensation deferral plan which time they convert to common shares. In addition, we grantallows non-employee directors restrictedto defer settlement of vested stock unit awards, which typically vest over a period of one year and are payable in stock. The fair value of each restricted stock and restricted stock unit award is measured based on the grant date market price ofgranted under our common shares and is amortized over the respective vesting period.share-based compensation plan. This plan was effective October 1, 2021.
A summary of restricted stock and restricted stock unit activity and changes during the nine months ended September 30, 2017 is presented below:
|
| | | | | | | | | | | |
Restricted Stock and Restricted Stock Units | | Grants | | Weighted Average Grant Date Fair Value | | Aggregate Intrinsic Value ($000) |
| | | | | | |
Outstanding at January 1, 2017 (non-vested) | | 1,188,774 |
| | $ | 28.87 |
| | |
Granted (1) | | 735,478 |
| | 28.19 |
| | |
Vesting (transfer/conversion to common stock) | | (33,177 | ) | | 32.53 |
| | |
Forfeited | | (49,711 | ) | | 30.38 |
| | |
Outstanding at September 30, 2017 (non-vested) | | 1,841,364 |
| | $ | 28.82 |
| | $ | 66,234 |
|
(1) Includes restricted stock units issued to PCLI employees.
In connection with our February 1, 2017 PCLI acquisition, we issued 472,276 restricted stock units to PCLI employees as replacement units for unvested awards issued under the legacy PCLI plan. The fair value of these awards totaled $13.3 million and is based on a February 1, 2017 grant date value of $28.12 per unit. Of this total, $5.1 million is recognized as an increase to our PCLI purchase price as it represents the value of the awards attributable to pre-acquisition services, and the remaining $8.2 million to be recognized as compensation expense over the two-year vesting period.
For the nine months ended September 30, 2017, restricted stock and restricted stock units vested having a grant date fair value of $1.1 million. As of September 30, 2017, there was $23.7 million of total unrecognized compensation cost related to non-vested restricted stock and restricted stock unit grants. That cost is expected to be recognized over a weighted-average period of 1.2 years.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Performance Share Units
Under our Long-Term Incentive Compensation Plan, we grant certain officers and other key employees performance share units, which are payable in stock upon meeting certain criteria over the service period, and generally vest over a period of three years. Under the terms of our performance share unit grants, awards are subject to “financial performance” and “market performance” criteria. Financial performance is based on our financial performance compared to a peer group of independent refining companies, while market performance is based on the relative standing of total shareholder return achieved by HollyFrontier compared to peer group companies. The number of shares ultimately issued under these awards can range from zero to 200% of target award amounts. As of September 30, 2017, estimated share payouts for outstanding non-vested performance share unit awards averaged approximately 60% of target amounts.
A summary of restricted stock unit and performance share unit activity and changes during the nine months ended September 30, 2017 is presented below:
|
| | | |
Performance Share Units | | Grants |
| | |
Outstanding at January 1, 2017 (non-vested) | | 703,939 |
|
Granted | | 21,923 |
|
Forfeited | | (88,893 | ) |
Outstanding at September 30, 2017 (non-vested) | | 636,969 |
|
As of September 30, 2017, there was $8.6 million of total unrecognized compensation cost related to non-vested performance share units having a grant date fair value of $33.37 per unit. That cost is expected to be recognized over a weighted-average period of 1.5 years.
| |
NOTE 7: | Cash and Cash Equivalents and Investments in Marketable Securities |
Our investment portfolio at September 30, 2017 consisted of cash and cash equivalents.
We periodically invest in marketable debt securities with the maximum maturity or put date of any individual issue generally not greater than one year from the date of purchase, which are usually held until maturity. All of these instruments are classified as available-for-sale and are reported at fair value. Interest income is recorded as earned. Unrealized gains and losses, net of related income taxes, are reported as a component of accumulated other comprehensive income. Upon sale or maturity, realized gains on our marketable debt securities are recognized as interest income. These gains are computed based on the specific identification of the underlying cost of the securities, net of unrealized gains and losses previously reported in other comprehensive income. Unrealized gains and losses on our available-for-sale securities are due to changes in market prices and are considered temporary.
The following is a summary of our marketable securities as of December 31, 2016:
|
| | | | | | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value (Net Carrying Amount) |
| | (In thousands) |
December 31, 2016 | | | | | | | | |
Commercial paper | | $ | 7,687 |
| | $ | 1 |
| | $ | (1 | ) | | $ | 7,687 |
|
Corporate debt securities | | 4,001 |
| | — |
| | — |
| | 4,001 |
|
State and political subdivisions debt securities | | 412,462 |
| | 1 |
| | (3 | ) | | 412,460 |
|
Total marketable securities | | $ | 424,150 |
| | $ | 2 |
| | $ | (4 | ) | | $ | 424,148 |
|
Interest income recognized on our marketable securities was zero and $0.2 million for the three months ended September 30, 2017 and 2016 respectively, and $0.3 million and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively.2021 is presented below:
| | | | | | | | | | | | | | | | | |
| | Restricted Stock Units | | Performance Share Units | | | |
| | | | | | | |
Outstanding at January 1, 2021 | | 2,057,045 | | | 635,204 | | | | |
Granted (1) | | 9,983 | | | — | | | | |
Vested | | (95,476) | | | (5,894) | | | | |
Forfeited | | (153,453) | | | (29,204) | | | | |
| | | | | | | |
Outstanding at September 30, 2021 | | 1,818,099 | | | 600,106 | | | | |
| | | | | | | |
(1) Weighted average grant date fair value per unit | | $ | 34.98 | | | $ | — | | | | |
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) ContinuedNOTE 8:Inventories
Inventory consistsInventories consist of the following components: | | | | September 30, 2017 | | December 31, 2016 | | September 30, 2021 | | December 31, 2020 |
| | (In thousands) | | (In thousands) |
Crude oil | | $ | 544,837 |
| | $ | 549,886 |
| Crude oil | | $ | 506,545 | | | $ | 451,967 | |
Other raw materials and unfinished products(1) | | 363,483 |
| | 287,561 |
| Other raw materials and unfinished products (1) | | 396,745 | | | 260,495 | |
Finished products(2) | | 670,120 |
| | 465,432 |
| Finished products (2) | | 795,416 | | | 595,696 | |
Lower of cost or market reserve | | (317,195 | ) | | (332,518 | ) | Lower of cost or market reserve | | — | | | (318,862) | |
Process chemicals(3) | | 26,173 |
| | 2,767 |
| Process chemicals (3) | | 44,904 | | | 35,006 | |
Repair and maintenance supplies and other (4) | | 132,424 |
| | 162,548 |
| Repair and maintenance supplies and other (4) | | 143,470 | | | 149,174 | |
Total inventory | | $ | 1,419,842 |
| | $ | 1,135,676 |
| Total inventory | | $ | 1,887,080 | | | $ | 1,173,476 | |
| |
(1) | Other raw materials and unfinished products include feedstocks and blendstocks, other than crude. |
| |
(2) | Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and residual fuels. |
| |
(3) | Process chemicals include additives and other chemicals. |
We acquired $214.9 million of other(1)Other raw materials and unfinished products include feedstocks and finishedblendstocks, other than crude.
(2)Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and repairresidual fuels.
(3)Process chemicals include additives and maintenance supplies in connection with our February 1, 2017 acquisition of PCLI. We value theseother chemicals.
(4)Includes RINs.
Our inventories at the lower of FIFO cost or net realizable value.
Inventories, whichthat are valued at the lower of LIFO cost or market reflectreflected a valuation reserve of $317.2 million and $332.5$318.9 million at September 30, 2017 and December 31, 2016, respectively.2020. The December 31, 20162020 market reserve of $332.5$318.9 million was reversed during the six months ended June 30, 2021 due to the sale of inventory quantities that gave rise to the 20162020 reserve. A new market reserve of $317.2 million was established as of September 30, 2017 based on market conditions and prices at that time. The effect of the change in lower of cost or market reserve was a decrease to cost of goodsproducts sold totaling $111.1$318.9 million for the nine months ended September 30, 2021, a decrease to cost of products sold totaling $62.8 million for the three months ended September 30, 20172020, and an increase to cost of $0.3products sold of $227.7 million for the three months ended September 30, 2016, respectively, and a decrease to cost of goods sold totaling $15.3 million and $194.3 million for the nine months ended September 30, 2017 and 2016, respectively.2020.
At September 30, 2017,2021, the LIFO value of inventory net of the lower of cost or market reserve, was equal to current costs.cost.
In May 2017, the EPA granted the Cheyenne Refinery a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2016 calendar year. As a result, the Cheyenne Refinery’s gasoline and diesel production are not subject to the percentage of production that must satisfy a Renewable Volume Obligation (“RVO”) for 2016. In September 2017, the EPA reinstated the RINs previously submitted to meet our Cheyenne Refinery’s 2016 RVO. The cost of the RINs used earlier to satisfy the Cheyenne Refinery’s 2016 RVO of $30.5 million was charged to cost of products sold in 2016. In the second quarter of 2017, we increased our inventory of RINs and reduced our cost of products sold by this amount, representing the cost of the RINs that were reinstated as a result of the RFS exemption received by the Cheyenne Refinery.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
NOTE 9:Environmental
Environmental costs are charged to operating expenses if they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. We have ongoing investigations of environmental matters at various locations and routinely assess our recorded environmental obligations, if any, with respect to such matters. Liabilities are recorded when site restoration and environmental remediation, cleanup and other obligations are either known or considered probable and can be reasonably estimated. Such estimates are undiscounted and require judgment with respect to costs, time frame and extent of required remedial and cleanup activities and are subject to periodic adjustments based on currently available information. Recoveries of environmental costs through insurance, indemnification arrangements or other sources are included in other assets to the extent such recoveries are considered probable.
We incurred expense of $0.1$0.5 million and $2.2 million for the three months ended September 30, 2017,2021 and reduced expense by $0.82020, respectively, and $2.5 million and $4.2 million for the nine months ended September 30, 2017 for environmental remediation obligations. For the three2021 and the nine months ended September 30, 2016, we incurred expense of $0.6 million and $2.0 million, respectively,2020, for environmental remediation obligations. The accrued environmental liability reflected in our consolidated balance sheets was $93.6$111.9 million and $96.4$115.0 million at September 30, 20172021 and December 31, 2016,2020, respectively, of which $80.4$93.2 million and $82.9$94.0 million,, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time (up to 30 years for certain projects). The amount of our accrued liability includes PCLI environmental obligations of $3.6 million assumed upon our February 1, 2017 acquisition. Estimated liabilities could increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably estimated.
NOTE 10:Debt
HollyFrontier Credit Agreement
In February 2017,On April 30, 2021, we increased the size ofamended our $1.35 billion senior unsecured revolving credit facility from $1 billion to $1.35 billion and extendedextend the maturity date to February 2022April 30, 2026 (the “HollyFrontier Credit Agreement”). The Holly FrontierHollyFrontier Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. During the nine months endedAt September 30, 2017, we received advances totaling $26.0 million and repaid $26.0 million under the HollyFrontier Credit Agreement. At September 30, 2017,2021, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling $2.8$2.3 million under the HollyFrontier Credit Agreement.
Indebtedness under the HollyFrontier Credit Agreement bears interest, at our option, at either (a) the alternate base rate (as defined in the HollyFrontier Credit Agreement) plus an applicable margin (ranging from 0.25% to 1.125%), (b) the LIBO Rate (as defined in the HollyFrontier Credit Agreement) plus an applicable margin (ranging from 1.25% to 2.125%) or (c) the CDOR Rate (as defined in the HollyFrontier Credit Agreement) plus an applicable margin (ranging from 1.25% to 2.125%) for Canadian dollar denominated borrowings.
HEP Credit Agreement
In July 2017,On April 30, 2021, HEP increased the size ofamended its $1.4 billion senior secured revolving credit facility fromdecreasing the commitments under the facility to $1.2 billion to $1.4 billion and extendedextending the maturity date to July 202227, 2025 (the “HEP Credit Agreement”). The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and hascontinues to provide for an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a $300 million accordion.maximum amount of $1.7 billion. During the nine months ended September 30, 2017,2021, HEP received advances totaling $628.0$210.5 million and repaid $431.0$283.5 million under the HEP Credit Agreement. At September 30, 2017,2021, HEP was in compliance with all of its covenants, had outstanding borrowings of $750.0$840.5 million and no outstanding letters of credit under the HEP Credit Agreement.
Prior to the Investment Grade Date (as defined in the HEP Credit Agreement), indebtedness under the HEP Credit Agreement bears interest, at HEP’s option, at either (a) the alternate base rate (as defined in the HEP Credit Agreement) plus an applicable margin or (b) the Eurodollar Rate (as defined in the HEP Credit Agreement) plus an applicable margin. In each case, the applicable margin is based upon HEP’s Total Leverage Ratio (as defined in the HEP Credit Agreement). The weighted average interest rate in effect under the HEP Credit Agreement on HEP’s borrowings was 2.32% as of September 30, 2021.
HEP’s obligations under the HEP Credit Agreement are collateralized by substantially all of HEP’s assets and isare guaranteed by HEP’s material wholly-ownedwholly owned subsidiaries. Any recourse to the general partner would be limited to the extent of HEP Logistics Holdings, L.P.’s assets, which other than its investment in HEP are not significant. HEP’s creditors have no recourse to our other assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
HollyFrontier Senior Notes
OurAt September 30, 2021, our senior notes consisted of the following:
•$350.0 million in aggregate principal amount of 2.625% senior notes maturing October 2023 (the “2.625% Senior Notes”);
•$1.0 billion in aggregate principal amount of 5.875% senior notes ($1 billionmaturing April 2026 (the “5.875% Senior Notes”); and
•$400.0 million in aggregate principal amount of 4.500% senior notes maturing April 2026)October 2030 (the ��HollyFrontier“4.500% Senior Notes”).
These senior notes (collectively, the “HollyFrontier Senior Notes”) are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.
HollyFrontier Financing ObligationArrangements
In March 2016,Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature on February 1, 2022. Upon maturity, we extinguished a financingmust either satisfy the obligation at fair market value or refinance to extend the maturity. These financing arrangements are recorded at a cost of $39.5Level 2 fair value totaling $37.3 million and recognized an $8.7$43.9 million lossat September 30, 2021 and December 31, 2020, respectively, and are included in “Accrued liabilities” in our consolidated balance sheets. See Note 5 for additional information on the early termination. The financing obligation related to a sale and lease-back of certain crude oil tankage that we sold to an affiliate of Plains in October 2009 for $40.0 million.Level 2 inputs.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
HollyFrontier Term Loan
In April 2016, we entered into a $350 million senior unsecured term loan (the “HollyFrontier Term Loan”) maturing in April 2019. The HollyFrontier Term Loan was fully repaid with proceeds received upon the November 2016 issuance of the HollyFrontier Senior Notes.
HEP Senior Notes
In September 2017,February 2020, HEP issued an additional $100closed a private placement of $500.0 million in aggregate principal amount of 6.0%5.0% HEP senior unsecured notes maturing February 2028 (the “HEP Senior Notes”). Subsequently, in August 2024 in a private placement.February 2020, HEP used the net proceeds of $101.8 million to repay indebtedness under the HEP Credit Agreement.
HEP’s 6.0% senior notes ($500redeemed its existing $500.0 million aggregate principal amount of 6.0% senior notes maturing August 2024) (the “HEP2024 at a redemption cost of $522.5 million. HEP recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized discount and financing costs of $3.4 million during the three months ended March 31, 2020.
The HEP Senior Notes”)Notes are unsecured and impose certain restrictive covenants, including limitations on HEP’s ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. HEP was in compliance with the restrictive covenants for the HEP Senior Notes as of September 30, 2021. At any time when the HEP Senior Notes are rated investment grade by botheither Moody’s andor Standard & Poor’s and no default or event of default exists, HEP will not be subject to many of the foregoing covenants. Additionally, HEP has certain redemption rights at varying premiums over face value under the HEP Senior Notes.
In January 2017, HEP redeemed its $300 million aggregate principal amount of 6.5% senior notes maturing March 2020 at a redemption cost of $309.8 million, at which time HEP recognized a $12.2 million early extinguishment loss consisting of a $9.8 million debt redemption premium and unamortized discount and financing costs of $2.4 million. HEP funded the redemption with borrowings under the HEP Credit Agreement.
Indebtedness under the HEP Senior Notes is guaranteed by HEP’s wholly-ownedwholly owned subsidiaries. HEP’s creditors have no recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The carrying amounts of long-term debt are as follows:
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | (In thousands) |
HollyFrontier | | | | |
2.625% Senior Notes | | $ | 350,000 | | | $ | 350,000 | |
5.875% Senior Notes | | 1,000,000 | | | 1,000,000 | |
4.500% Senior Notes | | 400,000 | | | 400,000 | |
| | 1,750,000 | | | 1,750,000 | |
| | | | |
Unamortized discount and debt issuance costs | | (10,957) | | | (12,885) | |
| | | | |
Total HollyFrontier long-term debt | | 1,739,043 | | | 1,737,115 | |
| | | | |
HEP Credit Agreement | | 840,500 | | | 913,500 | |
| | | | |
HEP 5.000% Senior Notes | | | | |
Principal | | 500,000 | | | 500,000 | |
Unamortized discount and debt issuance costs | | (7,191) | | | (7,897) | |
| | | | |
Total HEP long-term debt | | 1,333,309 | | | 1,405,603 | |
| | | | |
Total long-term debt | | $ | 3,072,352 | | | $ | 3,142,718 | |
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In thousands) |
HollyFrontier 5.875% Senior Notes | | | | |
Principal | | $ | 1,000,000 |
| | $ | 1,000,000 |
|
Unamortized discount and debt issuance costs | | (8,552 | ) | | (8,775 | ) |
| | 991,448 |
| | 991,225 |
|
| | | | |
HEP Credit Agreement | | 750,000 |
| | 553,000 |
|
| | | | |
HEP 6% Senior Notes | | | | |
Principal | | 500,000 |
| | 400,000 |
|
Unamortized discount and debt issuance costs | | (4,934 | ) | | (6,607 | ) |
| | 495,066 |
| | 393,393 |
|
HEP 6.5% Senior Notes | | | | |
Principal | | — |
| | 300,000 |
|
Unamortized discount and debt issuance costs | | — |
| | (2,481 | ) |
| | — |
| | 297,519 |
|
| | | | |
Total HEP long-term debt | | 1,245,066 |
| | 1,243,912 |
|
| | | | |
Total long-term debt | | $ | 2,236,514 |
| | $ | 2,235,137 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The fair values of the senior notes are as follows:
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | (In thousands) |
| | | | |
HollyFrontier Senior Notes | | $ | 1,946,420 | | | $ | 1,903,867 | |
| | | | |
HEP Senior Notes | | $ | 506,770 | | | $ | 506,540 | |
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In thousands) |
| | | | |
HollyFrontier senior notes | | $ | 1,091,470 |
| | $ | 1,022,500 |
|
| | | | |
HEP senior notes | | $ | 524,390 |
| | $ | 723,750 |
|
These fair values are based on estimates provided by a third party using market quotes for similar type instruments, a Level 2 input. See Note 45 for additional information on Level 2 inputs.
We capitalized interest attributable to construction projects of $1.0$4.8 million and $1.8$1.1 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $4.2$9.5 million and $6.0$2.4 million, for the nine months ended September 30, 20172021 and 2016,2020, respectively.
NOTE 11: Derivative Instruments and Hedging Activities
Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price exposure with respect to:
to our inventory positions;
positions, natural gas purchases;
costs of crude oil and related grade differentials;
purchases, sales prices of refined products;products and crude oil costs.
Foreign Currency Risk Management
We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward and foreign exchange swap contracts to mitigate the exposure associated with fluctuations on intercompany notes with our refining margins.foreign subsidiaries that are not denominated in the U.S. dollar.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Accounting Hedges
We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural gas. We also periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude oil and forward sales contracts that lock in the prices of future sales of crude oil and refined product and swap contracts serving as cash flow hedges against price risk on forecasted purchases of WTI crude oil and forecasted sales of refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature. On a quarterly basis, hedge ineffectiveness is measured by comparing the change in fair value of the swap contracts against the expected future cash inflows/outflows on the respective transaction being hedged. Any hedge ineffectiveness is also recognized in earnings.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments and maturities of commodity price swaps and forward saleshedging instruments under hedge accounting:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Unrealized Gain (Loss) Recognized in OCI | | Gain (Loss) Reclassified into Earnings |
Derivatives Designated as Cash Flow Hedging Instruments | | Three Months Ended September 30, | | Income Statement Location | | Three Months Ended September 30, |
| 2021 | | 2020 | | | 2021 | | 2020 |
| | (In thousands) |
Commodity contracts | | $ | 960 | | | $ | 2,492 | | | Sales and other revenues | | $ | (468) | | | $ | (5,217) | |
| | | | | | Cost of products sold | | — | | | 983 | |
| | | | | | Operating expenses | | 520 | | | (352) | |
Total | | $ | 960 | | | $ | 2,492 | | | | | $ | 52 | | | $ | (4,586) | |
|
| | | | | | | | | | | | | | | |
| Unrealized Gain (Loss) Recognized in OCI | | Gain (Loss) Recognized in Earnings Due to Settlements | | Gain (Loss) Attributable to Hedge Ineffectiveness Recognized in Earnings |
| | Location | | Amount | | Location | | Amount |
| (In thousands) |
Three Months Ended September 30, 2017 | | | | | | | | | |
Change in fair value | $ | (2,095 | ) | | | | | | | | |
Loss reclassified to earnings due to settlements | 5,179 |
| | Sales and other revenues | | $ | (488 | ) | | | | |
Amortization of discontinued hedges reclassified to earnings | 270 |
| | Operating expenses | | (4,961 | ) | | Operating expenses | | $ | 18 |
|
Total | $ | 3,354 |
| | | | $ | (5,449 | ) | | | | $ | 18 |
|
| | | | | | | | | |
Three Months Ended September 30, 2016 | | | | | | | | | |
Change in fair value | $ | (1,511 | ) | | | | | | | | |
Loss reclassified to earnings due to settlements | 4,046 |
| | Sales and other revenue | | $ | 228 |
| | | | |
Amortization of discontinued hedges reclassified to earnings | 270 |
| | Operating expenses | | (4,544 | ) | | Operating expenses | | $ | — |
|
Total | $ | 2,805 |
| | | | $ | (4,316 | ) | | | | $ | — |
|
| | | | | | | | | |
Nine Months Ended September 30, 2017 | | | | | | | | | |
Change in fair value | $ | 2,620 |
| | Sales and other revenues | | $ | 7,937 |
| | | | |
Loss reclassified to earnings due to settlements | 5,228 |
| | Cost of products sold | | (299 | ) | | | | |
Amortization of discontinued hedge reclassified to earnings | 810 |
| | Operating expenses | | (13,676 | ) | | Operating expenses | | $ | — |
|
Total | $ | 8,658 |
| | | | $ | (6,038 | ) | | | | $ | — |
|
| | | | | | | | | |
Nine Months Ended September 30, 2016 | | | | | | | | | |
Change in fair value | $ | (18,570 | ) | | | | | | | | |
Loss reclassified to earnings due to settlements | 37,012 |
| | Sales and other revenues | | $ | (20,425 | ) | | | | |
Amortization of discontinued hedge reclassified to earnings | 810 |
| | Operating expenses | | (17,397 | ) | | Operating expenses | | $ | — |
|
Total | $ | 19,252 |
| | | | $ | (37,822 | ) | | | | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
Derivatives Designated as Cash Flow Hedging Instruments | | Nine Months Ended September 30, | | Income Statement Location | | Nine Months Ended September 30, |
| 2021 | | 2020 | | | 2021 | | 2020 |
| | (In thousands) |
Commodity contracts | | $ | 1,742 | | | $ | (3,918) | | | Sales and other revenues | | $ | (19,239) | | | $ | (5,168) | |
| | | | | | Cost of products sold | | — | | | 3,272 | |
| | | | | | Operating expenses | | 467 | | | (1,515) | |
Total | | $ | 1,742 | | | $ | (3,918) | | | | | $ | (18,772) | | | $ | (3,411) | |
As of September 30, 2017, we have the following notional contract volumes related to outstanding derivative instruments serving as cash flow hedges against price risk on forecasted transactions:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Notional Contract Volumes by Year of Maturity | | |
Derivative Instrument | | Total Outstanding Notional | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Unit of Measure |
| | | | | | | | | | | | | | |
Natural gas price swaps - long | | 9,600,000 |
| | 2,400,000 |
| | 1,800,000 |
| | 1,800,000 |
| | 1,800,000 |
| | 1,800,000 |
| | MMBTU |
Physical crude contracts - short | | 150,000 |
| | 150,000 |
| | — |
| | — |
| | — |
| | — |
| | Barrels |
In 2013, we dedesignated certain commodity price swaps (long positions) that previously received hedge accounting treatment. These contracts now serve as economic hedges against price risk on forecasted natural gas purchases totaling 2,400,000 MMBTU’s to be purchased ratably through 2017. As of September 30, 2017, we have an unrealized loss of $0.3 million classified in accumulated other comprehensive income that relates to the application of hedge accounting prior to dedesignation that is amortized as a charge to operating expenses as the contracts mature.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Economic Hedges
We also have commodity contracts including NYMEX futures contracts to lock in prices on forecasted purchases and sales of inventory, swap contracts to lock in the crack spread of WTI and gasoline and forward purchase and sell contracts, as well as periodically have contracts to lock in basis spread differentials on forecasted purchases of crude oil, that serve as economic hedges (derivatives used for risk management, but not designated as accounting hedges) to lock in basis spread differentials on forecasted purchases of crude oil and natural gas. Also, we. We also have commodity forward contracts and NYMEX futurescurrency contracts to lock in prices on forecasted purchasesfix the rate of inventory.foreign currency. In addition, we had Canadian currency swap contracts that effectively fixedour catalyst financing arrangements discussed in Note 10 could require repayment under certain conditions based on the conversion rate on $1.125 billion Canadian dollars (the PCLI purchase price),future pricing of platinum, which were settled on February 1, 2017, in connection with the closing of the PCLI acquisition.is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to income.earnings.
The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Earnings |
Derivatives Not Designated as Hedging Instruments | | Income Statement Location | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| | | | (In thousands) | | | | |
Commodity contracts | | Cost of products sold | | $ | (7,035) | | | $ | 2,880 | | | $ | (19,114) | | | $ | 20,789 | |
| | Interest expense | | 4,411 | | | (2,170) | | | 11,917 | | | 2,542 | |
Foreign currency contracts | | Gain (loss) on foreign currency transactions | | 9,678 | | | (8,177) | | | (3,151) | | | 10,983 | |
| | Total | | $ | 7,054 | | | $ | (7,467) | | | $ | (10,348) | | | $ | 34,314 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Location of Gain (Loss) Recognized in Earnings | | 2017 | | 2016 | | 2017 | | 2016 |
| | (In thousands) |
Cost of products sold | | $ | (10,632 | ) | | $ | (2,438 | ) | | $ | 3,403 |
| | $ | (1,135 | ) |
Operating expenses | | (629 | ) | | (2,291 | ) | | (6,392 | ) | | 2,322 |
|
Gain on foreign currency swap | | — |
| | — |
| | 24,545 |
| | — |
|
Total | | $ | (11,261 | ) | | $ | (4,729 | ) | | $ | 21,556 |
| | $ | 1,187 |
|
As of September 30, 2017, we have the following notional contract volumes related to our outstanding derivative contracts serving as economic hedges:
|
| | | | | | | | | | | |
| | | | Notional Contract Volumes by Year of Maturity | | |
Derivative Instrument | | Total Outstanding Notional | | 2017 | | 2018 | | Unit of Measure |
| | | | | | | | |
Crude price swaps (basis spread) - long | | 918,000 |
| | 918,000 |
| | — |
| | Barrels |
WTI and sub-octane gasoline crack spread swaps - short | | 700,000 |
| | 700,000 |
| | — |
| | Barrels |
Natural gas price swaps (basis spread) - long | | 2,577,000 |
| | 2,577,000 |
| | — |
| | MMBTU |
Natural gas price swaps - long | | 2,400,000 |
| | 2,400,000 |
| | — |
| | MMBTU |
Natural gas price swaps - short | | 2,400,000 |
| | 2,400,000 |
| | — |
| | MMBTU |
NYMEX futures (WTI) - short | | 1,870,000 |
| | 955,000 |
| | 915,000 |
| | Barrels |
Forward gasoline and diesel contracts - long | | 715,000 |
| | 705,000 |
| | 10,000 |
| | Barrels |
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
As of September 30, 2021, we have the following notional contract volumes related to outstanding derivative instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Notional Contract Volumes by Year of Maturity | | | | |
| | Total Outstanding Notional | | 2021 | | 2022 | | | | | | Unit of Measure |
Derivatives Designated as Hedging Instruments | | | | | | | | | | | | |
Natural gas price swaps - long | | 450,000 | | | 450,000 | | | — | | | | | | | MMBTU |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | |
NYMEX futures (WTI) - short | | 1,880,000 | | | 1,440,000 | | | 440,000 | | | | | | | Barrels |
| | | | | | | | | | | | |
WTI and gasoline crack spread swaps - short | | 150,000 | | | 150,000 | | | — | | | | | | | Barrels |
Forward gasoline and diesel contracts - long | | 165,000 | | | 165,000 | | | — | | | | | | | Barrels |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Foreign currency forward contracts | | 443,112,746 | | | 105,825,135 | | | 337,287,611 | | | | | | | U.S. dollar |
Forward commodity contracts (platinum) | | 38,723 | | | — | | | 38,723 | | | | | | | Troy ounces |
Interest Rate Risk Management
HEP used interest rate swaps to manage its exposure to interest rate risk. These swap contracts, which matured in July 2017, had been designated as cash flow hedges.
The following table presents the pre-tax effect on other comprehensive income and earnings due to fair value adjustments and maturities of HEP’s interest rate swaps under hedge accounting:
|
| | | | | | | | | |
| Unrealized Gain (Loss) Recognized in OCI | | Gain (Loss) Recognized in Earnings Due to Settlements |
| | Location | | Amount |
| (In thousands) |
Three Months Ended September 30, 2017 | | | | | |
Interest rate swaps | | | | | |
Change in fair value | $ | 1 |
| | | | |
Gain reclassified to earnings due to settlements | (64 | ) | | Interest expense | | $ | 64 |
|
Total | $ | (63 | ) | | | | $ | 64 |
|
| | | | | |
Three Months Ended September 30, 2016 | | | | | |
Interest rate swaps | | | | | |
Change in fair value | $ | 201 |
| | | | |
Loss reclassified to earnings due to settlements | 95 |
| | Interest expense | | $ | (95 | ) |
Total | $ | 296 |
| | | | $ | (95 | ) |
| | | | | |
Nine Months Ended September 30, 2017 | | | | | |
Interest rate swaps | | | | | |
Change in fair value | $ | 88 |
| | | | |
Gain reclassified to earnings due to settlements | (179 | ) | | Interest expense | | $ | 179 |
|
Total | $ | (91 | ) | | | | $ | 179 |
|
| | | | | |
Nine Months Ended September 30, 2016 | | | | | |
Interest rate swaps | | | | | |
Change in fair value | $ | (737 | ) | | | | |
Loss reclassified to earnings due to settlements | 438 |
| | Interest expense | | $ | (438 | ) |
Total | $ | (299 | ) | | | | $ | (438 | ) |
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The following table presents the fair value and balance sheet locations of our outstanding derivative instruments. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position in our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives in Net Asset Position | | Derivatives in Net Liability Position |
| | Gross Assets | | Gross Liabilities Offset in Balance Sheet | | Net Assets Recognized in Balance Sheet | | Gross Liabilities | | Gross Assets Offset in Balance Sheet | | Net Liabilities Recognized in Balance Sheet |
| | | | (In thousands) | | |
September 30, 2021 | | | | | | | | | | | | |
Derivatives designated as cash flow hedging instruments: | | |
Commodity price swap contracts | | $ | 1,384 | | | $ | — | | | $ | 1,384 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | |
| | $ | 1,384 | | | $ | — | | | $ | 1,384 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | |
Derivatives not designated as cash flow hedging instruments: | | |
NYMEX futures contracts | | $ | — | | | $ | — | | | $ | — | | | $ | 8,781 | | | $ | — | | | $ | 8,781 | |
Commodity price swap contracts | | 67 | | | — | | | 67 | | | — | | | — | | | — | |
Commodity forward contracts | | 516 | | | — | | | 516 | | | 537 | | | — | | | 537 | |
Foreign currency forward contracts | | — | | | — | | | — | | | 6,439 | | | (5,326) | | | 1,113 | |
| | $ | 583 | | | $ | — | | | $ | 583 | | | $ | 15,757 | | | $ | (5,326) | | | $ | 10,431 | |
| | | | | | | | | | | | |
Total net balance | | | | | | $ | 1,967 | | | | | | | $ | 10,431 | |
| | | | | | | | | | | | |
Balance sheet classification: | | Prepayment and other | | $ | 1,967 | | | Accrued liabilities | | $ | 10,431 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives in Net Asset Position | | Derivatives in Net Liability Position |
| | Gross Assets | | Gross Liabilities Offset in Balance Sheet | | Net Assets Recognized in Balance Sheet | | Gross Liabilities | | Gross Assets Offset in Balance Sheet | | Net Liabilities Recognized in Balance Sheet |
| | | | (In thousands) | | |
September 30, 2017 | | | | | | | | | | | | |
Derivatives designated as cash flow hedging instruments: | | |
Commodity price swap contracts | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 6,374 |
| | $ | — |
| | $ | 6,374 |
|
Forward contracts | | — |
| | — |
| | — |
| | 707 |
| | — |
| | 707 |
|
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7,081 |
| | $ | — |
| | $ | 7,081 |
|
| | | | | | | | | | | | |
Derivatives not designated as cash flow hedging instruments: | | |
Commodity price swap contracts | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,517 |
| | $ | (4,417 | ) | | $ | 4,100 |
|
NYMEX futures contracts | | — |
| | — |
| | — |
| | 5,881 |
| | — |
| | 5,881 |
|
Forward contracts | | 1,358 |
| | — |
| | 1,358 |
| | 904 |
| | — |
| | 904 |
|
| | $ | 1,358 |
| | $ | — |
| | $ | 1,358 |
| | $ | 15,302 |
| | $ | (4,417 | ) | | $ | 10,885 |
|
| | | | | | | | | | | | |
Total net balance | | | | | | $ | 1,358 |
| | | | | | $ | 17,966 |
|
| | | | | | | | | | | | |
Balance sheet classification: | | | | | | Accrued liabilities | | $ | 17,182 |
|
| | | | | | Other long-term liabilities | | 784 |
|
| | Prepayment and other | | $ | 1,358 |
| | | | | | $ | 17,966 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives in Net Asset Position | | Derivatives in Net Liability Position |
| | Gross Assets | | Gross Liabilities Offset in Balance Sheet | | Net Assets Recognized in Balance Sheet | | Gross Liabilities | | Gross Assets Offset in Balance Sheet | | Net Liabilities Recognized in Balance Sheet |
| | | | (In thousands) | | |
December 31, 2016 | | |
Derivatives designated as cash flow hedging instruments: | | |
Commodity price swap contracts | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,185 |
| | $ | (431 | ) | | $ | 12,754 |
|
Commodity forward contracts | | — |
| | — |
| | — |
| | 2,978 |
| | — |
| | 2,978 |
|
Interest rate swap contracts | | 91 |
| | — |
| | 91 |
| | — |
| | — |
| | — |
|
| | $ | 91 |
| | $ | — |
| | $ | 91 |
| | $ | 16,163 |
| | $ | (431 | ) | | $ | 15,732 |
|
| | | | | | | | | | | | |
Derivatives not designated as cash flow hedging instruments: | | |
Commodity price swap contracts | | $ | 4,244 |
| | $ | (756 | ) | | $ | 3,488 |
| | $ | 12,903 |
| | $ | (9,887 | ) | | $ | 3,016 |
|
NYMEX futures contracts | | — |
| | — |
| | — |
| | 1,975 |
| | — |
| | 1,975 |
|
Commodity forward contracts | | 5,905 |
| | — |
| | 5,905 |
| | 5,338 |
| | — |
| | 5,338 |
|
Foreign currency forward contracts | | — |
| | — |
| | — |
| | 6,519 |
| | — |
| | 6,519 |
|
| | $ | 10,149 |
| | $ | (756 | ) | | $ | 9,393 |
| | $ | 26,735 |
| | $ | (9,887 | ) | | $ | 16,848 |
|
| | | | | | | | | | | | |
Total net balance | | | | | | $ | 9,484 |
| | | | | | $ | 32,580 |
|
| | | | | | | | | | | | |
Balance sheet classification: | | Prepayment and other | | $ | 9,484 |
| | Accrued liabilities | | $ | 32,580 |
|
| | | | | | | | | | | | |
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives in Net Asset Position | | Derivatives in Net Liability Position |
| | Gross Assets | | Gross Liabilities Offset in Balance Sheet | | Net Assets Recognized in Balance Sheet | | Gross Liabilities | | Gross Assets Offset in Balance Sheet | | Net Liabilities Recognized in Balance Sheet |
| | | | (In thousands) | | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
December 31, 2020 | | |
Derivatives designated as cash flow hedging instruments: | | |
Commodity price swap contracts | | $ | — | | | $ | — | | | $ | — | | | $ | 359 | | | $ | — | | | $ | 359 | |
| | $ | — | | | $ | — | | | $ | — | | | $ | 359 | | | $ | — | | | $ | 359 | |
| | | | | | | | | | | | |
Derivatives not designated as cash flow hedging instruments: | | |
NYMEX futures contracts | | $ | — | | | $ | — | | | $ | — | | | $ | 418 | | | $ | — | | | $ | 418 | |
| | | | | | | | | | | | |
Commodity forward contracts | | 275 | | | — | | | 275 | | | 196 | | | — | | | 196 | |
Foreign currency forward contracts | | — | | | — | | | — | | | 23,005 | | | — | | | 23,005 | |
| | $ | 275 | | | $ | — | | | $ | 275 | | | $ | 23,619 | | | $ | — | | | $ | 23,619 | |
| | | | | | | | | | | | |
Total net balance | | | | | | $ | 275 | | | | | | | $ | 23,978 | |
| | | | | | | | | | | | |
Balance sheet classification: | | Prepayment and other | | $ | 275 | | | Accrued liabilities | | $ | 23,978 | |
At September 30, 2017,2021, we had a pre-tax net unrealized lossgain of $7.2$1.4 million classified in accumulated other comprehensive income that relates to all accounting hedges having contractual maturities through 2021. Assuming2021, which, assuming commodity prices and interest rates remain unchanged, an unrealized loss of $6.2 million will be effectively transferred from accumulated other comprehensive income into the statement of incomeoperations as the hedging instruments contractually mature over the next twelve-monththree-month period.
Changes to equity during the nine months ended September 30, 2017 are presented below:NOTE 12:Equity
|
| | | | | | | | | | | | |
| | HollyFrontier Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| | (In thousands) |
Balance at December 31, 2016 | | $ | 4,681,394 |
| | $ | 620,591 |
| | $ | 5,301,985 |
|
Net income | | 284,313 |
| | 39,695 |
| | 324,008 |
|
Dividends | | (176,519 | ) | | — |
| | (176,519 | ) |
Distributions to noncontrolling interest holders | | — |
| | (81,797 | ) | | (81,797 | ) |
Other comprehensive income (loss), net of tax | | 21,066 |
| | (57 | ) | | 21,009 |
|
Allocated equity on HEP common unit issuances, net of tax | | 9,360 |
| | 37,015 |
| | 46,375 |
|
Equity awards issued in PCLI acquisition | | 5,056 |
| | — |
| | 5,056 |
|
Equity-based compensation | | 24,484 |
| | 1,946 |
| | 26,430 |
|
Purchase of treasury stock (1) | | (290 | ) | | — |
| | (290 | ) |
Purchase of HEP units for restricted grants | | — |
| | (35 | ) | | (35 | ) |
Other | | — |
| | (445 | ) | | (445 | ) |
Balance at September 30, 2017 | | $ | 4,848,864 |
| | $ | 616,913 |
| | $ | 5,465,777 |
|
(1) Includes 9,885 shares withheld under the terms of stock-based compensation agreements to provide funds for the payment of payroll and income taxes due at the vesting of share-based awards.
In May 2015,November 2019, our Board of Directors approved a $1$1.0 billion share repurchase program, which replaced all existing share repurchase programs, authorizing us to repurchase common stock in the open market or through privately negotiated transactions. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory and other relevant considerations. This program may be discontinued at any time by the Board of Directors. As of September 30, 2017,2021, we had remaining authorization to repurchase up to $178.8 millionnot repurchased common stock under this stock repurchase program. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs.
During the nine months ended September 30, 2021 and 2020, we withheld 18,581 and 105,787, respectively, shares of our common stock from certain employees. These withholdings were made under the terms of restricted stock unit and performance share unit agreements upon vesting, at which time, we concurrently made cash payments to fund payroll and income taxes on behalf of officers and employees who elected to have shares withheld from vested amounts to pay such taxes.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| |
NOTE 13: | Other Comprehensive Income |
NOTE 13:Other Comprehensive Income
The components and allocated tax effects of other comprehensive income are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Before-Tax | | Tax Expense (Benefit) | | After-Tax |
| | (In thousands) |
Three Months Ended September 30, 2021 | | | | | | |
Net change in foreign currency translation adjustment | | $ | (6,636) | | | $ | (1,417) | | | $ | (5,219) | |
Net unrealized gain on hedging instruments | | 960 | | | 237 | | | 723 | |
Net change in pension and other post-retirement benefit obligations | | (930) | | | (233) | | | (697) | |
Other comprehensive loss attributable to HollyFrontier stockholders | | $ | (6,606) | | | $ | (1,413) | | | $ | (5,193) | |
| | | | | | |
Three Months Ended September 30, 2020 | | | | | | |
Net change in foreign currency translation adjustment | | $ | 7,727 | | | $ | 1,705 | | | $ | 6,022 | |
Net unrealized gain on hedging instruments | | 2,492 | | | 636 | | | 1,856 | |
Net change in pension and other post-retirement benefit obligations | | — | | | 1 | | | (1) | |
Other comprehensive income attributable to HollyFrontier stockholders | | $ | 10,219 | | | $ | 2,342 | | | $ | 7,877 | |
| | | | | | |
Nine Months Ended September 30, 2021 | | | | | | |
Net change in foreign currency translation adjustment | | $ | (10,411) | | | $ | (2,192) | | | $ | (8,219) | |
Net unrealized gain on hedging instruments | | 1,742 | | | 431 | | | 1,311 | |
Net change in pension and other post-retirement benefit obligations | | (2,792) | | | (698) | | | (2,094) | |
Other comprehensive loss attributable to HollyFrontier stockholders | | $ | (11,461) | | | $ | (2,459) | | | $ | (9,002) | |
| | | | | | |
Nine Months Ended September 30, 2020 | | | | | | |
Net change in foreign currency translation adjustment | | $ | (2,149) | | | $ | (434) | | | $ | (1,715) | |
Net unrealized loss on hedging instruments | | (3,918) | | | (1,000) | | | (2,918) | |
Net change in pension and other post-retirement benefit obligations | | (42) | | | (3) | | | (39) | |
Other comprehensive loss attributable to HollyFrontier stockholders | | $ | (6,109) | | | $ | (1,437) | | | $ | (4,672) | |
|
| | | | | | | | | | | | |
| | Before-Tax | | Tax Expense (Benefit) | | After-Tax |
| | (In thousands) |
Three Months Ended September 30, 2017 | | | | | | |
Net change in foreign currency translation adjustment | | $ | 16,702 |
| | $ | 5,851 |
| | $ | 10,851 |
|
Net unrealized gain on hedging instruments | | 3,291 |
| | 1,289 |
| | 2,002 |
|
Other comprehensive income | | 19,993 |
| | 7,140 |
| | 12,853 |
|
Less other comprehensive loss attributable to noncontrolling interest | | (40 | ) | | — |
| | (40 | ) |
Other comprehensive income attributable to HollyFrontier stockholders | | $ | 20,033 |
| | $ | 7,140 |
| | $ | 12,893 |
|
| | | | | | |
Three Months Ended September 30, 2016 | | | | | | |
Net unrealized loss on marketable securities | | $ | (29 | ) | | $ | (12 | ) | | $ | (17 | ) |
Net unrealized gain on hedging instruments | | 3,101 |
| | 1,131 |
| | 1,970 |
|
Other comprehensive income | | 3,072 |
| | 1,119 |
| | 1,953 |
|
Less other comprehensive income attributable to noncontrolling interest | | 179 |
| | — |
| | 179 |
|
Other comprehensive income attributable to HollyFrontier stockholders | | $ | 2,893 |
| | $ | 1,119 |
| | $ | 1,774 |
|
| | | | | | |
Nine Months Ended September 30, 2017 | | | | | | |
Net change in foreign currency translation adjustment | | $ | 24,287 |
| | $ | 8,505 |
| | $ | 15,782 |
|
Net unrealized loss on marketable securities | | (4 | ) | | (1 | ) | | (3 | ) |
Net unrealized gain on hedging instruments | | 8,567 |
| | 3,337 |
| | 5,230 |
|
Other comprehensive income | | 32,850 |
| | 11,841 |
| | 21,009 |
|
Less other comprehensive loss attributable to noncontrolling interest | | (57 | ) | | — |
| | (57 | ) |
Other comprehensive income attributable to HollyFrontier stockholders | | $ | 32,907 |
| | $ | 11,841 |
| | $ | 21,066 |
|
| | | | | | |
Nine Months Ended September 30, 2016 | | | | | | |
Net unrealized gain on marketable securities | | $ | 84 |
| | $ | 32 |
| | $ | 52 |
|
Net unrealized gain on hedging instruments | | 18,953 |
| | 7,404 |
| | 11,549 |
|
Other comprehensive income | | 19,037 |
| | 7,436 |
| | 11,601 |
|
Less other comprehensive loss attributable to noncontrolling interest | | (181 | ) | | — |
| | (181 | ) |
Other comprehensive income attributable to HollyFrontier stockholders | | $ | 19,218 |
| | $ | 7,436 |
| | $ | 11,782 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
The following table presents the income statementstatements of operations line item effects for reclassifications out of accumulated other comprehensive income (“AOCI”):
| | | | | | | | | | | | | | | | | | | | |
AOCI Component | | Gain (Loss) Reclassified From AOCI | | Statement of Operations Line Item |
| | Three Months Ended September 30, | | |
| | 2021 | | 2020 | | |
| | (In thousands) | | |
Hedging instruments: | | | | | | |
Commodity price swaps | | $ | (468) | | | $ | (5,217) | | | Sales and other revenues |
| | — | | | 983 | | | Cost of products sold |
| | 520 | | | (352) | | | Operating expenses |
| | 52 | | | (4,586) | | | |
| | 13 | | | (1,169) | | | Income tax expense (benefit) |
| | 39 | | | (3,417) | | | Net of tax |
| | | | | | |
Other post-retirement benefit obligations: | | | | | | |
Pension obligations | | 101 | | | — | | | Other, net |
| | 25 | | | — | | | Income tax expense |
| | 76 | | | — | | | Net of tax |
| | | | | | |
Post-retirement healthcare obligations | | 838 | | | — | | | Other, net |
| | 211 | | | — | | | Income tax expense |
| | 627 | | | — | | | Net of tax |
| | | | | | |
Retirement restoration plan | | (9) | | | — | | | Other, net |
| | (2) | | | — | | | Income tax benefit |
| | (7) | | | — | | | Net of tax |
| | | | | | |
Total reclassifications for the period | | $ | 735 | | | $ | (3,417) | | | |
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| | AOCI Component | | Gain (Loss) Reclassified From AOCI | | Income Statement Line Item | AOCI Component | | Gain (Loss) Reclassified From AOCI | | Statement of Operations Line Item |
| | (In thousands) | | |
| | Three Months Ended September 30, | | |
| | 2017 | | 2016 | | |
| | | | | | |
Hedging instruments: | | | | | | |
Commodity price swaps | | $ | (488 | ) | | $ | 228 |
| | Sales and other revenues | |
| | (4,961 | ) | | (4,544 | ) | | Operating expenses | |
Interest rate swaps | | 64 |
| | (95 | ) | | Interest expense | |
| | (5,385 | ) | | (4,411 | ) | | |
| | (2,100 | ) | | (1,685 | ) | | Income tax benefit | |
| | (3,285 | ) | | (2,726 | ) | | Net of tax | |
| | (41 | ) | | 58 |
| | Noncontrolling interest | |
| | (3,326 | ) | | (2,668 | ) | | Net of tax and noncontrolling interest | |
| | | | | | |
Total reclassifications for the period | | $ | (3,326 | ) | | $ | (2,668 | ) | | |
| | | | | | |
| | Nine Months Ended September 30, | | |
| | 2017 | | 2016 | | |
| | | | | | |
Marketable securities | | $ | — |
| | $ | (23 | ) | | Interest income | |
| | — |
| | (9 | ) | | Income tax benefit | | | Nine Months Ended September 30, | | |
| | — |
| | (14 | ) | | Net of tax | | 2021 | | 2020 | |
| | | | | | | (In thousands) | |
Hedging instruments: | | | | | | Hedging instruments: | |
Commodity price swaps | | 7,937 |
| | (20,425 | ) | | Sales and other revenues | Commodity price swaps | | $ | (19,239) | | | $ | (5,168) | | | Sales and other revenues |
| | (299 | ) | | — |
| | Cost of products sold | | — | | | 3,272 | | | Cost of products sold |
| | (13,676 | ) | | (17,397 | ) | | Operating expenses | | 467 | | | (1,515) | | | Operating expenses |
Interest rate swaps | | 179 |
| | (438 | ) | | Interest expense | |
| | (5,859 | ) | | (38,260 | ) | | | (18,772) | | | (3,411) | | |
| | (2,312 | ) | | (14,704 | ) | | Income tax benefit | | (4,731) | | | (870) | | | Income tax benefit |
| | (3,547 | ) | | (23,556 | ) | | Net of tax | | (14,041) | | | (2,541) | | | Net of tax |
| | (114 | ) | | 267 |
| | Noncontrolling interest | | | | | |
Other post-retirement benefit obligations: | | Other post-retirement benefit obligations: | |
Pension obligations | | Pension obligations | | 306 | | | — | | | Other, net |
| | | 77 | | | — | | | Income tax expense |
| | | 229 | | | — | | | Net of tax |
| Post-retirement healthcare obligations | | Post-retirement healthcare obligations | | 2,513 | | | — | | | Other, net |
| | | 633 | | | — | | | Income tax expense |
| | | 1,880 | | | — | | | Net of tax |
| Retirement restoration plan | | Retirement restoration plan | | (27) | | | — | | | Other, net |
| | | (7) | | | — | | | Income tax benefit |
| | (3,661 | ) | | (23,289 | ) | | Net of tax and noncontrolling interest | | (20) | | | — | | | Net of tax |
| | | | | | | | | | |
Total reclassifications for the period | | $ | (3,661 | ) | | $ | (23,303 | ) | | Total reclassifications for the period | | $ | (11,952) | | | $ | (2,541) | | |
Accumulated other comprehensive income in the equity section of our consolidated balance sheets includes:
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | (In thousands) |
Foreign currency translation adjustment | | $ | (5,537) | | | $ | 2,682 | |
Unrealized loss on pension obligation | | (554) | | | (248) | |
Unrealized gain on post-retirement benefit obligations | | 9,522 | | | 11,310 | |
Unrealized gain (loss) on hedging instruments | | 1,029 | | | (282) | |
Accumulated other comprehensive income | | $ | 4,460 | | | $ | 13,462 | |
NOTE 14:Contingencies
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In thousands) |
Foreign currency translation adjustment | | $ | 15,782 |
| | $ | — |
|
Unrealized gain on post-retirement benefit obligations | | 20,055 |
| | 20,055 |
|
Unrealized gain on marketable securities | | — |
| | 3 |
|
Unrealized loss on hedging instruments, net of noncontrolling interest | | (4,397 | ) | | (9,446 | ) |
Accumulated other comprehensive income | | $ | 31,440 |
| | $ | 10,612 |
|
| |
NOTE 14: | Post-retirement Plans |
In connection with our PCLI acquisition, we agreed to establish employee benefit plans including union and non-union pension plans and a post-retirement plan for PCLI employees that were previously covered under legacy Suncor plans.
Our agreement with Suncor also provides that pension assets related to the union and non-union pension plans will be transferred to a pension trust which will be established by us. The amount of assets to be transferred will be agreed by Suncor and us based on actuarial valuations and a formula specified in the SPA.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
Our purchase price allocation as of February 1, 2017 included estimates of the amount of pension benefit obligation and the pension assets to be transferred based on actuarial estimates and are as follows:
|
| | | |
| February 1, 2017 |
| (in thousands) |
Projected benefit obligation | $ | 52,851 |
|
Estimated pension assets | 54,156 |
|
Estimated funded status | $ | 1,305 |
|
The net periodic pension expense of these plans consisted of the following components:
|
| | | | | | | | |
| | Three Months Ended September 30, 2017 | | February 1, 2017 to September 30, 2017 |
| | (in thousands) |
Service cost - benefit earned during the period | | $ | 1,013 |
| | $ | 2,596 |
|
Interest cost on projected benefit obligations | | 556 |
| | 1,424 |
|
Expected return on plan assets | | (802 | ) | | (2,053 | ) |
Net periodic pension expense | | $ | 767 |
| | $ | 1,967 |
|
We have a post-retirement healthcare and other benefits plan that is available to certain of our non-PCLI employees who satisfy certain age and service requirements. The net periodic benefit credit of this plan consisted of the following components:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In thousands) |
Service cost – benefit earned during the period | | $ | 300 |
| | $ | 324 |
| | $ | 901 |
| | $ | 972 |
|
Interest cost on projected benefit obligations | | 170 |
| | 197 |
| | 509 |
| | 591 |
|
Amortization of prior service credit | | (870 | ) | | (871 | ) | | (2,610 | ) | | (2,613 | ) |
Net periodic post-retirement credit | | $ | (400 | ) | | $ | (350 | ) | | $ | (1,200 | ) | | $ | (1,050 | ) |
In addition, we established a post-retirement healthcare and other benefits plan for our PCLI employees. Our purchase price allocation as of February 1, 2017 included estimates of the amount of projected benefit obligations of $8.6 million. The net periodic benefit expense related to this plan was $0.2 million and $0.4 million for the three and the eight months ended September 30, 2017, respectively.
We are a party to various litigation and legal proceedings which we believe, based on advice of counsel, will not either individually or in the aggregate have a materialmaterially adverse effect on our financial condition, results of operations or cash flows.
We haveDuring 2017, 2018 and 2019, the EPA granted the Cheyenne Refinery and Woods Cross Refinery each a crude oil supply contract that requiresone-year small refinery exemption from the supplier to deliver a specified volume of crude oil or pay a shortfall feeRenewable Fuel Standard (“RFS”) program requirements for the difference in2016, 2017 and 2018, respectively, calendar years. As a result, the actual barrels deliveredCheyenne Refinery’s and Woods Cross Refinery’s gasoline and diesel production are not subject to us less the specified barrels perRenewable Volume Obligation for the supply contract. For the contract year ended August 31, 2017, the actual numberrespective years. Upon each exemption granted, we increased our inventory of barrels delivered to us was substantially less than the specified barrels,RINs and we recorded a reduction toreduced our cost of goods sold and accumulated a shortfall fee receivable of $26.0 million during this period. In September 2017, the supplier notified us they are disputing the shortfall fee owed and in October 2017 notified us of their demand for arbitration. We believe the receivable is realizable by offsetting invoices for deliveries of crude oil received subsequent to August 31, 2017, which is permitted under the supply contract. We believe the disputes and claims made by the supplier are without merit.products sold.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
In March, 2006, a subsidiaryVarious subsidiaries of ours soldHollyFrontier are currently intervenors in two lawsuits brought by renewable fuel interest groups against the assets of Montana Refining Company under an Asset Purchase Agreement (“APA”). Calumet Montana Refining LLC, the current ownerEPA in federal courts alleging violations of the assets, has submitted requests for reimbursement pursuant to contractual indemnity provisionsRFS under the APAClean Air Act and challenging the EPA’s handling of small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery exemptions because we believe the EPA correctly applied applicable law to the matters at issue. The first lawsuit is before the U.S. Court of Appeals for various costs incurred, as well as additional claims relatedthe Tenth Circuit and challenges the relief the EPA afforded to environmental matters. Thisthe Cheyenne and Woods Cross refineries following the grant of small refinery exemptions. The matter is scheduledfully briefed and remains pending before that court. The second lawsuit is currently pending before the U.S. Court of Appeals for arbitration beginningthe DC Circuit. However, on August 25, 2021, the EPA filed a motion to voluntarily remand the matter to the EPA. We did not oppose this motion. A decision on this motion by the DC Circuit is expected in the near future. HollyFrontier was also recently an intervenor in another lawsuit filed in the Tenth Circuit challenging the grant of small refinery exemptions to the Cheyenne and Woods Cross refineries for the 2016 compliance year. On January 2018.24, 2020, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to the Cheyenne and Woods Cross refineries for 2016 and remanded the case to the EPA for further proceedings. On April 15, 2020, the Tenth Circuit issued its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court seeking review of the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted HollyFrontier’s petition. The oral argument occurred on April 27, 2021. The U.S. Supreme Court issued its opinion in this matter on June 25, 2021 and reversed the Tenth Circuit. On July 27, 2021, the Tenth Circuit recalled the mandate it issued to the EPA on April 15, 2020, and vacated its January 24, 2020 judgment. On July 29, 2021, the Tenth Circuit issued an order and judgment confirming that it recalled its mandate and vacated its previous judgment in this case, and returned jurisdiction to the EPA without vacating the exemption decisions. On August 19, 2021, the EPA filed a motion for clarification of the Tenth Circuit’s mandate. The Tenth Circuit denied the EPA’s motion on August 26, 2021, and therefore the matter is now solely before the EPA. We have accruedare unable to estimate the costs we believemay incur, if any, at this time. It is too early to assess how the U.S. Supreme Court decision will impact future small refinery exemptions or whether the remaining cases are owed pursuantexpected to have any impact on us.
We have been party to multiple proceedings before the APA,Federal Energy Regulatory Commission (“FERC”) challenging the rates charged by SFPP, L.P. (“SFPP”) on its East Line pipeline facilities from El Paso, Texas to Phoenix, Arizona. In March 2018, FERC ruled that SFPP, as a master limited partnership, was prohibited from including an allowance for investor income taxes in the cost of service underlying its East Line rates. We reached a negotiated settlement with SFPP that provides for a payment to us of $51.5 million. FERC approved the settlement on December 31, 2020 subject to a rehearing period that resulted in a settlement effective date of February 2, 2021. Under the terms of the settlement agreement, SFPP made the $51.5 million payment to us on February 10, 2021. As of December 31, 2020, we had no enforceable right to collect any of the settlement. Accordingly, recognition of a gain occurred when the uncertainties were resolved on February 2, 2021, and we estimate that any reasonably possible losses beyondrecorded as “Gain on tariff settlement” in our consolidated statements of operations for the amounts accrued are not material.nine months ended September 30, 2021.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| |
NOTE 16: | Segment Information |
NOTE 15:Segment Information
Our operations are organized into three3 reportable segments, Refining, PCLILubricants and Specialty Products and HEP. Our operations that are not included in the Refining, PCLILubricants 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 ConsolidationsEliminations. Corporate and Eliminations.Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column.
TheAs of September 30, 2021, the Refining segment represents the operations of the El Dorado, Tulsa, Navajo Cheyenne and Woods Cross Refineries and HFC Asphalt (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma. The Refining segment also included the operations of the Cheyenne Refinery through the third quarter of 2020, at which time it permanently ceased petroleum refining operations.
The Lubricants and Specialty Products segment involves PCLI’s production operations, located in Mississauga, Ontario, that includes 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 RefiningLubricants 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 and Red Giant Oil, one of the largest suppliers of locomotive engine oil in North America. HFC Asphalt operates various asphalt terminals in Arizona, New MexicoAlso, the Lubricants and Oklahoma.
On February 1, 2017, we acquired PCLI,Specialty Products segment includes Sonneborn, a Canadian-based producer of lubricant productsspecialty hydrocarbon chemicals such as base oils, white oils, specialty productspetrolatums and finished lubricants. The PCLI segment involves production operations, locatedwaxes with manufacturing facilities in Mississauga, Ontario, and marketing of its products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States Europe and China.Europe.
The HEP segment includes all of the operations of HEP, which owns and operates logistics and refinery 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 geographic regions of the United States. The HEP segment also includes a 75% ownership interest in UNEV (a consolidated subsidiary of HEP); a and 50% ownership interestinterests in each of the Frontier Pipeline, Osage Pipeline, and the Cheyenne Pipeline and a 25% ownership interest in the SLC Pipeline.Cushing Connect. 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.
The accounting policies for our segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2016.2020, except that our Refining segment excludes intercompany ROU assets and liabilities for operating leases.
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Refining | | Lubricants and Specialty Products | | HEP | | Corporate, Other and Eliminations (1) | | Consolidated Total |
| | (In thousands) |
Three Months Ended September 30, 2021 | | | | | | | | |
Sales and other revenues: | | | | | | | | | | |
Revenues from external customers | | $ | 3,993,570 | | | $ | 666,033 | | | $ | 25,459 | | | $ | (3) | | | $ | 4,685,059 | |
Intersegment revenues | | 189,441 | | | 501 | | | 97,125 | | | (287,067) | | | — | |
| | $ | 4,183,011 | | | $ | 666,534 | | | $ | 122,584 | | | $ | (287,070) | | | $ | 4,685,059 | |
Cost of products sold (exclusive of lower of cost or market inventory) | | $ | 3,605,600 | | | $ | 482,533 | | | $ | — | | | $ | (265,275) | | | $ | 3,822,858 | |
| | | | | | | | | | |
Operating expenses | | $ | 248,316 | | | $ | 60,940 | | | $ | 42,793 | | | $ | 471 | | | $ | 352,520 | |
Selling, general and administrative expenses | | $ | 32,345 | | | $ | 41,476 | | | $ | 3,849 | | | $ | 13,386 | | | $ | 91,056 | |
Depreciation and amortization | | $ | 77,890 | | | $ | 19,226 | | | $ | 21,627 | | | $ | 2,477 | | | $ | 121,220 | |
| | | | | | | | | | |
Income (loss) from operations | | $ | 218,860 | | | $ | 62,359 | | | $ | 54,315 | | | $ | (38,129) | | | $ | 297,405 | |
Earnings of equity method investments | | $ | — | | | $ | — | | | $ | 3,689 | | | $ | — | | | $ | 3,689 | |
Capital expenditures | | $ | 40,814 | | | $ | 7,833 | | | $ | 19,217 | | | $ | 147,640 | | | $ | 215,504 | |
| | | | | | | | | | |
Three Months Ended September 30, 2020 | | | | | | | | |
Sales and other revenues: | | | | | | | | | | |
Revenues from external customers | | $ | 2,339,782 | | | $ | 452,878 | | | $ | 26,740 | | | $ | — | | | $ | 2,819,400 | |
Intersegment revenues | | 56,331 | | | 2,164 | | | 100,991 | | | (159,486) | | | — | |
| | $ | 2,396,113 | | | $ | 455,042 | | | $ | 127,731 | | | $ | (159,486) | | | $ | 2,819,400 | |
Cost of products sold (exclusive of lower of cost or market inventory) | | $ | 2,211,342 | | | $ | 302,703 | | | $ | — | | | $ | (136,807) | | | $ | 2,377,238 | |
Lower of cost or market inventory valuation adjustment | | $ | (62,849) | | | $ | — | | | $ | — | | | $ | — | | | $ | (62,849) | |
Operating expenses | | $ | 256,079 | | | $ | 54,488 | | | $ | 40,003 | | | $ | (18,074) | | | $ | 332,496 | |
Selling, general and administrative expenses | | $ | 30,866 | | | $ | 36,773 | | | $ | 2,332 | | | $ | 4,482 | | | $ | 74,453 | |
Depreciation and amortization | | $ | 79,146 | | | $ | 17,432 | | | $ | 24,109 | | | $ | 4,593 | | | $ | 125,280 | |
| | | | | | | | | | |
Income (loss) from operations | | $ | (118,471) | | | $ | 43,646 | | | $ | 61,287 | | | $ | (13,680) | | | $ | (27,218) | |
Earnings of equity method investments | | $ | — | | | $ | — | | | $ | 1,316 | | | $ | — | | | $ | 1,316 | |
Capital expenditures | | $ | 41,740 | | | $ | 6,995 | | | $ | 7,902 | | | $ | 26,635 | | | $ | 83,272 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Refining (1) | | PCLI | | HEP (2) | | Corporate and Other | | Consolidations and Eliminations | | Consolidated Total |
| | (In thousands) |
Three Months Ended September 30, 2017 | | | | | | | | | | |
Sales and other revenues | | $ | 3,409,795 |
| | $ | 298,137 |
| | $ | 110,364 |
| | $ | (325 | ) | | $ | (98,724 | ) | | $ | 3,719,247 |
|
Operating expenses | | $ | 249,478 |
| | $ | 56,111 |
| | $ | 35,998 |
| | $ | 817 |
| | $ | (20,736 | ) | | $ | 321,668 |
|
Depreciation and amortization | | $ | 74,312 |
| | $ | 7,492 |
| | $ | 18,601 |
| | $ | 2,686 |
| | $ | (207 | ) | | $ | 102,884 |
|
Income (loss) from operations | | $ | 408,739 |
| | $ | 28,511 |
| | $ | 52,142 |
| | $ | (39,549 | ) | | $ | (563 | ) | | $ | 449,280 |
|
Earnings of equity method investments | | $ | — |
| | $ | — |
| | $ | 5,072 |
| | $ | — |
| | $ | — |
| | $ | 5,072 |
|
Capital expenditures | | $ | 31,152 |
| | $ | 9,643 |
| | $ | 10,151 |
| | $ | 5,121 |
| | $ | — |
| | $ | 56,067 |
|
| | | | | | | | | | | | |
Three Months Ended September 30, 2016 | | | | | | | | | | |
Sales and other revenues | | $ | 2,832,195 |
| | $ | — |
| | $ | 92,611 |
| | $ | 11 |
| | $ | (77,547 | ) | | $ | 2,847,270 |
|
Operating expenses | | $ | 227,079 |
| | $ | — |
| | $ | 32,099 |
| | $ | 1,390 |
| | $ | (4,336 | ) | | $ | 256,232 |
|
Depreciation and amortization | | $ | 69,565 |
| | $ | — |
| | $ | 18,515 |
| | $ | 3,257 |
| | $ | (207 | ) | | $ | 91,130 |
|
Income (loss) from operations | | $ | 120,985 |
| | $ | — |
| | $ | 39,332 |
| | $ | (34,965 | ) | | $ | (587 | ) | | $ | 124,765 |
|
Earnings of equity method investments | | $ | — |
| | $ | — |
| | $ | 3,767 |
| | $ | — |
| | $ | — |
| | $ | 3,767 |
|
Capital expenditures | | $ | 74,173 |
| | $ | — |
| | $ | 20,730 |
| | $ | 2,529 |
| | $ | — |
| | $ | 97,432 |
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2017 | | | | | | | | | | |
Sales and other revenues | | $ | 9,413,008 |
| | $ | 809,643 |
| | $ | 325,141 |
| | $ | (283 | ) | | $ | (288,915 | ) | | $ | 10,258,594 |
|
Operating expenses | | $ | 751,858 |
| | $ | 144,792 |
| | $ | 102,584 |
| | $ | 3,152 |
| | $ | (57,949 | ) | | $ | 944,437 |
|
Depreciation and amortization | | $ | 219,636 |
| | $ | 19,868 |
| | $ | 56,515 |
| | $ | 8,808 |
| | $ | (621 | ) | | $ | 304,206 |
|
Income (loss) from operations | | $ | 445,087 |
| | $ | 58,416 |
| | $ | 157,170 |
| | $ | (120,730 | ) | | $ | (1,702 | ) | | $ | 538,241 |
|
Earnings of equity method investments | | $ | — |
| | $ | — |
| | $ | 10,965 |
| | $ | — |
| | $ | — |
| | $ | 10,965 |
|
Capital expenditures | | $ | 131,016 |
| | $ | 19,995 |
| | $ | 30,675 |
| | $ | 11,431 |
| | $ | — |
| | $ | 193,117 |
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2016 | | | | | | | | | | |
Sales and other revenues | | $ | 7,530,804 |
| | $ | — |
| | $ | 289,517 |
| | $ | 168 |
| | $ | (239,857 | ) | | $ | 7,580,632 |
|
Operating expenses | | $ | 680,591 |
| | $ | — |
| | $ | 89,067 |
| | $ | 3,797 |
| | $ | (13,304 | ) | | $ | 760,151 |
|
Depreciation and amortization | | $ | 210,466 |
| | $ | — |
| | $ | 49,852 |
| | $ | 9,736 |
| | $ | (621 | ) | | $ | 269,433 |
|
Income (loss) from operations | | $ | (259,296 | ) | | $ | — |
| | $ | 141,980 |
| | $ | (93,017 | ) | | $ | (1,846 | ) | | $ | (212,179 | ) |
Earnings of equity method investments | | $ | — |
| | $ | — |
| | $ | 10,155 |
| | $ | — |
| | $ | — |
| | $ | 10,155 |
|
Capital expenditures | | $ | 284,755 |
| | $ | — |
| | $ | 96,115 |
| | $ | 6,607 |
| | $ | — |
| | $ | 387,477 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2017 | | | | | | | | | | | | |
Cash, cash equivalents and investments in marketable securities | | $ | 10,713 |
| | $ | 91,485 |
| | $ | 7,476 |
| | $ | 521,068 |
| | $ | — |
| | $ | 630,742 |
|
Total assets | | $ | 6,637,119 |
| | $ | 1,282,396 |
| | $ | 1,903,307 |
| | $ | 610,341 |
| | $ | (284,808 | ) | | $ | 10,148,355 |
|
Long-term debt | | $ | — |
| | $ | — |
| | $ | 1,245,066 |
| | $ | 991,448 |
| | $ | — |
| | $ | 2,236,514 |
|
| | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | |
Cash, cash equivalents and investments in marketable securities | | $ | 49 |
| | $ | — |
| | $ | 3,657 |
| | $ | 1,131,021 |
| | $ | — |
| | $ | 1,134,727 |
|
Total assets | | $ | 6,513,806 |
| | $ | — |
| | $ | 1,920,487 |
| | $ | 1,306,169 |
| | $ | (304,801 | ) | | $ | 9,435,661 |
|
Long-term debt | | $ | — |
| | $ | — |
| | $ | 1,243,912 |
| | $ | 991,225 |
| | $ | — |
| | $ | 2,235,137 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Refining | | Lubricants and Specialty Products | | HEP | | Corporate, Other and Eliminations (1) | | Consolidated Total |
| | (In thousands) |
Nine Months Ended September 30, 2021 | | | | | | | | |
Sales and other revenues: | | | | | | | | | | |
Revenues from external customers | | $ | 10,837,876 | | | $ | 1,850,786 | | | $ | 77,809 | | | $ | 4 | | | $ | 12,766,475 | |
Intersegment revenues | | 455,089 | | | 9,500 | | | 298,193 | | | (762,782) | | | — | |
| | $ | 11,292,965 | | | $ | 1,860,286 | | | $ | 376,002 | | | $ | (762,778) | | | $ | 12,766,475 | |
Cost of products sold (exclusive of lower of cost or market inventory) | | $ | 9,986,862 | | | $ | 1,305,274 | | | $ | — | | | $ | (683,244) | | | $ | 10,608,892 | |
Lower of cost or market inventory valuation adjustment | | $ | (318,353) | | | $ | — | | | $ | — | | | $ | (509) | | | $ | (318,862) | |
Operating expenses | | $ | 772,593 | | | $ | 183,003 | | | $ | 126,226 | | | $ | 4,798 | | | $ | 1,086,620 | |
Selling, general and administrative expenses | | $ | 90,977 | | | $ | 124,612 | | | $ | 9,664 | | | $ | 25,532 | | | $ | 250,785 | |
Depreciation and amortization | | $ | 245,910 | | | $ | 58,499 | | | $ | 66,908 | | | $ | (1,976) | | | $ | 369,341 | |
| | | | | | | | | | |
Income (loss) from operations | | $ | 514,976 | | | $ | 188,898 | | | $ | 173,204 | | | $ | (107,379) | | | $ | 769,699 | |
Earnings of equity method investments | | $ | — | | | $ | — | | | $ | 8,875 | | | $ | — | | | $ | 8,875 | |
Capital expenditures | | $ | 114,325 | | | $ | 17,534 | | | $ | 76,933 | | | $ | 339,553 | | | $ | 548,345 | |
| | | | | | | | | | |
Nine Months Ended September 30, 2020 | | | | | | | | |
Sales and other revenues: | | | | | | | | | | |
Revenues from external customers | | $ | 6,880,444 | | | $ | 1,330,021 | | | $ | 72,410 | | | $ | — | | | $ | 8,282,875 | |
Intersegment revenues | | 178,039 | | | 8,911 | | | 297,982 | | | (484,932) | | | — | |
| | $ | 7,058,483 | | | $ | 1,338,932 | | | $ | 370,392 | | | $ | (484,932) | | | $ | 8,282,875 | |
Cost of products sold (exclusive of lower of cost or market inventory) | | $ | 6,113,530 | | | $ | 952,430 | | | $ | — | | | $ | (418,000) | | | $ | 6,647,960 | |
Lower of cost or market inventory valuation adjustment | | $ | 227,711 | | | $ | — | | | $ | — | | | $ | — | | | $ | 227,711 | |
Operating expenses | | $ | 754,612 | | | $ | 156,459 | | | $ | 109,721 | | | $ | (56,592) | | | $ | 964,200 | |
Selling, general and administrative expenses | | $ | 94,677 | | | $ | 121,654 | | | $ | 7,569 | | | $ | 13,659 | | | $ | 237,559 | |
Depreciation and amortization | | $ | 251,019 | | | $ | 59,260 | | | $ | 72,095 | | | $ | 13,659 | | | $ | 396,033 | |
Long-lived asset impairment (2) | | $ | 215,242 | | | $ | 204,708 | | | $ | 16,958 | | | $ | — | | | $ | 436,908 | |
Income (loss) from operations | | $ | (598,308) | | | $ | (155,579) | | | $ | 164,049 | | | $ | (37,658) | | | $ | (627,496) | |
Earnings of equity method investments | | $ | — | | | $ | — | | | $ | 5,186 | | | $ | — | | | $ | 5,186 | |
Capital expenditures | | $ | 106,856 | | | $ | 20,387 | | | $ | 38,642 | | | $ | 47,123 | | | $ | 213,008 | |
| | | | | | | | | | |
(1) For the three and the nine months ended September 30, 2017, we recorded a long-lived asset impairment charge2021, Corporate and Other includes $13.1 million and $37.2 million, respectively, of $19.2operating expenses and $141.3 million thatand $325.3 million, respectively, of capital expenditures related to the construction of our Woods Cross Refinery, which is included in our Refining segment.renewable diesel units. For the three and nine months ended September 30, 2016, we recorded goodwill2020, Corporate and long-lived asset impairment charges of $309.3Other includes $1.8 million and $344.8$2.7 million, respectively, that relateof operating expenses and $20.5 million and $33.1 million, respectively, of capital expenditures related to the construction of our Cheyenne Refinery, which is included in our Refining segment.
renewable diesel units.
(2) The results of our HEP acquired a newly constructed crude unit, FCCU and polymerization unit at our Woods Cross Refinery in October 2016. As a result, we have recast our 2016 HEPreportable segment information to include these asset-related capital expenditures and certain operating expenses that were previously presented under the Refining segment.
HEP segment revenues from external customers were $15.2 million and $15.2 million for the three months ended September 30, 2017 and 2016, respectively, and $47.8 million and $50.1 million for the nine months ended September 30, 2017 and 2016, respectively.2020 include a long-lived asset impairment charge attributed to HEP’s logistics assets at our Cheyenne Refinery.
| |
NOTE 17: | Additional Financial Information |
Borrowings pursuant to the HollyFrontier Credit Agreement are recourse to HollyFrontier, but not HEP. Furthermore, borrowings under the HEP Credit Agreement are recourse to HEP, but not to the assets of HFC with the exception of HEP Logistics Holdings, L.P., HEP’s general partner. Other than its investment in HEP, the assets of the general partner are insignificant.
The following condensed financial information is provided for HollyFrontier Corporation (on a standalone basis, before consolidation of HEP), and for HEP and its consolidated subsidiaries (on a standalone basis, exclusive of HFC). Due to certain basis differences, our reported amounts for HEP may not agree to amounts reported in HEP’s periodic public filings.
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Balance Sheet | | | | | | | |
September 30, 2017 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| | (In thousands) |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 623,266 |
| | $ | 7,476 |
| | $ | — |
| | $ | 630,742 |
|
Accounts receivable, net | | 713,580 |
| | 50,083 |
| | (49,315 | ) | | 714,348 |
|
Inventories | | 1,418,954 |
| | 888 |
| | — |
| | 1,419,842 |
|
Income taxes receivable | | — |
| | — |
| | — |
| | — |
|
Prepayments and other | | 36,810 |
| | 1,407 |
| | (6,088 | ) | | 32,129 |
|
Total current assets | | 2,792,610 |
| | 59,854 |
| | (55,403 | ) | | 2,797,061 |
|
| | | | | | | | |
Properties, plants and equipment, net | | 3,315,512 |
| | 1,341,770 |
| | (220,451 | ) | | 4,436,831 |
|
Intangibles and other assets | | 2,412,156 |
| | 501,683 |
| | 624 |
| | 2,914,463 |
|
Total assets | | $ | 8,520,278 |
| | $ | 1,903,307 |
| | $ | (275,230 | ) | | $ | 10,148,355 |
|
| | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 1,127,840 |
| | $ | 23,143 |
| | $ | (49,315 | ) | | $ | 1,101,668 |
|
Income tax payable | | 64,255 |
| | — |
| | — |
| | 64,255 |
|
Accrued liabilities | | 209,847 |
| | 31,333 |
| | (6,088 | ) | | 235,092 |
|
Total current liabilities | | 1,401,942 |
| | 54,476 |
| | (55,403 | ) | | 1,401,015 |
|
| | | | | | | | |
Long-term debt | | 991,448 |
| | 1,245,066 |
| | — |
| | 2,236,514 |
|
Liability to HEP | | 199,210 |
| | — |
| | (199,210 | ) | | — |
|
Deferred income taxes | | 841,600 |
| | 522 |
| | — |
| | 842,122 |
|
Other long-term liabilities | | 142,087 |
| | 61,361 |
| | (521 | ) | | 202,927 |
|
| | | | | | | | |
Investment in HEP | | 158,016 |
| | — |
| | (158,016 | ) | | — |
|
Equity – HollyFrontier | | 4,785,975 |
| | 450,591 |
| | (387,702 | ) | | 4,848,864 |
|
Equity – noncontrolling interest | | — |
| | 91,291 |
| | 525,622 |
| | 616,913 |
|
Total liabilities and equity | | $ | 8,520,278 |
| | $ | 1,903,307 |
| | $ | (275,230 | ) | | $ | 10,148,355 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | |
| | Refining | | Lubricants and Specialty Products | | HEP | | Corporate, Other and Eliminations | | Consolidated Total |
| | (In thousands) |
September 30, 2021 | | | | | | | | | | |
Cash and cash equivalents | | $ | 18,056 | | | $ | 218,970 | | | $ | 12,816 | | | $ | 1,231,720 | | | $ | 1,481,562 | |
Total assets | | $ | 7,266,496 | | | $ | 2,119,076 | | | $ | 2,236,091 | | | $ | 1,275,518 | | | $ | 12,897,181 | |
Long-term debt | | $ | — | | | $ | — | | | $ | 1,333,309 | | | $ | 1,739,043 | | | $ | 3,072,352 | |
| | | | | | | | | | |
December 31, 2020 | | | | | | | | | | |
Cash and cash equivalents | | $ | 3,106 | | | $ | 163,729 | | | $ | 21,990 | | | $ | 1,179,493 | | | $ | 1,368,318 | |
Total assets | | $ | 6,203,847 | | | $ | 1,864,313 | | | $ | 2,198,478 | | | $ | 1,240,226 | | | $ | 11,506,864 | |
Long-term debt | | $ | — | | | $ | — | | | $ | 1,405,603 | | | $ | 1,737,115 | | | $ | 3,142,718 | |
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Balance Sheet | | | | | | | |
December 31, 2016 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| | (In thousands) |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 706,922 |
| | $ | 3,657 |
| | $ | — |
| | $ | 710,579 |
|
Marketable securities | | 424,148 |
| | — |
| | — |
| | 424,148 |
|
Accounts receivable, net | | 487,693 |
| | 50,408 |
| | (58,902 | ) | | 479,199 |
|
Inventories | | 1,134,274 |
| | 1,402 |
| | — |
| | 1,135,676 |
|
Income taxes receivable | | 68,371 |
| | — |
| | — |
| | 68,371 |
|
Prepayments and other | | 37,379 |
| | 1,486 |
| | (5,829 | ) | | 33,036 |
|
Total current assets | | 2,858,787 |
| | 56,953 |
| | (64,731 | ) | | 2,851,009 |
|
| | | | | | | | |
Properties, plants and equipment, net | | 2,874,041 |
| | 1,365,568 |
| | (231,161 | ) | | 4,008,448 |
|
Intangibles and other assets | | 2,077,683 |
| | 497,966 |
| | 555 |
| | 2,576,204 |
|
Total assets | | $ | 7,810,511 |
| | $ | 1,920,487 |
| | $ | (295,337 | ) | | $ | 9,435,661 |
|
| | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 967,347 |
| | $ | 26,942 |
| | $ | (58,902 | ) | | $ | 935,387 |
|
Accrued liabilities | | 115,878 |
| | 37,793 |
| | (5,829 | ) | | 147,842 |
|
Total current liabilities | | 1,083,225 |
| | 64,735 |
| | (64,731 | ) | | 1,083,229 |
|
| | | | | | | | |
Long-term debt | | 991,225 |
| | 1,243,912 |
| | — |
| | 2,235,137 |
|
Liability to HEP | | 208,603 |
| | — |
| | (208,603 | ) | | — |
|
Deferred income taxes | | 619,905 |
| | 509 |
| | — |
| | 620,414 |
|
Other long-term liabilities | | 132,515 |
| | 62,971 |
| | (590 | ) | | 194,896 |
|
| | | | | | | | |
Investment in HEP | | 136,435 |
| | — |
| | (136,435 | ) | | — |
|
Equity – HollyFrontier | | 4,638,603 |
| | 454,803 |
| | (412,012 | ) | | 4,681,394 |
|
Equity – noncontrolling interest | | — |
| | 93,557 |
| | 527,034 |
| | 620,591 |
|
Total liabilities and equity | | $ | 7,810,511 |
| | $ | 1,920,487 |
| | $ | (295,337 | ) | | $ | 9,435,661 |
|
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Income and Comprehensive Income | | | | |
Three Months Ended September 30, 2017 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| | (In thousands) |
Sales and other revenues | | $ | 3,704,166 |
| | $ | 110,364 |
| | $ | (95,283 | ) | | $ | 3,719,247 |
|
Operating costs and expenses: | | | | | | | | |
Cost of products sold | | 2,962,306 |
| | — |
| | (73,776 | ) | | 2,888,530 |
|
Lower of cost or market inventory valuation adjustment | | (111,128 | ) | | — |
| | — |
| | (111,128 | ) |
Operating expenses | | 306,407 |
| | 35,998 |
| | (20,737 | ) | | 321,668 |
|
Selling, general and administrative | | 64,390 |
| | 3,623 |
| | — |
| | 68,013 |
|
Depreciation and amortization | | 87,889 |
| | 18,601 |
| | (3,606 | ) | | 102,884 |
|
Total operating costs and expenses | | 3,309,864 |
| | 58,222 |
| | (98,119 | ) | | 3,269,967 |
|
Income from operations | | 394,302 |
| | 52,142 |
| | 2,836 |
| | 449,280 |
|
Other income (expense): | |
| | | | | | |
Earnings of equity method investments | | 28,099 |
| | 5,072 |
| | (28,099 | ) | | 5,072 |
|
Interest expense | | (11,295 | ) | | (13,970 | ) | | (2,392 | ) | | (27,657 | ) |
Other, net | | 19,255 |
| | 153 |
| | — |
| | 19,408 |
|
| | 36,059 |
| | (8,745 | ) | | (30,491 | ) | | (3,177 | ) |
Income before income taxes | | 430,361 |
| | 43,397 |
| | (27,655 | ) | | 446,103 |
|
Income tax expense | | 158,456 |
| | (70 | ) | | — |
| | 158,386 |
|
Net income | | 271,905 |
| | 43,467 |
| | (27,655 | ) | | 287,717 |
|
Less net income (loss) attributable to noncontrolling interest | | — |
| | 990 |
| | 14,713 |
| | 15,703 |
|
Net income attributable to HollyFrontier stockholders | | $ | 271,905 |
| | $ | 42,477 |
| | $ | (42,368 | ) | | $ | 272,014 |
|
Comprehensive income attributable to HollyFrontier stockholders | | $ | 284,832 |
| | $ | 42,454 |
| | $ | (42,379 | ) | | $ | 284,907 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Income and Comprehensive Income | | | | | | |
Three Months Ended September 30, 2016 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| (In thousands) |
Sales and other revenues | | $ | 2,832,206 |
| | $ | 92,611 |
| | $ | (77,547 | ) | | $ | 2,847,270 |
|
Operating costs and expenses: | | | | | | | | |
Cost of products sold | | 2,414,254 |
| | — |
| | (72,417 | ) | | 2,341,837 |
|
Lower of cost or market inventory valuation adjustment | | 312 |
| | — |
| | — |
| | 312 |
|
Operating expenses | | 228,469 |
| | 32,099 |
| | (4,336 | ) | | 256,232 |
|
Selling, general and administrative | | 30,329 |
| | 2,665 |
| | — |
| | 32,994 |
|
Depreciation and amortization | | 76,225 |
| | 18,515 |
| | (3,610 | ) | | 91,130 |
|
Total operating costs and expenses | | 2,749,589 |
| | 53,279 |
| | (80,363 | ) | | 2,722,505 |
|
Income from operations | | 82,617 |
| | 39,332 |
| | 2,816 |
| | 124,765 |
|
Other income (expense): | | | | | | | | |
Earnings of equity method investments | | 23,414 |
| | 3,767 |
| | (23,414 | ) | | 3,767 |
|
Interest expense | | (2,042 | ) | | (14,339 | ) | | (2,391 | ) | | (18,772 | ) |
Other, net | | (3 | ) | | 110 |
| | — |
| | 107 |
|
| | 21,369 |
| | (10,462 | ) | | (25,805 | ) | | (14,898 | ) |
Income before income taxes | | 103,986 |
| | 28,870 |
| | (22,989 | ) | | 109,867 |
|
Income tax expense | | 22,135 |
| | 61 |
| | — |
| | 22,196 |
|
Net income | | 81,851 |
| | 28,809 |
| | (22,989 | ) | | 87,671 |
|
Less net income (loss) attributable to noncontrolling interest | | (8 | ) | | 1,166 |
| | 12,016 |
| | 13,174 |
|
Net income attributable to HollyFrontier stockholders | | $ | 81,859 |
| | $ | 27,643 |
| | $ | (35,005 | ) | | $ | 74,497 |
|
Comprehensive income attributable to HollyFrontier stockholders | | $ | 83,632 |
| | $ | 27,760 |
| | $ | (35,121 | ) | | $ | 76,271 |
|
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Income and Comprehensive Income | | | | |
Nine Months Ended September 30, 2017 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| (In thousands) |
Sales and other revenues | | $ | 10,211,208 |
| | $ | 325,141 |
| | $ | (277,755 | ) | | $ | 10,258,594 |
|
Operating costs and expenses: | | | | — |
| | | | |
Cost of products sold | | 8,500,609 |
| | — |
| | (217,482 | ) | | 8,283,127 |
|
Lower of cost or market inventory valuation adjustment | | (15,323 | ) | | — |
| | — |
| | (15,323 | ) |
Operating expenses | | 899,803 |
| | 102,584 |
| | (57,950 | ) | | 944,437 |
|
Selling, general and administrative | | 175,787 |
| | 8,872 |
| | — |
| | 184,659 |
|
Depreciation and amortization | | 258,400 |
| | 56,515 |
| | (10,709 | ) | | 304,206 |
|
Goodwill and asset impairment | | 19,247 |
| | — |
| | — |
| | 19,247 |
|
Total operating costs and expenses | | 9,838,523 |
| — |
| 167,971 |
| — |
| (286,141 | ) | — |
| 9,720,353 |
|
Income (loss) from operations | | 372,685 |
| | 157,170 |
| | 8,386 |
| | 538,241 |
|
Other income (expense): | | | | | | | | |
Earnings of equity method investments | | 75,636 |
| | 10,965 |
| | (75,636 | ) | | 10,965 |
|
Interest expense | | (35,272 | ) | | (41,052 | ) | | (7,141 | ) | | (83,465 | ) |
Loss on early extinguishment of debt | | — |
| | (12,225 | ) | | — |
| | (12,225 | ) |
Other, net | | 43,769 |
| | 316 |
| | — |
| | 44,085 |
|
| | 84,133 |
| | (41,996 | ) | | (82,777 | ) | | (40,640 | ) |
Income before income taxes | | 456,818 |
| | 115,174 |
| | (74,391 | ) | | 497,601 |
|
Income tax expense | | 173,429 |
| | 164 |
| | — |
| | 173,593 |
|
Net income | | 283,389 |
| | 115,010 |
| | (74,391 | ) | | 324,008 |
|
Less net income (loss) attributable to noncontrolling interest | | (14 | ) | | 4,827 |
| | 34,882 |
| | 39,695 |
|
Net income attributable to HollyFrontier stockholders | | $ | 283,403 |
| | $ | 110,183 |
| | $ | (109,273 | ) | | $ | 284,313 |
|
Comprehensive income attributable to HollyFrontier stockholders | | $ | 304,503 |
| | $ | 110,149 |
| | $ | (109,273 | ) | | $ | 305,379 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Income and Comprehensive Income | | | | | | |
Nine Months Ended September 30, 2016 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| (In thousands) |
Sales and other revenues | | $ | 7,530,972 |
| | $ | 289,517 |
| | $ | (239,857 | ) | | $ | 7,580,632 |
|
Operating costs and expenses: | | | | | | | | |
Cost of products sold | | 6,439,241 |
| | — |
| | (224,086 | ) | | 6,215,155 |
|
Lower of cost or market inventory valuation adjustment | | (194,282 | ) | | — |
| | — |
| | (194,282 | ) |
Operating expenses | | 684,388 |
| | 89,067 |
| | (13,304 | ) | | 760,151 |
|
Selling, general and administrative | | 79,652 |
| | 8,618 |
| | — |
| | 88,270 |
|
Depreciation and amortization | | 230,332 |
| | 49,852 |
| | (10,751 | ) | | 269,433 |
|
Goodwill and asset impairment | | 654,084 |
| | — |
| | — |
| | 654,084 |
|
Total operating costs and expenses | | 7,893,415 |
| | 147,537 |
| | (248,141 | ) | | 7,792,811 |
|
Income (loss) from operations | | (362,443 | ) | | 141,980 |
| | 8,284 |
| | (212,179 | ) |
Other income (expense): | | | | | | | | |
Earnings of equity method investments | | 74,307 |
| | 10,155 |
| | (74,307 | ) | | 10,155 |
|
Interest expense | | (1,673 | ) | | (35,926 | ) | | (6,909 | ) | | (44,508 | ) |
Loss on early extinguishment of debt | | (8,718 | ) | | — |
| | — |
| | (8,718 | ) |
Other, net | | 197 |
| | 103 |
| | — |
| | 300 |
|
| | 64,113 |
| | (25,668 | ) | | (81,216 | ) | | (42,771 | ) |
Income (loss) before income taxes | | (298,330 | ) | | 116,312 |
| | (72,932 | ) | | (254,950 | ) |
Income tax expense | | 6,249 |
| | 210 |
| | — |
| | 6,459 |
|
Net income (loss) | | (304,579 | ) | | 116,102 |
| | (72,932 | ) | | (261,409 | ) |
Less net income (loss) attributable to noncontrolling interest | | (24 | ) | | 8,448 |
| | 43,785 |
| | 52,209 |
|
Net income (loss) attributable to HollyFrontier stockholders | | $ | (304,555 | ) | | $ | 107,654 |
| | $ | (116,717 | ) | | $ | (313,618 | ) |
Comprehensive income (loss) attributable to HollyFrontier stockholders | | $ | (292,773 | ) | | $ | 107,537 |
| | $ | (116,600 | ) | | $ | (301,836 | ) |
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Cash Flows | | | | | | | |
Nine Months Ended September 30, 2017 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| | (In thousands) |
Cash flows from operating activities | | $ | 701,021 |
| | $ | 177,762 |
| | $ | (93,370 | ) | | $ | 785,413 |
|
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Additions to properties, plants and equipment | | (162,442 | ) | | — |
| | — |
| | (162,442 | ) |
Additions to properties, plants and equipment – HEP | | — |
| | (30,675 | ) | | — |
| | (30,675 | ) |
Purchase of PCLI, net of cash acquired | | (870,627 | ) | | — |
| | — |
| | (870,627 | ) |
Purchases of marketable securities | | (41,565 | ) | | — |
| | — |
| | (41,565 | ) |
Sales and maturities of marketable securities | | 465,716 |
| | — |
| | — |
| | 465,716 |
|
Other, net | | 1,006 |
| | 1,715 |
| | (424 | ) | | 2,297 |
|
| | (607,912 | ) | | (28,960 | ) | | (424 | ) | | (637,296 | ) |
Cash flows from financing activities | | | | | | | | |
Net borrowings under credit agreements | | — |
| | 197,000 |
| | — |
| | 197,000 |
|
Proceeds from issuance of senior notes - HEP | | — |
| | 101,750 |
| | — |
| | 101,750 |
|
Redemption of senior notes - HEP | | — |
| | (309,750 | ) | | — |
| | (309,750 | ) |
Proceeds from issuance of common units - HEP | | — |
| | 52,285 |
| | — |
| | 52,285 |
|
Dividends | | (176,519 | ) | | — |
| | — |
| | (176,519 | ) |
Distributions to noncontrolling interest | | — |
| | (176,560 | ) | | 94,763 |
| | (81,797 | ) |
Other, net | | (2,744 | ) | | (9,708 | ) | | (969 | ) | | (13,421 | ) |
| | (179,263 | ) | | (144,983 | ) | | 93,794 |
| | (230,452 | ) |
| | | | | | | | |
Effect of exchange rates on cash flows | | 2,498 |
| | — |
| | — |
| | 2,498 |
|
| | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Increase (decrease) for the period | | (83,656 | ) | | 3,819 |
| | — |
| | (79,837 | ) |
Beginning of period | | 706,922 |
| | 3,657 |
| | — |
| | 710,579 |
|
End of period | | $ | 623,266 |
| | $ | 7,476 |
| | $ | — |
| | $ | 630,742 |
|
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Continued
|
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Cash Flows | | | | | | | |
Nine Months Ended September 30, 2016 | | HollyFrontier Corp. Before Consolidation of HEP | | HEP Segment | | Consolidations and Eliminations | | Consolidated |
| | (In thousands) |
Cash flows from operating activities | | $ | 335,983 |
| | $ | 184,268 |
| | $ | (75,977 | ) | | $ | 444,274 |
|
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Additions to properties, plants and equipment | | (291,362 | ) | | — |
| | — |
| | (291,362 | ) |
Additions to properties, plants and equipment – HEP | | — |
| | (96,115 | ) | | — |
| | (96,115 | ) |
Purchase of equity method investment - HEP | | — |
| | (42,550 | ) | | — |
| | (42,550 | ) |
Purchases of marketable securities | | (155,091 | ) | | — |
| | — |
| | (155,091 | ) |
Sales and maturities of marketable securities | | 187,358 |
| | — |
| | — |
| | 187,358 |
|
Other, net | | 396 |
| | 210 |
| | — |
| | 606 |
|
| | (258,699 | ) | | (138,455 | ) | | — |
| | (397,154 | ) |
Cash flows from financing activities: | | | | | | | | |
Net repayments under credit agreements | | — |
| | (332,000 | ) | | — |
| | (332,000 | ) |
Proceeds from issuance of senior notes - HFC | | 246,690 |
| | — |
| | — |
| | 246,690 |
|
Proceeds from issuance of senior notes - HEP | | — |
| | 394,000 |
| | — |
| | 394,000 |
|
Proceeds from issuance of term loan | | 350,000 |
| | — |
| | — |
| | 350,000 |
|
Proceeds from issuance of common units - HEP | | — |
| | 22,791 |
| | — |
| | 22,791 |
|
Repayment of financing obligation | | — |
| | (39,500 | ) | | — |
| | (39,500 | ) |
Purchase of treasury stock | | (133,430 | ) | | — |
| | — |
| | (133,430 | ) |
Dividends | | (175,194 | ) | | — |
| | — |
| | (175,194 | ) |
Distributions to noncontrolling interest | | — |
| | (142,548 | ) | | 75,977 |
| | (66,571 | ) |
Contribution from general partner | | (55,027 | ) | | 55,027 |
| | — |
| | — |
|
Other, net | | (2,730 | ) | | (11,388 | ) | | — |
| | (14,118 | ) |
| | 230,309 |
| | (53,618 | ) | | 75,977 |
| | 252,668 |
|
| | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Increase (decrease) for the period: | | 307,593 |
| | (7,805 | ) | | — |
| | 299,788 |
|
Beginning of period | | 51,520 |
| | 15,013 |
| | — |
| | 66,533 |
|
End of period | | $ | 359,113 |
| | $ | 7,208 |
| | $ | — |
| | $ | 366,321 |
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Item 2 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of Part I of this Quarterly Report on Form 10-Q. References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier Corporation (“HollyFrontier”) and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. This document contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.
OVERVIEW
We are principally an independent petroleum refiner and marketer that produces high-value refinedlight products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modified asphalt. We ownAs of September 30, 2021, we owned and operateoperated refineries having a combined nameplate crude oil processing capacity of 457,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. Our refineries are located in El Dorado, Kansas (the “El Dorado Refinery”), Tulsa, Oklahoma (the “Tulsa Refineries”), which comprise two production facilities, the Tulsa West and East facilities, Artesia, New Mexico, which operates in conjunction with crude, vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”), Cheyenne, Wyoming (the “Cheyenne Refinery”) and Woods Cross, Utah (the “Woods Cross Refinery”). We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, we produce base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. We also own a 57% limited partner interest and a non-economic general partner interest in HEP, 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.
On October 29, 2016,August 2, 2021, HollyFrontier, Hippo Parent Corporation, a wholly owned subsidiary of HollyFrontier (“New Parent”), Hippo Merger Sub, Inc., a wholly owned subsidiary of New Parent (“Parent Merger Sub”), The Sinclair Companies (“Sinclair”), and Hippo Holding LLC, a wholly owned subsidiary of Sinclair (the “Target Company”), entered into a business combination agreement (the “Business Combination Agreement”). Pursuant to the Business Combination Agreement, HollyFrontier will acquire the Target Company by effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby HollyFrontier will merge with and into Parent Merger Sub, with HollyFrontier surviving such merger as a direct wholly owned subsidiary of New Parent (the “HFC Merger”) and (b) immediately following the HFC Merger, a contribution whereby Sinclair will contribute all of the equity interests of the Target Company to New Parent in exchange for shares of New Parent, resulting in the Target Company becoming a direct wholly owned subsidiary of New Parent (the “Sinclair Oil Acquisition” and together with the HFC Merger, the “HFC Transactions”).
Under the terms of the Business Combination Agreement, (a) each share of common stock of HollyFrontier, par value $0.01 per share, will be automatically converted into one share of common stock of New Parent, par value $0.01 per share (“New Parent Common Stock”) and (b) Sinclair will contribute the equity interests in the Target Company to New Parent in exchange for 60,230,036 shares of New Parent Common Stock, subject to adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions (as defined below), HollyFrontier agrees to divest certain Woods Cross Refinery assets and the sales price for such assets does not exceed a threshold provided in the Business Combination Agreement.
Additionally, on August 2, 2021, HEP, Sinclair and Sinclair Transportation Company, a wholly owned subsidiary of Sinclair (“STC”), entered into a contribution agreement (the “Contribution Agreement”) pursuant to which HEP will acquire all of the outstanding shares of STC in exchange for 21 million newly issued common limited partner units of HEP and cash consideration equal to $325 million (the “HEP Transactions”, and together with the HFC Transactions, the “Sinclair Transactions”), subject to downward adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HEP agrees to divest a portion of its equity interest in UNEV Pipeline, LLC and the sales price for such interests does not exceed the threshold provided in the Contribution Agreement.
The Sinclair Transactions are expected to close in mid-2022, subject to customary closing conditions and regulatory clearance, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) and the receipt of required approvals of HFC’s stockholders. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HollyFrontier and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review. In addition, the HFC Transactions and the HEP Transactions are cross-conditioned on each other. See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information.
On May 4, 2021, our wholly-ownedwholly owned subsidiary, 9952110HollyFrontier Puget Sound Refining LLC, entered into a sale and purchase agreement with Equilon Enterprises LLC d/b/a Shell Oil Products US (“Shell”) to acquire Shell’s refinery and related assets, including the on-site cogeneration facility and related logistics assets (the “Puget Sound Refinery”). The acquisition closed on November 1, 2021 for aggregate cash consideration of $613.6 million, which consists of a base cash purchase price of $350 million, hydrocarbon inventory with an estimated closing value of $266.2 million and other closing adjustments and accrued liabilities of $2.6 million (the “Puget Sound Acquisition”). The Puget Sound Refinery is strategically located on approximately 850 acres in Anacortes, Washington, approximately 80 miles north of Seattle and 90 miles south of Vancouver. The 149,000 barrel per day facility is a large, high quality and complex refinery with catalytic cracking and delayed coking units and is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes. In addition to refining assets and an on-site cogeneration facility, the transaction includes a deep-water marine dock, a light product loading rack, a rail terminal, and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity.
On April 27, 2021, our wholly owned subsidiary, 7037619 Canada Inc., entered into a share purchase agreement with Suncor to acquire 100%contract for sale of the outstanding capital stockreal property in Mississauga, Ontario for base consideration of Petro-Canada Lubricants Inc. (“PCLI”).$98.8 million, or CAD 125 million. The acquisitiontransaction closed on February 1, 2017. Cash consideration paidSeptember 15, 2021, and we recorded a gain on sale of assets totaling $86.0 million for the three months ended September 30, 2021, which was $862.0recognized in “Gain on sale of assets and other” in our consolidated statements of operations.
In the third quarter of 2020, we permanently ceased petroleum refining operations at our facility in Cheyenne, Wyoming (the “Cheyenne Refinery”) and subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we recognized $6.7 million or $1.125 billionand $23.1 million, respectively, in Canadian dollars.decommissioning expense and $0.2 million and $0.9 million, respectively, in employee severance costs for the three and nine months ended September 30, 2021 which were recognized in operating expenses in our Corporate and Other segment.
PCLIDuring the first quarter of 2021, we initiated a restructuring within our Lubricants and Specialty Products segment, which is Canadian-based producerexpected to save approximately $15 million per year of base oils with a plant having 15,600 BPD of lubricant production capacity that is locatedongoing cash expenses. We recorded $7.8 million in Mississauga, Ontario. The facility is downstream integrated from base oils to finished lubricantsemployee severance costs for the nine months ended September 30, 2021, which were recognized primarily as selling, general and produces a broad spectrum of specialty lubricantsadministrative expenses in our Lubricants and white oils that are distributed to end customers worldwide through a global sales network with locations in Canada, the United States, Europe and China.Specialty Products segment.
For the three months ended September 30, 2017,2021, net income attributable to HollyFrontier stockholders was $272.0$280.8 million compared to $74.5net loss of $2.4 million for the three months ended September 30, 2016.2020. For the nine months ended September 30, 2017,2021, net income attributable to HollyFrontier stockholders was $284.3$597.9 million compared to a net loss of $(313.6)$483.7 million for the nine months ended September 30, 2016.2020. Included in our financial results for the three months ended September 30, 2017 were non-cash lowerthird quarter of cost or market inventory reserve adjustments that increased pre-tax earnings by $111.12021 was a gain on sale of assets totaling $86.0 million comparedrelated to a charge $0.3 million for the same periodsale of 2016. Third quarter 2017 earnings reflect improved refining margins relative to prior period levels, with overall grossreal property in Mississauga, Ontario. Gross refining margin per produced barrel increasing 48% compared tosold in our Refining segment increased 140% for the three months ended September 30, 2016. Additionally, our third quarter results reflect $22.62021 over the same period of 2020. Included in the three months ended September 30, 2020 was an $81.0 million in earnings attributable to our recently acquired PCLI operations.gain recognized upon settlement of a business interruption insurance claim.
Pursuant to the 2007 Energy Independence and Security Act, the Environmental Protection Agency (“EPA”) promulgated the Renewable Fuel Standard 2 (“RFS2”RFS”) regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as renewable identification numbers (“RINs”), in lieu of such blending. Compliance with RFS2RFS regulations significantly increases our cost of products sold, with RINs costs totaling $89.3$143.5 million for the three months ended September 30, 2017.2021. At September 30, 2021, our open RINs credit obligations were $119.6 million. We will continue to monitor and adjust our RINs position commensurate with our production levels, market conditions and RFS regulations.
Impact of COVID-19 on Our Business
The COVID-19 pandemic caused a decline in U.S. and global economic activity starting in the first quarter of 2020. This decrease reduced both volumes and unit margins across our businesses, resulting in lower gross margins and earnings. Global demand for transportation fuels began to improve beginning late in the second quarter of 2020, but remains below pre-pandemic levels as of the third quarter of 2021. In response to this demand and margin environment, as well as both planned and unplanned maintenance, we operated our Refining segment refineries at an average crude charge of 416,430 BPD during the third quarter of 2021.
In our Lubricants and Specialty Products segment, the Rack Back portion continues to see a combination of strong demand as well as limited supply due to a number of factors, which are driving strong margins and earnings. In the Rack Forward portion, despite strong sales volumes and price increases, the continued rise in base oil prices through the quarter compressed margins in the third quarter of 2021.
Our standalone (excluding HEP) liquidity was approximately $2.8 billion at September 30, 2021, consisting of cash and cash equivalents of $1.5 billionand an undrawn $1.35 billion credit facility maturing in 2026. Our standalone (excluding HEP) principal amount of long-term debt was $1.75 billion as of September 30, 2021, which consists of $350.0 million in aggregate principal amount of 2.625% senior notes due in 2023, $1.0 billion in aggregate principal amount of 5.875% senior notes due in 2026 and $400.0 million in aggregate principal amount of 4.500% senior notes due in 2030.
OUTLOOK
Our profitability is largely driven by our operational reliabilityThe impact of the COVID-19 pandemic on the global macroeconomy created an unprecedented reduction in demand, as well as a lack of forward visibility, for many of the transportation fuels, lubricants and crack spreads (the price difference between refinedspecialty products and inputs such as crude oil). Crack spreads are driven by the supplyassociated transportation and terminal services we provide. Since the declines in demand at the beginning of the COVID-19 pandemic, we began to see improvement in demand for these products and services beginning late in the second quarter of 2020 and demand has largely recovered in the markets we serve but remains below pre-pandemic levels.
With increasing vaccination rates, most of refined product markets.our employees have returned to work at our locations, and we continue to follow Centers for Disease Control and local government guidance. We believe 2016 represented a cyclical low driven by large additionswill continue to monitor developments in the COVID-19 pandemic and the dynamic environment it has created to properly address these policies going forward.
Within our Refining segment, for the fourth quarter of refining capacity around the world. Based on continued demand growth and limited capacity additions,2021, we expect crack spreads to be higherrun between 450,000-470,000 barrels per day of crude oil, which includes expected volumes from the Puget Sound Refinery in 2017 than 2016.November and December. We expect to adjust refinery production levels commensurate with market demand and planned turnarounds at our Tulsa and Navajo refineries.
Within our Lubricants and Specialty Products segment, for the full year 2021, we expect to earn between $65 million to $85 million in income from operations and $115 million to $135 million of EBITDA, which excludes estimated annual depreciation of $50 million, in the Rack Forward portion of the segment. Within the Rack Back portion, for the fourth quarter of 2021, we expect base oil margins to remain relatively stable compared to the second and third quarters due to record strength in base oil prices, which is driving strong margins and earnings. Similar to our Refining segment, we expect to adjust production levels commensurate with market demand.
In the fourth quarter of 2021, HEP expects to hold the quarterly distribution constant at $0.35 per unit, or $1.40 on an annualized basis. HEP remains committed to its distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and improving distributable cash flow coverage to 1.3x or greater with the goal of reducing leverage to 3.0-3.5x.
Our RINs costs are materialDuring the third quarter of 2020, we increased our liquidity by $750.0 million with the issuance of $350.0 million in aggregate principal amount of 2.625% senior notes due in 2023 and represent a cost$400.0 million in aggregate principal amount of products sold. The price of RINs4.500% senior notes due in 2030. This additional liquidity may be extremely volatile dueused for general corporate purposes and is expected to real or perceived future shortages in RINs. As of September 30, 2017, we are purchasing RINs in order to meet approximately halfsupport the planned growth of our renewable fuel requirements.renewables business and the unexpected economic impact of COVID-19, as needed. We do not intend to repurchase common stock under our $1.0 billion share repurchase program until completion of our ongoing renewables capital projects at the earliest. In addition, we announced the Puget Sound Acquisition, which closed on November 1, 2021. We funded the Puget Sound Acquisition with a one-year suspension of our regular quarterly dividend and cash on hand. Our Board of Directors approved the one-year suspension of the regular quarterly dividend effective with the dividend to be declared for the first quarter of 2021 and is expected to resume the dividend after such time.
On March 27, 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), an approximately $2 trillion stimulus package that included various provisions intended to provide relief to individuals and businesses in the form of tax changes, loans and grants, among others. At this time, we have not sought relief in the form of loans or grants from the CARES Act; however, we have benefited from certain tax deferrals in the CARES Act and may benefit from other tax provisions if we meet the requirements to do so.
The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, the effects of any new variant strains of the underlying virus, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus. The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from it, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 and in this Form 10-Q. The COVID-19 pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.
A more detailed discussion of our financial and operating results for the three and nine months ended September 30, 20172021 and 20162020 is presented in the following sections.
RESULTS OF OPERATIONS
| | | | Three Months Ended September 30, | | Change from 2016 | | | Three Months Ended September 30, | | Change from 2020 |
| | 2017 | | 2016 | | Change | | Percent | | | 2021 | | 2020 | | Change | | Percent |
| | (In thousands, except per share data) | | | (In thousands, except per share data) |
Sales and other revenues | | $ | 3,719,247 |
| | $ | 2,847,270 |
| | $ | 871,977 |
| | 31 | % | Sales and other revenues | | $ | 4,685,059 | | | $ | 2,819,400 | | | $ | 1,865,659 | | | 66 | % |
Operating costs and expenses: | | | | | | | | | Operating costs and expenses: | |
Cost of products sold (exclusive of depreciation and amortization): | | | | | | | | | Cost of products sold (exclusive of depreciation and amortization): | |
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) | | 2,888,530 |
| | 2,341,837 |
| | 546,693 |
| | 23 |
| Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) | | 3,822,858 | | | 2,377,238 | | | 1,445,620 | | | 61 | |
Lower of cost or market inventory valuation adjustment | | (111,128 | ) | | 312 |
| | (111,440 | ) | | (35,718 | ) | Lower of cost or market inventory valuation adjustment | | — | | | (62,849) | | | 62,849 | | | (100) | |
| | 2,777,402 |
| | 2,342,149 |
| | 435,253 |
| | 19 |
| | 3,822,858 | | | 2,314,389 | | | 1,508,469 | | | 65 | |
Operating expenses (exclusive of depreciation and amortization) | | 321,668 |
| | 256,232 |
| | 65,436 |
| | 26 |
| Operating expenses (exclusive of depreciation and amortization) | | 352,520 | | | 332,496 | | | 20,024 | | | 6 | |
Selling, general and administrative expenses (exclusive of depreciation and amortization) | | 68,013 |
| | 32,994 |
| | 35,019 |
| | 106 |
| Selling, general and administrative expenses (exclusive of depreciation and amortization) | | 91,056 | | | 74,453 | | | 16,603 | | | 22 | |
Depreciation and amortization | | 102,884 |
| | 91,130 |
| | 11,754 |
| | 13 |
| Depreciation and amortization | | 121,220 | | | 125,280 | | | (4,060) | | | (3) | |
| Total operating costs and expenses | | 3,269,967 |
| | 2,722,505 |
| | 547,462 |
| | 20 |
| Total operating costs and expenses | | 4,387,654 | | | 2,846,618 | | | 1,541,036 | | | 54 | |
Income from operations | | 449,280 |
| | 124,765 |
| | 324,515 |
| | 260 |
| |
Income (loss) from operations | | Income (loss) from operations | | 297,405 | | | (27,218) | | | 324,623 | | | (1,193) | |
Other income (expense): | | | | | | | | | Other income (expense): | |
Earnings of equity method investments | | 5,072 |
| | 3,767 |
| | 1,305 |
| | 35 |
| Earnings of equity method investments | | 3,689 | | | 1,316 | | | 2,373 | | | 180 | |
Interest income | | 1,074 |
| | 778 |
| | 296 |
| | 38 |
| Interest income | | 1,018 | | | 1,011 | | | 7 | | | 1 | |
Interest expense | | (28,731 | ) | | (19,550 | ) | | (9,181 | ) | | 47 |
| Interest expense | | (26,892) | | | (30,589) | | | 3,697 | | | (12) | |
Gain on foreign currency transactions | | 19,122 |
| | — |
| | 19,122 |
| | — |
| |
Other, net | | 286 |
| | 107 |
| | 179 |
| | 167 |
| |
Gain on business interruption insurance settlement | | Gain on business interruption insurance settlement | | — | | | 81,000 | | | (81,000) | | | (100) | |
| Gain (loss) on foreign currency transactions | | Gain (loss) on foreign currency transactions | | (3,492) | | | 1,030 | | | (4,522) | | | (439) | |
Gain on sale of assets and other | | Gain on sale of assets and other | | 85,779 | | | 1,368 | | | 84,411 | | | 6,170 | |
| | (3,177 | ) | | (14,898 | ) | | 11,721 |
| | (79 | ) | | 60,102 | | | 55,136 | | | 4,966 | | | 9 | |
Income before income taxes | | 446,103 |
| | 109,867 |
| | 336,236 |
| | 306 |
| Income before income taxes | | 357,507 | | | 27,918 | | | 329,589 | | | 1,181 | |
Income tax expense | | 158,386 |
| | 22,196 |
| | 136,190 |
| | 614 |
| Income tax expense | | 54,766 | | | 4,573 | | | 50,193 | | | 1,098 | |
Net income | | 287,717 |
| | 87,671 |
| | 200,046 |
| | 228 |
| Net income | | 302,741 | | | 23,345 | | | 279,396 | | | 1,197 | |
Less net income attributable to noncontrolling interest | | 15,703 |
| | 13,174 |
| | 2,529 |
| | 19 |
| Less net income attributable to noncontrolling interest | | 21,954 | | | 25,746 | | | (3,792) | | | (15) | |
Net income attributable to HollyFrontier stockholders | | $ | 272,014 |
| | $ | 74,497 |
| | $ | 197,517 |
| | 265 | % | |
Earnings per share attributable to HollyFrontier stockholders: | | | | | | | | | |
Net income (loss) attributable to HollyFrontier stockholders | | Net income (loss) attributable to HollyFrontier stockholders | | $ | 280,787 | | | $ | (2,401) | | | $ | 283,188 | | | (11,795) | % |
Earnings (loss) per share attributable to HollyFrontier stockholders: | | Earnings (loss) per share attributable to HollyFrontier stockholders: | | | | | | | |
Basic | | $ | 1.53 |
| | $ | 0.42 |
| | $ | 1.11 |
| | 264 | % | Basic | | $ | 1.71 | | | $ | (0.01) | | | $ | 1.72 | | | (17,200) | % |
Diluted | | $ | 1.53 |
| | $ | 0.42 |
| | $ | 1.11 |
| | 264 | % | Diluted | | $ | 1.71 | | | $ | (0.01) | | | $ | 1.72 | | | (17,200) | % |
Cash dividends declared per common share | | $ | 0.33 |
| | $ | 0.33 |
| | $ | — |
| | — | % | Cash dividends declared per common share | | $ | — | | | $ | 0.35 | | | $ | (0.35) | | | (100) | % |
Average number of common shares outstanding: | | | | | | | | | Average number of common shares outstanding: | | | | | | | |
Basic | | 176,149 |
| | 175,871 |
| | 278 |
| | — | % | Basic | | 162,551 | | | 162,015 | | | 536 | | | — | % |
Diluted | | 176,530 |
| | 175,993 |
| | 537 |
| | — | % | Diluted | | 162,551 | | | 162,015 | | | 536 | | | — | % |
| | | | Nine Months Ended September 30, | | Change from 2016 | | | Nine Months Ended September 30, | | Change from 2020 |
| | 2017 | | 2016 | | Change | | Percent | | | 2021 | | 2020 | | Change | | Percent |
| | (In thousands, except per share data) | | | (In thousands, except per share data) |
Sales and other revenues | | $ | 10,258,594 |
|
| $ | 7,580,632 |
| | $ | 2,677,962 |
| | 35 | % | Sales and other revenues | | $ | 12,766,475 | | | $ | 8,282,875 | | | 4,483,600 | | | 54 | % |
Operating costs and expenses: | | | | | | | | | Operating costs and expenses: | |
Cost of products sold (exclusive of depreciation and amortization): | | | | | | | | | Cost of products sold (exclusive of depreciation and amortization): | |
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) | | 8,283,127 |
| | 6,215,155 |
| | 2,067,972 |
| | 33 |
| Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) | | 10,608,892 | | | 6,647,960 | | | 3,960,932 | | | 60 | |
Lower of cost or market inventory valuation adjustment | | (15,323 | ) | | (194,282 | ) | | 178,959 |
| | (92 | ) | Lower of cost or market inventory valuation adjustment | | (318,862) | | | 227,711 | | | (546,573) | | | (240) | |
| | 8,267,804 |
| | 6,020,873 |
| | 2,246,931 |
| | 37 |
| | 10,290,030 | | | 6,875,671 | | | 3,414,359 | | | 50 | |
Operating expenses (exclusive of depreciation and amortization) | | 944,437 |
| | 760,151 |
| | 184,286 |
| | 24 |
| Operating expenses (exclusive of depreciation and amortization) | | 1,086,620 | | | 964,200 | | | 122,420 | | | 13 | |
Selling, general and administrative expenses (exclusive of depreciation and amortization) | | 184,659 |
| | 88,270 |
| | 96,389 |
| | 109 |
| Selling, general and administrative expenses (exclusive of depreciation and amortization) | | 250,785 | | | 237,559 | | | 13,226 | | | 6 | |
Depreciation and amortization | | 304,206 |
| | 269,433 |
| | 34,773 |
| | 13 |
| Depreciation and amortization | | 369,341 | | | 396,033 | | | (26,692) | | | (7) | |
Goodwill and asset impairment | | 19,247 |
| | 654,084 |
| | (634,837 | ) | | (97 | ) | |
Long-lived asset impairment | | Long-lived asset impairment | | — | | | 436,908 | | | (436,908) | | | (100) | |
Total operating costs and expenses | | 9,720,353 |
| | 7,792,811 |
| | 1,927,542 |
| | 25 |
| Total operating costs and expenses | | 11,996,776 | | | 8,910,371 | | | 3,086,405 | | | 35 | |
Income (loss) from operations | | 538,241 |
| | (212,179 | ) | | 750,420 |
| | (354 | ) | Income (loss) from operations | | 769,699 | | | (627,496) | | | 1,397,195 | | | (223) | |
| Other income (expense): | | | | | | | | | Other income (expense): | |
Earnings of equity method investments | | 10,965 |
| | 10,155 |
| | 810 |
| | 8 |
| Earnings of equity method investments | | 8,875 | | | 5,186 | | | 3,689 | | | 71 | |
Interest income | | 2,069 |
| | 1,380 |
| | 689 |
| | 50 |
| Interest income | | 3,078 | | | 6,590 | | | (3,512) | | | (53) | |
Interest expense | | (85,534 | ) | | (45,888 | ) | | (39,646 | ) | | 86 |
| Interest expense | | (94,220) | | | (85,923) | | | (8,297) | | | 10 | |
Gain on business interruption insurance settlement | | Gain on business interruption insurance settlement | | — | | | 81,000 | | | (81,000) | | | (100) | |
Gain on tariff settlement | | Gain on tariff settlement | | 51,500 | | | — | | | 51,500 | | | — | |
Gain on sales-type leases | | Gain on sales-type leases | | — | | | 33,834 | | | (33,834) | | | (100) | |
Loss on early extinguishment of debt | | (12,225 | ) | | (8,718 | ) | | (3,507 | ) | | 40 |
| Loss on early extinguishment of debt | | — | | | (25,915) | | | 25,915 | | | (100) | |
Gain on foreign currency swaps | | 24,545 |
| | — |
| | 24,545 |
| | — |
| |
Gain on foreign currency transactions | | 19,517 |
| | — |
| | 19,517 |
| | — |
| |
Other, net | | 23 |
| | 300 |
| | (277 | ) | | (92 | ) | |
Loss on foreign currency transactions | | Loss on foreign currency transactions | | (4,226) | | | (918) | | | (3,308) | | | 360 | |
Gain on sale of assets and other | | Gain on sale of assets and other | | 95,596 | | | 4,790 | | | 90,806 | | | 1,896 | |
| | (40,640 | ) | | (42,771 | ) | | 2,131 |
| | (5 | ) | | 60,603 | | | 18,644 | | | 41,959 | | | 225 | |
Income (loss) before income taxes | | 497,601 |
| | (254,950 | ) | | 752,551 |
| | (295 | ) | Income (loss) before income taxes | | 830,302 | | | (608,852) | | | 1,439,154 | | | (236) | |
Income tax expense | | 173,593 |
| | 6,459 |
| | 167,134 |
| | 2,588 |
| |
Income tax expense (benefit) | | Income tax expense (benefit) | | 149,944 | | | (188,504) | | | 338,448 | | | (180) | |
Net income (loss) | | 324,008 |
| | (261,409 | ) | | 585,417 |
| | (224 | ) | Net income (loss) | | 680,358 | | | (420,348) | | | 1,100,706 | | | (262) | |
Less net income attributable to noncontrolling interest | | 39,695 |
| | 52,209 |
| | (12,514 | ) | | (24 | ) | Less net income attributable to noncontrolling interest | | 82,504 | | | 63,353 | | | 19,151 | | | 30 | |
Net income (loss) attributable to HollyFrontier stockholders | | $ | 284,313 |
| | $ | (313,618 | ) | | $ | 597,931 |
| | (191 | )% | Net income (loss) attributable to HollyFrontier stockholders | | $ | 597,854 | | | $ | (483,701) | | | $ | 1,081,555 | | | (224) | % |
| Earnings (loss) per share attributable to HollyFrontier stockholders: | | | | | | | | | Earnings (loss) per share attributable to HollyFrontier stockholders: | |
Basic | | $ | 1.60 |
| | $ | (1.78 | ) | | $ | 3.38 |
| | (190 | )% | Basic | | $ | 3.63 | | | $ | (2.99) | | | $ | 6.62 | | | (221) | % |
Diluted | | $ | 1.60 |
| | $ | (1.78 | ) | | $ | 3.38 |
| | (190 | )% | Diluted | | $ | 3.63 | | | $ | (2.99) | | | $ | 6.62 | | | (221) | % |
Cash dividends declared per common share | | $ | 0.99 |
| | $ | 0.99 |
| | $ | — |
| | — | % | Cash dividends declared per common share | | $ | 0.35 | | | $ | 1.05 | | | $ | (0.70) | | | (67) | % |
Average number of common shares outstanding: | | | | | | | | | Average number of common shares outstanding: | | | | | | | |
Basic | | 176,143 |
| | 176,157 |
| | (14 | ) | | — | % | Basic | | 162,518 | | | 161,927 | | | 591 | | | — | % |
Diluted | | 176,616 |
| | 176,157 |
| | 459 |
| | — | % | Diluted | | 162,518 | | | 161,927 | | | 591 | | | — | % |
| | | | | | | | September 30, 2021 | | December 31, 2020 |
| | September 30, 2017 | | December 31, 2016 | | (Unaudited) | | |
| | (Unaudited) | | | | | (In thousands) |
| | (In thousands) | |
Cash, cash equivalents and total investments in marketable securities | | $ | 630,742 |
| | $ | 1,134,727 |
| |
Cash and cash equivalents | | Cash and cash equivalents | | $ | 1,481,562 | | | $ | 1,368,318 | |
Working capital | | $ | 1,396,046 |
| | $ | 1,767,780 |
| Working capital | | $ | 2,310,815 | | | $ | 1,935,605 | |
Total assets | | $ | 10,148,355 |
| | $ | 9,435,661 |
| Total assets | | $ | 12,897,181 | | | $ | 11,506,864 | |
Long-term debt | | $ | 2,236,514 |
| | $ | 2,235,137 |
| Long-term debt | | $ | 3,072,352 | | | $ | 3,142,718 | |
Total equity | | $ | 5,465,777 |
| | $ | 5,301,985 |
| Total equity | | $ | 6,329,539 | | | $ | 5,722,203 | |
Other Financial Data
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In thousands) |
Net cash provided by operating activities | | $ | 249,413 | | | $ | 81,748 | | | $ | 739,494 | | | $ | 391,050 | |
Net cash used for investing activities | | $ | (116,164) | | | $ | (81,985) | | | $ | (438,476) | | | $ | (213,651) | |
Net cash provided by (used for) financing activities | | $ | (45,691) | | | $ | 618,726 | | | $ | (184,169) | | | $ | 463,207 | |
Capital expenditures | | $ | 215,504 | | | $ | 83,272 | | | $ | 548,345 | | | $ | 213,008 | |
EBITDA (1) | | $ | 482,647 | | | $ | 157,030 | | | $ | 1,208,281 | | | $ | (196,839) | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In thousands) |
Net cash provided by operating activities | | $ | 312,015 |
| | $ | 133,948 |
| | $ | 785,413 |
| | $ | 444,274 |
|
Net cash used for investing activities | | $ | (56,787 | ) | | $ | (127,818 | ) | | $ | (637,296 | ) | | $ | (397,154 | ) |
Net cash provided by (used for) financing activities | | $ | (86,986 | ) | | $ | (91,799 | ) | | $ | (230,452 | ) | | $ | 252,668 |
|
Capital expenditures | | $ | 56,067 |
| | $ | 97,432 |
| | $ | 193,117 |
| | $ | 387,477 |
|
EBITDA (1) | | $ | 560,941 |
| | $ | 206,595 |
| | $ | 857,802 |
| | $ | 15,500 |
|
(1)Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.
| |
(1) | Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis. EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q. |
Segment Operating Data
Our operations are organized into three reportable segments, Refining, PCLILubricants and Specialty Products and HEP. See Note 1615 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments.
Refining Segment Operating Data
Our
As of September 30, 2021, our refinery operations include the El Dorado, Tulsa, Navajo Cheyenne and Woods Cross Refineries.TheRefineries. The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations. The cost of products and refinery gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments, and depreciation and amortization.amortization and long-lived asset impairments. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.
In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently began converting certain assets at our Cheyenne Refinery to renewable diesel production. The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region continues to be comprised of the El Dorado and Tulsa Refineries, and the new West region is comprised of the Navajo and Woods Cross Refineries. Refining segment operating data for the three and nine months ended September 30, 2020 have been retrospectively adjusted to reflect the revised regional groupings.
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| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Mid-Continent Region (El Dorado and Tulsa Refineries) | | | | | | | | |
Crude charge (BPD) (1) | | 262,470 |
| | 271,780 |
| | 258,420 |
| | 258,680 |
|
Refinery throughput (BPD) (2) | | 275,270 |
| | 289,010 |
| | 274,200 |
| | 277,870 |
|
Refinery production (BPD) (3) | | 263,760 |
| | 276,720 |
| | 263,520 |
| | 266,510 |
|
Sales of produced refined products (BPD) | | 252,350 |
| | 262,060 |
| | 254,000 |
| | 253,390 |
|
Sales of refined products (BPD) (4) | | 270,720 |
| | 292,310 |
| | 278,180 |
| | 280,150 |
|
Refinery utilization (5) | | 101.0 | % | | 104.5 | % | | 99.4 | % | | 99.5 | % |
| | | | | | | | |
Average per produced barrel (6) | | | | | | | | |
Net sales | | $ | 69.81 |
| | $ | 61.71 |
| | $ | 67.12 |
| | $ | 56.61 |
|
Cost of products (7) | | 56.40 |
| | 52.08 |
| | 57.19 |
| | 48.19 |
|
Refinery gross margin (8) | | 13.41 |
| | 9.63 |
| | 9.93 |
| | 8.42 |
|
Refinery operating expenses (9) | | 4.98 |
| | 4.70 |
| | 5.14 |
| | 4.87 |
|
Net operating margin (8) | | $ | 8.43 |
| | $ | 4.93 |
| | $ | 4.79 |
| | $ | 3.55 |
|
| | | | | | | | |
Refinery operating expenses per throughput barrel (10) | | $ | 4.57 |
| | $ | 4.26 |
| | $ | 4.76 |
| | $ | 4.44 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Mid-Continent Region (El Dorado and Tulsa Refineries) | | | | | | |
Crude charge (BPD) (1) | | 280,220 | | | 244,200 | | | 258,530 | | | 234,550 | |
Refinery throughput (BPD) (2) | | 294,970 | | | 257,280 | | | 272,770 | | | 249,430 | |
Sales of produced refined products (BPD) (3) | | 277,310 | | | 243,830 | | | 258,800 | | | 239,800 | |
Refinery utilization (4) | | 107.8 | % | | 93.9 | % | | 99.4 | % | | 90.2 | % |
| | | | | | | | |
Average per produced barrel (5) | | | | | | | | |
Refinery gross margin | | $ | 13.59 | | | $ | 3.21 | | | $ | 10.65 | | | $ | 6.41 | |
Refinery operating expenses (6) | | 5.72 | | | 5.47 | | | 6.68 | | | 5.47 | |
Net operating margin | | $ | 7.87 | | | $ | (2.26) | | | $ | 3.97 | | | $ | 0.94 | |
| | | | | | | | |
Refinery operating expenses per throughput barrel (7) | | $ | 5.37 | | | $ | 5.19 | | | $ | 6.33 | | | $ | 5.26 | |
| | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 66 | % | | 62 | % | | 63 | % | | 58 | % |
Sour crude oil | | 13 | % | | 18 | % | | 14 | % | | 19 | % |
Heavy sour crude oil | | 16 | % | | 15 | % | | 18 | % | | 17 | % |
Other feedstocks and blends | | 5 | % | | 5 | % | | 5 | % | | 6 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 52 | % | | 53 | % | | 51 | % | | 52 | % |
Diesel fuels | | 32 | % | | 35 | % | | 33 | % | | 34 | % |
Jet fuels | | 5 | % | | 3 | % | | 5 | % | | 4 | % |
Fuel oil | | 1 | % | | 1 | % | | 1 | % | | 1 | % |
Asphalt | | 4 | % | | 2 | % | | 3 | % | | 3 | % |
Base oils | | 4 | % | | 4 | % | | 4 | % | | 4 | % |
LPG and other | | 2 | % | | 2 | % | | 3 | % | | 2 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | |
West Region (Navajo and Woods Cross Refineries) | | | | | | | | |
Crude charge (BPD) (1) | | 136,210 | | | 131,680 | | | 135,370 | | | 125,710 | |
Refinery throughput (BPD) (2) | | 149,760 | | | 146,860 | | | 148,700 | | | 139,710 | |
Sales of produced refined products (BPD) (3) | | 144,710 | | | 144,970 | | | 148,410 | | | 142,740 | |
Refinery utilization (4) | | 93.9 | % | | 90.8 | % | | 93.4 | % | | 86.7 | % |
| | | | | | | | |
Average per produced barrel (5) | | | | | | | | |
Refinery gross margin | | $ | 17.33 | | | $ | 11.24 | | | $ | 13.67 | | | $ | 12.01 | |
Refinery operating expenses (6) | | 7.70 | | | 6.88 | | | 7.43 | | | 7.01 | |
Net operating margin | | $ | 9.63 | | | $ | 4.36 | | | $ | 6.24 | | | $ | 5.00 | |
| | | | | | | | |
Refinery operating expenses per throughput barrel (7) | | $ | 7.44 | | | $ | 6.79 | | | $ | 7.41 | | | $ | 7.16 | |
| | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 22 | % | | 30 | % | | 22 | % | | 30 | % |
Sour crude oil | | 58 | % | | 48 | % | | 59 | % | | 49 | % |
Black wax crude oil | | 11 | % | | 12 | % | | 10 | % | | 11 | % |
Other feedstocks and blends | | 9 | % | | 10 | % | | 9 | % | | 10 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 51 | % | | 57 | % | | 52 | % | | 56 | % |
Diesel fuels | | 39 | % | | 34 | % | | 38 | % | | 35 | % |
Fuel oil | | 3 | % | | 2 | % | | 3 | % | | 2 | % |
Asphalt | | 5 | % | | 6 | % | | 4 | % | | 5 | % |
LPG and other | | 2 | % | | 1 | % | | 3 | % | | 2 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
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| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Mid-Continent Region (El Dorado and Tulsa Refineries) | | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 65 | % | | 62 | % | | 62 | % | | 58 | % |
Sour crude oil | | 14 | % | | 15 | % | | 17 | % | | 17 | % |
Heavy sour crude oil | | 16 | % | | 17 | % | | 15 | % | | 18 | % |
Other feedstocks and blends | | 5 | % | | 6 | % | | 6 | % | | 7 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 50 | % | | 51 | % | | 50 | % | | 49 | % |
Diesel fuels | | 34 | % | | 33 | % | | 33 | % | | 34 | % |
Jet fuels | | 6 | % | | 6 | % | | 7 | % | | 6 | % |
Fuel oil | | 1 | % | | 1 | % | | 1 | % | | 1 | % |
Asphalt | | 3 | % | | 3 | % | | 3 | % | | 3 | % |
Lubricants | | 4 | % | | 5 | % | | 4 | % | | 5 | % |
LPG and other | | 2 | % | | 1 | % | | 2 | % | | 2 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
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| | | | | | | | | | | | | | | | |
Southwest Region (Navajo Refinery) | | | | | | | | |
Crude charge (BPD) (1) | | 112,060 |
| | 100,180 |
| | 96,350 |
| | 99,990 |
|
Refinery throughput (BPD) (2) | | 122,890 |
| | 109,350 |
| | 105,190 |
| | 110,020 |
|
Refinery production (BPD) (3) | | 121,040 |
| | 107,940 |
| | 103,620 |
| | 108,660 |
|
Sales of produced refined products (BPD) | | 125,770 |
| | 107,010 |
| | 103,680 |
| | 110,240 |
|
Sales of refined products (BPD) (4) | | 125,790 |
| | 110,270 |
| | 109,070 |
| | 111,850 |
|
Refinery utilization (5) | | 112.1 | % | | 100.2 | % | | 96.4 | % | | 100.0 | % |
| | | | | | | | |
Average per produced barrel (6) | | | | | | | | |
Net sales | | $ | 70.21 |
| | $ | 60.24 |
| | $ | 67.99 |
| | $ | 55.81 |
|
Cost of products (7) | | 55.38 |
| | 50.74 |
| | 55.94 |
| | 46.64 |
|
Refinery gross margin (8) | | 14.83 |
| | 9.50 |
| | 12.05 |
| | 9.17 |
|
Refinery operating expenses (9) | | 4.04 |
| | 4.86 |
| | 5.05 |
| | 4.62 |
|
Net operating margin (8) | | $ | 10.79 |
| | $ | 4.64 |
| | $ | 7.00 |
| | $ | 4.55 |
|
| | | | | | | | |
Refinery operating expenses per throughput barrel (10) | | $ | 4.13 |
| | $ | 4.76 |
| | $ | 4.98 |
| | $ | 4.63 |
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| | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 25 | % | | 26 | % | | 23 | % | | 29 | % |
Sour crude oil | | 66 | % | | 66 | % | | 68 | % | | 62 | % |
Other feedstocks and blends | | 9 | % | | 8 | % | | 9 | % | | 9 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 51 | % | | 52 | % | | 52 | % | | 54 | % |
Diesel fuels | | 42 | % | | 42 | % | | 41 | % | | 41 | % |
Fuel oil | | 4 | % | | 3 | % | | 3 | % | | 2 | % |
Asphalt | | 1 | % | | 1 | % | | 1 | % | | 1 | % |
LPG and other | | 2 | % | | 2 | % | | 3 | % | | 2 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
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| | | | | | | | | | | | |
Rocky Mountain Region (Cheyenne and Woods Cross Refineries) | | | | | | | | |
Crude charge (BPD) (1) | | 80,260 |
| | 71,600 |
| | 76,510 |
| | 62,490 |
|
Refinery throughput (BPD) (2) | | 87,620 |
| | 75,470 |
| | 84,050 |
| | 66,490 |
|
Refinery production (BPD) (3) | | 84,800 |
| | 72,080 |
| | 81,370 |
| | 63,320 |
|
Sales of produced refined products (BPD) | | 77,840 |
| | 68,630 |
| | 78,140 |
| | 63,800 |
|
Sales of refined products (BPD) (4) | | 78,230 |
| | 71,450 |
| | 78,570 |
| | 67,800 |
|
Refinery utilization (5) | | 82.7 | % | | 73.8 | % | | 78.9 | % | | 71.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Consolidated | | | | | | | | |
Crude charge (BPD) (1) | | 416,430 | | | 375,880 | | | 393,900 | | | 360,260 | |
Refinery throughput (BPD) (2) | | 444,730 | | | 404,140 | | | 421,470 | | | 389,140 | |
Sales of produced refined products (BPD) (3) | | 422,020 | | | 388,800 | | | 407,210 | | | 382,540 | |
Refinery utilization (4) | | 102.8 | % | | 92.8 | % | | 97.3 | % | | 89.0 | % |
| | | | | | | | |
Average per produced barrel (5) | | | | | | | | |
Refinery gross margin | | $ | 14.87 | | | $ | 6.20 | | | $ | 11.75 | | | $ | 8.50 | |
Refinery operating expenses (6) | | 6.40 | | | 6.00 | | | 6.95 | | | 6.04 | |
Net operating margin | | $ | 8.47 | | | $ | 0.20 | | | $ | 4.80 | | | $ | 2.46 | |
| | | | | | | | |
Refinery operating expenses per throughput barrel (7) | | $ | 6.07 | | | $ | 5.77 | | | $ | 6.71 | | | $ | 5.94 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | |
| | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 51 | % | | 51 | % | | 49 | % | | 48 | % |
Sour crude oil | | 28 | % | | 28 | % | | 29 | % | | 30 | % |
Heavy sour crude oil | | 11 | % | | 10 | % | | 12 | % | | 11 | % |
Black wax crude oil | | 4 | % | | 4 | % | | 4 | % | | 4 | % |
Other feedstocks and blends | | 6 | % | | 7 | % | | 6 | % | | 7 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 51 | % | | 54 | % | | 52 | % | | 54 | % |
Diesel fuels | | 35 | % | | 35 | % | | 35 | % | | 34 | % |
Jet fuels | | 3 | % | | 2 | % | | 3 | % | | 2 | % |
Fuel oil | | 2 | % | | 1 | % | | 1 | % | | 1 | % |
Asphalt | | 4 | % | | 4 | % | | 4 | % | | 4 | % |
Base oils | | 3 | % | | 2 | % | | 2 | % | | 3 | % |
LPG and other | | 2 | % | | 2 | % | | 3 | % | | 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 405,000 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” following Item 3 of Part I of this Form 10-Q.
(6)Represents total refining segment operating expenses, exclusive of depreciation and amortization and Cheyenne Refinery operating expenses, divided by sales volumes of refined products produced at our refineries.
(7)Represents total refining segment operating expenses, exclusive of depreciation and amortization and Cheyenne Refinery operating expenses, divided by refinery throughput.
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| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Rocky Mountain Region (Cheyenne and Woods Cross Refineries) | | | | | | | | |
Average per produced barrel (6) | | | | | | | | |
Net sales | | $ | 72.43 |
| | $ | 61.89 |
| | $ | 68.91 |
| | $ | 56.76 |
|
Cost of products (7) | | 54.65 |
| | 50.83 |
| | 53.20 |
| | 47.13 |
|
Refinery gross margin (8) | | 17.78 |
| | 11.06 |
| | 15.71 |
| | 9.63 |
|
Refinery operating expenses (9) | | 10.50 |
| | 9.48 |
| | 10.30 |
| | 10.14 |
|
Net operating margin (8) | | $ | 7.28 |
| | $ | 1.58 |
| | $ | 5.41 |
| | $ | (0.51 | ) |
| | | | | | | | |
Refinery operating expenses per throughput barrel (10) | | $ | 9.33 |
| | $ | 8.62 |
| | $ | 9.58 |
| | $ | 9.73 |
|
| | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 32 | % | | 33 | % | | 34 | % | | 39 | % |
Heavy sour crude oil | | 37 | % | | 42 | % | | 36 | % | | 37 | % |
Black wax crude oil | | 23 | % | | 20 | % | | 21 | % | | 18 | % |
Other feedstocks and blends | | 8 | % | | 5 | % | | 9 | % | | 6 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 59 | % | | 58 | % | | 59 | % | | 59 | % |
Diesel fuels | | 33 | % | | 34 | % | | 33 | % | | 34 | % |
Fuel oil | | 3 | % | | 2 | % | | 2 | % | | 2 | % |
Asphalt | | 2 | % | | 3 | % | | 4 | % | | 2 | % |
LPG and other | | 3 | % | | 3 | % | | 2 | % | | 3 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | | | | | | | | | |
Consolidated | | | | | | | | |
Crude charge (BPD) (1) | | 454,790 |
| | 443,560 |
| | 431,280 |
| | 421,160 |
|
Refinery throughput (BPD) (2) | | 485,780 |
| | 473,830 |
| | 463,440 |
| | 454,380 |
|
Refinery production (BPD) (3) | | 469,600 |
| | 456,740 |
| | 448,510 |
| | 438,490 |
|
Sales of produced refined products (BPD) | | 455,960 |
| | 437,700 |
| | 435,820 |
| | 427,430 |
|
Sales of refined products (BPD) (4) | | 474,740 |
| | 474,030 |
| | 465,820 |
| | 459,800 |
|
Refinery utilization (5) | | 99.5 | % | | 97.1 | % | | 94.4 | % | | 94.1 | % |
| | | | | | | | |
Average per produced barrel (6) | | | | | | | | |
Net sales | | $ | 70.37 |
| | $ | 61.38 |
| | $ | 67.65 |
| | $ | 56.43 |
|
Cost of products (7) | | 55.82 |
| | 51.55 |
| | 56.18 |
| | 47.64 |
|
Refinery gross margin (8) | | 14.55 |
| | 9.83 |
| | 11.47 |
| | 8.79 |
|
Refinery operating expenses (9) | | 5.67 |
| | 5.49 |
| | 6.04 |
| | 5.59 |
|
Net operating margin (8) | | $ | 8.88 |
| | $ | 4.34 |
| | $ | 5.43 |
| | $ | 3.20 |
|
| | | | | | | | |
Refinery operating expenses per throughput barrel (10) | | $ | 5.32 |
| | $ | 5.07 |
| | $ | 5.69 |
| | $ | 5.26 |
|
| | | | | | | | |
Feedstocks: | | | | | | | | |
Sweet crude oil | | 49 | % | | 49 | % | | 48 | % | | 48 | % |
Sour crude oil | | 25 | % | | 25 | % | | 25 | % | | 26 | % |
Heavy sour crude oil | | 16 | % | | 17 | % | | 16 | % | | 16 | % |
Black wax crude oil | | 4 | % | | 3 | % | | 4 | % | | 3 | % |
Other feedstocks and blends | | 6 | % | | 6 | % | | 7 | % | | 7 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Consolidated | | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Gasolines | | 52 | % | | 52 | % | | 52 | % | | 52 | % |
Diesel fuels | | 36 | % | | 35 | % | | 35 | % | | 36 | % |
Jet fuels | | 4 | % | | 4 | % | | 4 | % | | 4 | % |
Fuel oil | | 2 | % | | 2 | % | | 2 | % | | 1 | % |
Asphalt | | 2 | % | | 2 | % | | 2 | % | | 2 | % |
Lubricants | | 2 | % | | 3 | % | | 3 | % | | 3 | % |
LPG and other | | 2 | % | | 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) | Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries. |
| |
(4) | Includes refined products purchased for resale. |
| |
(5) | Represents crude charge divided by total crude capacity (BPSD). Effective July 1, 2016, our consolidated crude capacity increased from 443,000 BPSD to 457,000 BPSD upon completion of our Woods Cross Refinery expansion project. |
| |
(6) | Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q. |
| |
(7) | Transportation, terminal and refinery storage costs billed from HEP are included in cost of products. |
| |
(8) | Excludes lower of cost or market inventory valuation adjustments that increased gross margin by $111.1 million and decreased gross margin by $0.3 million for the three months ended September 30, 2017 and 2016, respectively and increased gross margin by $15.3 million and $194.3 million for the nine months ended September 30, 2017 and 2016, respectively.
|
| |
(9) | Represents operating expenses of our refineries, exclusive of depreciation and amortization. |
| |
(10) | Represents refinery operating expenses, exclusive of depreciation and amortization, divided by refinery throughput. |
PCLILubricants and Specialty Products Operating Data
The following table sets forth information about our lubricants and specialty products operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Lubricants and Specialty Products | | | | | | | | |
Throughput (BPD) | | 18,260 | | | 19,020 | | | 29,140 | | | 19,050 | |
Sales of produced refined products (BPD) | | 31,700 | | | 33,560 | | | 33,640 | | | 32,460 | |
| | | | | | | | |
Sales of produced refined products: | | | | | | | | |
Finished products | | 53 | % | | 50 | % | | 52 | % | | 51 | % |
Base oils | | 28 | % | | 27 | % | | 28 | % | | 24 | % |
Other | | 19 | % | | 23 | % | | 20 | % | | 25 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
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, 2021 | | | | | | | | |
Sales and other revenues | | $ | 270,207 | | | $ | 634,654 | | | $ | (238,327) | | | $ | 666,534 | |
Cost of products sold | | $ | 148,171 | | | $ | 572,689 | | | $ | (238,327) | | | $ | 482,533 | |
Operating expenses | | $ | 29,046 | | | $ | 31,894 | | | $ | — | | | $ | 60,940 | |
Selling, general and administrative expenses | | $ | 7,058 | | | $ | 34,418 | | | $ | — | | | $ | 41,476 | |
Depreciation and amortization | | $ | 6,375 | | | $ | 12,851 | | | $ | — | | | $ | 19,226 | |
| | | | | | | | |
Income (loss) from operations | | $ | 79,557 | | | $ | (17,198) | | | $ | — | | | $ | 62,359 | |
| | | | | | | | |
Three months ended September 30, 2020 | | | | | | | | |
Sales and other revenues | | $ | 110,952 | | | $ | 423,418 | | | $ | (79,328) | | | $ | 455,042 | |
Cost of products sold | | $ | 98,033 | | | $ | 283,998 | | | $ | (79,328) | | | $ | 302,703 | |
Operating expenses | | $ | 25,400 | | | $ | 29,088 | | | $ | — | | | $ | 54,488 | |
Selling, general and administrative expenses | | $ | 5,616 | | | $ | 31,157 | | | $ | — | | | $ | 36,773 | |
Depreciation and amortization | | $ | 5,419 | | | $ | 12,013 | | | $ | — | | | $ | 17,432 | |
| | | | | | | | |
Income (loss) from operations | | $ | (23,516) | | | $ | 67,162 | | | $ | — | | | $ | 43,646 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | |
Nine months ended September 30, 2021 | | | | | | | | |
Sales and other revenues | | $ | 698,134 | | | $ | 1,747,111 | | | $ | (584,959) | | | $ | 1,860,286 | |
Cost of products sold | | $ | 443,983 | | | $ | 1,446,250 | | | $ | (584,959) | | | $ | 1,305,274 | |
Operating expenses | | $ | 86,773 | | | $ | 96,230 | | | $ | — | | | $ | 183,003 | |
Selling, general and administrative expenses | | $ | 19,711 | | | $ | 104,901 | | | $ | — | | | $ | 124,612 | |
Depreciation and amortization | | $ | 19,910 | | | $ | 38,589 | | | $ | — | | | $ | 58,499 | |
| | | | | | | | |
Income from operations | | $ | 127,757 | | | $ | 61,141 | | | $ | — | | | $ | 188,898 | |
| | | | | | | | |
Nine months ended September 30, 2020 | | | | | | | | |
Sales and other revenues | | $ | 361,638 | | | $ | 1,241,402 | | | $ | (264,108) | | | $ | 1,338,932 | |
Cost of products sold | | $ | 345,843 | | | $ | 870,695 | | | $ | (264,108) | | | $ | 952,430 | |
Operating expenses | | $ | 69,703 | | | $ | 86,756 | | | $ | — | | | $ | 156,459 | |
Selling, general and administrative expenses | | $ | 16,596 | | | $ | 105,058 | | | $ | — | | | $ | 121,654 | |
Depreciation and amortization | | $ | 22,163 | | | $ | 37,097 | | | $ | — | | | $ | 59,260 | |
Long-lived asset impairment | | $ | 167,017 | | | $ | 37,691 | | | $ | — | | | $ | 204,708 | |
Income (loss) from operations | | $ | (259,684) | | | $ | 104,105 | | | $ | — | | | $ | (155,579) | |
(1) Rack Back consists of our PCLI operations forbase oil production activities, by-product sales to third parties and intra-segment base oil sales to Rack Forward.
(2) Rack Forward activities include the periodpurchase of base oils from February 1, 2017 (dateRack Back and the blending, packaging, marketing and distribution and sales of acquisition) through September 30, 2017.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.
|
| | | | | | |
| | Three months ended September 30, 2017 | | Period from February 1, 2017 through September 30, 2017 |
PCLI | | | | |
Throughput (BPD) (1) | | 22,356 |
| | 21,978 |
|
Production (BPD) (2) | | 21,666 |
| | 21,393 |
|
Sales of produced refined products (BPD) | | 20,599 |
| | 20,655 |
|
| |
(1) | Throughput represents the barrels per day of feedstocks (principally vacuum gas oil and hydrocracker bottoms) input into our PCLI production facilities. |
| |
(2) | Production represents the barrels per day of products yielded from our PCLI production facilities. |
Results of Operations – Three Months Ended September 30, 20172021 Compared to Three Months Ended September 30, 20162020
Summary
Net income attributable to HollyFrontier stockholders for the three months ended September 30, 20172021 was $272.0$280.8 million ($1.53 ($1.71 per basic and diluted share), a $197.5$283.2 millionincrease compared to $74.5from a net loss of $2.4 million ($0.42(0.01) per basic and diluted share) for the three months ended September 30, 2016. Current year third quarter earnings reflect2020. The increase in net income was principally driven by stronger product demand, which resulted in an increase in refining segment sales volumes andrefinery gross margins and $22.6 million in earnings attributable to our recently acquired PCLI operations. For the three months ended September 30, 2017, lower of cost or market inventory reserve adjustments increased pre-tax earnings by $111.1 million compared to a decrease of $0.3 million for the three months ended September 30, 2016.higher refined product sales volumes. Refinery gross margins for the three months ended September 30, 20172021 increased to $14.55$14.87 per produced barrel sold from $9.83$6.20 for the three months ended September 30, 2016.2020. This increase was partially offset by the lower of cost or market inventory reserve adjustment that increased pre-tax earnings by $62.8 million for the three months ended September 30, 2020.
Sales and Other Revenues
Sales and other revenues increased 31%66% from $2,847.3$2,819.4 million for the three months ended September 30, 20162020 to $3,719.2$4,685.1 million for the three months ended September 30, 20172021 principally due to a year-over-yearthe increase in third quarter sales prices and higher refined product sales volumes. The average sales price we received per produced barrel sold was $61.38 for the three months ended September 30, 2016 compared to $70.37 for the three months ended September 30, 2017. Sales and other revenues for the three months ended September 30, 20172021 and 2016 include $15.22020 included $25.5 million and $15.2$26.7 million, respectively, inof HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. PCLI contributed $298.1 million inAdditionally, sales and other revenues included $666.0 million and $452.9 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the three months ended September 30, 2017.2021 and 2020, respectively.
Cost of Products Sold
Total cost of products sold increased 19%65% from $2,342.1$2,314.4 million for the three months ended September 30, 20162020 to $2,777.4$3,822.9 million for the three months ended September 30, 2017,2021 principally due principally to higher crude oil costs and higher refined product sales volumes of refined products. Additionally duringvolumes. During the third quarter of 2017,2020, we recognized an $111.1 milliona lower of cost or market inventory valuation adjustment benefit a $111.4 million increase compared to a charge of $0.3 million for the same period of 2016, resulting in a new $317.2 million inventory reserve at September 30, 2017. The reserve at September 30, 2017 is based on market conditions and prices at that time. Excluding this non-cash adjustment, the average price we paid per barrel for crude oil and feedstocks and the transportation costs of moving finished products to market increased 8% from $51.55 for the three months ended September 30, 2016 to $55.82 for the three months ended September 30, 2017. Cost of products sold includes $177.3 million in costs attributable to our PCLI operations.$62.8 million.
Gross Refinery Margins
Gross refinery margin per produced barrel sold increased 48%140% from $9.83$6.20 for the three months ended September 30, 20162020 to $14.55$14.87 for the three months ended September 30, 2017. This2021. The increase was due to the effects of an increase in the average per barrel sold sales price for refined products sold,during the current year quarter, partially offset by increased crude oil and feedstock prices during the current year quarter.prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sale prices of refined products sold and cost of products purchased.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 26%6% from $256.2$332.5 million for the three months ended September 30, 20162020 to $321.7$352.5 million for the three months ended September 30, 20172021 primarily due principally to $56.1 millionan increase in costs attributable to our recently acquired PCLI operations and higher purchased fuel costs compared to the same period of 2016.natural gas prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 106%22% from $33.0$74.5 million for the three months ended September 30, 20162020 to$68.0 million for the three months ended September 30, 2017 due principally to $28.7 million in costs attributable to our recently acquired PCLI operations and $4.2 million in incremental direct acquisition and integration costs of our PCLI business.
Depreciation and Amortization Expenses
Depreciation and amortization increased 13% from $91.1 million for the three months ended September 30, 20162021 primarily due to $102.9higher professional services and legal costs incurred in connection with the recently announced acquisitions, including $4.3 million in pre-close acquisition integration costs related to the Puget Sound Acquisition during the three months ended September 30, 2021. See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on these acquisitions.
Depreciation and Amortization Expenses
Depreciation and amortization decreased 3% from $125.3 million for the three months ended September 30, 2017. This increase was due principally2020 to depreciation and amortization attributable to capitalized improvement projects and capitalized refinery turnaround costs. Depreciation and amortization expenses include $7.5 million in costs attributable to our PCLI operations.
Interest Income
Interest income for the three months ended September 30, 2017 was $1.1 million compared to $0.8$121.2 million for the three months ended September 30, 2016.2021. This increasedecrease was primarily due to higher interest rates received on cash balances and marketable debt securitieslower capitalized refinery turnaround costs during the current year quarter.2020.
Interest Expense
Interest expense was $28.7$26.9 million for the three months ended September 30, 20172021 compared to $19.6$30.6 million for the three months ended September 30, 2016.2020. This increase isdecrease was primarily due to interest attributablenet gains related to higher debt levelsour catalyst financing arrangement during the current year quarter relativethree months ended September 30, 2021 as compared to net losses during the same period in the prior year and higher capitalized interest during the three months ended September 30, 2021 due to the capital expenditures related to the construction of 2016. our renewable diesel units. This decrease was partially offset by interest expense on our senior notes issued in September 2020.
For the three months ended September 30, 20172021 and 2016,2020, interest expense included $14.1attributable to our HEP segment was $13.4 million and $14.4$12.5 million, respectively,respectively.
Gain on Business Interruption Insurance Settlement
During the third quarter of 2020, we recorded a gain of $81.0 million upon the settlement of our business interruption claim with our insurance carrier related to a loss at our Woods Cross Refinery that occurred in interest costs attributable to limited recourse debt that finances HEP operations.the first quarter of 2018.
Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing structurenotes payable by PCLI net of mark-to-market valuations on our PCLI acquisition from local currencies toforeign exchange forward contracts with banks which hedge the U.S. dollar resulted inforeign currency exposure on these intercompany notes was a $19.1net loss of $3.5 million and a net gain for the three months ended September 30, 2017.
Income Taxes
For the three months ended September 30, 2017, we recorded income tax expense of $158.4 million compared to $22.2$1.0 million for the three months ended September 30, 2016.2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, gain (loss) on foreign currency transactions included a gain of $9.7 million and a loss of $8.2 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).
Gain on Sale of Assets and Other
For the three months ended September 30, 2021, we recorded an $86.0 million gain related to the sale of real property in Mississauga, Ontario. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information.
Income Taxes
For the three months ended September 30, 2021, we recorded an income tax expense of $54.8 million compared to $4.6 million for the three months ended September 30, 2020. This increase was principally due principally to higher pre-tax income during the three months ended September 30, 20172021 compared to the same period of 2016.2020. Our effective tax rates before consideration ofwere 15.3% and 16.4% for the three months ended September 30, 2021 and 2020, respectively. The decrease in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest were 35.5%that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and 20.2%the effective tax rate for the three months ended September 30, 20172021 was primarily due to the net operating loss carryback provisions of the CARES Act and 2016, respectively.federal tax credits.
Results of Operations – Nine Months Ended September 30, 20172021 Compared to Nine Months Ended September 30, 20162020
Summary
Net income attributable to HollyFrontier stockholders for the nine months ended September 30, 20172021 was $284.3$597.9 million ($1.60 ($3.63 per basic and diluted share), a $597.9$1,081.6 million increase compared to a net loss attributable to HollyFrontier stockholders of $(313.6)$483.7 million ($(1.78)(2.99) per basic and diluted share) for the nine months ended September 30, 2016. Net2020. The increase in net income increased duewas principally todriven by stronger product demand, which resulted in an increase in refining segment sales volumes andrefinery gross refining margins and the inclusionhigher refined product sales volumes. Net income also increased due to lower of $43.6 million incost or market inventory reserve adjustments that increased pre-tax earnings attributable to our recently acquired PCLI operations. Additionally, we recorded long-lived asset impairment charges totaling $23.2by $318.9 million for the nine months ended September 30, 2017 compared to goodwill2021 and long-lived asset impairment charges totaling $654.1 million for the same period of last year. For the nine months ended September 30, 2017, lower of cost or market inventory reserve adjustments increaseddecreased pre-tax earnings by $15.3 million compared to $194.3 million for the nine months ended September 30, 2016. Refinery gross margins for the nine months ended September 30, 2017 increased to $11.47 per produced barrel from $8.79 for the nine months ended September 30, 2016. During the second quarter of 2017, our Cheyenne Refinery was granted a one-year small refinery exemption from the EPA at which time we recorded a $30.5 million decrease to our RINs costs, reflecting the reinstatement of RINs previously expensed in 2016.
Sales and Other Revenues
Sales and other revenues increased 35% from $7,580.6$227.7 million for the nine months ended September 30, 2016 to $10,258.62020. In addition, we recorded long-lived asset impairment charges of $436.9 million for the nine months ended September 30, 20172020. The increase in net income for the nine months ended September 30, 2021 was partially offset by the impact of winter storm Uri, which increased natural gas costs by approximately $65 million across our refining system. Refinery gross margins for the nine months ended September 30, 2021 increased to $11.75 per barrel sold from $8.50 for the nine months ended September 30, 2020.
Sales and Other Revenues
Sales and other revenues increased 54% from $8,282.9 million for the nine months ended September 30, 2020 to $12,766.5 million for the nine months ended September 30, 2021 due to a year-over-year increase in sales prices and higher refined product sales volumes. The average sales price we received per produced barrel sold was $56.43 for the nine months ended September 30, 2016 compared to $67.65 for the nine months ended September 30, 2017. Sales and other revenues for the nine months ended September 30, 20172021 and 20162020 include $47.8$77.8 million and $50.1$72.4 million,, respectively, in HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. PCLI contributed $809.6 million inAdditionally, sales and other revenues included $1,850.8 million and $1,330.0 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the nine months ended September 30, 2017.2021 and 2020, respectively.
Cost of Products Sold
Total cost of products sold increased 37%50% from $6,020.9$6,875.7 million for the nine months ended September 30, 20162020 to $8,267.8$10,290.0 million for the nine months ended September 30, 2017,2021 principally due principally to higherthe increase in crude oil costs and higherfeedstock prices and refined product sales volumes of refined products. Additionally, cost of products sold reflectsvolumes. We recognized a $15.3 million benefit that is attributable to a decrease in the lower of cost or market reserve for the nine months ended September 30, 2017, a $179.0inventory valuation benefit of $318.9 million decrease compared to $194.3 million for the same period of last year. The reserve at September 30, 2017 is based on market conditions and prices at that time. Excluding this non-cash adjustment, the average price we paid per barrel for crude oil and feedstocks and the transportation costs of moving the finished products to the marketplace increased 18% from $47.64 for the nine months ended September 30, 20162021 compared to $56.18a charge of $227.7 million for the same period of 2020, resulting in no lower of cost or market reserve at September 30, 2021.
Gross Refinery Margins
Gross refinery margin per barrel sold increased 38% from $8.50 for the nine months ended September 30, 2017. Additionally, we recorded a $30.5 million RINs cost reduction during the second quarter of 2017 as a result of our Cheyenne small refinery exemption. Cost of products sold includes $519.2 million in costs attributable2020 to our PCLI operations.
Gross Refinery Margins
Gross refinery margin per produced barrel increased 30% from $8.79$11.75 for the nine months ended September 30, 2016 to $11.47 for the nine months ended September 30, 2017. This was2021 principally due to the effects of an increase in the average per barrel sold sales price for refined products sold,prices, partially offset by increasedthe increase in crude oil and feedstock prices during the current year-to-date period.prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments goodwill and asset impairment charges or depreciation and amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sales prices of refined products sold and cost of products purchased.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 24% from $760.2 million for the nine months ended September 30, 2016 to $944.4 million for the nine months ended September 30, 2017 due principally to $144.8 million in costs attributable to our recently acquired PCLI operations and higher purchased fuel costs compared to the same period of 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 109% from $88.3 million for the nine months ended September 30, 2016 to $184.7 million for the nine months ended September 30, 2017 due principally to $67.4 million in costs attributable to our recently acquired PCLI operations and $23.5 million in incremental direct acquisition and integration costs of our PCLI business.
Depreciation and Amortization Expenses
Depreciation and amortization increased 13% from $269.4$964.2 million for the nine months ended September 30, 20162020 to $304.2$1,086.6 million for the nine months ended September 30, 2017. This increase was due principally to depreciation and amortization attributable to capitalized improvement projects and capitalized refinery turnaround costs. Depreciation and amortization expenses include $19.9 million in costs attributable to our PCLI operations.
Goodwill and Asset Impairment
During the nine months ended September 30, 2017,2021 primarily due to the increase in natural gas prices and higher planned and unplanned repair and maintenance costs. The increase in natural gas prices was due in part to winter storm Uri during the first quarter of 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 6% from $237.6 million for the nine months ended September 30, 2020 to $250.8 million for the nine months ended September 30, 2021 primarily due to higher professional services and legal costs incurred in connection with the recently announced acquisitions, including $5.0 million in pre-close acquisition integration costs related to the Puget Sound Acquisition during the nine months ended September 30, 2021. See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on these acquisitions.
Depreciation and Amortization Expenses
Depreciation and amortization decreased 7% from $396.0 million for the nine months ended September 30, 2020 to $369.3 million for the nine months ended September 30, 2021. This decrease was principally due to lower capitalized refinery turnaround costs during 2020 and lower depreciation expense resulting from the assets impaired in the second quarter of 2020.
Long-lived Asset Impairment
During the nine months ended September 30, 2020, we recorded a $19.2 million long-lived asset impairment charge resulting from management’s plan to cease further expansion of our Woods Cross Refinery to add lubricants production compared to goodwill and long-lived asset impairment charges of $309.3$232.2 million that related to our Cheyenne Refinery and $344.8$204.7 million respectively, for the nine months ended September 30, 2016.related to PCLI. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information on the Cheyenne refinery impairment during the second quarter of 2016.these impairments.
Interest IncomeExpense
Interest income for the nine months ended September 30, 2017expense was $2.1 million compared to $1.4$94.2 million for the nine months ended September 30, 2016.2021 compared to $85.9 million for the nine months ended September 30, 2020. This increase was primarily due to higher interest rates receivedexpense on cash balances and marketable debt securities during the current year-to-date period.
Interest Expense
Interest expense was $85.5 million for the nine months ended our senior notes issued in September 30, 2017 compared to $45.9 million for the nine months ended September 30, 2016.2020. This increase was partially offset by higher capitalized interest during the nine months ended September 30, 2020 due to interest attributablethe capital expenditures related to higher debt levelsthe construction of our renewable diesel units and lower weighted average balance on HEP’s credit facility during the current year relative to the same period of 2016. nine months ended September 30, 2021.
For the nine months ended September 30, 20172021 and 2016,2020, interest expense included $41.4attributable to our HEP Segment was $40.6 million and $36.3$40.7 million, respectively,respectively.
Gain on Business Interruption Insurance Settlement
During the third quarter of 2020, we recorded a gain of $81.0 million upon the settlement of our business interruption claim with our insurance carrier related to a loss at our Woods Cross Refinery that occurred in interest costs attributable to limited recourse debt that finances HEP operations.the first quarter of 2018.
Loss
Gain on Early Extinguishment of DebtTariff Settlement
For the nine months ended September 30, 2017,2021, we recorded a $12.2gain of $51.5 million loss was recorded upon HEP’s redemption of its $300 million aggregate principal amount of 6.5% senior notes maturing March 2020 at a cost of $309.8 million.
For the nine months ended September 30, 2016, we recognized an $8.7 million loss on the early retirementsettlement of a financing obligation, a component of outstanding debt, upon HEP's purchase of crude oil tanks from an affiliate of Plains All American Pipeline L.P. (“Plains”).tariff rate case. See Note 10 “Debt”14 “Contingencies” in the Notes to Consolidated Financial Statements for additional information on this financing obligation.case and settlement.
Gain on Foreign Currency SwapsSales-type Leases
During the second quarter of 2020, HEP and Delek US Holdings, Inc. renewed the original throughput agreement on specific HEP assets. Portions of the new throughput agreement met the definition of sales-type leases, which resulted in an accounting gain of $33.8 million upon the initial recognition of the sales-type lease during the nine months ended September 30, 2017, we2020.
Loss on Early Extinguishment of Debt
For the nine months ended September 30, 2020, HEP recorded a $24.5$25.9 million gainloss on currency swap contracts that effectively fixed the conversion rate on $1.125 billion Canadian dollars (the PCLI purchase price), which were settled on February 1, 2017, in connection with the closingredemption of the PCLI acquisition.its $500 million aggregate principal amount of 6.0% senior notes maturing August 2024 for $522.5 million.
GainLoss on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing structurenotes payable by PCLI net of mark-to-market valuations on our PCLI acquisition from local currencies toforeign exchange forward contracts with banks which hedge the U.S. dollar resulted in a $19.5foreign currency exposure on these intercompany notes were net losses of $4.2 million gainand $0.9 million for the nine months ended September 30, 2017.
Income Taxes
2021 and 2020, respectively. For the nine months ended September 30, 2017,2021 and 2020, loss on foreign currency transactions included a net loss of $3.2 million and a gain of $11.0 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).
Gain on Sale of Assets and Other
For the nine months ended September 30, 2021, we recorded an $86.0 million gain related to the sale of real property in Mississauga, Ontario, and HEP recorded a $5.3 million gain related to the sale of certain pipeline assets. See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information.
Income Taxes
For the nine months ended September 30, 2021, we recorded an income tax expense of $173.6$149.9 million compared to $6.5a benefit of $188.5 million for the nine months ended September 30, 2016. Our effective tax rates, before consideration of earnings attributable2020. This change to the noncontrolling interest, were 34.9% and 2.5% for the nine months ended September 30, 2017 and 2016, respectively. The increase inincome tax expense and the effectivein 2021 from income tax rate year-over-year isbenefit in 2020 was principally due principally to higher pre-tax income during the nine months ended September 30, 20172021 as compared to a pre-tax loss forin the same period of 20162020. Our effective tax rates were 18.1% and the effects of the second quarter 2016 $309.3 million goodwill impairment charge, a significant driver of our $255.0 million loss before income taxes31.0% for the nine months ended September 30, 2016,2021 and 2020, respectively. The year-over-year decrease in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not deductibleincluded in income for income tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the nine months ended September 30, 2021 was primarily due to the net operating loss carryback provisions of the CARES Act and federal tax credits.
LIQUIDITY AND CAPITAL RESOURCES
HollyFrontier Credit Agreement
In February 2017,On April 30, 2021, we increased the size ofamended our $1.35 billion senior unsecured revolving credit facility from $1 billion to $1.35 billion and extendedextend the maturity date to February 2022April 30, 2026 (the “HollyFrontier Credit Agreement”). The HollyFrontier Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. During the nine months endedAt September 30, 2017, we received advances totaling $26.0 million and repaid $26.0 million under the HollyFrontier Credit Agreement. At September 30, 2017,2021, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling $2.8$2.3 million under the HollyFrontier Credit Agreement.
HollyFrontier Financing Arrangements
Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature on February 1, 2022. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity.
HEP Credit Agreement
In July 2017,On April 30, 2021, HEP increased the size ofamended its $1.4 billion senior secured revolving credit facility fromdecreasing the commitments under the facility to $1.2 billion to $1.4 billion and extendedextending the maturity date to July 202227, 2025 (the “HEP Credit Agreement”). The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and hascontinues to provide for an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a $300 million accordion.maximum amount of $1.7 billion. During the nine months ended September 30, 2017,2021, HEP received advances totaling $628.0$210.5 million and repaid $431.0$283.5 million under the HEP Credit Agreement. At September 30, 2017,2021, HEP was in compliance with all of its covenants, had outstanding borrowings of $750.0$840.5 million and no outstanding letters of credit under the HEP Credit Agreement.
HEP Senior Notes
In September, 2017, HEP issued an additional $100 million in aggregate principal amount of 6.0% HEP senior notes maturing in August 2024 in a private placement. HEP used the net proceeds of $101.8 million to repay indebtedness under the HEP Credit Agreement.
In January 2017, HEP redeemed its $300 million aggregate principal amount of 6.5% senior notes maturing March 2020 at a redemption cost of $309.8 million, at which time HEP recognized a $12.2 million early extinguishment loss consisting of a $9.8 million debt redemption premium and unamortized discount and financing costs of $2.4 million. HEP funded the redemption with borrowings under the HEP Credit Agreement.
See Note 10 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments.
HEP Common Unit Continuous Offering Program
In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the nine months ended September 30, 2017, HEP issued 1,538,452 units under this program, providing $52.3 million in net proceeds. In connection with this program and to maintain the 2% general partner interest, we made capital contributions totaling $1.1 million during the nine months ended September 30, 2017. As of September 30, 2017, HEP has issued 2,241,907 units with an aggregate gross sales amount of $77.1 million.
HEP intends to use the net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. Amounts repaid under HEP’s credit facility may be reborrowed from time to time.
Liquidity
We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. In addition, components of our long-term growth strategy include construction of new refinery processing units and the expansion of existing units at our facilities and selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow. In connection with the Puget Sound Acquisition, our Board of Directors approved a one-year suspension of the regular quarterly dividend effective with the dividend to be declared for the first quarter of 2021 and is expected to resume the dividend after such time.
As of Our standalone (excluding HEP) liquidity was approximately $2.8 billion at September 30, 2017, our2021, consisting of cash and cash equivalents totaled $630.7 million. of $1.5 billion and an undrawn $1.35 billion credit facility.
We consider all highly-liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. These primarily consist of investments in conservative, highly-rated instruments issued by financial institutions, government and corporate entities with strong credit standings and money market funds. Cash equivalents are stated at cost, which approximates market value.
On October 29, 2016, our wholly-owned subsidiary, 9952110 Canada Inc., entered into a share purchase agreement with Suncor to acquire 100% of the outstanding capital stock of PCLI that closed on February 1, 2017. Cash consideration paid was $862.0 million, or $1.125 billion in Canadian dollars.
In May 2015,November 2019, our Board of Directors approved a $1$1.0 billion share repurchase program, which replaced all existing share repurchase programs, authorizing us to repurchase common stock in the open market or through privately negotiated transactions. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory and other relevant considerations. This program may be discontinued at any time by the Board of Directors. As of September 30, 2017,2021, we had remaining authorization to repurchase up to $178.8 millionnot repurchased common stock under this stock repurchase program. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. We do not intend to repurchase common stock under our $1.0 billion share repurchase program until completion of our ongoing renewables capital projects at the earliest.
Cash andFlows – Operating Activities
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net cash equivalents decreased $79.8flows provided by operating activities were $739.5 million for the nine months ended September 30, 2017. Working capital decreased by $371.7 million during the nine months ended September 30, 2017, which is principally due2021 compared to our cash purchase of PCLI, net of working capital acquired.
Cash Flows – Operating Activities
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net cash flows provided by operating activities were $785.4$391.1 million for the nine months ended September 30, 2017 compared2020, an increase of $348.4 million. The increase in operating cash flows was primarily due to $444.3the increase in gross refinery margins and $51.5 million received upon settlement of a tariff rate case, partially offset by higher operating expenses.
Changes in working capital increased operating cash flows by $55.3 million and decreased operating cash flows by $50.0 million, for the nine months ended September 30, 2016, an increase of $341.1 million. Net income for the nine months ended September 30, 2017 was $324.0 million, an increase of $585.4 million compared to net loss of $261.4 million for the nine months ended September 30, 2016. Non-cash adjustments to net income consisting of depreciation2021 and amortization, goodwill and asset impairment, lower of cost or market inventory valuation adjustment, earnings of equity method investments, inclusive of distributions, gain or loss on sale of assets, loss on extinguishment of debt, deferred income taxes, equity-based compensation expense, fair value changes to derivative instruments and excess tax expense from equity-based compensation totaled $433.8 million for the nine months ended September 30, 2017 compared to $777.2 million for the same period in 2016.2020, respectively. Changes in working capital items increased cash flows by $134.9 million and $23.1 millionadjust for the nine months ended September 30, 2017timing of receipts and 2016, respectively. Additionally, for the nine months ended September 30, 2017, turnaround expenditures increased to $111.5 million from $104.2 million for the same periodpayments of 2016.actual cash.
Cash Flows – Investing Activities and Planned Capital Expenditures
Nine Months Ended September 30, 20172021 Compared to Nine Months Ended September 30, 20162020
Net cash flows used for investing activities were $637.3$438.5 million for the nine months ended September 30, 2017 compared to $397.2 million for the nine months ended September 30, 2016, 2021 compared to $213.7 million for the nine months ended September 30, 2020, an increase of $240.1$224.8 million. Current year investing activities reflect a net cash outflow of $870.6 million upon the acquisition of PCLI. Cash expenditures for properties, plants and equipment for the first nine months of 2017 decreased to $193.12021 increased to $548.3 million from $387.5$213.0 million for the same period in 2016. These2020, primarily due to expenditures related to our renewable diesel units that are expected to be completed in the first half of 2022. Cash expenditures for properties, plants and equipment include HEP capital expenditures of $30.7$76.9 million and $96.1$38.6 million for the nine months ended September 30, 2017 and 2016, respectively. In addition, in 2016, HEP purchased a 50% interest in Cheyenne Pipeline for $42.6 million. Also for the nine months ended September 30, 20172021 and 2016, we2020, respectively. For the nine months ended September 30, 2020, HEP also invested $41.6$2.4 million and $155.1 million, respectively, in marketable securities and received proceeds of $465.7 million and $187.4 million, respectively, from the sale or maturity of marketable securities.Cushing Connect Pipeline & Terminal LLC joint venture.
Planned Capital Expenditures
HollyFrontier Corporation
Each year our Board of Directors approves our annual capital budget which includes specific projects that management is authorized to undertake. Additionally, when conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. During 2017, we expect to spend approximately $200.0 million to $250.0 million in cash for capital projects appropriated in 2017 and prior years. In addition, we expect to spend approximately $135.0 million to $150.0 million on refinery turnarounds. Refinery turnaround spending is amortized over the useful life of the turnaround.
The refining industry is capital intensive and requires on-going investments to sustain our refining operations. This includes replacement of, or rebuilding, refinery units and components that extend the useful life. We also invest in projects that improve operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety compliance and include initiatives as a result of federal and state mandates.
A significant portion of our current capital spending is associated with compliance-oriented capital improvements. This spending is required due to existing consent decrees (for projects including FCC unit flue gas scrubbers and tail gas treatment units), federal fuels regulations (particularly Tier3, which mandates a reduction in the sulfur content of blended gasoline), refinery waste water treatment improvements and other similar initiatives. Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and / or yields of associated refining processes.
We have completed construction on our existing Woods Cross expansion project, increasing crude processing capacity to 45,000 BPSD, and providing greater crude slate flexibility, which we believe will increase capacity utilization and improve overall economic returns during periods when wax crudes are in short supply. The project also included construction of new refining facilities and a new rail loading rack for intermediates and finished products associated with refining waxy crude oil.
On November 18, 2013, the Utah Division of Air Quality issued a revised air quality permit (the “Approval Order”) authorizing the expansion. On December 18, 2013, two local environmental groups filed an administrative appeal challenging the issuance of the Approval Order and seeking a stay of the Approval Order. Following an extended appeal process, the Executive Director of the Utah Department of Environmental Quality issued a final order in favor of Woods Cross on all claims on March 31, 2015, and dismissed the project opponents’ arguments with prejudice. On April 27, 2015, the opponents filed a petition for review and notice of appeal with the Utah Court of Appeals challenging the agency’s decision to uphold the permit and dismiss the project opponents’ arguments. On August 4, 2016, the Utah Court of Appeals transferred the case to the Utah Supreme Court. The Utah Supreme Court established a supplemental briefing schedule, which ran through October 2016. Oral argument took place on December 14, 2016 and focused primarily on alleged procedural defects in the Petitioner’s appeal. The Utah Supreme Court took the matter under advisement and, on June 19, 2017, issued a 4-1 decision in favor of the State of Utah and HollyFrontier in a brief four-page opinion. This matter is now closed unless Petitioners file a motion for reconsideration, which appears unlikely at this point in time.
HEP
Each year the Holly Logistic Services, L.L.C. board of directors approves HEP’s annual capital budget, which specifies capital projects that HEP management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, special projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of several years,a year, depending on the time required to complete the project. Therefore, HEP’s planned capital expenditures for a given year consist of expenditures approved for capital projects included in its current year capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. In addition, HEP may spend funds periodically to perform capital upgrades or additions to its assets where a customer reimburses HEP for such costs. The 2017 HEPupgrades or additions would generally benefit the customer over the remaining life of the related service agreements.
Expected capital budgetand turnaround cash spending for 2021 is comprisedas follows and primarily reflects a change in the timing of $9.0 million for maintenance capital expendituresspend between 2021 and $30.0 million for expansion capital expenditures.2022 on the renewable diesel units.
| | | | | | | | | | | |
| Expected Cash Spending Range |
| (In millions) |
HollyFrontier Capital Expenditures | | | |
Refining | $ | 190.0 | | | $ | 220.0 | |
Renewables | 550.0 | | | 600.0 | |
Lubricants and Specialty Products | 40.0 | | | 50.0 | |
Turnarounds and catalyst | 290.0 | | | 320.0 | |
Total HollyFrontier | 1,070.0 | | | 1,190.0 | |
| | | |
HEP | | | |
Maintenance | 15.0 | | | 20.0 | |
Expansion and joint venture investment | 40.0 | | | 45.0 | |
Refining unit turnarounds | 2.0 | | | 4.0 | |
Total HEP | 57.0 | | | 69.0 | |
Total | $ | 1,127.0 | | | $ | 1,259.0 | |
Cash Flows – Financing Activities
Nine Months Ended September 30, 20172021 Compared to Nine Months Ended September 30, 20162020
NetFor the nine months ended September 30, 2021, our net cash flows used for financing activities were $230.5 million for$184.2 million. During the nine months ended September 30, 2017 compared2021, we paid $57.7 million in dividends and $7.9 million of deferred financing costs in connection with the amendment of the HollyFrontier Credit Agreement in April 2021. During the nine months ended September 30, 2021, HEP had net repayments of $73.0 million under the HEP Credit Agreement and paid $6.6 million of deferred financing costs in connection with the amendment of the HEP Credit Agreement in April 2021. In addition, HEP paid distributions of $57.2 million to noncontrolling interests and received contributions from noncontrolling interests of $21.3 million.
For the nine months ended September 30, 2020, our net cash flows provided by financing activities of $252.7 million forwere $463.2 million. During the nine months ended September 30, 2016, an increase of $483.1 million. During the nine months ended September 30, 2017,2020, we received $26.0 million and repaid $26.0 million under the Holly Frontier Credit Agreement and paid $176.5 million in dividends. Also during this period, HEP received $628.0 million and repaid $431.0 million under the HEP Credit Agreement, received $101.8 million in net proceeds from issuance of HEP 6.0% senior notes, paid $309.8 million upon the redemption of HEP’s 6.5% senior notes, received $52.3$744.1 million in net proceeds from the issuance of its common unitsHFC’s 2.625% and 4.500% senior notes, purchased $3.4 million of treasury stock and paid distributions of $81.8 million to noncontrolling interests. During the nine months ended September 30, 2016, we received $246.7$171.6 million in net proceeds upon issuance of our 5.875% senior notes,dividends. Also during the period, HEP received $350.0 million in net proceeds from issuance of a term loan, received $315.0$219.5 million and repaid $315.0 million under the HollyFrontier Credit Agreement, purchased $133.4 million in common stock and paid $175.2 million in dividends. In addition, we extinguished our financing obligation with Plains for $39.5 million. Also, during this period, HEP received $310.5 million and repaid $642.5$237.0 million under the HEP Credit Agreement, paid $522.5 million upon the redemption of HEP’s 6.0% senior notes and received $394.0$491.3 million in net proceeds from the issuance of HEP 6.0%5.0% senior notes, received $22.8 million in proceeds from the issuance of common units and paid distributions of $66.6$70.9 million to noncontrolling interests.interests and received contributions from noncontrolling interests of $15.4 million.
Contractual Obligations and Commitments
HollyFrontier Corporation
In February 2017,April 2021, we amendedrenewed a contract for terminal and storage services with a third party for an additional 15-year term. The agreement provides for storage capacity of 200,000 barrels per month for a total commitment of $9.4 million over the HollyFrontier Credit Agreement, increasing15 year term. In addition, the sizeagreement provides a throughput volume commitment of 225,000 barrels per day of crude oil for a total commitment of $92.4 million over the credit facility from $1.0 billion to $1.35 billion and extended15-year term. We also had certain lease renewals that increased our lease liabilities on our consolidated balance sheets during the maturity to February 2022.
nine months ended September 30, 2021. There were no other significant changes to our long-term contractual obligations during the nine months ended September 30, 2017.2021.
HEP
In January 2017, HEP redeemed its $300 million aggregate principal amount of 6.5% senior notes maturing March 2020.
In July 2017, HEP amended its credit agreement increasing the size of the credit facility from $1.2 billion to $1.4 billion and extending its maturity to July 2022. During the nine months ended September 30, 2017,2021, HEP received net borrowingshad net repayments of $197.0$73.0 million resulting in $750.0$840.5 million of outstanding borrowings inunder the HEP Credit Agreement at September 30, 2017.2021.
In September, 2017, HEP issued an additional $100 million aggregate principal amount of 6.0% HEP senior notes maturing August 2024.
There were no other significant changes to HEP’s long-term contractual obligations during this period.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2016.2020. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include the assessment and consolidation of variable interest entities, the use of the last-in, first-out (“LIFO”) method of valuing certain inventories, the amortization of deferred costs for regular major maintenance and repairs at our refineries, assessing the possible impairment of certain long-lived assets and goodwill, accounting for derivative instruments and assessing contingent liabilities for probable losses.
Inventory Valuation: Inventories related to our refining operations are stated at the lower of cost, using the LIFO method for crude oil and unfinished and finished refined products, or market. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.
At September 30, 2017, our2021, the LIFO value of inventory was equal to cost. Future decreases in overall inventory values could result in an establishment of a lower of cost or market inventory valuation reserve was $317.2 million. This amount, or a portion thereof, is subject to reversal as a reduction to cost of products sold in subsequent periods as inventories giving rise to the reserve are sold, and a new reserve is established. Such a reduction to cost of products sold could be significant if inventory values return to historical cost price levels. Additionally, further decreases in overall inventory values could result in additional charges to cost of products sold should the lower of cost or market inventory valuation reserve be increased.sold.
Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-average cost or net realizable value. Inventories of our PCLI operationsPetro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the FIFO method, or net realizable value.
Goodwill and Long-lived Assets: As of September 30, 2017,2021, our goodwill balance was $2.2$2.3 billion, with goodwill assigned to our refining, PCLIRefining, Lubricants and Specialty Products and HEP segments of $1.7 billion, $0.2 billion$1,733.5 million, $247.0 million and $0.3 billion,$312.9 million, respectively. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a comparisonquantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of oura reporting unit fair values relative to their respectiveis less than its carrying values.amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying value exceedsof the reporting unit is greater than its fair value, fora quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of reporting unit goodwill over the impliedrelated fair valuevalue.
For purposes of that goodwill based on estimates of the fair value of all assets and liabilities in the reporting unit.
Ourlong-lived asset impairment evaluation, we group our long-lived assets principally consist ofas follows: (i) our refiningrefinery asset groups, which include certain HEP logistics assets, that are organized as refining(ii) our Lubricants and Specialty Products asset groups and (iii) our PCLI business. TheHEP asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups also constitute our individual refinery reporting units that are usedrepresent the lowest level for testing and measuring goodwill impairments.which independent cash flows can be identified. Our long-lived assets are evaluated for impairment by identifying whether indicators of impairment exist and if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss measured, if any, is equal to the amount by which the asset group’s carrying value exceeds its fair value.
We performed our annual goodwill impairment testing quantitatively as of July 1, 20172021 and determined there was no impairment of goodwill attributable to our reporting units. The estimated fair values of our reporting units were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like kind assets. The excess of the fair values of the reporting units over their respective carrying values ranged from 12% to 162%. Increasing the discount rate by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have changed the results of our annual goodwill testing.
In performing our impairment test of goodwill, we developed cash flow forecasts for each of our reporting units. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted financial information. The cash flow forecasts include significant assumptions such as planned utilization, end-user demand, selling prices, gross margins, operating costs and capital expenditures. Another key assumption applied to these forecasts to determine the fair value of our El Doradoa reporting unit exceeded its carryingis the discount rate. The discount rate is intended to reflect the weighted average cost of capital for a market participant and the risks associated with the realization of the estimated future cash flows. Our fair value by approximately 10%.estimates are based on projected cash flows, which we believe to be reasonable.
We continually monitor and evaluate various factors for potential indicators of goodwill and long-lived asset impairment. A reasonable expectation exists that further deterioration in gross marginsour operating results or overall economic conditions could result in an impairment of goodwill and the/ or long-lived assets of the El Dorado reporting unitasset impairments at some point in the future and suchfuture. Future impairment charges could be material.material to our results of operations and financial condition.
Contingencies
We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
RISK MANAGEMENT
We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit.
Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price exposure with respect to:
to our inventory positions;
positions, natural gas purchases;
costs of crude oil and related grade differentials;
purchases, sales prices of refined products;products and crude oil costs.
Foreign Currency Risk Management
We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward and foreign exchange swap contracts to mitigate the exposure associated with fluctuations on intercompany notes with our refining margins.foreign subsidiaries that are not denominated in the U.S. dollar.
As of September 30, 2017,2021, we have the following notional contract volumes related to all outstanding derivative contractsinstruments used to mitigate commodity price and foreign currency risk:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Notional Contract Volumes by Year of Maturity | | | | | | |
Derivative Instrument | | Total Outstanding Notional | | 2021 | | 2022 | | | | | | Unit of Measure |
| | | | | | | | | | | | |
Natural gas price swaps - long | | 450,000 | | | 450,000 | | | — | | | | | | | MMBTU |
| | | | | | | | | | | | |
WTI and gasoline crack spread swaps - short | | 150,000 | | | 150,000 | | | — | | | | | | | Barrels |
NYMEX futures (WTI) - short | | 1,880,000 | | | 1,440,000 | | | 440,000 | | | | | | | Barrels |
Forward gasoline and diesel contracts - long | | 165,000 | | | 165,000 | | | — | | | | | | | Barrels |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Foreign currency forward contracts | | 443,112,746 | | | 105,825,135 | | | 337,287,611 | | | | | | | U.S. dollar |
Forward commodity contracts (platinum) (1) | | 38,723 | | | — | | | 38,723 | | | | | | | Troy ounces |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Notional Contract Volumes by Year of Maturity | | |
Contract Description | | Total Outstanding Notional | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Unit of Measure |
| | | | | | | | | | | | | | |
Natural gas price swaps - long | | 12,000,000 |
| | 4,800,000 |
| | 1,800,000 |
| | 1,800,000 |
| | 1,800,000 |
| | 1,800,000 |
| | MMBTU |
Natural gas price swaps - short | | 2,400,000 |
| | 2,400,000 |
| | — |
| | — |
| | — |
| | �� |
| | MMBTU |
Natural gas price swaps (basis spread) - long | | 2,577,000 |
| | 2,577,000 |
| | — |
| | — |
| | — |
| | — |
| | MMBTU |
Crude price swaps (basis spread) - long | | 918,000 |
| | 918,000 |
| | — |
| | — |
| | — |
| | — |
| | Barrels |
WTI and sub-octane gasoline crack spread swaps - short | | 700,000 |
| | 700,000 |
| | — |
| | — |
| | — |
| | — |
| | Barrels |
NYMEX futures (WTI) - short | | 1,870,000 |
| | 955,000 |
| | 915,000 |
| | — |
| | — |
| | — |
| | Barrels |
Forward gasoline and diesel contracts - long | | 715,000 |
| | 705,000 |
| | 10,000 |
| | — |
| | — |
| | — |
| | Barrels |
Physical crude contracts -short | | 150,000 |
| | 150,000 |
| | — |
| | — |
| | — |
| | — |
| | Barrels |
(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 10 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing arrangements.
The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity positions hedged under our derivative contracts:
| | | | | | | | | | | | | | |
| | Estimated Change in Fair Value at September 30, |
Commodity-based Derivative Contracts | | 2021 | | 2020 |
| | (In thousands) |
Hypothetical 10% change in underlying commodity prices | | $ | 13,569 | | | $ | 3,659 | |
|
| | | | | | | | |
| | Estimated Change in Fair Value at June 30, |
Commodity-based Derivative Contracts | | 2017 | | 2016 |
| | (In thousands) |
Hypothetical 10% change in underlying commodity prices | | $ | 7,360 |
| | $ | 1,064 |
|
Interest Rate Risk Management
The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates as discussed below.
For the fixed rate HollyFrontier Senior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of September 30, 20172021 is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | Outstanding Principal | | Estimated Fair Value | | Estimated Change in Fair Value |
| | (In thousands) |
HollyFrontier Senior Notes | | $ | 1,750,000 | | | $ | 1,946,420 | | | $ | 22,243 | |
| | | | | | |
HEP Senior Notes | | $ | 500,000 | | | $ | 506,770 | | | $ | 13,123 | |
|
| | | | | | | | | | | | |
| | Outstanding Principal | | Estimated Fair Value | | Estimated Change in Fair Value |
| | (In thousands) |
HollyFrontier Senior Notes | | $ | 1,000,000 |
| | $ | 1,091,470 |
| | $ | 33,555 |
|
HEP Senior Notes | | $ | 500,000 |
| | $ | 524,390 |
| | $ | 15,158 |
|
For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2017,2021, outstanding borrowings under the HEP Credit Agreement were $750.0 million.$840.5 million. A hypothetical 10% change in applicable interest rates applicable to the HEP Credit Agreement would not materially affect cash flows.
Our operations are subject to hazards of petroleum processing operations, including but not limited to fire, explosion, cyberattacks and weather-related perils. We maintain various insurance coverages, including property damage, business interruption and cyber insurance, subject to certain deductibles.deductibles and insurance policy terms and conditions. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures.
Financial information is reviewed on the counterparties in order to review and monitor their financial stability and assess their ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their commitments.
We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals.
| |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3.Quantitative and Qualitative Disclosures About Market Risk
See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under generally accepted accounting principles in the United States (“GAAP”) in financial statements.
Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in these calculationsthe EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis.analysis and as a basis for financial covenants.
Set forth below is our calculation of EBITDA.
| | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | | | 2021 | | 2020 | | 2021 | | 2020 |
| (In thousands) | | | (In thousands) |
Net income (loss) attributable to HollyFrontier stockholders | $ | 272,014 |
| | $ | 74,497 |
| | $ | 284,313 |
| | $ | (313,618 | ) | Net income (loss) attributable to HollyFrontier stockholders | | $ | 280,787 | | | $ | (2,401) | | | $ | 597,854 | | | $ | (483,701) | |
Add income tax expense | 158,386 |
| | 22,196 |
| | 173,593 |
| | 6,459 |
| |
Add interest expense (1) | 28,731 |
| | 19,550 |
| | 97,759 |
| | 54,606 |
| |
Add interest expense | | Add interest expense | | 26,892 | | | 30,589 | | | 94,220 | | | 85,923 | |
Subtract interest income | (1,074 | ) | | (778 | ) | | (2,069 | ) | | (1,380 | ) | Subtract interest income | | (1,018) | | | (1,011) | | | (3,078) | | | (6,590) | |
Add (subtract) income tax expense (benefit) | | Add (subtract) income tax expense (benefit) | | 54,766 | | | 4,573 | | | 149,944 | | | (188,504) | |
Add depreciation and amortization | 102,884 |
| | 91,130 |
| | 304,206 |
| | 269,433 |
| Add depreciation and amortization | | 121,220 | | | 125,280 | | | 369,341 | | | 396,033 | |
EBITDA | $ | 560,941 |
| | $ | 206,595 |
| | $ | 857,802 |
| | $ | 15,500 |
| EBITDA | | $ | 482,647 | | | $ | 157,030 | | | $ | 1,208,281 | | | $ | (196,839) | |
(1) Includes loss on early extinguishment of debt of $12.2 million and $8.7 million for the nine months ended September 30, 2017 and 2016, respectively.
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 the difference between average net sales price and averagetotal refining segment revenues less total refining segment cost of products per barrelsold, exclusive of lower of cost or market inventory valuation adjustments, divided by sales volumes of produced refined products.products sold. Net operating margin per barrel sold is the difference between refinery gross margin and refinery operating expenses per produced barrel of produced refined products.sold. These two margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments, goodwilldepreciation and amortization or long-lived asset impairment charges or depreciation and amortization.charges. Each of these component performance measures can be reconciled directly to our consolidated statements of income.operations. Other companies in our industry may not calculate these performance measures in the same manner.
Refinery Gross and Net Operating Margins
Below are reconciliations to our consolidated statements of incomeoperations for (i)refinery net sales, cost of products (exclusive of lower of cost or market inventory valuation adjustment)operating and gross margin and operating expenses, in each case averaged per produced barrel sold, and (ii) net operating margin and refinery gross margin.sold. Due to rounding of reported numbers, some amounts may not calculate exactly.
Reconciliation of produced product sales to total sales and other revenues
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in thousands, except per barrel amounts) |
Consolidated | | | | | | | |
Average sales price per produced barrel sold | $ | 70.37 |
| | $ | 61.38 |
| | $ | 67.65 |
| | $ | 56.43 |
|
Times sales of produced refined products (BPD) | 455,960 |
| | 437,700 |
| | 435,820 |
| | 427,430 |
|
Times number of days in period | 92 |
| | 92 |
| | 273 |
| | 274 |
|
Produced refined product sales | $ | 2,951,903 |
| | $ | 2,471,674 |
| | $ | 8,048,920 |
| | $ | 6,608,846 |
|
| | | | | | | |
Total produced refined products sales | $ | 2,951,903 |
| | $ | 2,471,674 |
| | $ | 8,048,920 |
| | $ | 6,608,846 |
|
Add refined product sales from purchased products and rounding (1) | 125,519 |
| | 207,698 |
| | 558,786 |
| | 500,509 |
|
Total refined product sales | 3,077,422 |
| | 2,679,372 |
| | 8,607,706 |
| | 7,109,355 |
|
Add direct sales of excess crude oil (2) | 277,810 |
| | 103,145 |
| | 658,117 |
| | 294,845 |
|
Add other refining segment revenue (3) | 54,563 |
| | 49,678 |
| | 147,185 |
| | 126,604 |
|
Total refining segment revenue | 3,409,795 |
| | 2,832,195 |
| | 9,413,008 |
| | 7,530,804 |
|
Add PCLI segment sales and other revenues | 298,137 |
| | — |
| | 809,643 |
| | — |
|
Add HEP segment sales and other revenues | 110,364 |
| | 92,611 |
| | 325,141 |
| | 289,517 |
|
Add corporate and other revenues | (325 | ) | | 11 |
| | (283 | ) | | 168 |
|
Subtract consolidations and eliminations | (98,724 | ) | | (77,547 | ) | | (288,915 | ) | | (239,857 | ) |
Sales and other revenues | $ | 3,719,247 |
| | $ | 2,847,270 |
| | $ | 10,258,594 |
| | $ | 7,580,632 |
|
Reconciliation of average cost of productsrefining segment net operating margin per produced barrel sold to refinery gross margin to total cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)sales
and other revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | | |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (Dollars in thousands, except per barrel amounts) |
Consolidated | | | | | | | | |
Net operating margin per produced barrel sold | | $ | 8.47 | | | $ | 0.20 | | | $ | 4.80 | | | $ | 2.46 | |
Add average refinery operating expenses per produced barrel sold | | 6.40 | | | 6.00 | | | 6.95 | | | 6.04 | |
Refinery gross margin per produced barrel sold | | 14.87 | | | 6.20 | | | 11.75 | | | 8.50 | |
Times produced barrels sold (BPD) | | 422,020 | | | 388,800 | | | 407,210 | | | 382,540 | |
Times number of days in period | | 92 | | | 92 | | | 273 | | | 274 | |
Refining gross margin | | 577,340 | | | 221,772 | | | 1,306,228 | | | 890,936 | |
Add (subtract) rounding | | 71 | | | 164 | | | (125) | | | 61 | |
West and Mid-Continent regions gross margin | | 577,411 | | | 221,936 | | | 1,306,103 | | | 890,997 | |
Add West and Mid-Continent regions cost of products sold | | 3,605,600 | | | 2,043,361 | | | 9,986,862 | | | 5,665,897 | |
Add Cheyenne Refinery sales and other revenues | | — | | | 130,816 | | | — | | | 501,589 | |
Refining segment sales and other revenues | | 4,183,011 | | | 2,396,113 | | | 11,292,965 | | | 7,058,483 | |
Add Lubricants and Specialty Products segment sales and other revenues | | 666,534 | | | 455,042 | | | 1,860,286 | | | 1,338,932 | |
Add HEP segment sales and other revenues | | 122,584 | | | 127,731 | | | 376,002 | | | 370,392 | |
Subtract corporate, other and eliminations | | (287,070) | | | (159,486) | | | (762,778) | | | (484,932) | |
Sales and other revenues | | $ | 4,685,059 | | | $ | 2,819,400 | | | $ | 12,766,475 | | | $ | 8,282,875 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in thousands, except per barrel amounts) |
Consolidated | | | | | | | |
Average cost of products per produced barrel sold | $ | 55.82 |
| | $ | 51.55 |
| | $ | 56.18 |
| | $ | 47.64 |
|
Times sales of produced refined products (BPD) | 455,960 |
| | 437,700 |
| | 435,820 |
| | 427,430 |
|
Times number of days in period | 92 |
| | 92 |
| | 273 |
| | 274 |
|
Cost of products for produced products sold | $ | 2,341,555 |
| | $ | 2,075,836 |
| | $ | 6,684,232 |
| | $ | 5,579,398 |
|
| | | | | | | |
Total cost of products for produced products sold | $ | 2,341,555 |
| | $ | 2,075,836 |
| | $ | 6,684,232 |
| | $ | 5,579,398 |
|
Add refined product costs from purchased products and rounding(1) | 126,739 |
| | 211,309 |
| | 560,313 |
| | 508,127 |
|
Total cost of refined products sold | 2,468,294 |
| | 2,287,145 |
| | 7,244,545 |
| | 6,087,525 |
|
Add crude oil cost of direct sales of excess crude oil (2) | 282,751 |
| | 104,187 |
| | 664,035 |
| | 297,494 |
|
Add other refining segment cost of products sold (4) | 37,349 |
| | 22,922 |
| | 83,923 |
| | 54,222 |
|
Total refining segment cost of products sold | 2,788,394 |
| | 2,414,254 |
| | 7,992,503 |
| | 6,439,241 |
|
Add PCLI segment cost of products sold | 177,324 |
| | — |
| | 519,187 |
| | — |
|
Subtract consolidations and eliminations | (77,188 | ) | | (72,417 | ) | | (228,563 | ) | | (224,086 | ) |
Costs of products sold (exclusive of lower of cost or market inventory valuation adjustment and depreciation and amortization) | $ | 2,888,530 |
| | $ | 2,341,837 |
| | $ | 8,283,127 |
| | $ | 6,215,155 |
|
Reconciliation of average refineryrefining segment operating expenses per produced barrel sold to total operating expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | | |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (Dollars in thousands, except per barrel amounts) |
Consolidated | | | | | | | | |
Average refinery operating expenses per produced barrel sold | | $ | 6.40 | | | $ | 6.00 | | | $ | 6.95 | | | $ | 6.04 | |
Times produced barrels sold (BPD) | | 422,020 | | | 388,800 | | | 407,210 | | | 382,540 | |
Times number of days in period | | 92 | | | 92 | | | 273 | | | 274 | |
Refinery operating expenses | | 248,485 | | | 214,618 | | | 772,620 | | | 633,088 | |
Add (subtract) rounding | | (169) | | | (97) | | | (27) | | | 373 | |
West and Mid-Continent regions operating expenses | | 248,316 | | | 214,521 | | | 772,593 | | | 633,461 | |
Add Cheyenne Refinery operating expenses | | — | | | 41,558 | | | — | | | 121,151 | |
Refining segment operating expenses | | 248,316 | | | 256,079 | | | 772,593 | | | 754,612 | |
Add Lubricants and Specialty Products segment operating expenses | | 60,940 | | | 54,488 | | | 183,003 | | | 156,459 | |
Add HEP segment operating expenses | | 42,793 | | | 40,003 | | | 126,226 | | | 109,721 | |
Add (subtract) corporate, other and eliminations | | 471 | | | (18,074) | | | 4,798 | | | (56,592) | |
Operating expenses (exclusive of depreciation and amortization) | | $ | 352,520 | | | $ | 332,496 | | | $ | 1,086,620 | | | $ | 964,200 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in thousands, except per barrel amounts) |
Consolidated | | | | | | | |
Average refinery operating expenses per produced barrel sold | $ | 5.67 |
| | $ | 5.49 |
| | $ | 6.04 |
| | $ | 5.59 |
|
Times sales of produced refined products (BPD) | 455,960 |
| | 437,700 |
| | 435,820 |
| | 427,430 |
|
Times number of days in period | 92 |
| | 92 |
| | 273 |
| | 274 |
|
Refinery operating expenses for produced products sold | $ | 237,847 |
| | $ | 221,074 |
| | $ | 718,632 |
| | $ | 654,677 |
|
| | | | | | | |
Total refinery operating expenses for produced products sold | $ | 237,847 |
| | $ | 221,074 |
| | $ | 718,632 |
| | $ | 654,677 |
|
Add other refining segment operating expenses and rounding (5) | 11,631 |
| | 6,005 |
| | 33,226 |
| | 25,914 |
|
Total refining segment operating expenses | 249,478 |
| | 227,079 |
| | 751,858 |
| | 680,591 |
|
Add PCLI segment operating expenses | 56,111 |
| | — |
| | 144,792 |
| | — |
|
Add HEP segment operating expenses | 35,998 |
| | 32,099 |
| | 102,584 |
| | 89,067 |
|
Add corporate and other costs | 817 |
| | 1,390 |
| | 3,152 |
| | 3,797 |
|
Subtract consolidations and eliminations | (20,736 | ) | | (4,336 | ) | | (57,949 | ) | | (13,304 | ) |
Operating expenses (exclusive of depreciation and amortization) | $ | 321,668 |
| | $ | 256,232 |
| | $ | 944,437 |
| | $ | 760,151 |
|
Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in thousands, except per barrel amounts) |
Consolidated | | | | | | | |
Net operating margin per barrel | $ | 8.88 |
| | $ | 4.34 |
| | $ | 5.43 |
| | $ | 3.20 |
|
Add average refinery operating expenses per produced barrel | 5.67 |
| | 5.49 |
| | 6.04 |
| | 5.59 |
|
Refinery gross margin per barrel | 14.55 |
| | 9.83 |
| | 11.47 |
| | 8.79 |
|
Add average cost of products per produced barrel sold | 55.82 |
| | 51.55 |
| | 56.18 |
| | 47.64 |
|
Average sales price per produced barrel sold | $ | 70.37 |
| | $ | 61.38 |
| | $ | 67.65 |
| | $ | 56.43 |
|
Times sales of produced refined products (BPD) | 455,960 |
| | 437,700 |
| | 435,820 |
| | 427,430 |
|
Times number of days in period | 92 |
| | 92 |
| | 273 |
| | 274 |
|
Produced refined products sales | $ | 2,951,903 |
| | $ | 2,471,674 |
| | $ | 8,048,920 |
| | $ | 6,608,846 |
|
| | | | | | | |
Total produced refined products sales | $ | 2,951,903 |
| | $ | 2,471,674 |
| | $ | 8,048,920 |
| | $ | 6,608,846 |
|
Add refined product sales from purchased products and rounding (1) | 125,519 |
| | 207,698 |
| | 558,786 |
| | 500,509 |
|
Total refined product sales | 3,077,422 |
| | 2,679,372 |
| | 8,607,706 |
| | 7,109,355 |
|
Add direct sales of excess crude oil (2) | 277,810 |
| | 103,145 |
| | 658,117 |
| | 294,845 |
|
Add other refining segment revenue (3) | 54,563 |
| | 49,678 |
| | 147,185 |
| | 126,604 |
|
Total refining segment revenue | 3,409,795 |
| | 2,832,195 |
| | 9,413,008 |
| | 7,530,804 |
|
Add PCLI segment sales and other revenues | 298,137 |
| | — |
| | 809,643 |
| | — |
|
Add HEP segment sales and other revenues | 110,364 |
| | 92,611 |
| | 325,141 |
| | 289,517 |
|
Add corporate and other revenues | (325 | ) | | 11 |
| | (283 | ) | | 168 |
|
Subtract consolidations and eliminations | (98,724 | ) | | (77,547 | ) | | (288,915 | ) | | (239,857 | ) |
Sales and other revenues | $ | 3,719,247 |
| | $ | 2,847,270 |
| | $ | 10,258,594 |
| | $ | 7,580,632 |
|
| |
(1) | We purchase finished products to facilitate delivery to certain locations or to meet delivery commitments. |
| |
(2) | We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, at times we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at cost. |
| |
(3) | Other refining segment revenue includes the incremental revenues associated with HFC Asphalt, product purchased and sold forward for profit as market conditions and available storage capacity allows and miscellaneous revenue. |
| |
(4) | Other refining segment cost of products sold includes the incremental cost of products for HFC Asphalt, the incremental cost associated with storing product purchased and sold forward as market conditions and available storage capacity allows and miscellaneous costs. |
| |
(5) | Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of HFC Asphalt. |
| |
Item 4. | Controls and Procedures |
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act)Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2017.2021.
Changes in internal control over financial reporting. We acquired PCLI from Suncor effective February 1, 2017 and have included PCLI’s operating results, assets and liabilities in our consolidated financial statements as of September 30, 2017 and for the eight months then ended. Pursuant to a Transition Service Agreement with Suncor, Suncor provides accounting support services for PCLI including month end close process and other accounting services. Other than internal controls for PCLI, there There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Commitment
In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and Contingency Reserves
We periodically establish reserves forother matters. Damages or penalties may be sought from us in some matters and certain legal proceedings. The establishment of a reserve involves an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reservesmatters may require years to be adequate, future changes in the facts and circumstances could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.
resolve. While the outcome and impact of these proceedings and investigations on us cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes that the resolution of these proceedings and investigations through settlement or adverse judgment will not either individually or in the aggregate have a material adverse effect on our financial condition, results of operations or cash flows.
Environmental Matters
WeThe environmental proceedings are reporting the following proceedingsreported to comply with SEC regulations which require us to disclose proceedings arising under federal, state or local provisions regulating the discharge of materials into the environment or protecting the environment ifwhen a governmental authority is party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe that such proceedings may result in monetary sanctions of $100,000could exceed $300,000 or more. Our respective subsidiaries have orCertain disclosures made under the SEC’s prior $100,000 threshold will develop corrective action plans regarding these disclosures that will be implemented in consultation with the respective federal and state agencies. It is not possible to predict the ultimate outcome of these proceedings, although none are currently expected to have a material effect on our financial condition, results of operations or cash flows.remain until their resolution.
CheyenneEnvironmental Matters
El Dorado
HollyFrontier CheyenneEl Dorado Refining LLC (“HFCR”HFEDR”) has been engaged in discussions with, and has responded to document requests from, the WyomingEPA, the U.S. Department of Environmental QualityJustice (“WDEQ”DOJ”) relating to a Notice of Violation issued in late 2016 for possible violations of air quality standards related to operation of certain refinery units at the Cheyenne Refinery in 2016 and 2017. HFCR and the WDEQ are working towards a settlementState of this matter.
El Dorado
The El Dorado Refinery has been engaged in discussions with the EPAKansas regarding potentialalleged Clean Air Act civil violations relating to flaring devices and other equipment at the refinery. The El Dorado Refinery has responded to two separateTopics of the discussions included: (a) three information requests covering air emissions for a time frame fromactivities beginning in January 1, 2009, through May 31, 2014. The EPA also conducted an on-site(b) compliance issues with respect to the Clean Air Act - Sec. 112rAct’s Risk Management Program (“RMP”) compliance auditrelating to a November 2014 inspection and subsequent events, (c) a Notice of Violation issued by the EPA in August 2017, and (d) possible late reporting under the Emergency Planning and Community Right-to-Know Act for the release of sulfur dioxide and visible emissions from October 2018.
Some of the foregoing civil investigations resulted from fires that occurred at the El Dorado Refinery in September 2017, October 2018 and notifiedMarch 2019. An employee fatality occurred during the El Dorado RefinerySeptember 2017 event. On May 28, 2020, HFEDR reached a settlement in the form of 20 alleged “deficiencies” related to that inspection. In August 2017, the EPA issued a Notice of Violation alleging that certain flaring events violated air emission regulations. Discussionsproposed consent decree with the EPA, the DOJ,and the State of Kansas regarding the alleged Clean Air Act civil violations relating to flaring devices and other equipment at the refinery, as well as compliance with the RMP.
The proposed consent decree was lodged with the U.S. DepartmentDistrict Court for the District of Justice are ongoing.Kansas, and the 30-day public comment period ended on July 18, 2020. On July 27, 2020, the EPA, the DOJ and the State of Kansas filed their Unopposed Motion to enter the Consent Decree with the U.S. District Court for the District of Kansas, and on August 27, 2020, the consent decree was entered by the district judge and became effective. Pursuant to the consent decree, among other terms and conditions, HFEDR is required to complete certain projects, implement protocols regarding the examination of its fired heaters and conduct a third party RMP audit of certain of its processes. In addition, HFEDR was required to pay a civil penalty of $2 million to the United States and $2 million to the State of Kansas in two installments, the first half within 30 days of entry of the consent decree and the second within six months of entry of the consent decree. All payments have been timely made, and HFEDR has undertaken several of the required projects. The consent decree resolves the alleged federal and state civil Clean Air Act liability for penalties and injunctive relief, other than potential civil penalties for RMP violations. Finally, as part of the settlement, a 2009 consent decree applicable to the refinery was terminated. In March 2021, the EPA contacted HFEDR to begin discussions on potential civil penalties for the RMP violations noted above.
Tulsa
HollyFrontier Tulsa Refining LLC (“HFTR”) manufactures paraffinoperates under two Consent Decrees with the EPA and hydrocarbon waxes at its Tulsathe Oklahoma Department of Environmental Quality (“ODEQ”) for the East and West facility.Refineries. On March 11, 2014,April 3, 2019, the EPA notified HFTR of potential violations of the Consent Decrees. On December 1, 2020, ODEQ, on behalf of ODEQ and the EPA, issued two demand letters alleging violations under the Consent Decrees, which stemmed from inspections conducted by the EPA at the refineries from May 1 through 5, 2017, as well as from a noticereview of the refineries’ records. The alleged violations included the failure to comply with applicable continuous emissions monitoring system (CEMS) requirements and exceedances of the hydrogen sulfide (H2S) emission limits. During a follow-up conference call with ODEQ, on January 6, 2021, ODEQ shared its stipulated penalty amounts for alleged violations pursuant to the two Consent Decrees. HFTR of possiblesubmitted timely responses to the ODEQ demand letters on February 8, 2021. Based on HFTR’s responses, during a follow-up conference call on April 9, 2021, ODEQ confirmed both ODEQ and EPA had reduced the stipulated penalties for the alleged violations of certain provisionsthe two Consent Decrees and was seeking total stipulated penalties of $93,500. On April 9, 2021, HFTR confirmed acceptance of the federal Toxic Substances Control Actabove-referenced penalties. This matter will be resolved once HFTR pays the penalty following its receipt of the revised demand letter from ODEQ. HFTR has not yet received a demand letter.
Navajo
HollyFrontier Navajo Refining LLC (“HFNR”) has been engaged in connectiondiscussions with, and has responded to document requests from, the EPA, the DOJ and the New Mexico Environment Department (“NMED”) (collectively, the “Agencies”) regarding HFNR’s compliance with the manufactureClean Air Act (“CAA”) and related regulations, and similar New Mexico laws and regulations, at its Artesia and Lovington, New Mexico refineries. The discussions have included the following topics: (a) alleged noncompliance with CAA’s National Emission Standards for Hazardous Air Pollutants (“NESHAP”) and New Source Performance Standards (“NSPS”) at the Artesia refinery, which were set forth in a Notice of Violation (“May 2020 NOV”) issued by the EPA in May 2020; (b) a Post Inspection Notice issued in June 2020 by the NMED, alleging noncompliance issues similar to those alleged by the EPA in its May 2020 NOV; (c) an information request issued in September 2020 by the EPA, pursuant to CAA Section 114, related to benzene fenceline monitoring, flare fuel gas, storage vessels and tanks, and other information regarding the Artesia refinery; and (d) an information request issued by the EPA in May 2021, pursuant to CAA Section 114, requesting additional information and testing related to certain tanks at the Artesia refinery.
Beginning in the spring of these products. HFTR2021, HFNR and the Agencies began monthly meetings to discuss potential injunctive relief measures to address the alleged noncompliance at the Artesia refinery. In September 2021, the EPA metpresented to HFNR potential claims for stipulated penalties for alleged noncompliance with a 2002 consent decree.
HFNR continues to work with the Agencies to resolve these issues. At this time, no penalties have been demanded, and are working productively towards a settlementit is too early to predict the outcome of this matter.
Renewable Fuel Standard
Various subsidiaries of HollyFrontier are currently intervenors in two lawsuits brought by renewable fuel interest groups against the EPA in federal courts alleging violations of the Renewable Fuel Standard under the Clean Air Act and challenging the EPA’s handling of small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery exemptions because we believe the EPA correctly applied applicable law to the matters at issue.
The first lawsuit is before the Tenth Circuit and challenges the relief the EPA afforded to the Cheyenne and Woods Cross refineries following the grant of small refinery exemptions. The matter is fully briefed and remains pending before that court.
The second lawsuit is currently pending before the DC Circuit. However, on August 25, 2021, the EPA filed a motion to voluntarily remand the matter to the EPA. We did not oppose this motion. A decision on this motion by the DC Circuit is expected in the near future.
HollyFrontier was also recently an intervenor in another lawsuit filed in the Tenth Circuit challenging the grant of small refinery exemptions to the Cheyenne and Woods Cross refineries for the 2016 compliance year. On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to the Cheyenne and Woods Cross refineries for 2016 and remanded the case to the EPA for further proceedings. On April 15, 2020, the Tenth Circuit issued its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court seeking review of the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted HollyFrontier’s petition. The oral argument occurred on April 27, 2021. The U.S. Supreme Court issued its opinion in this matter on June 25, 2021 and reversed the Tenth Circuit. On July 27, 2021, the Tenth Circuit recalled the mandate it issued to the EPA on April 15, 2020, and vacated its January 24, 2020 judgment. On July 29, 2021, the Tenth Circuit issued an order and judgment confirming that it recalled its mandate and vacated its previous judgment in this case, and
returned jurisdiction to the EPA without vacating the exemption decisions. On August 19, 2021, the EPA filed a motion for clarification of the Tenth Circuit’s mandate. The Tenth Circuit denied the EPA’s motion on August 26, 2021, and therefore the matter is now solely before the EPA.
Shareholder Litigation Related to Acquisition of Sinclair Oil Corporation
A shareholder action has been filed in the District Court of Harris County, Texas captioned: Garfield v. Myers, Franklin (filed October 11, 2021) by an alleged shareholder of HollyFrontier challenging our proposed acquisition of certain refining, marketing and other businesses of Sinclair Oil Corporation (the “Acquisition”) and naming as defendants HollyFrontier and its board of directors. The complaint alleges, among other things, that the Acquisition involves unfair dilution of existing HollyFrontier stockholders, overpayment for Sinclair’s downstream business, and improper diversion of Sinclair’s midstream business to HEP; that certain conflicts of interest exist between HollyFrontier, its insiders, and its financial advisor; and that the proxy statement is materially misleading and incomplete. The complaint asserts claims against the director defendants for alleged breach of fiduciary duties, failure to disclose under Delaware law, and diversion of corporate opportunity under Delaware law.
An additional shareholder action has been filed in the United States District Court for the Southern District of New York captioned: Lovoi v. HollyFrontier Corporation et. al. (filed October 28, 2021) by an alleged shareholder of HollyFrontier asserting claims under Section 14(a) of the Exchange Act and SEC Rule 14a-9 and claims under Section 20(a) of the Exchange Act against HollyFrontier and members of HollyFrontier’s board of directors, based on the allegation that the preliminary proxy statement for the Acquisition omitted material information about HollyFrontier’s financial projections and the analyses conducted by its financial advisor.
The shareholder actions seek various remedies, including enjoining and/or rescinding the Acquisition agreement and requiring defendants to amend the proxy statement, declaring a breach of fiduciary duties, correcting and completing disclosures or enjoining or unwinding the Acquisition and share issuance if they do not, rescissory and compensatory damages, and interest, attorney’s fees and other costs.
The defendants intend to vigorously defend these and any future lawsuits, as they believe that they have valid defenses to all claims and that the lawsuits are entirely without merit.
Other
We are a party to various other litigation and proceedings that we believe, based on advice of counsel, will not either individually or in the aggregate have a materially adverse impact on our financial condition, results of operations or cash flows.
Item 1A.Risk Factors
There
Except for the risk factors below, there have been no material changes in our risk factors as previously disclosed in Part 1,I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 and in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarterquarters ended March 31, 2017.2021 and June 30, 2021. You should carefully consider the risk factors discussed below and in our 20162020 Form 10-K, and March 31, 20172021 Form 10-Q and June 30, 2021 Form 10-Q, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
The pending Sinclair Transactions may not be consummated on a timely basis or at all.Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business and financial results.
On August 2, 2021, we entered into the Business Combination Agreement with Sinclair and certain other parties thereto in connection with the Sinclair Transactions and HEP entered into the Contribution Agreement with Sinclair and certain other parties thereto in connection with the Sinclair Transactions. The transactions under the Contribution Agreement will be consummated immediately prior to the transactions contemplated under the Business Combination Agreement. We expect the Sinclair Transactions to close in mid-2022. The Sinclair Transactions are subject to closing conditions. If these conditions are not satisfied or waived, the Sinclair Transactions will not be consummated. If the closing of the Sinclair Transactions is substantially delayed or does not occur at all, or if the terms of the Sinclair Transactions are required to be modified substantially, we may not realize the anticipated benefits of the transactions fully or at all or they may take longer to realize than expected. The closing conditions include, among others, the affirmative vote of the majority of the votes cast and entitled to be
voted on the issuance of New Parent Common Stock to Sinclair in the Sinclair Transactions, the absence of a law or order prohibiting the transactions contemplated by the Business Combination Agreement and the termination or expiration of any waiting periods under the Hart-Scott Rodino Act, as amended (the “HSR Act”), with respect to the Sinclair Transactions. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, we and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both we and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review. We have incurred and will continue to incur substantial transaction costs whether or not the Sinclair Transactions are completed. Any failure to complete the Sinclair Transactions could have a material adverse effect on our stock price, our competitiveness and reputation in the marketplace, and our future business and financial results, including our ability to execute on our strategy to return capital to our stockholders.
The actual value of the consideration we will pay to Sinclair at closing may exceed the value allocated to such consideration at the time we entered into the Business Combination Agreement.
Under the Business Combination Agreement, the number of shares of common stock we will issue to Sinclair at the closing of the Sinclair Transactions is fixed at 60,230,036, which represents approximately 26.75% of HollyFrontier’s outstanding common stock as of July 30, 2021, and there will be no adjustment for changes in the market price of our common stock. Neither we nor the Sinclair stockholders are permitted to “walk away” from the transaction solely because of changes in the market price of our common stock between the signing of the Business Combination Agreement and the closing. Our common stock has historically experienced volatility. Stock price changes may result from a variety of factors that are beyond our control, including changes in our business, operations and prospects, regulatory considerations and general market and economic conditions. The closing price of our common stock on the New York Stock Exchange on July 30, 2021, was $29.40; and on October 20, 2021, the closing price of our common stock was $37.39. The value of the common stock we issue in connection with the closing of the Sinclair Transactions may be significantly higher at the closing than when we entered into the Business Combination Agreement.
The Sinclair Transactions will require management to devote significant attention and resources to integrating the acquired Sinclair businesses with our business. Potential difficulties that may be encountered in the integration process include, among others:
•the inability to successfully integrate the acquired Sinclair business into the HollyFrontier business in a manner that permits us to achieve the revenue and cost savings that we announced as anticipated from the Sinclair Transactions, including approximately $100 million in run-rate synergies that we have communicated we expect the combined company to realize, as well as another $100 to $200 million in estimated one-time savings from working capital benefits during the first two years after closing of the Sinclair Transactions, as previously announced;
•the inability to successfully close and integrate multiple acquisitions simultaneously or within a short timeframe of each other, including the Sinclair Transactions and the Puget Sound Acquisition;
•complexities associated with managing the larger, integrated business;
•potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Sinclair Transactions;
•integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services;
•loss of key employees;
•integrating relationships with customers, vendors and business partners;
•performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Sinclair Transactions and integrating acquired Sinclair operations into HollyFrontier; or
•the disruption of, or loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.
Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame.
The Sinclair Transactions will expand our branded marketing and licensing business, and we could face a variety of risks as a result of this business expansion.
The Sinclair Transactions will expand our business into branded marketing and licensing business with the addition of over 300 distributors and 1,300 branded retail sites. Risks of our expanding this business line include, among others: (i) potential diversion of management’s attention and other resources from our existing businesses; (ii) unanticipated liabilities or contingencies; (iii) the need for additional capital and other resources to integrate and expand this line of business; and (iv) inefficient combination or integration of operational and management systems and controls. Expanding this line of business may also lead to increased litigation and regulatory risk and could have an impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the expansion and integration of the branded marketing and licensing business could have a material adverse effect on our business, results of operations and financial condition.
Litigation relating to the Sinclair Transactions could result in substantial costs to HollyFrontier or an injunction preventing the completion of the Sinclair Transactions.
Securities class action lawsuits, derivative and related lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert the time and resources of management. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition.
Lawsuits that have been or may be brought against us and/or our directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the acquisition agreement already implemented, issue additional disclosures and to otherwise enjoin the parties from consummating the Sinclair Transactions. We and the members of our Board of Directors were named as defendants in a lawsuit filed in Harris County, Texas, brought by an alleged HollyFrontier shareholder challenging the Sinclair Transactions and seeking, among other things, injunctive relief to enjoin and/or rescind the acquisition agreement and require defendants to amend the related proxy statement, declare a breach of fiduciary duties, provide correct and complete disclosures or enjoin or unwind the acquisition and share issuance if they do not, rescissory and compensatory damages, and interest, attorney’s fees and other costs. An additional lawsuit filed by an alleged HollyFrontier shareholder in the United States District Court for the Southern District of New York asserts claims under Section 14(a) of the Exchange Act and SEC Rule 14a-9 and claims under Section 20(a) of the Exchange Act against HollyFrontier and members of HollyFrontier’s board of directors, and seeks, among other things, to enjoin and/or rescind the acquisition agreement and require defendants to amend the related proxy statement, and, if they do not, to recover damages. Additional lawsuits in connection with the Sinclair Transactions may be filed in the future in federal or state courts.
The outcome of these lawsuits or any other lawsuit that may be filed challenging the Sinclair Transactions is uncertain. One of the conditions to the closing of the Sinclair Transactions is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case, that prohibits or makes illegal the closing of the Sinclair Transactions. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Sinclair Transactions or delaying the shareholder vote, that injunction may delay or prevent the Sinclair Transactions from being completed within the expected timeframe or at all, which could result in substantial costs to us and may adversely affect our business, financial position, results of operation and cash flows. Relatedly, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Sinclair Transactions are completed may adversely affect our business, financial condition, results of operations and cash flows and result in substantial costs to us. See Item 1, “Legal Proceedings” for more information about litigation related to the Sinclair Transactions.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Common Stock Repurchases Made in the Quarter
Under our common stock repurchase programs, repurchases are being made from time to time in the open market or privately negotiated transactions based on market conditions, securities law limitations and other factors. The following table includes repurchases made under these programs during the third quarter of 2017.2021.
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
July 2021 | | — | | | $ | — | | | — | | | $ | 1,000,000,000 | |
August 2021 | | — | | | $ | — | | | — | | | $ | 1,000,000,000 | |
September 2021 | | — | | | $ | — | | | — | | | $ | 1,000,000,000 | |
Total for July to September 2021 | | — | | | | | — | | | |
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
July 2017 | | — |
| | $ | — |
| | — |
| | $ | 178,811,213 |
|
August 2017 | | — |
| | $ | — |
| | — |
| | $ | 178,811,213 |
|
September 2017 | | — |
| | $ | — |
| | — |
| | $ | 178,811,213 |
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Total for July to September 2017 | | — |
| | | | — |
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Item 6.Exhibits
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Item 6.Exhibit Number | Exhibits |
The Exhibit Index on page 62 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of the Quarterly Report on Form 10-Q.
Exhibit Index
Description |
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Exhibit Number2.1† | | Description |
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2.1 | | Equity RestructuringBusiness Combination Agreement, dated as of October 18, 2017,August 2, 2021, by and between HEP Logistics Holdings, L.P.among HollyFrontier Corporation, Hippo Parent Corporation, Hippo Merger Sub, Inc., The Sinclair Companies and Holly Energy Partners, L.P.Hippo Holding LLC (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed October 19, 2017,August 3, 2021, File No. 1-03876). |
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3.12.2*† | | |
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3.1 | | |
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3.23.2* | | |
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10.1+ | | |
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4.1 | | Second Supplemental Indenture, dated July 26, 2017, by and among Holly Energy Holdings LLC, HEP Cheyenne Shortline LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other guarantors therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.110.3 of Registrant’s Quarterly Report on Form 10-Q for the quarterly periodquarter ended June 30, 2017,2021, File No. 1-03876). |
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10.1*10.2 | | |
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10.3† | | Stockholders Agreement, dated as of October 13, 2017,August 2, 2021, by and among certain subsidiariesHippo Parent Corporation, the Sinclair Companies, and the stockholders set forth on Schedule I thereto, as may be amended from time to time (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed August 3, 2021, File No. 1-03876). |
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10.4 | | |
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31.1* | | |
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31.2* | | |
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32.1** | | |
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32.2** | | |
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101++ | | The following financial information from HollyFrontier Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2021, formatted inas inline XBRL (Extensible(Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income,Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
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104++ | | Cover page Interactive Data File (formatted as inline XBRL and contained in exhibit 101). |
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* Filed herewith.
** Furnished herewith.
+ Constitutes management contracts or compensatory plans or arrangements.
++ Filed electronically herewith.
† Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | HOLLYFRONTIER CORPORATION |
| | HOLLYFRONTIER CORPORATION(Registrant) |
| | (Registrant) | |
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Date: November 2, 20173, 2021 | | | /s/ Richard L. Voliva III |
| | | Richard L.Voliva III |
| | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
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Date: November 2, 20173, 2021 | | | /s/ J. W. Gann, Jr.Indira Agarwal |
| | | J. W. Gann, Jr.Indira Agarwal |
| | | Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
|