<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, 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
------
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 4, 1996.
<PAGE> 2
HOLLY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
January 31, 1996 (Unaudited) and July 31, 1995 3
Consolidated Statement of Income (Unaudited) -
Three Months and Six Months Ended January 31, 1996 and 1995 4
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended January 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 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
</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,
1996 1995
---------- ---------
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 57,391 $ 13,432
Accounts receivable: Trade 34,772 37,733
Crude oil 39,708 48,092
-------- --------
74,480 85,825
Inventories: Crude oil and refined products 38,250 35,649
Materials and supplies 6,477 6,532
-------- --------
44,727 42,181
Income taxes receivable 2,727 1,540
Prepayments and other 8,765 10,032
-------- --------
Total current assets 188,090 153,010
Properties, plants and equipment, at cost 257,201 249,814
Less accumulated depreciation, depletion
and amortization 125,068 118,629
-------- --------
132,133 131,185
Other assets 2,118 3,189
-------- --------
$322,341 $287,384
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 97,815 $106,817
Accrued liabilities 12,028 13,702
Income taxes payable 667 476
Current maturities of long-term debt 10,775 14,275
-------- --------
Total current liabilities 121,285 135,270
Deferred income taxes 17,707 17,506
Long-term debt, less current maturities 97,057 54,565
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 80,642 74,803
-------- --------
86,861 81,022
Common stock held in treasury, at cost -
396,768 shares (569) (569)
Deferred charge - amount due from ESOP - (410)
-------- --------
Total stockholders' equity 86,292 80,043
-------- --------
$322,341 $287,384
======== ========
</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,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 151,510 $ 146,263 $ 316,229 $ 306,863
Miscellaneous 268 699 387 823
--------- --------- --------- ---------
151,778 146,962 316,616 $ 307,686
Costs and expenses
Cost of sales 138,956 135,403 283,946 274,650
General and administrative 3,373 3,315 6,802 6,670
Depreciation, depletion and amortization 4,493 3,877 8,466 7,400
Exploration expenses, including dry holes 900 804 1,461 1,270
Miscellaneous 73 54 169 82
--------- --------- --------- ---------
147,795 143,453 300,844 290,072
--------- --------- --------- ---------
Income from operations 3,983 3,509 15,772 17,614
Other
Interest income 859 262 1,190 443
Interest expense (2,540) (2,122) (4,449) (4,242)
--------- --------- --------- ---------
(1,681) (1,860) (3,259) (3,799)
--------- --------- --------- ---------
Income before income taxes and cumulative effect
of change in accounting for turnarounds 2,302 1,649 12,513 13,815
Income tax provision
Current 985 54 5,153 4,555
Deferred (59) 612 (119) 1,025
--------- --------- --------- ----------
926 666 5,034 5,580
--------- --------- --------- ----------
Income before cumulative effect of
change in accounting method 1,376 983 7,479 8,235
Cumulative effect to August 1, 1994 of change
in accounting for turnarounds, net of taxes - - - 5,703
--------- --------- --------- ---------
Net income $ 1,376 $ 983 $ 7,479 $ 13,938
========= ========= ========= =========
Income per common share
Income before cumulative effect
of change in accounting method $ .17 $ .12 $ .91 $ 1.00
Cumulative effect to August 1, 1994 of change
in accounting for turnarounds, net of taxes - - - .69
--------- --------- --------- ---------
Net income $ .17 $ .12 $ .91 $ 1.69
========= ========= ========= =========
Cash dividends paid per share $ .10 $ .10 $ .20 $ .20
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,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 7,479 $ 13,938
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 8,466 7,400
Deferred income taxes (119) 1,025
Dry hole costs and leasehold impairment 501 374
Cumulative effect to August 1, 1994 of
change in accounting for turnarounds - (5,703)
(Increase) decrease in operating assets
Accounts receivable 11,345 13,381
Inventories (2,546) 4,293
Income taxes receivable (1,176) (2,125)
Prepayments and other 736 1,893
Increase (decrease) in operating liabilities
Accounts payable (9,002) (12,528)
Accrued liabilities (1,354) (1,060)
Income taxes payable 191 (111)
Other, net 496 (2,765)
------- -------
Net cash provided by operating activities 15,017 18,012
Cash flows from financing activities
Proceeds from Senior Notes 39,000 -
Reduction of long-term debt (8) (8)
Issuance costs of debt (425) -
Cash dividends (1,651) (1,651)
------- -------
Net cash provided by (used for) financing activities 36,916 (1,659)
Cash flows from investing activities
Additions to properties, plants and equipment (7,974) (6,644)
------- -------
Net cash used for investing activities (7,974) (6,644)
------- -------
Cash and cash equivalents
Increase for the period 43,959 9,709
Beginning of year 13,432 3,297
------- -------
End of period $57,391 $13,006
======= =======
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 3,769 $ 4,242
Income taxes $ 5,854 $ 6,744
</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, 1995), reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position as of January 31, 1996, the
consolidated results of operations for the three and six months ended January
31, 1996 and 1995, and consolidated cash flows for the six months ended January
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, 1995.
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 1996 are not necessarily indicative of the results to be
expected for the full year.
Note B - Debt
In November 1995, the Company completed the funding from a group of
insurance companies of a new private placement of Senior Notes in the amount of
$39 million and the extension of $21 million of previously outstanding Senior
Notes. The new $39 million Series C Notes have a 10-year life, require equal
annual principal payments of $5,571,000 beginning December 15, 1999, and bear
interest at 7.62%. The new $21 million Series D Notes, for which previously
issued Series B Notes were exchanged, have a ten-year life, require equal
annual principal payments of $3,000,000 beginning December 15, 1999, and bear
interest at an initial rate of 10.16%, with reductions to 7.82% for the periods
subsequent to the original maturity dates of the exchanged Series B Notes.
Both the new notes and the extension notes have other terms and conditions
similar to the previously outstanding Senior Notes.
With the closing of this transaction, maturities of long-term debt
through fiscal year 2000 are now as follows: 1996 -- $10,775,000; 1997 --
$10,775,000; 1998 - $10,775,000; 1999 -- $5,175,000 and 2000 -- $13,746,000.
6
<PAGE> 7
HOLLY CORPORATION
Notes to Consolidated Financial Statements (Continued)
Note C - Contingencies
In July 1993, the United States Department of Justice (DOJ), on behalf
of the United States Environmental Protection Agency (EPA), filed a suit
against the Company's subsidiary, Navajo Refining Company (Navajo) alleging
that, beginning in September 1990 and continuing through the present, Navajo
has 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 Company believes that the parties are in the final stage of
negotiating a resolution of the litigation. If settled as anticipated, the
Company would close the existing evaporation ponds of its wastewater management
system at a cost believed to be substantially less than $1 million. The
settlement also contemplates that the Company would implement one of several
alternatives to the existing wastewater treatment system. Depending upon which
approach is utilized, the Company could incur total costs of approximately $3
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. The settlement with the DOJ also is expected to involve
the payment of civil penalty of less than $2 million. In fiscal 1993, the
Company recorded a $2 million reserve for the litigation.
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, 1996 was $1.4
million as compared to $1.0 million for the second quarter of the prior year.
For the six months ended January 31, 1996, net income was $7.5 million as
compared to $13.9 million, which included a gain of $5.7 million for an
accounting change, for the first six months in the same period of fiscal 1995.
Excluding the effect of the change in accounting for turnarounds in the
first quarter of the prior year, the changes in net income in the second
quarter and six month period ended January 31, 1996 were not material, as
compared to the same periods of fiscal 1995. Refinery margins in both second
quarter periods were unsatisfactory, however margins have recently shown some
improvement from the low levels of the current year second quarter period.
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
cumulative effect of this accounting change through the 1994 fiscal year was an
increase in net income in the first quarter of fiscal 1995 of $5.7 million.
Financial Condition
Cash and cash equivalents increased during the six months ended January
31, 1996 by $44.0 million, primarily the result of the new $39 million of
Senior Notes, as described below, and cash flows from operations, reduced
partially by capital expenditures and dividends paid. Working capital
increased during the six months ended January 31, 1996 by $49.1 million to
$66.8 million. The Company's long-term debt now represents 55.5% of total
capitalization as compared to 46.2% at July 31, 1995. At January 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.
Net cash provided by operating activities amounted to $15.0 million in
the first six months of fiscal 1996, as compared to $18.0 million in the same
period of the prior year. The change in the method of accounting for
turnaround costs did not have any effect on cash provided from operations.
8
<PAGE> 9
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Cash flows used for investing activities were $8.0 million in the first
six months of fiscal 1996, as compared to $6.6 million in the same period of
the prior year, all of which amounts were for capital expenditures. The
Company has adopted capital budgets totalling $44 million for fiscal 1996. The
major components of this budget are projects relating to the Company's 60,000
barrel per day Navajo Refinery in Artesia, New Mexico. The projects involve
refinery upgrades to improve product yields, a joint venture to ship liquid
petroleum gas (LPGs) to Mexico, and construction of a new 12" pipeline from the
Navajo Refinery to El Paso, Texas.
The Company believes its presently scheduled capital projects will
improve product yields and enhance refining profitability. The first of these
projects, a UOP Isomerization unit, will increase the refinery's internal
octane generating capabilities and will result in improved light product
yields. This unit is expected to be operational during the fourth quarter of
fiscal 1996. In addition, the Company intends to make certain state-of-the-art
upgrades to its fluid catalytic cracking unit (FCC), which will improve FCC
high value product yields. Engineering and equipment procurement for this
project will proceed during fiscal 1996, with completion and realization of
benefits occurring during fiscal 1997. The total estimated cost of these two
projects is $12.5 million.
The Company has entered into a joint venture with Mid-America Pipeline
Company and Amoco Pipeline Company to transport LPGs to Mexico. In connection
with this project, a new 12" pipeline will be constructed from the Navajo
refinery in Artesia, New Mexico to El Paso, Texas which should result in
reduced operating expenses at current throughputs and position Navajo to
transport higher volumes in the event of future refinery expansion. The new
line will replace an 8" pipeline currently used by Navajo which, in turn, is to
be transferred to the joint venture. The Company's total net cash investment
in the project, including a 25% interest in the joint venture, is estimated to
be $22 million. The Company is in the process of considering alternative
approaches to the new 12" pipeline which may reduce the net cash investment
and/or provide additional opportunities.
The remainder of the approved capital budgets will be for various
refinery improvements, environmental and safety enhancements and approximately
$2 million for oil and gas exploration and production activities.
9
<PAGE> 10
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Cash flows provided by financing activities amounted to $36.9 million in
the first six months of fiscal 1996, as compared to cash flows used for
financing activities of $1.7 million in the same period of the prior year. In
November 1995, the Company completed the funding from a group of insurance
companies of a new private placement of Senior Notes in the amount of $39
million and the extension of $21 million of previously outstanding Senior
Notes. This private placement is intended to finance the Company's $44 million
capital budget for the 1996 fiscal year, and to enhance the Company's future
investment flexibility and financial strength. The $39 million of new Senior
Notes will have a 10 year maturity, with equal annual principal payments of
$5.6 million beginning at the end of the fourth year, and an interest rate of
7.62%. The extension of $21 million of previously issued Series B Notes
extends the final maturity of these notes from June 2001 to December 2005, with
the first principal payment date changed from June 1996 to December 1999, and
with an interest rate of 7.82% for the period subsequent to the original
maturity date. Both the new notes and the extension notes have other terms and
conditions similar to the previously outstanding Senior Notes. With the
closing of this transaction, maturities of long-term debt through fiscal year
2000 are now as follows: 1996 -- $10,775,000; 1997 - - $10,775,000; 1998 --
$10,775,000; 1999 -- $5,175,000 and 2000 -- $13,746,000.
Diamond Shamrock, Inc., 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, the Company's
largest market. Diamond Shamrock announced that this pipeline will have an
initial capacity of 27,000 BPD, and that it intends to use its pipeline to
supply fuels to the El Paso, New Mexico, Arizona and northern Mexico markets.
The Diamond Shamrock pipeline should substantially increase the supply of
products in the Company's principal markets.
Periodically other projects that, if consummated, could cause an
increase in the supply of products to some or all of the Company's markets have
been explored by a variety of entities. One such project involves an investor
group which, in June 1995, announced that it was negotiating to purchase an
existing crude oil pipeline running from West Texas to a refinery near Houston,
as part of the investor group's plan to reverse the line and extend it for use
in transporting refined products from the Gulf Coast to El Paso. There have
been periodic reports since then that the group is taking steps to attempt to
bring the project to fruition. If such a project were to be consummated, there
would be a substantial further increase in supply for the Company's markets.
Neither the viability of this project nor its long-term ramifications can
presently be ascertained.
10
<PAGE> 11
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
At times in the past, the common carrier pipelines used by the Company
to serve the Tucson and Phoenix markets have been operated at or near their
capacity. In addition, the common carrier pipeline used by the Company to
serve the Albuquerque market currently is operating at or near capacity. As a
result, the volume of refined products that the Company and other shippers have
been able to deliver to these markets at times has been limited. In general,
there is no assurance that the Company will not experience future constraints
on its ability to deliver its products through common carrier pipelines or that
any existing constraints will not worsen. In particular, the flow of
additional product into El Paso for shipment to Arizona, either as a result of
the new Diamond Shamrock pipeline or otherwise, could result in the
reoccurrence of such constraints.
In July 1993, the United States Department of Justice (DOJ), on behalf
of the United States Environmental Protection Agency (EPA), filed a suit
against the Company's subsidiary, Navajo Refining Company (Navajo) alleging
that, beginning in September 1990 and continuing through the present, Navajo
has 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 Company believes that the parties are in the final stages of
negotiating a resolution of the litigation. If settled as anticipated, the
Company would close the existing evaporation ponds of its wastewater management
system at a cost believed to be substantially less than $1 million. The
settlement also contemplates that the Company would implement one of several
alternatives to the existing wastewater treatment system, which likely could
cause the Company to incur costs totaling approximately $3 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.
The settlement with the DOJ also is expected to involve the payment of a civil
penalty of less than $2 million. In fiscal 1993, the Company recorded a $2
million reserve for the litigation.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July 1993, the DOJ, acting on behalf of the EPA, filed a complaint in
the United States District Court for the District of New Mexico alleging that
Navajo, 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 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. The
Company believes that the parties are in the final stages of negotiations that
should resolve the litigation. Based on these negotiations, the Company would
close the existing evaporation ponds of its wastewater management system and
implement an alternative wastewater treatment system. Any settlement with DOJ
and EPA also is expected to involve payment of a civil penalty. 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 14.
(b) Reports on Form 8-K: None.
12
<PAGE> 13
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 8, 1996 By /S/Henry A. Teichholz
------------- -----------------------------
Henry A. Teichholz
Vice President, Treasurer
and Controller
(Duly Authorized Principal
Financial and Accounting
Officer)
13
<PAGE> 14
HOLLY CORPORATION
INDEX TO EXHIBITS
(Exhibits are numbered to correspond to the exhibit
table in Item 601 of Regulation S-K)
Exhibit
Number Description
------ -----------
27 - Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 57,391
<SECURITIES> 0
<RECEIVABLES> 74,480
<ALLOWANCES> 0
<INVENTORY> 44,727
<CURRENT-ASSETS> 188,090
<PP&E> 257,201
<DEPRECIATION> 125,068
<TOTAL-ASSETS> 322,341
<CURRENT-LIABILITIES> 121,285
<BONDS> 97,057
<COMMON> 87
0
0
<OTHER-SE> 86,205
<TOTAL-LIABILITY-AND-EQUITY> 322,341
<SALES> 316,229
<TOTAL-REVENUES> 316,616
<CGS> 283,946
<TOTAL-COSTS> 300,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,449
<INCOME-PRETAX> 12,513
<INCOME-TAX> 5,034
<INCOME-CONTINUING> 7,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,479
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
