HollyFrontier 2015 Annual Report Download - page 47

Table of Content
39
Results of Operations – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Summary
Net income attributable to HollyFrontier stockholders for the year ended December 31, 2015 was $740.1 million ($3.91 per basic
and $3.90 per diluted share), a $458.8 million increase compared to $281.3 million ($1.42 per basic and diluted share) for the year
ended December 31, 2014. Net income increased due principally to a year-over-year increase in refining margins and sales volumes,
improved operational reliability and lower operating expenses. Additionally, current year earnings reflect a non-cash lower of cost
or market inventory valuation charge of $139.0 million, net of tax, a decrease compared to $244.0 million in 2014. Refinery gross
margins for the year ended December 31, 2015 increased to $16.07 per produced barrel from $13.98 for the year ended December 31,
2014.
Sales and Other Revenues
Sales and other revenues decreased 33% from $19,764.3 million for the year ended December 31, 2014 to $13,237.9 million for
the year ended December 31, 2015 due to a year-over-year decrease in sales prices, partially offset by higher refined product sales
volumes. The average sales price we received per produced barrel sold decreased 35% from $110.19 for the year ended December 31,
2014 to $71.32 for the year ended December 31, 2015. Sales and other revenues for the years ended December 31, 2015 and 2014
include $66.7 million and $57.3 million, respectively, in HEP revenues attributable to pipeline and transportation services provided
to unaffiliated parties.
Cost of Products Sold
Total cost of products sold decreased 41% from $17,625.9 million for the year ended December 31, 2014 to $10,466.2 million for
the year ended December 31, 2015, due principally to lower crude oil costs and a $170.5 million year-over-year decrease in lower
of cost or market inventory valuation charges, partially offset by higher sales volumes of refined products. During 2015, we
recognized a $227.0 million charge attributable to a new $624.5 million lower of cost or market reserve at December 31, 2015
that was partially offset by the reversal of the $397.5 million inventory reserve that was established at December 31, 2014. The
reserve at December 31, 2015 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
market place decreased 43% from $96.21 for the year ended December 31, 2014 to $55.25 for the year ended December 31, 2015.
Gross Refinery Margins
Gross refinery margin per produced barrel increased 15% from $13.98 for the year ended December 31, 2014 to $16.07 for the
year ended December 31, 2015. This was due to the effects of decreased crude oil and feedstock prices, partially offset by a decrease
in the average per barrel sales price for refined products sold during the current year. Gross refinery margin 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 7A of Part II of this Form 10-K for a
reconciliation to the income statement of prices of refined products sold and cost of products purchased.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, decreased 7% from $1,144.9 million for the year ended
December 31, 2014 to $1,060.4 million for the year ended December 31, 2015 due principally to a year-over-year decrease in
repair and maintenance and natural gas fuel costs and lower environmental accruals compared to 2014. For the years ended
December 31, 2015 and 2014, operating expenses include $100.0 million and $103.4 million, respectively, in costs attributable to
HEP operations.
General and Administrative Expenses
General and administrative expenses increased 5% from $114.6 million for the year ended December 31, 2014 to $120.8 million
for the year ended December 31, 2015. This is attributable to overall higher incentive compensation and legal costs for the current
year, net of the effects of state high-wage credits recognized during the second quarter of 2015. For the years ended December 31,
2015 and 2014, general and administrative expenses include $10.2 million and $8.5 million, respectively, in costs attributable to
HEP operations.
Depreciation and Amortization Expenses
Depreciation and amortization decreased 5% from $363.4 million for the year ended December 31, 2014 to $346.2 million for the
year ended December 31, 2015. This decrease was due principally to the recognition of higher accelerated depreciation levels of
assets no longer in operation during 2014, partially offset by depreciation and amortization during the current year attributable to
capitalized improvement projects and capitalized refinery turnaround costs. For the years ended December 31, 2015 and 2014,
depreciation and amortization expenses include $61.2 million and $60.5 million, respectively, in costs attributable to HEP
operations.