<PAGE> 1
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 January 31, 1995
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
March 10, 1995.
<PAGE> 2
HOLLY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
January 31, 1995 (Unaudited) and July 31, 1994 3
Consolidated Statement of Income (Unaudited) -
Three Months and Six Months Ended January 31, 1995 and 1994 4
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended January 31, 1995 and 1994 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8K 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited
January 31, July 31,
1995 1994
---------- ---------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents $ 13,006 $ 3,297
Accounts receivable: Trade 35,025 45,259
Crude oil 45,874 49,021
-------- --------
80,899 94,280
Inventories: Crude oil and refined products 33,622 37,949
Materials and supplies 6,080 6,046
-------- --------
39,702 43,995
Income taxes receivable 2,843 697
Prepayments and other 9,027 9,340
------- --------
Total current assets 145,477 151,609
Properties, plants and equipment, at cost 242,109 236,185
Less accumulated depreciation, depletion and amortization 112,520 107,223
-------- --------
129,589 128,962
Other assets 5,232 1,243
-------- --------
$280,298 $281,814
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 99,556 $112,084
Accrued liabilities 11,294 14,945
Income taxes payable 625 736
Current maturities of long-term debt 5,608 5,608
-------- --------
Total current liabilities 117,083 133,373
Deferred income taxes 16,893 14,829
Long-term debt, less current maturities 68,832 68,840
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 72,250 59,942
-------- --------
78,469 66,161
Common stock held in treasury, at cost - 396,768 shares (569) (569)
Deferred charge - amount due from ESOP (410) (820)
--------- --------
Total stockholders' equity 77,490 64,772
--------- --------
$280,298 $281,814
========= ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
January 31, January 31,
------------------------- ------------------------
1995 1994 1995 1994
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 146,263 $ 120,583 $ 306,863 $ 255,910
Miscellaneous 699 106 823 297
--------- --------- --------- ---------
146,962 120,689 307,686 256,207
Costs and expenses
Cost of sales 135,403 104,793 274,650 217,550
General and administrative 3,315 2,945 6,670 5,879
Depreciation, depletion and amortization 3,877 2,623 7,400 5,367
Exploration expenses, including dry holes 804 884 1,270 1,910
Miscellaneous 54 105 82 135
--------- --------- --------- ---------
143,453 111,350 290,072 230,841
--------- --------- --------- ---------
Income from operations 3,509 9,339 17,614 25,366
Other
Interest income 262 55 443 153
Interest expense (2,122) (2,260) (4,242) (4,550)
--------- --------- --------- ---------
(1,860) (2,205) (3,799) (4,397)
--------- --------- --------- ---------
Income before income taxes and cumulative effect
of change in accounting for turnarounds 1,649 7,134 13,815 20,969
Income tax provision
Current 54 2,292 4,555 7,098
Deferred 612 576 1,025 1,332
--------- --------- --------- ---------
666 2,868 5,580 8,430
--------- --------- --------- ---------
Income before cumulative effect of
change in accounting method 983 4,266 8,235 12,539
Cumulative effect to August 1, 1994 of change
in accounting for turnarounds, net of taxes - - 5,703 -
--------- --------- --------- ---------
Net income $ 983 $ 4,266 $ 13,938 $ 12,539
========= ========= ========= =========
Income per common share
Income before cumulative effect
of change in accounting method $ .12 $ .52 $ 1.00 $ 1.52
Cumulative effect to August 1, 1994 of change
in accounting for turnarounds, net of taxes - - .69 -
--------- --------- --------- ---------
Net income $ .12 $ .52 $ 1.69 $ 1.52
========= ========= ========= =========
Cash dividends paid per share $ .10 $ .075 $ .20 $ .15
Average number of shares of common
stock outstanding (in thousands) 8,254 8,254 8,254 8,254
</TABLE>
See accompanying notes.
4
<PAGE> 5
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
January 31,
----------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 13,938 $ 12,539
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 7,400 5,367
Deferred income taxes 1,025 1,332
Dry hole costs and leasehold impairment 374 956
Cumulative effect to August 1, 1994 of
change in accounting for turnarounds (5,703) -
Changes in other assets and liabilities
Decrease in accounts receivable 13,381 7,037
(Increase) decrease in inventories 4,293 (1,402)
Increase in income taxes receivable (2,125) -
(Increase) decrease in prepayments and other 1,893 (1,691)
Decrease in accounts payable (12,528) (285)
Decrease in accrued liabilities (1,060) (4,891)
Decrease in income taxes payable (111) (6,377)
Other, net (2,765) 556
------- --------
Net cash provided by operating activities 18,012 13,141
Cash flows from financing activities
Reduction in long-term debt (8) (8)
Cash dividends (1,651) (1,238)
------- --------
Net cash used for financing activities (1,659) (1,246)
Cash flows from investing activities
Additions to properties, plants and equipment (6,644) (12,986)
------- --------
Net cash used for investment activities (6,644) (12,986)
------- --------
Cash and cash equivalents
Increase (decrease) for the period 9,709 (1,091)
Beginning of year 3,297 6,631
------- --------
End of period $13,006 $ 5,540
======= ========
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 4,242 $ 4,416
Income taxes $ 6,744 $ 13,407
</TABLE>
See accompanying notes.
5
<PAGE> 6
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, 1994), reflect all adjustments
(consisting only of normal recurring adjustments, except for the accounting
change as described in Note B below) necessary to present fairly the Company's
consolidated financial position as of January 31, 1995, the consolidated
results of operations for the three and six months ended January 31, 1995 and
1994, and consolidated cash flows for the six months ended January 31, 1995 and
1994.
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, 1994.
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
six months of fiscal 1995 are not necessarily indicative of the results to be
expected for the full year.
Note B - Accounting Change
Effective August 1, 1994, the Company changed its method of accounting
for turnaround costs. Turnarounds consist of preventive maintenance on major
processing units as well as the shutdown and restart of all units, and
generally are scheduled at two to three year intervals. Previously, the
Company estimated the costs of the next scheduled turnaround and ratably
accrued the related expenses prior to the actual turnaround. To provide for a
better matching of turnaround costs with revenues, the Company changed its
accounting method for turnaround costs to one that results in the amortization
of costs incurred over the period until the next scheduled turnaround. The
cumulative effect of this accounting change through the 1994 fiscal year was an
increase in net income in the current year of $5,703,000, or $.69 per common
share. Excluding the cumulative effect, the change increased net income for
the second quarter of fiscal 1995 by $102,000 or $.01 per common share and
increased net income for the six months ended January 31, 1995 by $1,022,000 or
$.12 per common share. If the accounting change for turnaround costs had been
retroactively applied, pro forma net income for both the quarter and the six
months ended January 31, 1994 would have increased by $1,058,000 or $.13 per
share over what was originally reported and net income for the full 1994 fiscal
year would have increased by $1,266,000 or $.15 per share to pro forma net
income amounts for the 1994 fiscal year of $21,983,000 or $2.66 per share.
6
<PAGE> 7
HOLLY CORPORATION
Notes to Consolidated Financial Statements (Continued)
Note C - 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, 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 a cost which
will likely not exceed $1 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). Under the tentative resolution, 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 which were previously reported to be anticipated in
the $5 to $10 million range over the next several years, now appear to be less.
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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net income for the second quarter ended January 31, 1995 was $1.0
million as compared to $4.3 million for the second quarter of the prior year.
For the six months ended January 31, 1995, net income was $13.9 million, (which
included a $5.7 million accounting change in the first quarter for the
cummulative effect of a change in accounting for turnarounds relating to prior
periods), as compared to $12.5 million for the six months in the same period of
fiscal 1994.
7
<PAGE> 8
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Effective August 1, 1994, the Company changed its method of accounting
for turnaround costs. Turnarounds consist of preventive maintenance on major
processing units as well as the shutdown and restart of all units, and
generally are scheduled at two to three year intervals. Previously, the
Company estimated the costs of the next scheduled turnaround and ratably
accrued the related expenses prior to the actual turnaround. To provide for a
better matching of turnaround costs with revenues, the Company changed its
accounting method for turnaround costs to one that results in the amortization
of costs incurred over the period until the next scheduled turnaround. The
amortization of turnaround costs is recorded in depreciation, depletion and
amortization expense, whereas previously the expenses accrued prior to the
turnaround were recorded in cost of sales as an operating expense. The
increase in the current year in depreciation expense is primarily the result of
this change in accounting. The cumulative effect of this accounting change
through the 1994 fiscal year was an increase in net income in the current year
of $5.7 million. Excluding the cumulative effect, the change increased net
income for the second quarter of fiscal 1995 by $.1 million and increased net
income for the six months ended January 31, 1995 by $1.0 million. If the
accounting change for turnaround costs had been retroactively applied, pro
forma net income for both the quarter and the six months ended January 31, 1994
would have increased by $1.1 million over what was originally reported and net
income for the full 1994 fiscal year would have been increased by $1.3 million
to pro forma net income for the 1994 fiscal year of $22.0 million.
Excluding the effects of the change in accounting for turnarounds, the
decreases in net income in the second quarter and six months ended January 31,
1995, as compared to the prior year periods, are due primarily to reduced
refinery margins, offset partially by the effect of increases in volumes sold.
Refinery margins for both periods in the current year were less than in the
comparable prior year periods as crude oil costs increased at a greater rate
than product prices. Refinery margins were especially poor in the latter part
of the current year's second quarter as product prices fell from the first
quarter levels without corresponding decreases in crude oil costs. Margins at
the Montana refinery were particularly weak for both the three-and six-month
periods as compared to the prior year. Refinery margins have recently shown
some improvement from the low levels of the second quarter of fiscal 1995.
Revenues for both the quarter and six months ended January 31, 1995 were higher
due to sales volumes increases in the current year periods of 9% and 15%,
respectively, from the prior year and due to higher product prices. The prior
year's sales volumes were reduced as a result of a major maintenance turnaround
at Navajo Refining Company's New Mexico facilities in the September to November
1993 period.
8
<PAGE> 9
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Financial Condition
Cash flows from operations during the six months ended January 31, 1995
exceeded capital expenditures and dividends paid, resulting in a net increase
of cash and cash equivalents of $9.7 million. Working capital increased during
the six months by $10.2 million to $28.4 million at January 31, 1995. The
Company's long-term debt now represents 49.0% of total capitalization as
compared to 53.5% at July 31, 1994. At January 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 $18.0 million in
the first six months of fiscal 1995, as compared to $13.1 million in the same
period of the prior year. The principal reason for the increase in cash
provided from operations was changes in working capital accounts; this factor
was partially offset by the reduction in income before the accounting change.
The change in the method of accounting for turnaround costs had no effect on
cash provided from operations.
Cash flows used for investing activities were $6.6 million in the first
six months of fiscal 1995, as compared to $13.0 million in the same period of
the prior year, all of which amounts were for capital expenditures. 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 required for current refining and oil and gas
operations 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 $1.7 million in the
first six months of fiscal 1995, as compared to $1.2 million in the same period
of the prior year; substantially all of these amounts were for dividends. The
next principal payment of $5.6 million on the Company's Senior Notes is due in
June 1995.
9
<PAGE> 10
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
While the Company believes it is well positioned to meet present and
future competitive pressures, a previously reported development should be
noted. In December 1993, Diamond Shamrock, Inc., an independent refiner and
retailer headquartered in San Antonio, Texas, 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 January 1995, Williams Energy Ventures, a unit of the Williams
Companies, Inc., announced the cancellation of their investment in a complex
50,000 BPD refinery near Phoenix, Arizona, which had been previously reported.
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, 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 Government 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 a cost which will likely not exceed $1
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). Under the tentative resolution, 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 which
were previously reported to be anticipated in the $5 to $10 million range over
the next several years, now appear to be less. 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.
10
<PAGE> 11
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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.
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. Only limited discovery has been conducted. While the Company and
Navajo have been contesting the Government's case as necessary and appropriate,
the parties have been exploring the possibility of a negotiated resolution
since near the onset of this matter. For additional discussion, please see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note C to the Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits on page 13.
(b) Reports on Form 8-K: None.
11
<PAGE> 12
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: March 17, 1995 By /S/Henry A. Teichholz
-------------- -------------------------------------
Henry A. Teichholz
Vice President, Treasurer
and Controller
(Duly Authorized Principal
Financial and Accounting
Officer)
12
<PAGE> 13
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>
27 - Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 13,006
<SECURITIES> 0
<RECEIVABLES> 80,899
<ALLOWANCES> 0
<INVENTORY> 39,702
<CURRENT-ASSETS> 145,477
<PP&E> 242,109
<DEPRECIATION> 112,520
<TOTAL-ASSETS> 280,298
<CURRENT-LIABILITIES> 117,083
<BONDS> 68,832
<COMMON> 87
0
0
<OTHER-SE> 77,403
<TOTAL-LIABILITY-AND-EQUITY> 280,298
<SALES> 306,863
<TOTAL-REVENUES> 307,686
<CGS> 274,650
<TOTAL-COSTS> 290,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,242
<INCOME-PRETAX> 13,815
<INCOME-TAX> 5,580
<INCOME-CONTINUING> 8,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 5,703
<NET-INCOME> 13,938
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
