<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, 1997
------------------------
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
March 5, 1997.
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HOLLY CORPORATION
INDEX
<TABLE>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
January 31, 1997 (Unaudited) and July 31, 1996 3
Consolidated Statement of Income (Unaudited) -
Three Months and Six Months Ended January 31, 1997 and 1996 4
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended January 31, 1997 and 1996 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 6. Exhibits and Reports on Form 8-K 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,
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 53,715 $ 63,959
Accounts receivable: Product 40,865 43,642
Crude oil resales 67,212 54,456
Note receivable - 6,288
---------- ---------
108,077 104,386
Inventories: Crude oil and refined products 41,944 32,090
Materials and supplies 6,999 6,583
---------- ---------
48,943 38,673
Income taxes receivable 4,269 --
Prepayments and other 8,441 10,008
---------- ---------
Total current assets 223,445 217,026
Properties, plants and equipment, at cost 275,311 261,621
Less accumulated depreciation, depletion and amortization 138,209 130,177
---------- ---------
137,102 131,444
Equity interest in joint venture 3,276 734
Other assets 5,161 2,067
---------- ---------
$ 368,984 $ 351,271
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 142,561 $122,421
Accrued liabilities 12,981 12,453
Income taxes payable 526 4,728
Current maturities of long-term debt 10,775 10,775
---------- ---------
Total current liabilities 166,843 150,377
Deferred income taxes 19,903 18,361
Long-term debt, less current maturities 86,282 86,290
Commitments and 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 90,306 90,593
---------- ---------
96,525 96,812
Common stock held in treasury, at cost - 396,768 shares (569) (569)
---------- ---------
Total stockholders' equity 95,956 96,243
---------- ---------
$ 368,984 $ 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 Unaudited
Three Months Ended Six Months Ended
January 31, January 31,
-------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues
Refined products $ 182,004 $ 150,174 $ 367,399 $ 314,702
Oil and gas 1,621 1,336 3,047 1,527
Miscellaneous 276 268 401 387
--------- --------- --------- ---------
183,901 151,778 370,847 316,616
Costs and expenses
Cost of refined products 176,169 138,841 347,085 283,762
General and administrative 3,309 3,446 6,945 6,971
Depreciation, depletion and amortization 4,840 4,493 9,940 8,466
Exploration expenses, including dry holes 602 1,015 1,225 1,645
--------- --------- --------- ---------
184,920 147,795 365,195 300,844
--------- --------- --------- ---------
Income (loss) from operations (1,019) 3,983 5,652 15,772
Other
Interest income 873 859 1,932 1,190
Interest expense (2,384) (2,540) (4,756) (4,449)
--------- --------- --------- ---------
(1,511) (1,681) (2,824) (3,259)
--------- --------- --------- ---------
Income (loss) before income taxes (2,530) 2,302 2,828 12,513
Income tax provision (benefit)
Current (1,850) 985 (533) 5,153
Deferred 834 (59) 1,667 (119)
--------- --------- --------- ---------
(1,016) 926 1,134 5,034
--------- --------- --------- ---------
Net income (loss) $ (1,514) $ 1,376 $ 1,694 $ 7,479
========= ========== ========= ========
Income (loss) per common share $ (.18) $ .17 $ .21 $ .91
Cash dividends paid per share $ .12 $ .10 $ .24 $ .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,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,694 $ 7,479
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 9,940 8,466
Deferred income taxes 1,667 (119)
Dry hole costs and leasehold impairment 247 501
(Increase) decrease in operating assets
Accounts receivable (3,691) 11,345
Inventories (10,270) (2,546)
Income taxes receivable (4,269) (1,176)
Prepayments and other (360) 736
Increase (decrease) in operating liabilities
Accounts payable 20,140 (9,002)
Accrued liabilities 528 (1,354)
Income taxes payable (4,202) 191
Other, net (3,003) 496
-------- --------
Net cash provided by operating activities 8,421 15,017
Cash flows from financing activities
Increase in notes payable - 39,000
Payment of long-term debt (8) (8)
Debt issuance costs - (425)
Cash dividends (1,981) (1,651)
-------- --------
Net cash provided by (used for) financing activities (1,989) 36,916
Cash flows from investing activities
Additions to properties, plants and equipment (14,134) (7,974)
Investment in joint venture (2,542) -
-------- --------
Net cash used for investing activities (16,676) (7,974)
-------- --------
Cash and cash equivalents
Increase (decrease) for the period (10,244) 43,959
Beginning of year 63,959 13,432
-------- --------
End of period $ 53,715 $ 57,391
======== ========
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 4,652 $ 3,769
Income taxes $ 7,505 $ 5,854
</TABLE>
See accompanying notes.
5
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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, 1996), reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position as of January 31, 1997, the
consolidated results of operations for the three months and six months ended
January 31, 1997 and 1996, and consolidated cash flows for the six months ended
January 31, 1997 and 1996.
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
six 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 will prove to be correct. This summary discussion of risks and
uncertainties that may cause actual
6
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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
The Company incurred a net loss for the second quarter ended January 31,
1997 of $1.5 million as compared to net income of $1.4 million, for the second
quarter of the prior year. For the six months ended January 31, 1997, net
income was $1.7 million as compared to $7.5 million, for the first six months
in the same period of fiscal 1996.
The decreases in earnings in the second quarter and six month period
ending January 31, 1997 were principally due to reduced refinery margins, as
compared to the same periods of the prior year. Refinery margins industry wide
were at very depressed levels in the current year's second quarter, as product
prices did not keep pace with the substantial increases in crude oil costs,
particularly on the West Coast. Refining margins have recently shown some
improvement from the low levels of the current year's second quarter period.
Revenues increased in both the second quarter and six months ended January 31,
1997 from the prior year's comparable periods as a result of higher sales
prices, partially offset by small decreases in refined product sales.
The increases in depreciation, depletion and amortization in both
comparable periods related primarily to increased production commencing in the
second quarter of fiscal 1996 from the oil and gas properties.
Liquidity and Capital Resources
Cash flows from operations during the six months ended January 31, 1997
were less than capital expenditures and dividends paid, resulting in a net
decrease of cash and cash equivalents of $10.2 million. Working capital
decreased during the six months ended January 31, 1997 by $10.0 million to
$56.6 million. The Company's long-term debt now represents 50.3% of total
capitalization as compared to 50.2% at July 31, 1996. At January 31, 1997, 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
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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 $8.4 million in
the first six months of fiscal 1997, as compared to $15.0 million in the same
period of the prior year. The primary reason for the decrease in net cash
flows from operating activities was the decrease in earnings.
Cash flows used for financing activities amounted to $2.0 million in the
first six months of fiscal 1997, as compared to cash flows provided by
financing activities of $36.9 million in the same period of the prior year. In
the second quarter of fiscal 1996, 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. 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 $16.7 million in the first
six months of fiscal 1997, as compared to $8.0 million in the same period of
the prior year. The Company 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 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 a 60 mile 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 Albuquerque
and northwest New Mexico. The pipeline and related facilities are projected to
be operational near the end of calendar 1997.
The Company is in a joint venture with Mid-America Pipeline Company and
Amoco Pipeline Company to transport liquid petroleum gases (LPGs) to Mexico.
The Company has a 25% interest in the joint venture. The project involved the
construction of a 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, including
contributions to the joint venture. The Company anticipates the realization of
transportation revenues from the joint venture to start in the second half of
fiscal 1997.
8
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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 announced in February 1997, the formation of an alliance
with FINA, Inc. to create a comprehensive supply network which should provide
sufficient gasoline and diesel supply to satisfy the demand growth in the West
Texas, New Mexico, and Arizona markets for at least the next five years. When
fully operational, the system will have the capacity to provide up to 155,000
barrels of refined products per day to these Southwest markets. The project
will utilize existing assets. FINA's bi-directional Amdel Pipeline could be
converted, when needed, from crude oil to refined products and transport up to
50,000 barrels per day from FINA's Port Arthur Refinery on the Gulf Coast,
while 45,000 barrels per day will be shipped from FINA's Big Spring Refinery.
In addition, the Navajo Refinery will continue to provide 60,000 barrels per
day of refined products. FINA will construct a 50 mile extension of its Amdel
Pipeline from Wink, Texas to the Company's pipeline station at Orla, Texas,
where a long-term agreement with FINA will enable them to transport up to
20,000 barrels per day on the Company's recently completed 12" pipeline to El
Paso. In New Mexico, the completion by the Company of the 8" inch pipeline
from the Navajo Refinery to the Company's recently leased pipeline from
Mid-America Pipeline Company (the Lease Agreement) will then provide direct
service to Albuquerque and northwest New Mexico. The alliance will provide
product supply along the full extent of this system, from Bloomfield in
northwest New Mexico, east to Duncan, Oklahoma, and south to El Paso. This
pipeline system, along with other recently announced El Paso area pipeline
expansions, will provide sufficient supply to fully utilize all existing common
carrier pipelines which ship product from El Paso to New Mexico, Arizona and
Mexico. It is anticipated that this pipeline network should be fully
operational by August 1998 at which time the Company will begin to realize
certain pipeline and terminalling revenues from Fina.
The Company believes the scheduled capital projects to upgrade the
Navajo Refinery will improve product yields and enhance refining profitability.
The UOP Isomerization unit, which will increase the refinery's internal octane
generating capabilities and improve light product yields, was completed in
February 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 $15 million, of which $9 million
is to be spent in fiscal 1997 through early fiscal 1998.
9
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 45,000 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. Unocal has recently agreed to sell to Tosco
Corporation all of the operating assets of 76 Products Company, Unocal's West
Coast refining and marketing division. The parties have said they expect to
close in the first quarter of 1997. 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%.
Effective January 1, 1995, certain cities in the United States were
required to use only reformulated gasoline ("RFG"), a cleaner burning fuel.
While none of the Company's principal markets presently requires RFG, the
Phoenix metropolitan area has indicated, subject to public comments, that it
will require RFG by June 1, 1997, and subsequently other requirements may be
instituted. The Company believes it is in position, with the recent completion
of its isomerization unit, to be able to meet the RFG specification. The
specific fuel specifications which will ultimately be required in this market,
as well as the Company's other principal markets, cannot presently be
determined. 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.
10
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HOLLY CORPORATION
PART II. OTHER INFORMATION
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
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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: March 7, 1997 By /S/Henry A. Teichholz
------------- ----------------------------
Henry A. Teichholz
Vice President, Treasurer
and Controller
(Duly Authorized Principal
Financial and Accounting
Officer)
12
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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>
27 - Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 53,715
<SECURITIES> 0
<RECEIVABLES> 108,077
<ALLOWANCES> 0
<INVENTORY> 48,943
<CURRENT-ASSETS> 223,445
<PP&E> 275,311
<DEPRECIATION> 138,209
<TOTAL-ASSETS> 368,984
<CURRENT-LIABILITIES> 166,843
<BONDS> 86,282
0
0
<COMMON> 87
<OTHER-SE> 95,869
<TOTAL-LIABILITY-AND-EQUITY> 368,984
<SALES> 370,446
<TOTAL-REVENUES> 370,847
<CGS> 347,085
<TOTAL-COSTS> 365,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,756
<INCOME-PRETAX> 2,828
<INCOME-TAX> 1,134
<INCOME-CONTINUING> 1,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,694
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
