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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-3876
HOLLY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1056913
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
8,253,514 shares of Common Stock, par value $.01 per share, were outstanding on
June 9, 1994.
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HOLLY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
April 30, 1994 (Unaudited) and July 31, 1993 2
Consolidated Statement of Income (Unaudited) -
Three Months and Nine Months Ended April 30, 1994 and 1993 3
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended April 30, 1994 and 1993 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited
April 30, July 31,
1994 1993
---------- ---------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents $ 13,937 $ 6,631
Accounts receivable: Trade 43,063 40,412
Crude oil 35,086 36,455
-------- --------
78,149 76,867
Inventories: Crude oil and refined products 31,486 32,625
Materials and supplies 5,617 5,347
-------- --------
37,103 37,972
Prepayments and other 6,749 7,082
-------- --------
Total current assets 135,938 128,552
Properties, plants and equipment, at cost 232,742 215,603
Less accumulated depreciation, depletion and amortization 104,504 96,782
-------- --------
128,238 118,821
Other assets 2,214 2,434
-------- --------
$266,390 $249,807
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 86,808 $ 86,787
Accrued liabilities 15,082 16,648
Current maturities of long-term debt 5,608 5,608
Income taxes payable 4,872 7,364
-------- --------
Total current liabilities 112,370 116,407
Deferred income taxes 13,446 12,474
Long-term debt, less current maturities 74,440 74,448
Contingencies
Stockholders' equity
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 61,304 42,058
-------- --------
67,523 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 66,134 46,478
-------- --------
$266,390 $249,807
======== ========
</TABLE>
See accompanying notes.
2
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HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 143,791 $ 161,446 $ 399,701 $ 462,876
Miscellaneous 143 249 440 600
--------- --------- --------- ---------
143,934 161,695 400,141 463,476
Costs and expenses
Cost of sales 120,371 144,663 337,921 422,114
General and administrative 3,274 2,933 9,153 8,667
Depreciation, depletion and amortization 2,684 3,149 8,051 8,870
Exploration expenses, including dry holes 796 771 2,706 1,911
Miscellaneous 23 43 158 116
--------- --------- --------- ---------
127,148 151,559 357,989 441,678
--------- --------- --------- ---------
Income from operations 16,786 10,136 42,152 21,798
Other
Interest income 101 14 254 109
Interest expense (2,252) (2,421) (6,802) (7,139)
--------- --------- --------- ---------
(2,151) (2,407) (6,548) (7,030)
--------- --------- --------- ---------
Income before income taxes and cumulative effect
of change in accounting for income taxes 14,635 7,729 35,604 14,768
Income tax provision
Current 5,318 2,241 12,416 3,880
Deferred 587 795 1,919 1,587
--------- --------- --------- ---------
5,905 3,036 14,335 5,467
--------- --------- --------- ---------
Income before cumulative effect of
change in accounting principle 8,730 4,693 21,269 9,301
Cumulative effect to August 1, 1992
of change in accounting for income taxes - - - (958)
--------- --------- --------- ---------
Net income $ 8,730 $ 4,693 $ 21,269 $ 8,343
========= ========= ========= =========
Income (loss) per common share
Income before cumulative effect of
of change in accounting principle $ 1.06 $ .57 $ 2.58 $ 1.13
Cumulative effect to August 1, 1992
of change in accounting for income taxes - - - (.12)
--------- --------- --------- ---------
Net income $ 1.06 $ .57 $ 2.58 $ 1.01
========= ========= ========= =========
Cash dividends paid per share $ .10 $ .075 $ .25 $ .225
Average number of shares of common
stock outstanding (in thousands) 8,254 8,254 8,254 8,254
</TABLE>
See accompanying notes.
3
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HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
April 30,
------------------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 21,269 $ 8,343
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 8,051 8,870
Deferred income taxes 1,919 1,587
Dry hole costs and leasehold impairment 1,037 705
Cumulative effect to August 1, 1992 of
change in accounting for income taxes - 958
Changes in other assets and liabilities
(Increase) decrease in accounts receivable (1,282) 4,255
(Increase) decrease in inventories 869 (5,424)
Decrease in income taxes receivable - 2,115
(Increase) decrease in prepayments and other (614) 1,959
Increase (decrease) in accounts payable 21 (11,298)
Increase (decrease) in accrued liabilities (1,566) 2,411
Increase (decrease) in income taxes payable (2,452) 641
Other, net 630 738
------- -------
Net cash provided by operating activities 27,882 15,860
Cash flows from financing activities
Decrease in notes payable - (700)
Reduction in long-term debt (8) (8)
Cash dividends (2,063) (1,857)
-------- -------
Net cash used for financing activities (2,071) (2,565)
Cash flows from investing activities
Additions to properties, plants and equipment (18,505) (13,330)
-------- -------
Net cash used for investing activities (18,505) (13,330)
-------- -------
Cash and cash equivalents
Increase (decrease) for the period 7,306 (35)
Beginning of year 6,631 1,389
------- -------
End of period $13,937 $ 1,354
======= =======
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 4,569 $ 4,904
Income taxes $14,752 $ 3,197
</TABLE>
See accompanying notes.
4
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Presentation of Financial Statements
In the opinion of the Company, the accompanying consolidated financial
statements, which have not been audited by independent accountants (except for
the consolidated balance sheet as of July 31, 1993), reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position as of April 30, 1994, the
consolidated results of operations for the three months and nine months ended
April 30, 1994 and 1993, and consolidated cash flows for the nine months ended
April 30, 1994 and 1993.
Certain notes and other information have been condensed or omitted.
Therefore, these financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1993.
References herein to the "Company" are for convenience of presentation
and may include obligations, commitments or contingencies that pertain solely
to one or more affiliates of the Company. Results of operations for the first
nine months of fiscal 1994 are not necessarily indicative of the results to be
expected for the full year.
Note B - Contingencies
In July 1993, the United States Department of Justice ("DOJ"), acting on
behalf of the 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 through 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 certain regulatory standards and civil
penalties for the alleged non-compliance.
As previously disclosed, net income for the 1993 fiscal year included a
pre-tax reserve of $2 million in connection with this matter. The Company has
been and continues to be engaged in what appear to be potentially fruitful
settlement negotiations. While the Company continues to be optimistic that a
negotiated resolution will be achieved, it remains indeterminable whether this
matter's ultimate resolution will occur through settlement or litigation. In
either case, phased closure of all four ponds in Navajo's wastewater treatment
system may be required, with the resulting costs of closure and of developing
an alternative means of treating and disposing of the refinery's wastewater.
5
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HOLLY CORPORATION
Notes to Consolidated Financial Statements (Continued)
In this regard, after consultation with counsel and engineering
consultants, the Company estimates that closure costs for all of the ponds
could be between $3.5 and $9 million and development of additional treatment
and alternative disposal could cost an additional $2 to $12 million. Please
see Management's Discussion and Analysis of Financial Condition and Results of
Operations below, for further discussion. These estimates do not include the
cost of any possible civil penalty, the amount of which cannot be presently
ascertained.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
Cash flows from operations during the nine months ended April 30, 1994
exceeded capital expenditures and dividends paid, resulting in a net increase
of cash and cash equivalents of $7.3 million. Working capital increased during
the nine months by $11.4 million to $23.6 million at April 30, 1994. The
Company's long-term debt now represents 54.8% of total capitalization as
compared to 63.3% at July 31, 1993. At April 30, 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 obligation
and to permit the payment of dividends for at least the next few years.
Net cash provided by operating activities amounted to $27.9 million in
the first nine months of fiscal 1994, as compared to $15.9 million in the same
period of the prior year. The principal reason for the increase in cash
provided from operations was the improvement in earnings.
Cash flows used for investing activities were $18.5 million in the first
nine months of fiscal 1994, as compared to $13.3 million in the same period of
the prior year, all of which were for capital expenditures. Fiscal 1994
capital expenditures are projected to total $24 million, of which expenditures
of $13 million are for carry-over projects from the prior year, principally for
a diesel desulfurization unit at the Montana refinery and for asphalt tankage
in Phoenix, Arizona. The Company has adopted capital budgets totalling $11
million for fiscal 1994, of which $8 million is principally for refinery
projects at the New Mexico refinery and the balance of which is for oil and gas
exploration. In order to meet the October 1993 lower sulphur content standard
for diesel fuel, diesel desulfurization units were completed at the Artesia,
New Mexico facility in August 1993 and at the Montana refinery in October 1993.
While it is not possible to anticipate fully the effects of future regulatory
requirements on capital expenditures, the Company believes that capital
expenditures in the near future should be lower than expenditures incurred in
the past few years.
6
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Cash flows used for financing activities amounted to $2.1 million in the
first nine months of fiscal 1994, as compared to $2.6 million in the same
period of the prior year. The Company had $10.5 million of borrowings
outstanding under its Credit Agreement as of July 31, 1992 of which $.7 million
was paid off during the nine months ended April 30, 1993, and the remaining
balance was paid off during the fourth quarter of fiscal 1993. The first
principal payment of $5.6 million on the Senior Notes is due in June 1994.
In July 1993, the United States Department of Justice ("DOJ"), acting on
behalf of the 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 through 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 certain regulatory standards and civil
penalties for the alleged non-compliance.
As previously disclosed, net income for the 1993 fiscal year included a
pre-tax reserve of $2 million in connection with this matter. The Company
continues to be involved in pursuit of a negotiated resolution.
While the Company remains optimistic that such a resolution will be
achieved, it is not presently determinable whether this matter's ultimate
resolution will occur through settlement or litigation. In either case, it is
possible that phased closure of all four ponds in Navajo's wastewater treatment
system may be required, with the resulting costs of closure and of developing
an alternative means of treating and disposing of the refinery's wastewater.
Despite extensive analysis, continued consultation with the Company's
counsel and consultants and further discussions with the DOJ and the EPA, it
remains unclear what may be the ultimate cost of pond closure and development
of an alternative wastewater treatment facility. The previously disclosed
range for the costs of full pond closure, between $3.5 and $9.0 million,
remains the Company's best estimate, although it now appears more likely the
cost will approach the lower end of this range. With respect to the
alternative treatment system, the low end of the range, $2 million, remains the
same, while the upper end of the range, previously $7 million, may be higher,
perhaps approaching $12 million. Where within this range the cost may
ultimately fall is not presently determinable.
If these costs were to be incurred, they would likely be borne over a
period of several years and would be reflected as an expense or capitalized, as
appropriate, for the period for which the cost is properly allocable. These
estimates do not include the cost of any possible civil penalty, the amount of
which cannot be presently ascertained.
7
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 barrels per day 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.
Results of Operations
Net income for the third quarter ended April 30, 1994 was $8.7 million,
as compared to $4.7 million for the third quarter of the prior year. For the
nine months ended April 30, 1994, net income was $21.3 million, as compared to
$9.3 million for the nine months in the same period of fiscal 1993 before an
accounting charge. 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,
from $9.3 million to $8.3 million for the nine months ended April 30, 1993.
The increases in net income in the third quarter and the nine months
ended April 30, 1994, over the comparable periods in the prior year, are due
primarily to improved refinery margins. The increased refinery margins
resulted from crude oil cost decreases in both periods which exceeded declines
in product prices. Revenues for both the quarter and nine months ended April
30, 1994 decreased, primarily as a result of declines in product price levels.
Sales of refined products for the third quarter were at a record level of
73,100 barrels-per-day.
Since the end of the Company's third quarter, refinery margins have
narrowed as crude oil prices have advanced sharply and refined product prices
have not kept pace with crude oil costs.
Income tax expense as a percentage of pre-tax income was lower for the
prior year's nine month period because of the effect of a state tax refund.
8
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HOLLY CORPORATION
PART II. OTHER INFORMATION
Item 1. 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. Discovery is in an early stage. While the Company and Navajo intend
to contest the Government's case as necessary and appropriate, the Company is
presently engaged in settlement discussions. For additional discussion
concerning this matter, please see Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note B to the Consolidated
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
9
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SIGNATURE
Pursuant to the requirements of the Securities and 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)
Date: June 13, 1994 By /S/HENRY A. TEICHHOLZ
Henry A. Teichholz
Vice President, Treasurer
and Controller
(Duly Authorized Principal
Financial and Accounting
Officer)
10
