<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 October 31, 1996
--------------------------
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
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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
December 6, 1996.
<PAGE> 2
HOLLY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
October 31, 1996 (Unaudited) and July 31, 1996 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended October 31, 1996 and 1995 4
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended October 31, 1996 and 1995 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
</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
October 31, July 31,
1996 1996
--------- ---------
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 73,001 $ 63,959
Accounts receivable: Product 43,911 43,642
Crude oil resales 83,294 54,456
Note receivable -- 6,288
--------- ---------
127,205 104,386
Inventories: Crude oil and refined products 35,826 32,090
Materials and supplies 6,436 6,583
--------- ---------
42,262 38,673
Prepayments and other 9,582 10,008
--------- ---------
Total current assets 252,050 217,026
Properties, plants and equipment, at cost 269,975 261,621
Less accumulated depreciation, depletion and amortization 134,422 130,177
--------- ---------
135,553 131,444
Equity interest in joint venture 2,058 734
Other assets 3,743 2,067
--------- ---------
$ 393,404 $ 351,271
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 161,418 $ 122,421
Accrued liabilities 16,023 12,453
Income taxes payable 1,378 4,728
Current maturities of long-term debt 10,775 10,775
--------- ---------
Total current liabilities 189,594 150,377
Deferred income taxes 19,059 18,361
Long-term debt, less current maturities 86,290 86,290
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 92,811 90,593
--------- ---------
99,030 96,812
Common stock held in treasury, at cost - 396,768 shares (569) (569)
--------- ---------
Total stockholders' equity 98,461 96,243
--------- ---------
$ 393,404 $ 351,271
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
October 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues
Refined products $ 185,395 $ 164,528
Oil and gas 1,426 191
Miscellaneous 125 119
--------- ---------
186,946 164,838
Costs and expenses
Cost of refined products 170,916 144,921
General and administrative 3,636 3,525
Depreciation, depletion and amortization 5,100 3,973
Exploration expenses, including dry holes 623 630
--------- ---------
180,275 153,049
--------- ---------
Income from operations 6,671 11,789
Other
Interest income 1,059 331
Interest expense (2,372) (1,909)
--------- ---------
(1,313) (1,578)
--------- ---------
Income before income taxes 5,358 10,211
Income tax provision
Current 1,317 4,168
Deferred 833 (60)
--------- ---------
2,150 4,108
--------- ---------
Net income $ 3,208 $ 6,103
========= =========
Income per common share $ .39 $ .74
Cash dividends paid per share $ .12 $ .10
Average number of shares of common
stock outstanding (in thousands) 8,254 8,254
</TABLE>
See accompanying notes.
4
<PAGE> 5
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
October 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,208 $ 6,103
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 5,100 3,973
Deferred income taxes 833 (60)
Dry hole costs and leasehold impairment 118 112
(Increase) decrease in operating assets
Accounts receivable (22,819) 4,363
Inventories (3,589) 6,662
Income taxes receivable -- 1,540
Prepayments and other (780) (685)
Increase (decrease) in operating liabilities
Accounts payable 38,997 (5,624)
Accrued liabilities 3,570 204
Income taxes payable (3,350) 2,628
Other, net (1,460) 438
-------- --------
Net cash provided by operating activities 19,828 19,654
Cash flows from financing activities
Cash dividends (990) (825)
-------- --------
Net cash used for financing activities (990) (825)
Cash flows from investing activities
Additions to properties, plants and equipment (8,472) (4,202)
Investment in joint venture (1,324) --
-------- --------
Net cash used for investing activities (9,796) (4,202)
-------- --------
Cash and cash equivalents
Increase for the period 9,042 14,627
Beginning of year 63,959 13,432
-------- --------
End of period $ 73,001 $ 28,059
======== ========
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 13 $ 278
Income taxes $ 4,282 $ --
</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, 1996), reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position as of October 31, 1996, the
consolidated results of operations for the three months ended October 31, 1996
and 1995, and consolidated cash flows for the three months ended October 31,
1996 and 1995.
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, 1996. Certain
previously reported amounts have been reclassified to conform to
classifications adopted in fiscal 1996.
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
three months of fiscal 1997 are not necessarily indicative of the results to be
expected for the full year.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Factors Affecting Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements included in this Form 10-Q, including without limitation
statements in this Item 2 under the headings "Results of Operations,"
"Liquidity and Capital Resources" and "Recent Developments That May Affect
Future Results," other than statements of historical facts, are forward-looking
statements. Such statements are subject to certain risks and uncertainties,
including risks and uncertainties with respect to the actions of actual or
potential competitive suppliers of refined petroleum products in the Company's
markets, demand and supply for crude oil and for refined products, the spread
between market prices for refined products and crude oil, the possibility of
constraints on the transportation of refined products, the possibility of
inefficiencies or shutdowns in refinery operations, governmental regulations
and policies, the availability of financing to the Company on favorable terms,
and the effectiveness of Company capital investments and marketing strategies.
Because of these and other risks and uncertainties, actual results may vary
materially from those estimated, anticipated or projected. Although the
Company believes that the expectations reflected by the forward-looking
statements contained in this Report are reasonable based on information
currently available to the Company, no assurances can be given that such
expectations
6
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
will prove to have been correct. This summary discussion of risks and
uncertainties that may cause actual results to differ from those indicated in
forward-looking statements should be read in conjunction with the discussion
under the heading "Additional Factors That May Affect Future Results" included
in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1996 and in conjunction with the discussion below under the heading
"Recent Developments That May Affect Future Results." All forward-looking
statements included in this Form 10-Q and all subsequent oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements set forth
above.
Results of Operations
Net income for the first quarter ended October 31, 1996 was $3.2 million
as compared to $6.1 million, for the first quarter of the prior year.
The decrease in net income in the first three months of fiscal 1997 was
principally due to reduced refinery margins, as compared to the same period of
the prior year. Refinery margins were especially down in the latter part of
the current year's first quarter, and continue at depressed levels into the
second quarter, as product prices have not kept pace with the substantial
increases in crude oil costs. Additionally contributing to the decrease in
earnings in the fiscal 1997 first quarter was a small decrease in refined
product sales volumes as compared to the prior year's first quarter. Revenues
increased in the quarter ended October 31, 1996 from the prior year's
comparable period as a result of higher sales prices, partially offset by the
reduced volumes.
Oil and gas revenues in the current year increased, as compared to the
first quarter of the prior year, as two offshore properties commenced
production during the second quarter of the prior year. The increase in
depreciation, depletion and amortization related primarily to the oil and gas
properties.
Liquidity and Capital Resources
Cash flows from operations during the three months ended October 31,
1996 exceeded capital expenditures and dividends paid, resulting in a net
increase of cash and cash equivalents of $9.0 million. Working capital
decreased during the three months ended October 31, 1996 by $4.2 million to
$62.5 million. The Company's long-term debt now represents 49.6% of total
capitalization as compared to 50.2% at July 31, 1996. At October 31, 1996, 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 the foreseeable future.
7
<PAGE> 8
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Net cash provided by operating activities amounted to $19.8 million in
the first three months of fiscal 1997, as compared to $19.7 million in the same
period of the prior year. Net cash flows from operating activities were
essentially the same in both periods, as the decrease in cash generated by
earnings in the current year was offset by an increase in cash provided by
working capital accounts.
Cash flows used for financing activities amounted to $1.0 million in the
first three months of fiscal 1997, as compared to $.8 million in the same
period of the prior year, all of which were for dividends. The next principal
payment of $10.8 million on the Company's Senior Notes is due June 1997.
Cash flows used for investing activities were $9.8 million in the first
three months of fiscal 1997, as compared to $4.2 million in the same period of
the prior year. The Company has adopted capital budgets totalling $32 million
for fiscal 1997. The major components of this budget are $13 million for the
construction of a pipeline connection from the Navajo Refinery to an 8"
pipeline that will be leased by the Company for products transport (the "Lease
Agreement") and related product terminals, $12 million for various refinery
improvements and environmental and safety enhancements and $7 million for
exploration and production activities. In addition to these projects, the
Company plans to complete by fall 1997 the major items approved in the 1996
capital budget, including a joint venture to ship liquid petroleum gas (LPGs)
to Mexico and two projects at the Navajo Refinery which entail upgrades to
improve product yields.
The Lease Agreement is with Mid-America Pipeline Company and involves
more than 300 miles of 8" pipeline running from Chavez County to San Juan
County, New Mexico. The Company plans to construct an 8" pipeline, from the
Navajo Refinery to the leased pipeline, and related terminalling facilities.
These facilities will allow the Company to use the pipeline to transport
refined products from its Navajo Refinery to markets in northwest New Mexico,
including Albuquerque and Farmington. The pipeline and related facilities are
projected to be operational near the end of fiscal 1997.
The Company has entered into a joint venture with Mid-America Pipeline
Company and Amoco Pipeline Company to transport liquid petroleum gases (LPGs)
to Mexico. The Company will have a 25% interest in the joint venture. The
project involves the construction of a new 12" pipeline from Orla to El Paso,
Texas which replaced a portion of 8" pipeline used by Navajo, which was
transferred to the joint venture. The 12" pipeline was completed during
October 1996. The Company's total net cash investment in the projects (in
addition to the contribution of a portion of the existing 8" pipeline to the
joint venture) is now estimated to be $8 million, of which $7 million is to be
spent in fiscal 1997. During the first quarter of fiscal 1997, the Company
made a contribution of $1.3 to the joint venture. The Company anticipates the
realization of benefits from the joint venture to start in the second half of
fiscal 1997.
8
<PAGE> 9
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The additional pipeline capacity associated with the new pipeline
constructed in conjunction with the joint venture and with the Lease Agreement
and the construction of the related pipeline and terminalling facilities should
reduce pipeline operating expenses at current throughputs and allow the Company
to expand volumes, through refinery expansion or otherwise, shipped into
existing and new markets.
The Company believes the scheduled capital projects to upgrade the
Navajo Refinery will improve product yields and enhance refining profitability.
The planned UOP Isomerization unit, which will increase the refinery's internal
octane generating capabilities and improve light product yields, is expected to
be operational during the second quarter of fiscal 1997. In addition, the
planned state-of-the-art upgrades to the Navajo Refinery's fluid catalytic
cracking unit (FCC), which will improve FCC high value product yields, are now
expected to be completed by fall 1997. The total estimated cost of these two
projects is $14 million, of which $8 million is to be spent in fiscal 1997
through early fiscal 1998.
Recent Developments That May Affect Future Results
Ultramar Diamond Shamrock Corporation, an independent refiner and
marketer, completed in November 1995 the construction of a 409-mile, ten-inch
refined products pipeline from its McKee refinery near Dumas, Texas to El Paso.
Ultramar Diamond Shamrock has announced that this pipeline currently has a
capacity of 30,000 BPD, and with the addition of two pumping stations to be
built in the first half of 1997, it will have a 40,000 BPD capacity. Ultramar
Diamond Shamrock has stated its intention to use its pipeline to supply fuels
to the El Paso, New Mexico, Arizona and northern Mexico markets. This pipeline
has increased and could further increase the supply of products in the
Company's principal markets.
Recently there have been several refining and marketing consolidations
or acquisitions between entities competing in the Company's geographic market.
While this could increase the competitive pressures on the Company, the
specific ramifications of these or other potential consolidations cannot
presently be determined. In November 1996, Tosco Corporation and Unocal
announced they have signed a letter of intent for Unocal to sell to Tosco
Corporation all of the operating assets of 76 Products Company, Unocal's West
Coast refining and marketing division. The total combined sales by the Company
to Tosco Corporation and its affiliates and to Unocal's West Coast refining and
marketing division currently amount to approximately 20%.
9
<PAGE> 10
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Effective January 1, 1995, certain cities in the country were required
to use only reformulated gasoline ("RFG"), a cleaner burning fuel. While none
of the Company's principal markets presently requires RFG, this requirement
could be implemented over time. In fact, Phoenix, one of the Company's
markets, is presently considering implementing RFG or some other cleaner
burning gasoline. The Company does not believe that further capital
expenditures will be needed to provide RFG to meet its Phoenix sales
requirements. However, other requirements of the Clean Air Act, or other
presently existing or future environmental regulations, could cause the Company
to expend substantial amounts at its refineries. The specifics and extent of
these or other regulations and their attendant costs are not presently
determinable.
This discussion should be read in conjunction with the discussion under
the heading "Additional Factors That May Affect Future Results" included in
Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1996.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
At the annual meeting of stockholders of December 12, 1996, all eight of
the management's nominees for directors as listed in the proxy statement were
elected.
SCHEDULE OF VOTES CAST FOR EACH DIRECTOR
<TABLE>
<CAPTION>
Total Shares Voted Total Shares Voted
"For" "Withheld"
------------------ ------------------
<S> <C> <C>
Matthew P. Clifton 6,683,383 24,125
William J. Gray 6,683,407 24,101
Marcus R. Hickerson 6,682,529 24,979
A. J. Losee 6,681,965 25,543
Thomas K. Matthews, II 6,682,115 25,393
Robert G. McKenzie 6,682,899 24,609
Lamar Norsworthy 6,681,847 25,661
Jack P. Reid 6,675,004 32,504
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits on page 12.
(b) Reports on Form 8-K: None.
10
<PAGE> 11
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: December 13, 1996 By /s/ Henry A. Teichholz
----------------- -------------------------------
Henry A. Teichholz
Vice President, Treasurer
and Controller
(Duly Authorized Principal
Financial and Accounting
Officer)
11
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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> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 73,001
<SECURITIES> 0
<RECEIVABLES> 127,205
<ALLOWANCES> 0
<INVENTORY> 42,262
<CURRENT-ASSETS> 252,050
<PP&E> 269,975
<DEPRECIATION> 134,422
<TOTAL-ASSETS> 393,404
<CURRENT-LIABILITIES> 189,594
<BONDS> 86,290
0
0
<COMMON> 87
<OTHER-SE> 98,374
<TOTAL-LIABILITY-AND-EQUITY> 393,404
<SALES> 186,821
<TOTAL-REVENUES> 186,946
<CGS> 170,916
<TOTAL-COSTS> 180,275
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,372
<INCOME-PRETAX> 5,358
<INCOME-TAX> 2,150
<INCOME-CONTINUING> 3,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,208
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
