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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934 (FEE REQUIRED)
FOR FISCAL YEAR ENDED JULY 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-3876
HOLLY CORPORATION
(Exact name of registrant, as specified in its charter)
DELAWARE 75-1056913
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 CRESCENT COURT
SUITE 1600
DALLAS, TEXAS 75201-6927
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 871-3555
--------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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On October 14, 1994, the aggregate market value of the Common Stock, par
value $.01 per share, held by non-affiliates of the registrant was $85,000,000.
(This is not to be deemed an admission that any person whose shares were not
included in the computation of the amount set forth in the preceding sentence
necessarily is an "affiliate" of the registrant.)
8,253,514 shares of Common Stock, par value $.01 per share, were
outstanding on October 14, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's proxy statement for its annual meeting of
stockholders in December 1994, which proxy statement will be filed with the
Securities and Exchange Commission within 120 days after July 31, 1994, are
incorporated by reference in Part III.
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<PAGE> 2
Annual Report on Form 10-K
of Holly Corporation
Fiscal Year Ended July 31, 1994
Part I
Items 1 and 2. Business and Property
Holly Corporation and its consolidated and wholly-owned subsidiaries,
herein referred to as the "Company" unless the context otherwise indicates, are
engaged primarily in the refining of petroleum and petroleum derivatives.
Navajo Refining Company, one of the wholly-owned subsidiaries, owns and
operates a high-conversion petroleum refinery in Artesia, New Mexico ("Navajo")
and, under the terms of a long term Lease Agreement with an affiliate, also
operates refining facilities in nearby Lovington, New Mexico. In combination,
operation of the refineries allows for total crude oil throughput capacity of
60,000 barrels-per-day ("BPD"). The Company also owns Montana Refining
Company, a Partnership ("MRC"), which operates a small petroleum refinery
adjoining Great Falls, Montana. The principal markets for the Company's
refined petroleum products are in Arizona, New Mexico, west Texas, Northern
Mexico and Montana.
The Company contracts with two independent oil and gas consulting groups
to engage in the exploration for and production of oil and gas. The scope of
such activity is presently modest relative to the Company's refining
activities.
The Company was incorporated in Delaware in 1947.
Navajo Refining Company
With the completion of a major expansion in December 1991, the Company's
total New Mexico crude oil refining capacity became 60,000 BPD, inclusive of
the Lovington operations. At the Artesia and Lovington facilities, Navajo has
the ability to process almost all high sulfur ("sour") crude oil and, as a
result of the expansion, has increased from 87% to 90% the proportion of
throughput that can be converted into higher value products (gasoline, diesel
and jet fuels). The expansion has also increased internal high octane
capabilities and has augmented overall operating flexibility.
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The following table sets forth certain information about the operations
of Navajo during the last five fiscal years:
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Refinery production (BPD)(1) . . . . . . . . 57,400 (2) 58,600 48,900 38,800 (2) 40,000
Refinery utilization(3) . . . . . . . . . . 90.1%(2) 92.5% 87.8% 94.2%(2) 98.8%
Average per barrel
Net sales . . . . . . . . . . . . . . . . $ 22.51 $ 25.39 $ 24.77 $ 29.91 $ 25.59
Cost of sales . . . . . . . . . . . . . . $ 19.96 $ 22.95 $ 23.41 $ 27.36 $ 21.94
</TABLE>
- - ----------
(1) Barrels per calendar day of refined products produced from crude oil and
other raw materials.
(2) Refinery production and utilization rates were reduced as the result of
a scheduled four-week turnaround for major maintenance.
(3) Crude oil throughput divided by crude unit capacity.
Navajo's principal refining facility is located on approximately 300
acres of land in Artesia, New Mexico. The facility has crude, fluid catalytic
cracking, vacuum distillation, alkylation, hydrodesulfurization, reforming and
asphalt units. The Company also maintains approximately 1,500,000 barrels of
tankage, other supporting units and office buildings.
The Artesia refining facilities are operated in conjunction with
refining facilities located in Lovington, New Mexico, approximately 65 miles
east of Artesia. The principal units at Lovington are a 36,000 BPD capacity
crude unit and an associated vacuum unit. The Lovington units process crude
oil into intermediate products, which are transported through a Company-owned
eight- inch pipeline running to the Artesia refinery.
Pipeline Facilities
The Company's principal crude gathering pipeline systems lead to the
Artesia and Lovington refining facilities from various points in southeastern
New Mexico. The Company's principal product pipelines are a line from Artesia
to El Paso and a line from Artesia to Orla, Texas and then west to El Paso and
east to Midland/Odessa (the eastern segment to Midland/Odessa is currently
inactive). Products can be shipped by common carrier pipeline from El Paso
north to Albuquerque and west to Tucson and Phoenix. The Company owns
terminalling facilities in Albuquerque, El Paso and Tucson.
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Crude Oil and Feedstock Supplies
Navajo and Lovington are situated near the Permian Basin in an area with
historically abundant crude supplies. The Company purchases crude oil from
producers in nearby southeastern New Mexico and west Texas, and on the spot
market. Crude oil is gathered both through the Company's pipelines and by its
tank trucks. Crude oil acquired in locations distant from the refineries is
exchanged for crude oil that is transportable to the refineries. The Company
owns crude oil terminalling facilities located in Midland, Texas, which are
presently inactive.
In 1993, the Company reactivated a subsidiary, Navajo Crude Oil
Marketing Company, to facilitate the purchase of crude oil from leases in west
Texas and New Mexico.
Principal Products and Markets
Set forth below is certain information regarding the principal products
of Navajo:
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Product sales (percent of
total sales volumes)
Gasolines . . . . . . . . . . 57.5% 53.9% 51.2% 47.6% 48.4%
Jet fuels . . . . . . . . . . 11.3 9.7 12.8 18.6 20.8
Diesel fuels . . . . . . . . . 20.1 24.0 21.3 19.7 18.2
Asphalt . . . . . . . . . . . 6.6 8.0 8.6 7.4 6.2
LPG and other . . . . . . . . 4.5 4.4 6.1 6.7 6.4
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
The principal customers for gasoline include other refiners, convenience
store chains, independent marketers, an affiliate of PEMEX (the
government-owned energy company of Mexico) and retailers. Navajo's gasoline is
marketed in the southwestern United States, including the metropolitan areas of
Albuquerque, El Paso, Phoenix and Tucson and in areas in Northern Mexico.
Diesel fuel is sold to other refiners, wholesalers, independent dealers
and railroads.
Jet fuel is sold primarily for military use. Military jet fuel is sold
to the Defense Fuel Supply Center (the "DFSC") of the Defense Logistics Agency
under contracts that can vary significantly from year to year. Navajo sold
approximately 7,000 BPD of jet fuel to the DFSC in its 1994 fiscal year and has
a contract to supply 8,100 BPD to the DFSC for the year ending September 30,
1995.
Asphalt is sold to contractors and government authorities for highway
construction and maintenance. Carbon black oil is sold for further processing
and LPGs are sold to petrochemical plants and are used as fuel.
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Light products are shipped by product pipelines or are made available at
distant points by exchanges with others. Light products are also available to
customers through truck loading facilities at the refineries and at terminals.
The demand for the Company's gasoline and asphalt products has
historically been stronger from March through October than during the rest of
the year.
Approximately $67,000,000 (12%) of the Company's revenues for fiscal
1994, $65,000,000 (10%) of revenues for fiscal 1993 and $67,000,000 (13%) for
fiscal 1992 were from the sale of military jet fuel to the United States
Government. Approximately $58,000,000 (11%) of the Company's revenues for
fiscal 1994 were for the sale of gasoline to an affiliate of PEMEX. In
addition to the United States Government and PEMEX, another refiner, which is a
purchaser of gasoline and diesel for resale to retail customers, accounted for
approximately $43,000,000 (8%) of the Company's revenues in fiscal 1994,
$75,000,000 (12%) in fiscal 1993, and $96,000,000 (19%) in fiscal 1992. While
a loss of, or reduction in amounts purchased by, major purchasers that resell
to retail customers could have an adverse effect on the Company, the Company
believes that the impact of such a loss on the Company's results of operations
should be limited because the Company's sales volume with respect to products
whose end-users are retail customers is more dependent on the general retail
demand in the Company's primary markets than on sales to any specific customer.
Montana Refinery
Montana Refining Company, a Partnership ("MRC") owns and operates a
petroleum refinery and related crude oil pipeline in Black Eagle, Montana,
adjoining Great Falls, Montana. The refinery, which is able to process
approximately 7,000 BPD of crude oil and which converts about 77% of its
throughput into higher value products (gasoline, diesel and jet fuels), serves
regional gasoline, jet fuel, diesel and asphalt customers.
The recently amended Clean Air Act could require substantial
expenditures for the Montana refinery over the next several years (see
Regulation below) but, the extent to which such expenditures will be required
is not yet clear. Because of the smaller size of the Montana facility, these
expenditures could be proportionally larger than similar expenditures
anticipated for the Company's refining facilities in New Mexico. MRC completed
in December 1993 the installation of a hydrodesulfurizer and related equipment.
Jet Fuel Terminal
The Company owns and operates a 120,000 barrel capacity jet fuel
terminal near Mountain Home, Idaho, which supplies jet fuel to the Mountain
Home United States Air Force Base.
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Navajo Western Asphalt Company
Navajo Western Asphalt Company, a wholly-owned subsidiary of the
Company, operates an asphalt marketing facility in the Phoenix, Arizona area.
The Company is nearing completion of asphalt processing and storage facilities
at an approximate cost of $3.5 million which will allow for an expansion of
this operation.
Competition
The manufacture and sale of petroleum products by independent refiners
such as the Company is highly competitive. The Company competes with major
integrated oil companies as well as independent refiners. Competition in
particular geographic markets is affected primarily by the amounts of refined
products produced by refineries located in such markets and by the availability
of refined products and the cost of transportation to such markets from
refineries located outside those markets.
In the past fiscal year, the Company has become aware of certain matters
that could cause an increase in the supply of product in the Company's markets,
with the possibility of accompanying adverse pressure on the prices for its
products. Diamond Shamrock, Inc., an independent retailer and refiner, has
announced its intention to build a 400-mile 10-inch pipeline, with initial
capacity of 32,000 barrels per day of refined product, from its refinery near
Dumas, Texas to El Paso, Texas. Diamond Shamrock states that it believes
construction will be completed by spring of 1995. In addition, Williams Energy
Ventures, a unit of Williams Companies, Inc., has announced the possibility of
its participation in the construction and operation of a modern, high
conversion 50,000 barrels per day refinery near Phoenix, Arizona. While it
appears that no definite decision has been made as to whether to proceed with
this project, Williams has indicated that, if the refinery is constructed,
construction would take approximately 30 months. Although these developments
represent the possibility of increasing the supply of product into some or all
of the Company's markets, the extent of such volume increase or its impact on
the Company's profitability cannot presently be determined.
In July 1993, the Company entered a settlement agreement with a common
carrier pipeline that the Company uses to access its Arizona markets. Under
the agreement, the occurrence of defined events will require increases in the
capacity of the pipeline. It is anticipated that this settlement lessens, at
least in the foreseeable future, the likelihood of future constraints on the
movement of the Company's product into these markets. The flow of additional
product into El Paso, however, either as a result of the Diamond Shamrock
pipeline or otherwise could result in the reappearance of such constraints.
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Employees and Labor Relations
The Company (excluding Montana Refining Company) has 461 employees, 170
of whom are covered by collective bargaining agreements ("covered employees").
Contracts relative to all covered employees were negotiated during 1993. These
collective bargaining agreements will expire in 1996.
Navajo Northern, Inc. and Black Eagle, Inc., the general partners of
Montana Refining Company, provide employees for the operations of MRC. Total
employment is 70, with 41 of them being covered by a collective bargaining
agreement.
Regulation
Refinery operations are subject to federal, state and local laws
regulating the discharge of matter into the environment or otherwise relating
to the protection of the environment. Over the years, there have been and
continue to be ongoing communications, including notices of violations, and
discussions about environmental matters between the Company and federal and
state authorities, some of which have resulted in changes of operating
procedures and in capital expenditures by the Company. Compliance with
applicable environmental laws and regulations will continue to have an impact
on the Company's operations and capital requirements. In particular, the final
form of the regulations implementing recent amendments to the Clean Air Act
could have a substantial impact on the future capital spending requirements of
the refining industry as a whole including those of the Company.
The United States Environmental Protection Agency ("EPA") has
promulgated regulations which substantially reduced the allowable sulfur
content of diesel fuel for sales starting in October 1993. In fiscal 1994, the
Company completed projects which will allow both Navajo and MRC to meet this
new standard.
Effective January 1, 1995, certain cities in the country will be
required to use only reformulated gasoline ("RFG"), a cleaner burning fuel.
While none of the Company's principal markets presently require RFG, this
requirement could be implemented over time. Further, other requirements of the
Clean Air Act could cause the Company to be required to expend substantial
monies for compliance. The specifics of these requirements and their attendant
cost are not presently determinable.
The Company is and has been the subject of various state and federal
environmental proceedings and inquiries. The most significant of these is the
enforcement action which has been brought by the Justice Department and which
is discussed at length in the Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Note 12 to the Consolidated
Financial Statements. In addition to the expenditures that will likely be
incurred in connection with a resolution of this matter, current or future
environmental regulations inevitably will require other remediation
expenditures at the New Mexico and Montana refineries. The extent of any such
expenditures cannot be presently determined.
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The Company's operations are also subject to various laws and
regulations relating to occupational health and safety. The Company maintains
safety, training and maintenance programs as part of its ongoing efforts to
ensure compliance with applicable laws and regulations. Moreover, while
recently enacted comprehensive health and safety legislation will require
substantial expenditures and modifications of procedures, the Company believes
it is taking the appropriate steps to ensure compliance.
Notwithstanding the Company's efforts, following an eight-month series
of inspections at MRC, the Occupational Safety and Health Administration
recently issued numerous citations alleging a variety of matters of
noncompliance. MRC has contested all citations and it cannot presently be
determined the extent of any fines for which it will ultimately be responsible.
Insurance
The Company's operations are subject to normal hazards of refinery
operations, including fire, explosion and weather-related perils. The Company
maintains various insurance coverages, including business interruption
insurance, subject to certain deductibles. The Company is not fully insured
against certain risks because such risks are not fully insurable, coverage is
unavailable or premium costs are prohibitive.
Item 3. Legal Proceedings
In July 1993, the United States Department of Justice, acting on behalf
of the EPA, filed a complaint in the United States District Court for the
District of New Mexico alleging that the Company's subsidiary, Navajo Refining
Company, beginning in September 1990 and continuing until the present, had
violated and continues to violate the Resource Conservation and Recovery Act
(RCRA) and implementing regulations of the EPA by treating, storing and
disposing of certain hazardous wastes without necessary authorization and
without compliance with regulatory requirements. The complaint seeks a court
order directing Navajo to comply with these regulatory standards and civil
penalties for the alleged non-compliance. Navajo has answered the complaint,
denying all the allegations of legal liability and asserting affirmative
defenses. Only limited discovery has been conducted. While the Company and
Navajo intend to contest the government's case as necessary and appropriate,
the parties have been exploring the possiblity of a negotiated resolution since
near the onset of this matter. Based on the discussions, thus far, the Company
is optimistic an overall settlement may be achieved in the relatively near
future. For additional discussion, please see Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 12 to the
Consolidated Financial Statements.
The Company is a party to various other litigation and proceedings which
it believes, based on advice of counsel, will not have a materially adverse
impact on its financial condition or operations.
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Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's 1994 fiscal year.
Executive Officers of Registrant (per instruction 3 to Item 401(b) of
Regulation S-K)
The executive officers of the Company as of October 21, 1994 are as
follows:
<TABLE>
<CAPTION>
Executive
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Lamar Norsworthy 48 Chairman of the Board, 1971
President and Chief
Executive Officer
Jack P. Reid 58 Executive Vice President, 1976
Refining and Director
William J. Gray 53 Senior Vice President, 1976
Marketing and Supply
Matthew P. Clifton 43 Senior Vice President 1988
David G. Blair 36 Vice President, Marketing 1994
Asphalt and LPG
Christopher L. Cella 37 Vice President and 1990
General Counsel
Karl N. Knapp 36 Vice President 1994
John A. Knorr 44 Vice President, Crude Oil 1988
Supply and Trading
Virgil R. Langford 49 Vice President, Refining 1989
Mike Mirbagheri 55 Vice President, International 1982
Crude Oil and Refined
Products
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Henry A. Teichholz 51 Vice President, Treasurer 1984
and Controller
Gregory A. White 37 Vice President, Marketing 1994
Light Oils
</TABLE>
In addition to the persons listed above, Kathryn Walker, age 44, was
appointed Controller of Navajo Refining Company in August 1993; prior thereto
she served from November 1985 as Assistant Controller of Navajo.
All officers of the Company are elected annually to serve until their
successors have been elected. Mr. Cella joined the Company in 1990, having
previously been associated with the law firm of Gibson, Dunn & Crutcher since
1982. Mr. Clifton previously served as Vice President, Economics, Engineering
and Legal Affairs from 1988 to 1991. Mr. Knorr is also President of one of the
partners of MRC and serves as the General Manager of MRC. Mr. Langford became
Navajo's refinery manager in January 1989 and had held a similar position with
MRC since 1985. Mr. Teichholz has occupied the additional offices of Vice
President and Treasurer since 1989. Messrs. Blair, Knapp and White were
elected to their respective positions in September 1994. Mr. Blair has served
as Marketing Manager of Asphalt and LPG of Navajo since 1989 and previously
held various marketing and supply positions. Mr. Knapp joined the Company in
1992 and served as Director of Corporate Development from 1992 to 1994. Mr.
Knapp was Director of Corporate Planning for Northwest Airlines from 1991 to
1992, and prior to that was associated with the management consulting firm of
Monitor Company from 1987 to 1991. Mr. White has served as Marketing Manager
of Light Oils of Navajo since 1989 and previously held various marketing and
supply positions.
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Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the American Stock Exchange
under the symbol "HOC". The following table sets forth the range of the daily
high and low sales prices per share of common stock, dividends paid per share
and the trading volume of common stock for the periods indicated:
<TABLE>
<CAPTION>
Total
Fiscal years ended July 31, High Low Dividends Volume
- - --------------------------- ---- --- --------- ------
<S> <C> <C> <C> <C>
1993
First Quarter . . . . . . $25 $23 $.075 154,900
Second Quarter . . . . . 30 7/8 23 7/8 .075 310,200
Third Quarter . . . . . . 29 3/8 25 7/8 .075 331,000
Fourth Quarter . . . . . 30 1/2 26 3/8 .075 178,800
1994
First Quarter . . . . . . 30 26 5/8 .075 255,800
Second Quarter . . . . . 30 25 3/8 .075 269,400
Third Quarter . . . . . . 30 1/2 27 1/8 .10 165,200
Fourth Quarter . . . . . 33 3/8 28 1/4 .10 275,200
</TABLE>
As of July 31, 1994, the Company had approximately 2,100 stockholders of
record.
On September 23, 1994, the Company's Board of Directors declared a
regular quarterly dividend in the amount of $.10 per share payable on October
21, 1994. The Company intends to consider the declaration of a dividend on a
quarterly basis, although there is no assurance as to future dividends since
they are dependent on the future earnings, capital requirements and financial
condition of the Company as well as other factors. The Senior Notes and Credit
Agreement limit the payment of dividends. See Note 6 to the Consolidated
Financial Statements.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
($ in thousands, except per share amounts)
Years ended July 31, 1994 1993 1992 1991 1990
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
For the year
Revenues . . . . . . . . . . . . . . . . $ 552,320 $ 630,621 $ 506,668 $ 489,333 $ 438,882
Income before income taxes and
cumulative effect of
accounting change . . . . . . . . . . . $ 35,002 $ 33,317 $ 662 $ 18,416 $ 37,402
Income tax provision (benefit) . . . . . 14,285 13,384 (2,097) 6,682 13,447
--------- --------- --------- --------- ---------
Income before cumulative effect
of accounting change . . . . . . . . . 20,717 19,933 2,759 11,734 23,955
Cumulative effect of
accounting change . . . . . . . . . . - (958) - - -
--------- --------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . $ 20,717 $ 18,975 $ 2,759 $ 11,734 $ 23,955
========= ========= ========= ========= =========
Income per common share
Income before cumulative
effect of accounting
change . . . . . . . . . . . . . . $ 2.51 $ 2.42 $ .33 $ 1.42 $ 2.90
Cumulative effect of
accounting change . . . . . . . . . - (.12) - - -
--------- --------- --------- --------- ---------
Net income . . . . . . . . . . . . . . $ 2.51 $ 2.30 $ .33 $ 1.42 $ 2.90
========= ========= ========= ========= =========
Cash dividends per common
share . . . . . . . . . . . . . . . . $ .35 $ .30 $ .45 $ .48 $ .40
Average number of shares of
common stock outstanding . . . . . . . 8,254,000 8,254,000 8,254,000 8,254,000 8,254,000
Net cash provided by
operating activities . . . . . . . . . . $ 27,684 $ 38,737 $ 961 $ 27,907 $ 33,643
At end of year
Working capital . . . . . . . . . . . . . $ 18,236 $ 12,145 $ 5,031 $ 18,658 $ 11,608
Total assets . . . . . . . . . . . . . . $ 281,814 $ 249,807 $ 245,462 $ 212,095 $ 149,503
Long-term debt (including
current portion) . . . . . . . . . . . $ 74,448 $ 80,056 $ 80,164 $ 80,638 $ 34,936
Stockholders' equity . . . . . . . . . . $ 64,772 $ 46,478 $ 29,505 $ 29,811 $ 21,371
</TABLE>
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<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
1994 Versus 1993
Net income for the 1994 fiscal year ended July 31, 1994 was $20.7
million compared to $19.9 million before an accounting change in the prior
fiscal year. A charge of $1.0 million relating to a change in the method to
account for income taxes reduced net income to $19.0 million in fiscal 1993.
While refinery margins for the 1994 fiscal year as a whole still
improved over the levels of the prior year, the current year's margins were
adversely impacted by poor refined product margins experienced by Navajo
Refining Company for this year's fourth quarter, as product prices did not
increase commensurately with a rise in crude oil costs (in the first quarter of
fiscal 1995, Navajo Refining Company's margins improved from the previous
quarter's level). Montana Refining Company had a third consecutive record year
in fiscal 1994, as its refinery margins were very good for the entire year.
Most of the increase in profitability resulting from the Company's higher
refinery margins was offset by the effect of a 3% reduction in sales volumes
and the net effect of the other items described below. Net sales for the 1994
fiscal year were down 13% as the result of lower prices on product sales and
the decrease in volumes. The reduction in sales volume for the year was caused
primarily by a planned major maintenance turnaround of Navajo Refining
Company's New Mexico facilities which occurred in the first months of fiscal
1994. A charge of $2.9 million was recorded in the fourth quarter of fiscal
1993 to reflect an increase in the estimate for the costs to be incurred in the
turnaround, and an additional $1.5 million in excess of the revised accrual at
July 31, 1993 was included as an expense with respect to the turnaround in the
current year's second quarter. Further reducing income in the current year
were other operating expense increases and an increase in exploration expenses,
including dry holes.
Income in the prior year was improved by $4 million relating to the
settlement of litigation with a common carrier pipeline and was reduced by a $2
million charge relating to an action by the United States Department of
Justice, acting on behalf of the Environmental Protection Agency (EPA). Both
of these items are more fully described below.
1993 Versus 1992
Net income for the year ended July 31, 1993 was $19.9 million before an
accounting change compared to $2.8 million in the prior year. The cumulative
effect through the 1992 fiscal year of adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which amends the
accounting for income taxes from the deferral method to the liability method,
was to decrease net income by $1.0 million, to $19.0 million for the year ended
July 31, 1993. Other than the cumulative effect of the adjustment, the effect
of the change on income for the year ended July 31, 1993 was not significant.
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<PAGE> 14
Net income for the year ended July 31, 1993 improved substantially over
the prior year due to improved refinery margins and higher sales volumes.
Increased sales volumes of 23% and revenues of 24% over the prior year were the
result of higher throughputs made possible by the refinery expansion completed
in December 1991 and the alleviation of product pipeline distribution
constraints in October 1992. Refinery margins and sales volumes for the 1993
fiscal year also may have been favorably affected by a temporary suspension of
production during most of the year by a refinery in the Company's principal
market area. Additionally contributing to 1993's performance was Montana
Refining Company's second consecutive record year. Increases in fiscal 1993 in
operating expenses, principally an increase made in the fourth quarter of $2.9
million in the estimate for a planned major maintenance turnaround scheduled
for the fall of 1993, in depreciation, depletion and amortization, primarily
attributable to the refinery expansion, and in general and administrative
expense reduced profitability. Net income in the fourth quarter of the 1993
fiscal year was improved by pre-tax income of $4 million and reduced by a
pre-tax charge of $2 million, both of which are described below.
The year ended July 31, 1993 included income of $4 million relating to a
settlement of litigation with a common carrier pipeline company. As part of
the settlement, trigger events were established which would require increases
in the capacity of the pipeline the Company uses to access the Arizona markets.
As discussed in detail under Financial Condition below, the $2 million
pre-tax charge relates to an enforcement action brought by the United States
Department of Justice, acting on behalf of the EPA, which alleges that the
Company's subsidiary, Navajo Refining Company, beginning in September 1990 and
continuing until the present, violated and continues to violate the Resource
Conservation and Recovery Act (RCRA) and implementing regulations of the EPA by
treating, storing and disposing of certain hazardous wastes without required
authorization and without compliance with regulatory requirements. The
complaint seeks a court order directing Navajo to comply with these regulatory
standards and civil penalties for the alleged non-compliance.
Net income in the fourth quarter of fiscal 1992 was improved by the
elimination, as a consequence of the Company's acquisition of the remaining
interest in Montana Refining Company, of a $2.6 million liability for deferred
taxes that had been reflected on the Company's financial statements.
1992 Versus 1991
For the fiscal year ended July 31, 1992, net income was $2.8 million,
compared to $11.7 million in the prior year. The decrease in net income in the
1992 fiscal year as compared to the 1991 fiscal year was principally the result
of poor refining margins, particularly in the second quarter of the 1992 fiscal
year. Refinery margins were poor for the industry as a whole, and particularly
so for refiners such as the Company which are influenced by West Coast product
price movements. The substantial improvement in net income in the fourth
quarter of the fiscal year ended July 31, 1992 to $9.6 million, as compared to
the $2.6 million in the prior year's comparable period, was primarily due to
increased volumes sold. Refinery margins, except for the greatly improved
margins at the Montana refinery, were essentially the same in the fourth
quarters of fiscal 1991 and 1992. The increase in volumes sold, resulting from
the expansion completed near the end of the second quarter of fiscal 1992,
could have
-14-
<PAGE> 15
been even greater but for pipeline constraints which prevented the Company from
producing and selling additional product into the Phoenix, Arizona market. An
additional important contribution to net income for the fourth quarter was the
elimination, as a consequence of the Company's acquisition of the remaining
interest in Montana Refining Company, of certain deferred taxes, resulting in a
decrease of $2.6 million in the provision for income taxes.
In addition to generally poor market conditions in the first nine months
of the 1992 fiscal year, the Company's margins were also adversely affected in
the first six months by the delayed start-up of the New Mexico refinery
expansion, which resulted in losses associated with inventory buildup during a
period of market declines and unanticipated start-up costs. Interest expense
and depreciation in the 1992 fiscal year increased over the prior year due to
the expansion; such increase was partially offset by lower oil and gas
exploration expenses, including dry holes. Other income (expense) for the 1992
and 1991 fiscal years relates principally to settlements. The 1992 fiscal year
included a charge of $.7 million relating to a settlement of a lawsuit with the
former limited partner of Montana Refining Company. The amount of $1.5 million
in other income in the 1991 fiscal year represents the settlement of a business
interruption insurance claim resulting from a mechanical failure at the
Company's Artesia, New Mexico refinery in April 1990.
Revenues for the years ended July 31, 1992 and July 31, 1991 were
essentially the same, as the 22% increase in volumes sold in the year ended
July 31, 1992 resulting from the completion of the expansion was offset by the
higher selling prices of refined products in the prior year. Higher selling
prices in the 1991 fiscal year were due in large part to the sharp increases in
crude oil costs in the first six months of the 1991 fiscal year, and the
concomitant increase in product prices, resulting from the Middle East Crisis.
FINANCIAL CONDITION
Cash flows from operations during fiscal 1994 were slightly less than
capital expenditures, debt payments and dividends paid, resulting in a net
decrease of cash and cash equivalents of $3.3 million. Working capital
increased during fiscal 1994 by $6.1 million to $18.2 million at July 31, 1994.
The Company's long-term debt now represents 53.5% of total capitalization as
compared to 63.3% at July 31, 1993. At July 31, 1994, the Company had $25
million of borrowing capacity under the Credit Agreement which can be used for
short-term working capital needs. The Company believes that these sources of
funds, together with future cash flows from operations, should provide
sufficient resources, financial strength and flexibility for the Company to
satisfy its liquidity needs, capital requirements, and debt service obligations
and to permit the payment of dividends for at least the next few years.
Net cash provided by operating activities amounted to $27.7 million in
fiscal 1994, compared to $38.7 million in fiscal 1993 and $1.0 million in
fiscal 1992. The primary reason for the differences in cash provided from
operations during the three years ended July 31, 1994 was differences in
earnings, which were $20.7 million in fiscal 1994, $19.0 million in fiscal 1993
and $2.8 million in fiscal 1992. Additionally, significant amounts of funds
were required in both fiscal 1994 and fiscal 1992 to maintain working capital
accounts as compared to the 1993 fiscal year.
-15-
<PAGE> 16
Cash flows used for investing activities totalled $65.7 million over the
last three years, $22.5 million in 1994, $20.1 million in 1993 and $23.1
million in 1992, principally for capital expenditures. The expenditures in
1992 were primarily for the final phases of the expansion of the Company's New
Mexico refining capacity from 40,000 to 60,000 BPD. This expansion included
the installation of a new 12,000 BPD continuous catalytic regeneration
reformer, the modification of the fluid catalytic cracker, the expansion of the
naphtha desulfurizer and the installation of a new sulphur plant and alkylation
unit. In fiscal 1993 and 1994, most of the funds expended were for refinery
projects including diesel desulfurization units at the Artesia, New Mexico
facility and the Montana refinery in order to meet the October 1993
requirements for lower sulphur content in diesel fuel. The New Mexico unit was
completed in August 1993 and the Montana unit was completed in December 1993.
The Company has adopted capital budgets totalling $17 million for fiscal 1995,
of which $13 million is principally for refinery projects and $4 million is for
oil and gas exploration. The majority of the oil and gas budget relates to
anticipated costs of completion and of production facilities for two offshore
properties. While it is inherently difficult to anticipate what future
regulatory requirements may necessitate, the Company believes that capital
expenditures in the near future should not substantially exceed the level of
capital expenditures that has been required in the past few years.
Cash flows used for financing activities amounted to $8.5 million and
$13.4 million in fiscal 1994 and 1993, respectively, as compared to cash flows
provided by financing activities of $6.3 million in fiscal 1992. Financing
activities over the last three years included the renewal of the Company's
Credit Agreement in July 1993 with a group of banks, which provides for a total
facility of $100 million, the full amount of which may be used to support
letters of credit and $25 million of which may be used for direct borrowings
for short-term working capital needs. The Company had $10.5 million of
borrowings outstanding under its Credit Agreement as of July 31, 1992, the full
amount of which was paid off during fiscal 1993. The Company's first principal
payment of $5.6 million on the Senior Notes was made in June 1994.
See Note 6 to the Consolidated Financial Statements for a summary of the
Senior Notes and Credit Agreement.
While the Company believes it is well positioned to meet present and
future competitive pressures, certain recent developments should be noted. In
December 1993, Diamond Shamrock, Inc., an independent refiner and retailer,
announced its intention to build a 400-mile 10-inch pipeline, with initial
capacity of 32,000 BPD of refined products, from its McKee refinery near Dumas,
Texas to El Paso, Texas. Such a pipeline, which Diamond Shamrock has stated it
anticipates to complete in the spring of 1995, could substantially increase the
supply of product in the Company's markets. In addition, Williams Energy
Ventures, a unit of the Williams Companies, Inc., has announced the possibility
of its involvement in the construction of a sophisticated 50,000 BPD refinery
near Phoenix, Arizona. While Williams has made it clear that the project is
only tentative, its consummation could cause more product to be present in
several of the Company's markets, particularly Tucson and Phoenix, Arizona.
Williams has stated that, if the project were undertaken, it would take
approximately 30 months to complete construction.
-16-
<PAGE> 17
In July 1993, the United States Department of Justice, acting on behalf
of the EPA, filed a complaint in the United States District Court for the
District of New Mexico alleging that the Company's subsidiary, Navajo Refining
Company, beginning in September 1990 and continuing until the present, had
violated and continues to violate the RCRA and implementing regulations of the
EPA by treating, storing and of disposing certain hazardous wastes without
compliance with regulatory requirements. The complaint seeks a court order
directing Navajo to comply with these regulatory standards and civil penalties
for the alleged non-compliance.
Navajo has answered the complaint, denying all the allegations of legal
liability and asserting affirmative defenses. Since near the outset of this
matter, the Company and the plaintiff have been pursuing settlement
discussions. It now appears that the parties have reached a tentative
resolution that would resolve some if not all of the litigation. Under this
resolution, the Company would close the existing evaporation ponds of its
wastewater management system, at an approximate cost of $1 to $2 million, to be
expended over a several year period. A reserve of $2 million was recorded in
fiscal 1993, principally to provide for the cost of closing existing ponds. In
such event, the Company would implement one of several alternatives to the
existing wastewater treatment system. Depending upon which approach is
utilized, the Company could incur costs of an additional $5 to $10 million over
the next several years. The costs to implement an alternative wastewater
treatment system would be capitalized and amortized over the future useful life
of the resulting asset in accordance with generally accepted accounting
principles.
Assuming the Company consummates the settlement discussed above, the
remaining aspect of the litigation would be the civil penalty which the
Government seeks. While the amount of any such civil penalty cannot presently
be ascertained, based upon the advice of counsel, it is not believed that any
such penalty would have a materially adverse impact on the Company's financial
position or operations.
-17-
<PAGE> 18
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . 19
Consolidated Balance Sheet at July 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statement of Income for the
years ended July 31, 1994, 1993 and 1992 . . . . . . . . . 21
Consolidated Statement of Cash Flows for
the years ended July 31,
1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Stockholders' Equity
for the years ended July 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . 23
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . 24-36
</TABLE>
-18-
<PAGE> 19
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors
and Stockholders of Holly Corporation
We have audited the accompanying consolidated balance sheet of Holly
Corporation at July 31, 1994 and 1993, and the related consolidated statements
of income, cash flows and stockholders' equity for each of the three years in
the period ended July 31, 1994. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Holly
Corporation at July 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Dallas, Texas
September 20, 1994
-19-
<PAGE> 20
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) July 31,
----------------------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 6) . . . . . . . . . . . . . . . $ 3,297 $ 6,631
Accounts receivable (Notes 3 and 6) . . . . . . . . . . . . . . 94,280 76,867
Inventories (Notes 4 and 6) . . . . . . . . . . . . . . . . . . 43,995 37,972
Income taxes receivable . . . . . . . . . . . . . . . . . . . . 697 -
Prepayments and other . . . . . . . . . . . . . . . . . . . . . 9,340 7,082
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . 151,609 128,552
Properties, plants and equipment, net (Note 5) . . . . . . . . . . 128,962 118,821
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243 2,434
-------- --------
$281,814 $249,807
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $112,084 $ 86,787
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 14,945 16,648
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 736 7,364
Current maturities of long-term debt (Note 6) . . . . . . . . . 5,608 5,608
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . 133,373 116,407
Deferred income taxes (Note 7) . . . . . . . . . . . . . . . . . . 14,829 12,474
Long-term debt, less current maturities (Note 6) . . . . . . . . . 68,840 74,448
Contingencies (Notes 10 and 12)
Stockholders' equity (Notes 6, 8 and 9)
Preferred stock, $1.00 par value - 1,000,000
shares authorized; none issued . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value - 20,000,000 shares
authorized; 8,650,282 shares issued . . . . . . . . . . . . . 87 87
Additional capital . . . . . . . . . . . . . . . . . . . . . . . 6,132 6,132
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 59,942 42,058
-------- --------
66,161 48,277
Common stock held in treasury, at cost -
396,768 shares . . . . . . . . . . . . . . . . . . . . . . . . (569) (569)
Deferred charge - amount due from ESOP . . . . . . . . . . . . . (820) (1,230)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . 64,772 46,478
-------- --------
$281,814 $249,807
======== ========
</TABLE>
See accompanying notes.
-20-
<PAGE> 21
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) Years ended July 31,
-----------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . $550,903 $629,884 $506,185
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 1,417 737 483
-------- -------- --------
552,320 630,621 506,668
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 480,916 565,638 474,151
General and administrative . . . . . . . . . . . . . . . . . . 12,369 11,951 9,263
Depreciation, depletion and amortization . . . . . . . . . . . 10,871 11,344 10,085
Exploration expenses, including dry holes . . . . . . . . . . 4,441 2,867 2,005
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 183 150 148
-------- -------- --------
508,780 591,950 495,652
-------- -------- --------
Income from operations . . . . . . . . . . . . . . . . . . . . . 43,540 38,671 11,016
OTHER INCOME (EXPENSE)
Interest income . . . . . . . . . . . . . . . . . . . . . . . 447 169 432
Interest expense (Note 6) . . . . . . . . . . . . . . . . . . (8,985) (9,523) (10,086)
Other (Note 11) . . . . . . . . . . . . . . . . . . . . . . . - 4,000 (700)
-------- -------- --------
(8,538) (5,354) (10,354)
-------- -------- --------
Income before income taxes and cumulative effect
of change in accounting for income taxes . . . . . . . . . . . . 35,002 33,317 662
Income tax provision (benefit) (Notes 2, 7 and 10)
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,785 12,647 (966)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 737 (1,131)
-------- -------- --------
14,285 13,384 (2,097)
-------- -------- --------
Income before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . 20,717 19,933 2,759
Cumulative effect to August 1, 1992 of change in
accounting for income taxes (Note 2) . . . . . . . . . . . . . - (958) -
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,717 $ 18,975 $ 2,759
======== ======== ========
Income per common share
Income before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . $ 2.51 $ 2.42 $ .33
Cumulative effect to August 1, 1992 of change
in accounting for income taxes . . . . . . . . . . . . . . . . - (.12) -
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.51 $ 2.30 $ .33
======== ======== ========
Cash dividends paid per share . . . . . . . . . . . . . . . . . . $ .35 $ .30 $ .45
======== ======== ========
Average number of shares of common
stock outstanding (in thousands) . . . . . . . . . . . . . . . 8,254 8,254 8,254
======== ======== ========
</TABLE>
See accompanying notes.
-21-
<PAGE> 22
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
($ in thousands) Years ended July 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,717 $ 18,975 $ 2,759
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization . . . . . . . . . . . 10,871 11,344 10,085
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 2,500 737 (1,131)
Dry hole costs and leasehold impairment . . . . . . . . . . . 1,509 1,175 369
Cumulative effect to August 1, 1992 of change in
accounting for income taxes . . . . . . . . . . . . . . . . - 958 -
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable . . . . . . . . . (17,413) 12,222 (27,388)
Increase in inventories . . . . . . . . . . . . . . . . . . (6,023) (2,365) (5,984)
(Increase) decrease in income taxes receivable . . . . . . . (697) 2,115 (1,876)
Increase in prepayments and other . . . . . . . . . . . . . (2,403) (197) (1,581)
Increase (decrease) in accounts payable . . . . . . . . . . 25,297 (19,964) 26,005
Increase (decrease) in accrued liabilities . . . . . . . . . (1,703) 6,419 858
Increase (decrease) in income taxes payable . . . . . . . . (6,572) 7,427 (1,970)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601 (109) 815
-------- -------- --------
Net cash provided by operating activities . . . . . . . . 27,684 38,737 961
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable . . . . . . . . . . . . . . . - (10,500) 10,500
Reduction of long-term debt . . . . . . . . . . . . . . . . . . . (5,608) (108) (474)
Issuance costs of debt . . . . . . . . . . . . . . . . . . . . . . - (291) -
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (2,889) (2,476) (3,714)
-------- -------- --------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . . . . . . . (8,497) (13,375) 6,312
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties, plants and equipment . . . . . . . . . . (22,521) (20,120) (22,317)
Additional cost of partnership . . . . . . . . . . . . . . . . . . - - (739)
-------- -------- --------
Net cash used for investing activities . . . . . . . . . . (22,521) (20,120) (23,056)
-------- -------- --------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year . . . . . . . . . . . . . . . . . (3,334) 5,242 (15,783)
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 6,631 1,389 17,172
-------- -------- --------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,297 $ 6,631 $ 1,389
======== ======== ========
</TABLE>
See accompanying notes.
-22-
<PAGE> 23
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
($ in thousands)
Amount Total
due stock-
Common Additional Retained Treasury from holders'
stock capital earnings stock ESOP equity
------ ---------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1991 . . . . . . . . . . . . $ 87 $6,132 $26,212 $(569) $(2,051) $29,811
Net income . . . . . . . . . . . . . . . . . . . - - 2,759 - - 2,759
Dividends paid . . . . . . . . . . . . . . . . . - - (3,714) - - (3,714)
Reduction in amount due from ESOP . . . . . . . . - - - - 410 410
Tax benefit of dividends paid to ESOP . . . . . . - - 239 - - 239
------ ------ ------- ------ ------- -------
BALANCE AT JULY 31, 1992 . . . . . . . . . . . . 87 6,132 25,496 (569) (1,641) 29,505
Net income . . . . . . . . . . . . . . . . . . - - 18,975 - - 18,975
Dividends paid . . . . . . . . . . . . . . . . . - - (2,476) - - (2,476)
Reduction in amount due from ESOP . . . . . . . . - - - - 411 411
Tax benefit of dividends paid to ESOP
on unallocated shares . . . . . . . . . . . . . - - 63 - - 63
------ ------ ------- ------ ------- -------
BALANCE AT JULY 31, 1993 . . . . . . . . . . . . 87 6,132 42,058 (569) (1,230) 46,478
Net income . . . . . . . . . . . . . . . . . . . - - 20,717 - - 20,717
Dividends paid . . . . . . . . . . . . . . . . . - - (2,889) - - (2,889)
Reduction in amount due from ESOP . . . . . . . . - - - - 410 410
Tax benefit of dividends paid to
ESOP on unallocated shares . . . . . . . . . . - - 56 - - 56
------ ------ ------- ------ ------- -------
BALANCE AT JULY 31, 1994 . . . . . . . . . . . . $ 87 $6,132 $59,942 $ (569) $ (820) $64,772
====== ====== ======= ====== ======= =======
</TABLE>
See accompanying notes.
-23-
<PAGE> 24
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company is principally engaged in the refining of petroleum
products. Although the Company is also engaged in certain oil and gas
exploration and production activities, such activities do not represent a
significant segment of the Company's assets or operations.
The consolidated financial statements include the accounts of the
Company, its subsidiaries and Montana Refining Company, a Partnership (MRC).
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time
of purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost, using the last-in,
first-out (LIFO) method for crude oil and refined products and the average cost
method for materials and supplies, or market.
REVENUE RECOGNITION
Sales and related cost of sales are recognized when products are shipped
to customers and title passes. Sales are reported exclusive of excise taxes.
DEPRECIATION
Depreciation is provided by the straight-line method over the estimated
useful lives of the assets, primarily 10 to 30 years for refining and pipeline
facilities and 3 to 10 years for corporate and other assets.
-24-
<PAGE> 25
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
OIL AND GAS EXPLORATION AND DEVELOPMENT
The Company accounts for the acquisition, exploration, development and
production costs of its oil and gas activities using the successful efforts
method of accounting. Lease acquisition costs are capitalized; undeveloped
leases are written down when determined to be impaired and written off upon
expiration or surrender. Geological and geophysical costs and delay rentals
are expensed as incurred. Exploratory well costs are initially capitalized,
but if the effort is unsuccessful, the costs are charged against earnings.
Development costs, whether or not successful, are capitalized. Productive
properties are stated at the lower of amortized cost or estimated realizable
value of underlying proved oil and gas reserves. Depreciation, depletion and
amortization of such properties is computed by the unit-of-production method.
EARNINGS PER SHARE
Earnings per share amounts are based upon the weighted average number of
common shares outstanding during each period.
FUTURES CONTRACTS
The Company enters into futures contracts to hedge a portion of the
price risk associated with crude oil and refined products. Gains or losses on
contracts are recognized when the related inventory is sold or the hedged
transaction is consummated.
2. ACCOUNTING CHANGE
Effective August 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which
amends the accounting for income taxes from the deferral method to the
liability method. Under the liability method, deferred taxes are stated at the
income tax rates currently in effect or scheduled to be implemented rather than
at the tax rate in effect when the taxes were provided. The cumulative effect
of this accounting change through the 1992 fiscal year was a $958,000 increase
in the Company's deferred tax liability at August 1, 1992. This additional
income tax expense was reflected as a reduction of $958,000 in net income in
the first quarter of the 1993 fiscal year or $.12 per share. Excluding the
provision for the cumulative effect upon adoption of the new standard, the
effect of the change on net income was not material.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
-------- --------
<S> <C> <C>
Product . . . . . . . . . . . . . . . . . $ 45,259 $ 40,412
Crude oil resales . . . . . . . . . . . . 49,021 36,455
-------- --------
$ 94,280 $ 76,867
======== ========
</TABLE>
-25-
<PAGE> 26
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
Crude oil resales accounts receivable principally represent the sell
side of reciprocal crude oil buy/sell exchange arrangements involved in
supplying crude oil to the refineries, with an approximate like amount
reflected in accounts payable. The net differential of these crude oil
buy/sell exchanges is reflected in cost of sales. The exchange differentials
result principally from crude oil type and location differences.
Credit losses are provided for in the financial statements and
consistently have been minimal.
4. INVENTORIES
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
-------- --------
<S> <C> <C>
Crude oil and refined products . . . . . . $ 37,949 $ 32,625
Materials and supplies . . . . . . . . . . 6,046 5,347
-------- --------
$ 43,995 $ 37,972
======== ========
</TABLE>
The excess of current cost over the LIFO value of inventory was
$12,228,000 and $5,990,000 at July 31, 1994 and 1993, respectively.
5. PROPERTIES, PLANTS AND EQUIPMENT
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
-------- --------
<S> <C> <C>
Properties, plants and equipment, at cost
Refining and pipeline facilities . . . . . . . . $224,540 $207,935
Oil and gas exploration
and development . . . . . . . . . . . . . . . 10,607 6,651
Corporate and other . . . . . . . . . . . . . . 1,038 1,017
-------- --------
236,185 215,603
Accumulated depreciation, depletion and
amortization . . . . . . . . . . . . . . . . . . 107,223 96,782
-------- --------
$128,962 $118,821
======== ========
</TABLE>
Refining and pipeline facilities at July 31, 1994 and 1993 include
$4,452,000 and $12,002,000, respectively, of construction in progress which was
not being depreciated at those dates, pending completion of the construction
projects.
-26-
<PAGE> 27
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
6. DEBT
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
-------- --------
<S> <C> <C>
Senior Notes . . . . . . . . . . . . . . . . . . $ 74,400 $ 80,000
Other . . . . . . . . . . . . . . . . . . . . . . 48 56
-------- --------
74,448 80,056
Less current maturities of long-
term debt . . . . . . . . . . . . . . . . . . 5,608 5,608
-------- --------
$ 68,840 $ 74,448
======== ========
</TABLE>
SENIOR NOTES
In June 1991, the Company sold $80 million of Senior Notes to a group of
insurance companies. The Senior Notes were issued in two Series and are
unsecured. The Series A Notes are in the principal amount of $28 million, have
a 7-year life, require equal annual principal payments of $5,600,000 beginning
June 15, 1994 and bear interest at 9.72%. The Series B Notes are in the
principal amount of $52 million, have a 10-year life, require equal annual
principal payments of $8,667,000 beginning June 15, 1996 and bear interest at
10.16%. The note agreement imposes certain restrictive covenants, including
limitations on liens, additional indebtedness, sale of assets, investments,
business combinations and dividends, which limitations collectively are less
restrictive than the terms of the bank Credit Agreement.
CREDIT AGREEMENT
In July 1993, the Company and certain of its subsidiaries entered into a
new two-year bank Credit Agreement (Credit Agreement), which provides a $100
million facility for letters of credit or for direct borrowings of up to $25
million, with such borrowings being subject to an annual 20-day cleanup period.
Interest on borrowings is based upon, at the Company's option, (i) the agent
bank's prime rate plus 1/2% per annum; (ii) various Eurodollar related rates;
and (iii) various certificate of deposit related rates. A fee of 1% per annum
is payable quarterly on the outstanding balance of all letters of credit, and a
commitment fee of 3/8 of 1% per annum is payable on the unused portion of the
facility. The borrowing base for the facility consists of cash, cash
equivalents, accounts receivable and inventory, all of which secure the
facility. The Credit Agreement imposes certain restrictions, including: (i) a
prohibition of other indebtedness in excess of $3 million with exceptions for,
among other things, indebtedness under the Company's Senior Notes and certain
nonrecourse debt; (ii) maintenance of certain levels of net worth, working
capital and interest coverage; (iii) limitations on investments and dividends;
and (iv) a prohibition of incursions on controlling ownership, material changes
in senior management and business combinations with unaffiliated entities.
-27-
<PAGE> 28
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
At July 31, 1994, the Company had outstanding letters of credit
totalling $51,376,000 and no borrowings. The unused commitment under the
Credit Agreement at July 31, 1994 was $48,624,000, of which up to $25,000,000
may be used for additional direct borrowings.
The average and maximum amounts outstanding and the effective average
interest rate for borrowings under the Company's current and prior credit
agreements were as follows:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Average amount outstanding . . . . . . . . $ 39 $ 3,565 $ 7,558
Maximum balance . . . . . . . . . . . . . . $ 1,900 $22,330 $23,100
Effective average interest rate . . . . . . 6.6% 6.6% 7.7%
</TABLE>
The Senior Notes and Credit Agreement restrict investments and
distributions, including dividends, to an amount in the aggregate not to exceed
75% of cumulative consolidated net income (as defined). Under the most
restrictive of these covenants, at July 31, 1994 approximately $20.7 million
was available for the payment of dividends.
Maturities of long-term debt for the next five fiscal years are as
follows: 1995 -- $5,608,000; 1996 -- $14,275,000; 1997 -- $14,275,000; 1998 --
$14,275,000 and 1999 -- $8,675,000.
The Company made interest payments of $8,744,000 in 1994, $9,058,000 in
1993 and $9,361,000 in 1992.
Based on the borrowing rates that the Company believes would be available
for replacement loans with similar terms and maturities of the debt of the
Company now outstanding, the fair value of long-term debt including current
maturities would be $79.3 million at July 31, 1994.
7. INCOME TAXES
Effective August 1, 1992, the Company adopted SFAS No. 109 to account for
income taxes (see Note 2).
-28-
<PAGE> 29
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
The statutory federal income tax rate applied to pre-tax book income
reconciles to income tax expense as follows:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Tax computed at (1)
statutory rate . . . . . . . . . . $12,251 $11,521 $ 225
State income taxes, net of federal
tax benefit . . . . . . . . . . . . 1,888 1,744 35
Adjustment of deferred tax
provision relating to MRC
(see Note 10) . . . . . . . . . . . - - (2,579)
Other . . . . . . . . . . . . . . . . 146 119 222
------- ------- -------
$14,285 $13,384 $(2,097)
======= ======= =======
</TABLE>
(1) Blended rate, as federal income tax rate changed effective January 1,
1993.
Additionally, a tax benefit of $56,000, $63,000 and $239,000 for dividends
paid in fiscal 1994, 1993 and 1992, respectively, to the Company's Employee
Stock Ownership Plan was directly credited to retained earnings.
Operations of the corporation that was the sole limited partner of MRC
prior to the acquisition of such corporation by the Company (see Note 10)
resulted in unused net operating loss carryforwards of approximately
$7,000,000, which are expected to be available to the Company to a limited
extent each year through 2006 based on the income of such corporation. As of
July 31, 1994, approximately $6,000,000 of these net operating loss
carryforwards remain available to offset future income. For financial
reporting purposes, any benefit of these net operating loss carryforwards is
being offset against any contingent future payments relating to the acquisition
of such corporation.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
-29-
<PAGE> 30
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
The Company's deferred income tax assets and liabilities as of July 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
($ in thousands)
1994
--------
Assets Liabilities Total
------ ----------- -------
<S> <C> <C> <C>
Deferred taxes
Nondeductible employee benefits . . . . $1,376 $ - $ 1,376
Provision for future maintenance . . . 1,353 - 1,353
Prepayments and other . . . . . . . . . 1,339 (1,747) (408)
------ -------- --------
Total current . . . . . . . . . . . . . . 4,068 (1,747) 2,321
Properties, plants and equipment
(primarily tax in excess of
book depreciation) . . . . . . . . . . - (16,038) (16,038)
Intangible drilling costs . . . . . . . - (704) (704)
Nondeductible oil and gas costs . . . . 1,813 - 1,813
Other . . . . . . . . . . . . . . . . . 152 (52) 100
------ -------- --------
Total noncurrent . . . . . . . . . . . . 1,965 (16,794) (14,829)
------ -------- --------
6,033 (18,541) (12,508)
Valuation allowance . . . . . . . . . . . - - -
------ -------- --------
Total . . . . . . . . . . . . . . . . . . $6,033 $(18,541) $(12,508)
====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
($ in thousands)
1993
--------
Assets Liabilities Total
------ ----------- -------
<S> <C> <C> <C>
Deferred taxes
Nondeductible employee benefits . . . . $1,107 $ - $ 1,107
Provision for future maintenance . . . 2,477 - 2,477
Prepayments and other . . . . . . . . . 521 (1,639) (1,118)
------ -------- --------
Total current . . . . . . . . . . . . . . 4,105 (1,639) 2,466
Properties, plants and equipment
(primarily tax in excess of
book depreciation) . . . . . . . . . . - (13,423) (13,423)
Intangible drilling costs . . . . . . . - (375) (375)
Nondeductible oil and gas costs . . . . 1,173 - 1,173
Other . . . . . . . . . . . . . . . . . 151 - 151
------ -------- --------
Total noncurrent . . . . . . . . . . . . 1,324 (13,798) (12,474)
------ -------- --------
5,429 (15,437) (10,008)
Valuation allowance . . . . . . . . . . . - - -
------ -------- --------
Total . . . . . . . . . . . . . . . . . . $5,429 $(15,437) $(10,008)
====== ======== ========
</TABLE>
-30-
<PAGE> 31
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
The deferred income tax benefits for the 1992 fiscal year (prior to the
adoption of SFAS No. 109) are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1992
-------
<S> <C>
Excess tax (book) depreciation . . . . . . . . . . . $ 1,361
Provision for future maintenance . . . . . . . . . . (423)
Adjustment of prior years'deferred tax
provision relating to MRC (see Note 10) . . . . . . (1,483)
Other . . . . . . . . . . . . . . . . . . . . . . . . (586)
-------
$(1,131)
=======
</TABLE>
The Company made income tax payments of $18,893,000 in 1994, $5,138,000
in 1993 and $2,503,000 in 1992.
The Company's federal income tax returns have been examined by the
Internal Revenue Service through 1990.
8. STOCKHOLDERS' EQUITY
STOCK OPTIONS
At July 31, 1994 and 1993, no stock options were outstanding and 751,500
shares of common stock were reserved for issuance under the Company's stock
option plan.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has non-contributory defined benefit retirement plans that
cover substantially all employees. The Company's policy is to make
contributions annually of not less than the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. Benefits are based on the
employee's years of service and compensation.
Pension expense includes the following components:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during the year . . . . . . . . . . . . $ 1,014 $ 1,124 $ 908
Interest cost on projected benefit
obligations . . . . . . . . . . . . . . 1,603 1,711 1,557
Actual return on plan assets . . . . . . (841) (1,802) (2,110)
Net amortization and deferral . . . . . . (1,252) (379) 35
------- ------- -------
Pension expense . . . . . . . . . . . . . $ 524 $ 654 $ 390
======= ======= =======
</TABLE>
-31-
<PAGE> 32
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheet:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
-------- --------
<S> <C> <C>
Plan assets at fair value . . . . . . $ 23,256 $ 23,478
Actuarial present value of projected
benefit obligations
Accumulated benefit obligations
Vested . . . . . . . . . . . . . 17,733 17,034
Unvested . . . . . . . . . . . . 222 303
Provision for future salary
increases . . . . . . . . . . . 6,171 6,289
-------- --------
Projected benefit obligations . . . . 24,126 23,626
-------- --------
Plan assets less than projected
benefit obligations . . . . . . . . (870) (148)
Unrecognized net loss . . . . . . . . 248 227
Unrecognized prior service
cost . . . . . . . . . . . . . . 108 144
Unrecognized transition net
asset . . . . . . . . . . . . . . (1,435) (1,648)
-------- --------
Accrued pension liability
recognized in the consolidated
balance sheet . . . . . . . . . . . $ (1,949) $ (1,425)
======== ========
</TABLE>
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate . . . . . . . . . . . 7.5% 7.5% 7.5%
Rate of future compensation
increases . . . . . . . . . . . . 5% 5% 6%
Expected long-term rate of return
on assets . . . . . . . . . . . . 8.5% 8.5% 9%
</TABLE>
Pension costs are determined using the assumptions as of the beginning
of the year. The funded status is determined using the assumptions as of the
end of the year.
Approximately 52% of plan assets is invested in equity securities and
48% is invested in fixed income securities and other instruments at July 31,
1994.
-32-
<PAGE> 33
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
EMPLOYEE STOCK OWNERSHIP PLAN
In December 1985, the Company established an Employee Stock Ownership
Plan (ESOP). The ESOP is non-contributory and includes substantially all
employees of the Company and its subsidiaries who meet certain length of
service requirements and are not covered by a collective bargaining agreement.
In 1985, the ESOP borrowed from the Company the $4,102,000 needed to
purchase 1,500,000 shares of the Company's common stock. The loan is repayable
in ten annual installments of $410,000 (subject to certain adjustments)
commencing August 1, 1986 and bears interest at 12% per annum. The Company is
obligated to make annual contributions sufficient to enable the ESOP to repay
the loan with interest. The unearned compensation of $4,102,000 was recorded
as a reduction of stockholders' equity and is being reduced as payments are
made. Interest income earned on the note due from the ESOP is offset against
an equal amount contributed to the ESOP by the Company.
10. MONTANA REFINING COMPANY, A PARTNERSHIP
The Company acquired on July 31, 1992, the corporation that was the
limited partner in MRC in connection with a settlement of litigation. The
acquisition involved among other items contingent future payments of up to
$189,000 per year over the period 1993 through 2005.
As a consequence of the acquisition of the limited partner in MRC,
certain deferred taxes have been eliminated, resulting in a decrease for fiscal
1992 of $2,579,000 in the provision for income taxes, of which $1,483,000
relates to income taxes provided in prior years.
11. OTHER INCOME (EXPENSE)
The amounts in other income (expense) relate principally to settlements.
The 1993 fiscal year included income of $4,000,000 relating to a settlement
with a common carrier pipeline concerning product pipeline distribution
constraints. The 1992 fiscal year included a charge of $700,000 relating to a
settlement of a lawsuit with the limited partner of MRC (see Note 10).
12. CONTINGENCIES
In July 1993, the United States Department of Justice, acting on behalf
of the United States Environmental Protection Agency (EPA), filed a complaint
in the United States District Court for the District of New Mexico alleging
that the Company's subsidiary, Navajo Refining Company, beginning in September
1990 and continuing until the present, had violated and continues to violate
the Resource Conservation and Recovery Act (RCRA) and implementing regulations
of the EPA by treating, storing and disposing of certain hazardous wastes
without compliance with regulatory requirements. The complaint seeks a court
order directing Navajo to comply with these regulatory standards and civil
penalties for the alleged non-compliance.
-33-
<PAGE> 34
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994, 1993 and 1992
Navajo has answered the complaint, denying all the allegations of legal
liability and asserting affirmative defenses. Only limited discovery has been
conducted. The Company and Navajo have been contesting the Government's case
as necessary and appropriate, while contemporaneously exploring the prospects
for negotiated settlement.
In this regard, a tentative resolution of a substantial portion of the
litigation has been reached. Under this approach, the Company would close the
existing evaporation ponds of its wastewater management system, at an
approximate cost of $1 to $2 million, to be expended over a several year
period. A reserve of $2 million was recorded in fiscal 1993, principally to
provide for the cost of closing existing ponds. In such event, the Company
would implement one of several alternatives to the existing wastewater
treatment system. Depending upon which approach is utilized, the Company could
incur capitalizable costs of an additional $5 to $10 million over the next
several years.
Assuming the Company consummates the settlement discussed above, the
remaining aspect of the litigation would be the civil penalty which the
Government seeks. While the amount of any such civil penalty cannot presently
be ascertained, based upon the advice of counsel, it is not believed that any
such penalty would have a materially adverse impact on the Company's financial
position.
The Company is a party to various other litigation and proceedings which
it believes, based on advice of counsel, will not have a materially adverse
impact on its financial condition or operations.
13. SIGNIFICANT CUSTOMERS
Virtually all revenues were domestic revenues (including domestic sales
for export to Mexico). Approximately $67,000,000 (12%) of the Company's
revenues for fiscal 1994, $65,000,000 (10%) of revenues for fiscal 1993 and
$67,000,000 (13%) for fiscal 1992 were from the sale of military jet fuel to
the United States Government. Approximately $58,000,000 (11%) of the Company's
revenues for fiscal 1994 were from the sale of gasoline to an affiliate of
PEMEX (the government-owned energy company of Mexico). In addition to the
United States Government and PEMEX, another refiner, which is a purchaser of
gasoline and diesel for resale to retail customers, accounted for approximately
$75,000,000 (12%) of the Company's revenues in fiscal 1993 and $96,000,000
(19%) in fiscal 1992. While a loss of, or reduction in amounts purchased by,
major purchasers that resell to retail customers could have an adverse effect
on the Company, the Company believes that the impact of such a loss on the
Company's results of operations should be limited because the Company's sales
volume with respect to products whose end-users are retail customers is more
dependent on the general retail demand in the Company's primary markets than on
sales to any specific customer.
-34-
<PAGE> 35
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 31, 1994, 1993 and 1992
14. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Financial Data Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . $135,518 $120,689 $143,934 $152,179 $552,320
Operating margin (net sales less
cost of sales) . . . . . . . . . . $ 22,570 $ 15,790 $ 23,420 $ 8,207 $ 69,987
Income (loss) before
income taxes . . . . . . . . . . . $ 13,835 $ 7,134 $ 14,635 $ (602) $ 35,002
Net income (loss) . . . . . . . . . . $ 8,273 $ 4,266 $ 8,730 $ (552) $ 20,717
Income (loss) per
common share . . . . . . . . . . . $ 1.00 $ .52 $ 1.06 $ (.07) $ 2.51
Dividends per share . . . . . . . . . $ .075 $ .075 $ .10 $ .10 $ .35
Average number of shares of
common stock outstanding
(in thousands) . . . . . . . . . . 8,254 8,254 8,254 8,254 8,254
1993
Revenues . . . . . . . . . . . . . . . $151,910 $149,871 $161,695 $167,145 $630,621
Operating margin (net sales less
cost of sales) . . . . . . . . . . $ 12,296 $ 11,683 $ 16,783 $ 23,484 $ 64,246
Income before income taxes and
cumulative effect of change
in accounting for income
taxes . . . . . . . . . . . . . . . $ 4,209 $ 2,830 $ 7,729 $ 18,549 $ 33,317
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . . . . $ 2,556 $ 2,052 $ 4,693 $ 10,632 $ 19,933
Cumulative effect to August 1,
1992 of change in accounting
for income taxes . . . . . . . . . (958) - - - (958)
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . $ 1,598 $ 2,052 $ 4,693 $ 10,632(1) $ 18,975
======== ======== ======== ======== ========
</TABLE>
(1) Includes pre-tax income of $4 million relating to a settlement and a
pre-tax reserve of $2 million relating to EPA litigation (see Notes 11
and 12).
-35-
<PAGE> 36
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
First Second Third Fourth
Financial Data Quarter Quarter Quarter Quarter Year
(continued) ------- ------- ------- ------- ----
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income per common share
Income before cumulative
effect of change in
accounting principle . . . . . . . $ .31 $ .25 $ .57 $ 1.29 $ 2.42
Cumulative effect to
August 1, 1992 of
change in accounting
for income taxes . . . . . . . . . (.12) - - - (.12)
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . $ .19 $ .25 $ .57 $ 1.29 $ 2.30
======== ======== ======== ======== ========
Dividends per share . . . . . . . . . . . $ .075 $ .075 $ .075 $ .075 $ .30
Average number of shares of
common stock outstanding
(in thousands) . . . . . . . . . . . . 8,254 8,254 8,254 8,254 8,254
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Operating Data Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(barrels per day)
<S> <C> <C> <C> <C> <C>
1994
Sales of refined products . . . . . . 58,500 62,300 73,100 69,600 65,800
Refinery production . . . . . . . . . 54,100 66,000 69,900 67,500 64,300
1993
Sales of refined products . . . . . . 63,400 66,100 70,700 70,900 67,800
Refinery production . . . . . . . . . 60,600 69,000 66,500 65,200 65,300
</TABLE>
-36-
<PAGE> 37
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The required information regarding the directors of the Company is
incorporated herein by this reference to information set forth under the
caption "Election of Directors" in the Company's Proxy Statement for its Annual
Meeting of Stockholders to be held in December 1994 which will be filed within
120 days of July 31, 1994 (the "Proxy Statement").
The required information regarding the executive officers of the Company
is included herein in Part I, Item 4.
Required information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by this reference to
information set forth under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Proxy Statement.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated herein by
this reference to information set forth under the captions "Executive
Compensation and Other Information" and "Compensation Committee Report on
Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by this reference to information set
forth under the captions "Principal Stockholders" and "Election of Directors"
in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated herein by this reference to information set forth under the
caption "Election of Directors" in the Proxy Statement.
-37-
<PAGE> 38
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) Documents filed as part of this report
(1) Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Report of Independent Auditors . . . . . . . . . . . 19
Consolidated Balance Sheet at
July 31, 1994 and 1993 . . . . . . . . . . . . . . 20
Consolidated Statement of Income for
the years ended July 31, 1994,
1993, and 1992 . . . . . . . . . . . . . . . . . . 21
Consolidated Statement of Cash Flows
for the years ended July 31, 1994,
1993, and 1992 . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Stockholders'
Equity for the years ended July 31,
1994, 1993 and 1992 . . . . . . . . . . . . . . . 23
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . 24-36
</TABLE>
(2) Index to Consolidated Financial Statement Schedules
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Consolidated Schedules for each of the
three years in the period ended
July 31, 1994
Schedule V - Properties, Plants and
Equipment 42
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of
Properties, Plants and Equipment 43
Schedule X - Supplementary Income
Statement Information 44
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
-38-
<PAGE> 39
(3) Exhibits
See Index to Exhibits on pages 45 to 49.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's fourth
quarter that ended July 31, 1994.
-39-
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HOLLY CORPORATION
(Registrant)
/s/ Lamar Norsworthy
Lamar Norsworthy
Chairman of the Board,
President and Chief Executive
Officer
Date: October 27, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Lamar Norsworthy Chairman of Board of Directors, October 27, 1994
Lamar Norsworthy President and Chief Executive
Officer of the Company
/s/ Jack P. Reid Executive Vice President, October 27, 1994
Jack P. Reid Refining and Director
/s/ Henry A. Teichholz Vice President, Treasurer and October 27, 1994
Henry A. Teichholz Controller (Principal Financial
and Accounting Officer)
</TABLE>
-40-
<PAGE> 41
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ W. John Glancy Director October 27, 1994
W. John Glancy
/s/ Marcus R. Hickerson Director October 27, 1994
Marcus R. Hickerson
/s/ A. J. Losee Director October 27, 1994
A. J. Losee
/s/ Robert G. McKenzie Director October 27, 1994
Robert G. McKenzie
/s/ Thomas K. Matthews, II Director October 27, 1994
Thomas K. Matthews, II
/s/ E. I. Parsons Director October 27, 1994
E. I. Parsons
/s/ Henry L. Stern Director October 27, 1994
Henry L. Stern
</TABLE>
-41-
<PAGE> 42
SCHEDULE V
HOLLY CORPORATION
PROPERTIES, PLANTS AND EQUIPMENT
Years Ended July 31,
(000's)
<TABLE>
<CAPTION>
Balance at Retire- Balance
beginning Additions ments at end
Classifications of period at cost or sales Other of period
--------------- ---------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
1992
----
Refinery and pipeline
facilities . . . . . . . . . . . $170,098 $19,865 $(294) $ 624 (1) $190,293
Oil and gas exploration and
development . . . . . . . . . . . 3,518 2,394 - (369)(2) 5,543
Corporate and other . . . . . . . . 940 58 - - 998
-------- ------- ----- ------- --------
$174,556 $22,317 $(294) $ 255 $196,834
======== ======= ===== ======= ========
1993
----
Refinery and pipeline
facilities . . . . . . . . . . . $190,293 $17,816 $(174) $ - $207,935
Oil and gas exploration and
development . . . . . . . . . . . 5,543 2,283 - (1,175)(2) 6,651
Corporate and other . . . . . . . . 998 21 (2) - 1,017
-------- ------- ----- ------- --------
$196,834 $20,120 $(176) $(1,175) $215,603
======== ======= ===== ======= ========
1994
----
Refinery and pipeline
facilities . . . . . . . . . . . $207,935 $16,953 $(348) $ - $224,540
Oil and gas exploration and
development . . . . . . . . . . . 6,651 5,547 (82) (1,509)(2) 10,607
Corporate and other . . . . . . . . 1,017 21 - - 1,038
-------- ------- ----- ------- --------
$215,603 $22,521 $(430) $(1,509) $236,185
======== ======= ===== ======= ========
</TABLE>
(1) Additional cost of Montana Refining Company, a Partnership of $624,000
for the year ended July 31, 1992. See Note 10 to Consolidated Financial
Statements.
(2) Dry hole costs and leasehold impairment.
-42-
<PAGE> 43
SCHEDULE VI
HOLLY CORPORATION
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTIES, PLANTS AND EQUIPMENT
Years Ended July 31,
(000's)
<TABLE>
<CAPTION>
Additions
Balance at charged Retire- Balance
beginning to costs ments at end
Classifications of period & expenses or sales Other of period
--------------- ---------- ---------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
1992
----
Refinery and pipeline
facilities . . . . . . . . . . . $75,059 $ 9,745 $ (294) $ - $ 84,510
Oil and gas exploration
and development . . . . . . . . . 184 296 - - 480
Corporate and other . . . . . . . . 580 44 - - 624
------- ------- ------ ------ --------
$75,823 $10,085 $ (294) $ - $ 85,614
======= ======= ====== ====== ========
1993
----
Refinery and pipeline
facilities . . . . . . . . . . . $84,510 $10,250 $ (174) $ - $ 94,586
Oil and gas exploration
and development . . . . . . . . . 480 1,046 - - 1,526
Corporate and other . . . . . . . . 624 48 (2) - 670
------- ------- ------ ------ --------
$85,614 $11,344 $ (176) $ - $ 96,782
======= ======= ====== ====== ========
1994
----
Refinery and pipeline
facilities . . . . . . . . . . . $94,586 $10,155 $ (348) $ - $104,393
Oil and gas exploration
and development . . . . . . . . . 1,526 666 (82) - 2,110
Corporate and other . . . . . . . . 670 50 - - 720
------- ------- ------ ------ --------
$96,782 $10,871 $ (430) $ - $107,223
======= ======= ====== ====== ========
</TABLE>
-43-
<PAGE> 44
SCHEDULE X
HOLLY CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended July 31,
(000's)
<TABLE>
<CAPTION>
Charged to costs
Item and expenses (1)
---- ----------------
<S> <C>
1994
----
Maintenance and repairs . . . . . . $14,664
1993
----
Maintenance and repairs . . . . . . $12,063
1992
----
Maintenance and repairs . . . . . . $11,229
</TABLE>
(1) Includes normal recurring maintenance and repairs and turnaround
(major maintenance) expense.
-44-
<PAGE> 45
HOLLY CORPORATION
INDEX TO EXHIBITS
(Exhibits are numbered to correspond to the exhibit table in Item 601 of
Regulation S-K)
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
3(a) - Restated Certificate of Incorporation of the Registrant, as amended (incorporated by reference to
Exhibit 3(a), of Amendment No. 1 dated December 13, 1988 to Registrant's Annual Report on Form 10-K
for its fiscal year ended July 31, 1988, File No. 1-3876).
3(b) - Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3(b) of Registrant's
Annual Report on Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
4(a) - 9.72% Series A Senior Note of Holly Corporation, dated as of June 26, 1991, to Hartnat & Co. with
schedule attached thereto of four other substantially identical Notes which differ only in the
respects set forth in such schedule (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-
K dated June 26, 1991, File No. 1-3876).
4(b) - 10.16% Series B Senior Note of Holly Corporation, dated as of June 26, 1991, to New York Life
Insurance Company with schedule attached thereto of seven other substantially identical Notes which
differ only in the respects set forth in such schedule (incorporated by reference to Exhibit 4.2 of
Registrant's Form 8-K dated June 26, 1991, File No. 1-3876).
4(c) - Guaranty, dated as of June 15, 1991, of Navajo Refining Company, Navajo Pipeline Co., Midland-Lea,
Inc., and Lea Refining Company in favor of Kentucky Central Life Insurance Company, Pan-American Life
Insurance Company, American International Life Assurance Company of New York, Safeco Life Insurance
Company, The Manhattan Life Insurance Company, The Union Central Life Insurance Company, The Penn
Insurance and Annuity Company, The Penn Mutual Life Insurance Company, Confederation Life Insurance
Company, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company,
and New York Life Insurance Company (incorporated by reference to Exhibit 4.3 of Registrant's Form 8-
K dated June 26, 1991, File No. 1-3876).
</TABLE>
-45-
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
4(d) - Note Agreement of Holly Corporation, dated as of June 15, 1991, to John Hancock Mutual Life Insurance
Company, with schedule attached thereto of eleven other substantially identical Note Agreements which
differ only in the respects set forth in such schedule (incorporated by reference to Exhibit 4.8 of
Registrant's Form 8-K dated June 26, 1991, File No. 1-3876).
4(e) - First Amended and Restated Credit Agreement, dated as of July 23, 1993, among Holly Corporation,
Navajo Refining Company, Navajo Holdings, Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea
Refining Company, Navajo Western Asphalt Company, Montana Refining Company, A Partnership and
NationsBank of Texas, N.A., Banque Paribas, The First National Bank of Boston, The Bank of Nova
Scotia and NationsBank of Texas, N.A. as the agent (incorporated by reference to Exhibit 4(e) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
4(f) - First Amendment to First Amended and Restated Credit Agreement, dated as of April 7, 1994, among
Holly Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo Pipeline Co., Navajo
Holdings, Inc., Lea Refining Company, Navajo Western Asphalt Company, Montana Refining Company, A
Partnership and Navajo Crude Oil Marketing Company, and NationsBank of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Banque Paribas, The First National Bank of Boston, and The Bank of Nova
Scotia.
4(g) - Promissory Note of Holly Corporation, dated as of July 23, 1993, to NationsBank of Texas, N.A. with
schedule attached thereto of three other substantially identical Notes which differ only in the
respects set forth in such schedule (incorporated by reference to Exhibit 4(f) of Registrant's Annual
Report on Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
4(h) - Guaranty, dated as of July 30, 1991, of Navajo Refining Company, Holly Petroleum, Inc., Navajo
Pipeline Co., and Midland-Lea, Inc. in favor of NCNB Texas National Bank, Banque Paribas, The First
National Bank of Boston, The Bank of Nova Scotia and NCNB Texas National Bank as agent for itself and
the other banks (incorporated by reference to Exhibit 4.2 of Registrant's Form 8-K dated July 30,
1991, File No. 1-3876).
</TABLE>
-46-
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
4(i) - First Supplement, executed as of February 20, 1992, to Guaranty, dated as of July 30, 1991, among
Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc., Navajo Pipeline Co., Lea
Refining Company and Navajo Western Asphalt Company in favor of NCNB Texas National Bank, Banque
Paribas, The First National Bank of Boston, and The Bank of Nova Scotia and NCNB Texas National Bank
as agent for the banks (incorporated by reference to Exhibit 4.4 of Registrant's Quarterly Report on
Form 10-Q for the quarterly period ending January 31, 1992, File No. 1-3876).
4(j) - Confirmation of Guaranty, executed as of July 23, 1993 by Navajo Refining Company, Holly Petroleum,
Inc., Navajo Pipeline Co., Navajo Holdings, Inc., Navajo Western Asphalt Company and Lea Refining
Company which confirms the Guaranty (Exhibit 4(h) of this Form 10-K) and First Supplement to the
Guaranty (Exhibit 4(i) of this Form 10-K) (incorporated by reference to Exhibit 4(i) of Registrant's
Annual Report on Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876)
4(k) - Second Supplement to Guaranty, executed as of April 7, 1994, by Navajo Refining Company, Holly
Petroleum, Inc., Navajo Holdings, Inc., Navajo Pipeline Co., Lea Refining Company, Navajo Western
Asphalt Company and Navajo Crude Oil Marketing Company, in favor of NationsBank of Texas, N.A.,
Banque Paribas, The First National Bank of Boston, The Bank of Nova Scotia, and NationsBank of Texas,
N.A., as agent for the banks.
4(l) - Security Agreement, dated as of July 30, 1991, among Holly Corporation, Navajo Refining Company,
Holly Petroleum, Inc., Navajo Pipeline Co., Midland-Lea, Inc., Lea Refining Company, Navajo Western
Asphalt Company and NCNB Texas National Bank as agent for itself, Banque Paribas, The First National
Bank of Boston and The Bank of Nova Scotia (incorporated by reference to Exhibit 4.3 of Registrant's
Form 8-K dated July 30, 1991, File No. 1-3876).
</TABLE>
-47-
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
4(m) - First Supplement, executed as of February 20, 1992, to the Security Agreement, dated as of July 30,
1991, among Holly Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc.,
Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company and NCNB Texas National
Bank as agent for itself, Banque Paribas, The First National Bank of Boston and The Bank of Nova
Scotia (incorporated by reference to Exhibit 4.3 of Registrant's Quarterly Report on Form 10-Q for
the quarterly period ending January 31, 1992, File No. 1-3876).
4(n) - Confirmation of Security Agreement, executed as of July 23, 1993 by Holly Corporation, Navajo
Pipeline Co., Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc., Lea Refining
Company and Navajo Western Asphalt Company which confirms the Security Agreement (Exhibit 4(l) of
this Form 10-K) and First Supplement to the Security Agreement (Exhibit 4(m) of this Form 10-K)
(incorporated by reference to Exhibit 4(l) of Registrant's Annual Report on Form 10-K for its fiscal
year ended July 31, 1993, File No. 1-3876).
4(o) - Security Agreement, dated as of July 23, 1993, between Montana Refining Company, A Partnership, and
NationsBank of Texas, N.A. as agent for itself, Banque Paribas, The First National Bank of Boston and
The Bank of Nova Scotia (incorporated by reference to Exhibit 4(m) of Registrant's Annual Report on
Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
4(p) - Second Supplement to Security Agreement, executed as of April 7, 1994, by and among Holly
Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc., Navajo Pipeline
Co., Lea Refining Company, Navajo Western Asphalt Company and Navajo Crude Oil Marketing Company, and
NationsBank of Texas, N.A., as agent, Banque Paribas, The First National Bank of Boston and The Bank
of Nova Scotia.
4(q) - Holly Corporation Stock Option Plan - As adopted at the Annual Meeting of Stockholders of Holly
Corporation on December 13, 1990 (incorporated by reference to Exhibit 4(i) of Registrant's Annual
Report on Form 10-K for its fiscal year ended July 31, 1991, File No. 1-3876).
</TABLE>
-48-
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
10(a) - Supplemental Payment Agreement, dated as of July 8, 1993, between Lamar Norsworthy and Holly
Corporation (incorporated by reference to Exhibit 10(a) of Registrant's Annual Report on Form 10-K
for its fiscal year ended July 31, 1993, File No. 1-3876).
10(b) - Supplemental Payment Agreement, dated as of July 8, 1993, between Jack P. Reid and Holly Corporation
(incorporated by reference to Exhibit 10(b) of Registrant's Annual Report on Form 10-K for its fiscal
year ended July 31, 1993, File No. 1-3876).
(21) - Subsidiaries of Registrant
(23) - Consent of Independent Auditors
(27) - Financial Data Schedule
(99) - Copy of civil action against the Company's subsidiary, Navajo Refining Company, filed on July 16,
1993 by the United States, in the United States District Court for the District of New Mexico,
seeking civil penalties and other compliance measures under the Resource Conservation and Recovery
Act and implementing regulations of the Environmental Protection Agency (incorporated by reference to
Exhibit 28 of Registrant's Form 8-K dated July 16, 1993, File No. 1-3876).
</TABLE>
-49-
<PAGE> 1
EXHIBIT 4(f)
FIRST AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
(herein called the "Amendment") made as of the 7th day of April, 1994, by and
among Holly Corporation ("Borrower"), Navajo Refining Company ("Navajo"), Holly
Petroleum, Inc. ("Holly Petroleum"), Navajo Pipeline Co. ("Navajo Pipeline"),
Navajo Holdings, Inc. ("Navajo Holdings"), Lea Refining Company ("Lea"), Navajo
Western Asphalt Company ("Navajo Western"), (Navajo, Holly Petroleum, Navajo
Pipeline, Navajo Holdings, Lea and Navajo Western collectively referred to
herein as "Guarantors"), Montana Refining Company, A Partnership ("Montana")
and Navajo Crude Oil Marketing Company ("Navajo Crude"), NationsBank of Texas,
N.A., as Agent ("Agent"), and NationsBank of Texas, N.A., Banque Paribas, The
First National Bank of Boston, and The Bank of Nova Scotia (collectively,
"Lenders"),
W I T N E S S E T H:
WHEREAS, Borrower, Guarantors, Montana, Agent and Lenders have entered
into that certain First Amended and Restated Credit Agreement dated as of July
23, 1993 (the "Original Agreement") for the purpose and consideration therein
expressed, whereby Lenders became obligated to make loans to Borrower as
therein provided; and
WHEREAS, Borrower, Guarantors, Montana, Navajo Crude, Agent and Lenders
desire to amend the Original Agreement for the purposes expressed herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower
and of the letters of credit which may hereafter be issued, extended and
renewed by Lenders for the account of Borrower and for the account of Montana,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
<PAGE> 2
Section 1.2. Other Defined Terms. Unless the context otherwise requires,
the following terms when used in this Amendment shall have the meanings
assigned to them in this Section 1.2.
"Amendment" shall mean this First Amendment to First Restated and
Restated Credit Agreement.
"Credit Agreement" shall mean the Original Agreement as amended
hereby.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definition of "Guarantors" in Section 1.1
of the Original Agreement is hereby amended in its entirety to read as follows:
"Guarantors. Navajo, Holly Petroleum, Navajo Pipeline, Navajo
Holdings, Lea, Navajo Western and Navajo Crude."
The following definition of "Navajo Crude" is hereby added to Section 1.1
of the Original Agreement immediately following the definition of "Navajo":
"Navajo Crude. Navajo Crude Oil Marketing Company, a Texas
corporation."
Section 2.2. Working Capital. Section 7.8 of the Original Agreement is
hereby amended in its entirety to read as follows:
"Section 7.8. Working Capital. The Related Persons shall not
permit Consolidated Current Assets, minus Consolidated Current
Liabilities to be less than Ten Million Dollars ($10,000,000) at any
time except that in each year commencing 1994, during the period from
and including April 30 until but excluding the Private Placement Date,
Consolidated Current Assets minus Consolidated Current Liabilities
shall not be less than Sixteen Million Dollars ($16,000,000). For
purposes of this Section 7.8, Consolidated Current Liabilities will be
calculated without including any payments of principal on the notes
issued under the Private Placement Agreement which are required to be
repaid within one year from the time of calculation."
Section 2.3. Borrower's Working Capital. Section 7.9 of the Original
Agreement is hereby amended in its entirety to read as follows:
"Section 7.9. Borrower's Working Capital. The Related
Persons shall not, at any time, permit Consolidated Current Assets, minus
Consolidated Current Liabilities to be less
-2-
<PAGE> 3
than Five Million Six Hundred Thousand Dollars ($5,600,000) except
that in each year commencing 1994, during the period from and
including April 30 until but excluding the Private Placement Date,
Consolidated Current Assets minus Consolidated Current Liabilities
shall not be less than Eleven Million Six Hundred Thousand Dollars
($11,600,000). For purposes of this section only, the current assets
and current liabilities of Montana and the Montana General Partners
shall be excluded from the calculation of Consolidated Current
Liabilities and Consolidated Current Assets. For purposes of this
Section 7.9, Consolidated Current Liabilities will be calculated
without including any payments of principal on the notes issued under
the Private Placement Agreement which are required to be repaid within
one year from the time of calculation."
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become effective as of
the date first above written when, and only when, (i) Agent shall have
received, at Agent's office, a counterpart of this Amendment executed and
delivered by Borrower, each Guarantor, Montana, Navajo Crude and each Lender,
and (ii) Agent shall have additionally received all of the following documents,
each document (unless otherwise indicated) being dated the date of receipt
thereof by Agent, duly authorized, executed and delivered, and in form and
substance satisfactory to Agent:
(a) First Supplement to Guaranty. A Second Supplement
to Guaranty executed by Borrower, Guarantors and Navajo Crude
("Guaranty Supplement"), dated of even date herewith, substantially in
the form of Exhibit A attached hereto.
(b) Second Supplement to Security Agreement. A Second
Supplement to Security Agreement executed by Borrower, Navajo Crude
and Guarantors ("Security Agreement Supplement"), dated of even date
herewith, substantially in the form of Exhibit B attached hereto,
pursuant to which Navajo Crude will grant to the Lenders a security
interest in all property of Navajo Crude of the type presently covered
by the Security Agreement.
(c) Financing Statements. Financing statements naming
Navajo Crude as debtor and Agent as secured party as agent for the
Lenders, for filing in the State of Texas ("Financing Statements")
(the Guaranty Supplement, the Security Agreement Supplement and the
Financing Statements collectively, the "Supplemental Security
Documents").
(d) Supporting Documents. Agent shall have received, in
form and substance satisfactory to Agent, (i) a
-3-
<PAGE> 4
certificate of the Secretary of Navajo Crude dated the date of this
Amendment certifying that attached thereto is a true and complete copy
of resolutions adopted by the Board of Directors of Navajo Crude
authorizing the execution, delivery and performance of this Amendment
and certifying the names and true signatures of the officers of Navajo
Crude authorized to sign this Amendment and (ii) such supporting
documents as Agent may reasonably request.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Related Persons. In order
to induce each Lender to enter into this Amendment, Borrower represents and
warrants as to itself and each other Related Person, and each other Related
Person represents and warrants as to itself, to each Lender that:
(a) The representations and warranties contained in
Section 5.1 of the Original Agreement are true and correct at and as
of the time of the effectiveness hereof.
(b) Each of Borrower, each Guarantor, Montana and Navajo
Crude is duly authorized to execute and deliver this Amendment and the
Supplemental Security Documents to which it is a party, and Borrower
is and will continue to be duly authorized to borrow monies and to
perform its obligations under the Credit Agreement. Each of Borrower,
each Guarantor, Montana and Navajo Crude has duly taken all corporate
or partnership action necessary to authorize the execution and
delivery of this Amendment and to authorize the performance of its
obligations hereunder and thereunder.
(c) The execution and delivery by each of Borrower, each
Guarantor, Montana and Navajo Crude of this Amendment and the
Supplemental Security Documents to which it is a party, the
performance by such Person of its obligations hereunder and thereunder
and the consummation of the transactions contemplated hereby and
thereby do not and will not conflict with any provision of law,
statute, rule or regulation or of any of its organizational documents,
or of any material agreement, judgment, license, order or permit
applicable to or binding upon it, or result in the creation of any
lien, charge or encumbrance upon any assets or properties or any of
its assets. Except for those which have been obtained, no consent,
approval, authorization or order of any court or governmental
authority or third party is required in connection with the execution
and delivery by any of Borrower, any Guarantor, Montana or Navajo
Crude of this Amendment or the Supplemental Security Documents or to
consummate the transactions contemplated hereby and thereby.
(d) When duly executed and delivered, each of this
Amendment and the Supplemental Security Documents to which
-4-
<PAGE> 5
it is a party will be a legal and binding obligation of Borrower,
Guarantors, Montana and Navajo Crude enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency or similar laws
of general application relating to the enforcement of creditors'
rights and by equitable principles of general application.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original Agreement as hereby
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to be a reference to the
Original Agreement as hereby amended. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of Lenders under the Credit
Agreement, the Notes, or any other Loan Document nor constitute a waiver of any
provision of the Credit Agreement, the Notes or any other Loan Document.
Section 5.2. Survival of Agreements. All representations, warranties,
covenants and agreements of each of Borrower, Guarantors, Montana and Navajo
Crude herein shall survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or granting of the
Loans, and shall further survive until all of the Obligations are paid in full.
All statements and agreements contained in any certificate or instrument
delivered by Borrower, any Guarantor, Montana or Navajo Crude hereunder or
under the Credit Agreement to any Lender shall be deemed to constitute
representations and warranties by, and/or agreements and covenants of, such
Person under this Amendment and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
construed in accordance the laws of the State of Texas and any applicable laws
of the United States of America in all respects, including construction,
validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
HOLLY CORPORATION, a Delaware
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President, Treasurer and
Controller
NAVAJO REFINING COMPANY, a Delaware
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO PIPELINE CO., a New Mexico
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO HOLDINGS INC., a New Mexico
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
HOLLY PETROLEUM, INC., a Delaware
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
LEA REFINING COMPANY, a Delaware
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
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<PAGE> 7
NAVAJO WESTERN ASPHALT COMPANY, a
New Mexico corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
MONTANA REFINING COMPANY, A
PARTNERSHIP, a Montana general
partnership
By: Navajo Northern, Inc., its
General Partner and a Nevada
corporation
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO CRUDE OIL MARKETING COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ RANDALL L. OSTERBERG
Randall L. Osterberg
Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ RANDALL L. OSTERBERG
Randall L. Osterberg
Vice President
-7-
<PAGE> 8
BANQUE PARIBAS
By: /s/ JEAN WEHNER
Name: Jean Wehner
Title: Senior Vice President
By: /s/ MARIAN LIVINGSTON
Name: Marian Livingston
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ H. LOUIS BAILEY
H. Louis Bailey
Director
THE BANK OF NOVA SCOTIA
By: /s/ CLAUDE ASHBY
Claude Ashby
Senior Assistant Agent
-8-
<PAGE> 1
EXHIBIT 4(k)
SECOND SUPPLEMENT TO GUARANTY
THIS SECOND SUPPLEMENT TO GUARANTY (herein called this "Supplement")
executed as of the 7th day of April, 1994, by NAVAJO REFINING COMPANY, a
Delaware corporation ("Navajo"), HOLLY PETROLEUM, INC., a Delaware corporation
("Holly Petroleum"), NAVAJO HOLDINGS, INC., a New Mexico corporation ("Navajo
Holdings"), NAVAJO PIPELINE CO., a Delaware corporation ("Navajo Pipeline"),
LEA REFINING COMPANY, a Delaware corporation ("Lea"), NAVAJO WESTERN ASPHALT
COMPANY, a New Mexico corporation ("Navajo Western") and NAVAJO CRUDE OIL
MARKETING COMPANY, a Texas corporation ("Navajo Crude") (each individually a
"Guarantor" and collectively, the "Guarantors") in favor of NATIONSBANK OF
TEXAS, N.A. ("NationsBank") BANQUE PARIBAS ("Banque Paribas"), THE FIRST
NATIONAL BANK OF BOSTON ("Bank of Boston"), THE BANK OF NOVA SCOTIA ("Bank of
Nova Scotia"; NationsBank, Banque Paribas, Bank of Boston and Bank of Nova
Scotia individually, a "Bank" and collectively, the "Banks"), and NATIONSBANK
OF TEXAS, N.A., as agent (in its capacity as agent, "Agent") for the Banks
under that certain First Amended and Restated Credit Agreement (as heretofore,
now or hereafter amended, modified or supplemented, the "Credit Agreement")
dated July 23, 1993, by and among Holly Corporation, a Delaware corporation
("Debtor"), each Guarantor (other than Navajo Crude), Montana Refining Company,
A Partnership, a Montana partnership ("Montana"), Agent and Banks.
W I T N E S S E T H:
WHEREAS, each Guarantor (other than Navajo Crude) has entered into that
certain Guaranty dated as of July 30, 1991 as supplemented by that certain
First Supplement to Guaranty executed as of February 20, 1992, to be effective
as of December 27, 1991 (as so supplemented the "Original Guaranty") for the
purpose and consideration therein expressed, whereby each such Guarantor
guaranteed the obligations (as defined in the Original Guaranty); and
WHEREAS, Debtor, Guarantors, Montana, Agent and Banks have entered into
that certain First Amendment to First Restated and Amended Credit Agreement
(the "Credit Agreement Amendment") dated of even date herewith, pursuant to
which Navajo Crude became a "Related Person" for purposes of the Credit
Agreement; and
WHEREAS, it is a condition precedent to the Banks' obligations to enter
into the Amendment to Credit Agreement that Navajo Crude shall guaranty the
Obligations; and
WHEREAS, the board of directors of each Guarantor has determined that such
Guarantor's execution, delivery and
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<PAGE> 2
performance of this Supplement may reasonably be expected to be of material
benefit, direct and indirect, to such Guarantor and that the consummation of
the transactions contemplated by the Loan Documents is in the best interests of
such Guarantor;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Guaranty, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Banks to advance funds and
issue letters of credit under the Credit Agreement, each Guarantor hereby
agrees with the Banks as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Guaranty. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Guaranty shall have the same meanings whenever used in
this Supplement.
Section 1.2. Other Defined Terms. Unless the context otherwise requires,
the following terms when used in this Supplement shall have the meanings
assigned to them in this Section 1.2.
"Supplement" shall mean this Second Supplement to Guaranty.
"Guaranty" shall mean the Original Guaranty as supplemented
hereby.
ARTICLE II.
Supplement to Original Guaranty
Section 2.1. Each reference to the term "Guarantor" or "Guarantors" in
the Original Guaranty shall be deemed to collectively and individually refer to
each of Navajo, Holly Petroleum, Navajo Holdings, Navajo Pipeline, Lea, Navajo
Western and Navajo Crude.
Section 2.2. The second sentence of Section 2(c) of the Original
Guaranty is hereby amended in its entirety to read as follows:
"If Debtor or Montana shall for any reason fail to perform promptly
any Obligation, each Guarantor will, forthwith upon demand by Agent,
cause such Obligation to be performed or, if specified by Agent,
provide sufficient funds, in such amount and manner as Agent shall in
good faith determine, for the prompt, full and
-2-
<PAGE> 3
faithful performance of such Obigation by Agent or such other Person as
Agent shall designate."
Section 2.3. (a) Navajo Crude hereby irrevocably, absolutely, and
unconditionally guarantees to Banks the prompt, complete, and full payment when
due, and no matter how the same shall become due, of:
(i) The Notes, including all principal, all interest
thereon and all other sums payable thereunder; and
(ii) The Reimbursement Obligations; and
(iii) All other sums payable by Debtor and/or Montana under
the other Obligation Documents, whether for principal, interest, fees,
delivery of cash collateral, costs, expenses or otherwise.
(b) Navajo Crude hereby irrevocably, absolutely, and
unconditionally guarantees to Banks the prompt, complete and full performance,
when due, and no matter how the same shall become due, of all obligations and
undertakings of Debtor and Montana to Banks under, by reason of, or pursuant to
any of the Obligation Documents.
(c) If Debtor or Montana shall for any reason fail to pay any
Obligation, as and when such Obligations shall become due and payable, whether
at its stated maturity, as a result of the exercise of any power to accelerate,
or otherwise, Navaho Crude will, forthwith upon demand by Agent, pay such
Obligation in full to Agent for the account of Banks. If Debtor or Montana
shall for any reason fail to perform promptly any Obligation, Navajo Crude
will, forthwith upon demand by Agent, cause such Obligation to be performed or,
if specified by Agent, provide sufficient funds, in such amount and manner as
Agent shall in good faith determine, for the prompt, full and faithful
performance of such Obligation by Agent or such other Person as Agent shall
designate.
(d) If either Debtor, Montana or any Guarantor fails to pay or
perform upon demand any Obligation as described in the immediately preceding
subsections (a), (b), or (c) Navajo Crude will incur the additional obligation
to pay to Agent for the account of Banks, and will forthwith upon demand by
Agent pay to Banks, the amount of any and all expenses, including fees and
disbursements of Banks' counsel and of any experts or agents retained by Banks,
which Banks may incur as a result of such failure.
(e) Navajo Crude shall be primarily liable hereunder for the
payment and performance of the Obligations.
-3-
<PAGE> 4
ARTICLE III.
Representations, Warranties and Covenants
Section 3.1. Representations and Warranties of Guarantors. Each Guarantor
represents and warrants that the representations and warranties contained in
Section 8 of the Original Guaranty are true and correct at and as of the
execution date hereof and that the recitals at the beginning of this Supplement
are true and correct in all respects.
ARTICLE IV.
Miscellaneous
Section 4.1. Ratification of Guaranty. The Original Guaranty as hereby
supplemented is hereby ratified and confirmed in all respects and the
obligations and covenants of each Guarantor thereunder are unimpaired hereby
and shall remain in full force and effect. Any reference to the Original
Guaranty in any Loan Document shall be deemed to be a reference to the Original
Guaranty as hereby supplemented. The execution, delivery and effectiveness of
this Supplement shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Banks under the Guaranty or any other
Loan Document nor constitute a waiver of any provision of the Guaranty or any
other Loan Document.
Section 4.2. Survival of Agreements. All representations, warranties,
covenants and agreements of each Guarantor herein shall survive the execution
and delivery of this Supplement and the performance hereof, and the making or
granting of the Loans, and shall further survive until all of the Obligations
are paid in full.
Section 4.3. Loan Documents. This Supplement is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents shall apply
hereto.
Section 4.4. Governing Law. This Supplement shall be governed by and
construed in accordance with the laws of the State of Texas and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.
Section 4.5. Counterparts. This Supplement may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Supplement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Supplement is executed as of the date first above
written.
NAVAJO REFINING COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO HOLDINGS, INC.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO PIPELINE CO.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO PETROLEUM, INC.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
HOLLY PETROLEUM, INC.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
-5-
<PAGE> 6
LEA REFINING COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO WESTERN ASPHALT COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO CRUDE OIL MARKETING COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
-6-
<PAGE> 1
EXHIBIT 4(p)
SECOND SUPPLEMENT TO SECURITY AGREEMENT
THIS SECOND SUPPLEMENT TO SECURITY AGREEMENT (herein called this
"Supplement") executed as of the 7th of April, 1994, by and among HOLLY
CORPORATION, a Delaware corporation ("Borrower"), NAVAJO REFINING COMPANY, a
Delaware corporation ("Navajo"), HOLLY PETROLEUM, INC., a Delaware corporation
("Holly Petroleum"), NAVAJO HOLDINGS, INC., a New Mexico corporation ("Navajo
Holdings"), NAVAJO PIPELINE CO., a Delaware corporation ("Navajo Pipeline"),
LEA REFINING COMPANY, a Delaware corporation ("Lea"), NAVAJO WESTERN ASPHALT
COMPANY, a New Mexico corporation ("Navajo Western") and NAVAJO CRUDE OIL
MARKETING COMPANY, a Texas corporation ("Navajo Crude") (Borrower, Navajo,
Holly Petroleum, Navajo Holdings, Navajo Pipeline, Lea, Navajo Western and
Navajo Crude individually, a "Debtor" and collectively, the "Debtors") and
NATIONSBANK OF TEXAS, N.A., as agent (in its capacity as agent, the "Secured
Party"), BANQUE PARIBAS ("Banque Paribas"), THE FIRST NATIONAL BANK OF BOSTON
("Bank of Boston") and THE BANK OF NOVA SCOTIA ("Bank of Nova Scotia";
NationsBank, Banque Paribas, Bank of Boston and Bank of Nova Scotia
collectively, the "Banks") under that certain First Amended and Restated Credit
Agreement (as heretofore, now or hereafter amended, modified or supplemented,
the "Credit Agreement") dated July 23, 1993, by and among Borrower, each Debtor
(other than Navajo Crude), Montana Refining Company, A Partnership, a Montana
partnership ("Montana"), Agent and Banks.
W I T N E S S E T H:
WHEREAS, each Debtor (other than Navajo Crude), and the Secured Party have
entered into that certain Security Agreement dated as of July 30, 1991, as
supplemented by that certain First Supplement to Security Agreement dated as of
February 20, 1992, effective as of December 27, 1991, (as so supplemented, the
"Original Agreement") for the purpose and consideration therein expressed,
whereby each such Debtor granted to the Secured Party for the benefit of the
Banks a continuing security interest in certain properties, assets and rights
securing the Obligations (as defined in the Original Agreement); and
WHEREAS, Borrower, Debtors, Montana, Agent and the Banks have entered into
that certain First Amendment to First Amended and Restated Credit Agreement
dated of even date herewith (the "Credit Agreement Amendment") pursuant to
which Navajo Crude became a "Related Person" for purposes of the Credit
Agreement;
WHEREAS, it is a condition precedent to the Banks' obligations to enter
into the Amendment to Credit Agreement that Navajo Crude shall grant to the
Secured Party for the benefit of the Banks a security interest in all property
of Navajo Crude of the type covered by the Original Agreement;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the making of the Loans to Borrower and the issuing, extending
and renewing of Letters of Credit for the account of Borrower and for the
account of Montana, upon the terms and conditions of the Credit Agreement, and
of other good and valuable consideration, the Debtors hereby agree with the
Secured Party as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Supplement.
Section 1.2 Other Defined Terms. Unless the context otherwise requires,
the following terms when used in this Supplement shall have the meanings
assigned to them in this Section 1.2.
"Supplement" shall mean this Second Supplement to Security
Agreement.
"Security Agreement" shall mean the Original Agreement as
supplemented hereby.
ARTICLE II.
Supplement to Original Agreement
Section 2.1. Global Supplement. Each reference to the terms "Debtor" and
"Debtors" shall be deemed to refer collectively and individually to each of
Borrower, Navajo, Holly Petroleum, Navajo Holdings, Navajo Pipeline, Lea,
Navajo Western and Navajo Crude.
Section 2.2. Specific Amendment. Section 3.1 of the Original Agreement
is hereby amended by adding the following sentence immediately following the
fourth sentence thereof:
"The Collateral owned by Navajo Crude Oil Marketing Company will be
kept in Texas."
Section 2.3. Grant of Security Interest. Navajo Crude does hereby grant
to the Secured Party, for the benefit of the Banks, to secure the payment and
performance of the Obligations, a continuing security interest in the following
properties, assets and rights owned by Navajo Crude or in which Navajo Crude
-2-
<PAGE> 3
otherwise has rights, whether now owned or hereafter acquired or existing
(collectively, the "Navajo Crude Collateral"):
(i) All Parts and Accessories.
(ii) All Inventory.
(iii) All Receivables.
(iv) All Pledged Debt.
(V) All General Intangibles.
(vi) All Cash Collateral and Cash Collateral Investments.
(vii) All proceeds of any and all of the foregoing Navajo
Crude Collateral and, to the extent not otherwise
included, all payments under insurance (whether or not
Secured Party is the loss payee thereof) or under any
indemnity, warranty or guaranty by reason of loss to
or otherwise with respect to any of the foregoing
Navajo Crude Collateral.
ARTICLE III.
Representations, Warranties and Covenants
Section 3.1. Representations, Warranties and Covenants of Debtors. In
order to induce Secured Party to enter into this Supplement, each Debtor
represents, warrants, covenants and agrees with the Secured Party that the
representations, warranties and covenants contained in Sections 3.1, 3.2, 3.3,
3.4, 3.5 and 3.6 of the Original Agreement are true and correct at and as of
the execution date hereof.
ARTICLE IV.
Miscellaneous
Section 4.1. Ratification of Agreements. The Original Agreement as hereby
supplemented is hereby ratified and confirmed in all respects and the
obligations and covenants of each Debtor thereunder are unimpaired hereby and
shall remain in full force and effect. Any reference to the Original Agreement
in any Loan Document shall be deemed to be a reference to the Original
Agreement as hereby supplemented. The execution, delivery and effectiveness of
this Supplement shall not, except as expressly provided, herein, operate as a
waiver of any right, power or remedy of the Banks under the Security Agreement
or any other
-3-
<PAGE> 4
Loan Document nor constitute a waiver of any provision of the Security
Agreement or any other Loan Document.
Section 4.2. Survival of Agreements. All representations, warranties,
covenants and agreements of each Debtor herein shall survive the execution and
delivery of this Supplement and the performance hereof, and the making or
granting of the Loans, and shall further survive until all of the Obligations
are paid in full.
Section 4.3. Loan Documents. This Supplement is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents shall apply
hereto.
Section 4.4. Governing Law. This Supplement shall be governed by and
construed in accordance with the laws of the State of Texas and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.
Section 4.5. Counterparts. This Supplement may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Supplement.
IN WITNESS WHEREOF, this Supplement is executed as of the Date first above
written.
HOLLY CORPORATION
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President, Treasurer and
Controller
NAVAJO REFINING COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO HOLDINGS, INC.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
-4-
<PAGE> 5
NAVAJO PIPELINE CO.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
HOLLY PETROLEUM, INC.
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
LEA REFINING COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO WESTERN ASPHALT COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
NAVAJO CRUDE OIL MARKETING
COMPANY
By: /s/ HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President and Treasurer
Accepted:
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ RANDALL L. OSTERBERG
Randall L. Osterberg
Vice President
-5-
<PAGE> 1
EXHIBIT 21
HOLLY CORPORATION
SUBSIDIARIES OF REGISTRANT
Holly Corporation owns 100% of the capital stock of the following
subsidiaries (state of respective incorporation shown in parentheses):
Navajo Corp. (Del.)
Navajo Holdings, Inc. (N.M.)
Holly Petroleum, Inc. (Del.)
Black Eagle, Inc. (Del.)
Navajo Crude Oil
Marketing Company (Texas)
Holly Corporation owns 57.5% and Navajo Corp. owns 42.5% of the capital
stock of Navajo Refining Company (Del.).
Navajo Refining Company owns 100% of the stock of Navajo Northern, Inc.
(Nev.), Lorefco, Inc. (Del.), and Navajo Western Asphalt Company (N.M.).
Navajo Holdings, Inc. owns 100% of the stock of Navajo Pipeline Co.
(Del.).
Lorefco, Inc. owns 100% of the stock of Lea Refining Company (Del.).
Black Eagle, Inc. and Navajo Northern, Inc. are the general partners of
Montana Refining Company, a Partnership.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 2-74856) pertaining to the Holly Corporation Incentive
Stock Option Plan, Holly Corporation Stock Option Plan, and Holly Corporation
Stock Appreciation Rights Plan and in the related Prospectus of our report
dated September 20, 1994 with respect to the consolidated financial statements
and schedules of Holly Corporation included in the Annual Report (Form 10-K)
for the year ended July 31, 1994.
/s/ ERSNT & YOUNG LLP
Dallas, Texas
October 27, 1994
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 3,297
<SECURITIES> 0
<RECEIVABLES> 94,280
<ALLOWANCES> 0
<INVENTORY> 43,995
<CURRENT-ASSETS> 151,609
<PP&E> 236,185
<DEPRECIATION> 107,223
<TOTAL-ASSETS> 281,814
<CURRENT-LIABILITIES> 133,373
<BONDS> 68,840
<COMMON> 87
0
0
<OTHER-SE> 64,685
<TOTAL-LIABILITY-AND-EQUITY> 281,814
<SALES> 550,903
<TOTAL-REVENUES> 552,320
<CGS> 480,916
<TOTAL-COSTS> 508,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,985
<INCOME-PRETAX> 35,002
<INCOME-TAX> 14,285
<INCOME-CONTINUING> 20,717
<DISCONTINUED> 0
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<NET-INCOME> 20,717
<EPS-PRIMARY> 2.51
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