<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 April 30, 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
-----------
HOLLY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1056913
- ---------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 871-3555
---------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
8,253,514 shares of Common Stock, par value $.01 per share, were outstanding on
June 4, 1997.
<PAGE> 2
HOLLY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet -
April 30, 1997 (Unaudited) and July 31, 1996 3
Consolidated Statement of Income (Unaudited) -
Three Months and Nine Months Ended April 30, 1997 and 1996 4
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended April 30, 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
April 30, July 31,
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents $ 49,207 $ 63,959
Accounts receivable: Product 37,980 43,642
Crude oil resales 56,111 54,456
Note receivable - 6,288
--------- ---------
94,091 104,386
Inventories: Crude oil and refined products 44,101 32,090
Materials and supplies 7,516 6,583
--------- ---------
51,617 38,673
Prepayments and other 8,264 10,008
--------- ---------
Total current assets 203,179 217,026
Properties, plants and equipment, at cost 271,363 261,621
Less accumulated depreciation, depletion and amortization 131,244 130,177
--------- ---------
140,119 131,444
Equity interest in joint venture 4,992 734
Other assets 6,735 2,067
--------- ---------
$ 355,025 $ 351,271
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 118,390 $ 122,421
Accrued liabilities 15,440 12,453
Income taxes payable 1,732 4,728
Current maturities of long-term debt 10,775 10,775
--------- ---------
Total current liabilities 146,337 150,377
Deferred income taxes 19,585 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 97,171 90,593
--------- ---------
103,390 96,812
Common stock held in treasury, at cost - 396,768 shares (569) (569)
--------- ---------
Total stockholders' equity 102,821 96,243
--------- ---------
$ 355,025 $ 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 Nine Months Ended
April 30, April 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Refined products $ 178,826 $ 166,318 $ 546,225 $ 481,020
Oil and gas 1,020 1,938 4,067 3,465
Miscellaneous 235 216 636 603
--------- --------- --------- ---------
180,081 168,472 550,928 485,088
Costs and expenses
Cost of refined products 156,877 151,309 503,962 435,071
General and administrative 3,362 3,581 10,307 10,552
Depreciation, depletion and amortization 4,595 4,898 14,535 13,364
Exploration expenses, including dry holes 689 1,016 1,914 2,661
--------- --------- --------- ---------
165,523 160,804 530,718 461,648
--------- --------- --------- ---------
Income from operations 14,558 7,668 20,210 23,440
Other
Equity in earnings of joint venture 171 - 171 -
Interest income 740 844 2,672 2,034
Interest expense (2,347) (2,682) (7,103) (7,131)
--------- --------- --------- ---------
(1,436) (1,838) (4,260) (5,097)
--------- --------- --------- ---------
Income before income taxes 13,122 5,830 15,950 18,343
Income tax provision (benefit)
Current 5,522 1,996 4,989 7,149
Deferred (255) 331 1,412 212
--------- --------- --------- ---------
5,267 2,327 6,401 7,361
--------- --------- --------- ---------
Net income $ 7,855 $ 3,503 $ 9,549 $ 10,982
========= ========= ========= =========
Income per common share $ .95 $ .42 $ 1.16 $ 1.33
Cash dividends paid per share $ .12 $ .10 $ .36 $ .30
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
Nine Months Ended
April 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 9,549 $ 10,982
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 14,535 13,364
Deferred income taxes 1,412 212
Equity in earnings of joint venture (171) -
Dry hole costs and leasehold impairment 394 1,045
(Increase) decrease in operating assets
Accounts receivable 10,295 (22,481)
Inventories (12,944) 2,077
Income taxes receivable - 804
Prepayments and other (210) 1,350
Increase (decrease) in operating liabilities
Accounts payable (4,031) 21,407
Accrued liabilities 2,987 3,262
Income taxes payable (2,996) 140
Turnaround expenditures (5,365) (1,561)
Other, net 110 564
-------- --------
Net cash provided by operating activities 13,565 31,165
Cash flows from financing activities
Increase in notes payable - 39,000
Payment of long-term debt (8) (8)
Debt issuance costs - (403)
Cash dividends (2,971) (2,476)
-------- --------
Net cash provided by (used for) financing activities (2,979) 36,113
Cash flows from investing activities
Additions to properties, plants and equipment (21,251) (10,920)
Investment in joint venture (4,087) -
-------- --------
Net cash used for investing activities (25,338) (10,920)
-------- --------
Cash and cash equivalents
Increase (decrease) for the period (14,752) 56,358
Beginning of year 63,959 13,432
-------- --------
End of period $ 49,207 $ 69,790
======== ========
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 4,407 $ 3,782
Income taxes $ 7,505 $ 5,874
</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 April 30, 1997, the
consolidated results of operations for the three months and nine months ended
April 30, 1997 and 1996, and consolidated cash flows for the nine months ended
April 30, 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 current
classifications.
References herein to the "Company" are for convenience of presentation
and may include obligations, commitments or contingencies that pertain solely
to one or more affiliates of the Company. Results of operations for the first
nine months of fiscal 1997 are not necessarily indicative of the results to be
expected for the full year.
Note B - Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is effective for periods ending
after December 15, 1997. The statement simplifies the standards for computing
earnings per share and makes them comparable to international standards. The
impact of Statement No. 128 on the calculation of income per common share of
the Company is not expected to be material.
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
6
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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, the effectiveness
of Company capital investments and marketing strategies, and completion of the
recently announced alliance with FINA, Inc. and such alliance producing desired
results. 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 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 third quarter ended April 30, 1997 was $7.9 million
as compared to $3.5 million, for the third quarter of the prior year. For the
nine months ended April 30, 1997, net income was $9.5 million as compared to
$11.0 million, for the first nine months in the same period of fiscal 1996.
The increase in earnings in the third quarter of fiscal 1997 was due
principally to improved refinery margins, and a small increase in volumes sold,
as compared to the third quarter of the prior year. For the nine months ended
April 30, 1997 as compared to the same period in fiscal 1996, the decrease in
earnings was caused by small reductions in refinery margins and volumes sold.
Refinery margins recovered in the current year's third quarter from the very
depressed levels in the immediately preceding quarter, as crude oil prices fell
at a greater rate than product prices. The latter part of the quarter
experienced particularly strong margins. Recently refining margins have fallen
off somewhat from those high levels of the latter part of the third quarter.
Revenues increased in both the third quarter and nine months ended April 30,
1997 from the prior year's comparable periods principally as the result of
higher sales prices.
7
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The increase in depreciation, depletion and amortization in the nine
month comparable periods related primarily to increased production from oil and
gas properties, as most of last year's oil and gas depreciation, depletion and
amortization did not commence until the second quarter of fiscal 1996.
Although oil and gas revenues have increased slightly for the nine months ended
April 30, 1997 as compared to the same period of the prior year, production and
revenues for the third quarter of fiscal 1997 are lower than the third quarter
of the prior year, due to deferred production, resulting from production
facility completions.
Liquidity and Capital Resources
Cash flows from operations during the nine months ended April 30, 1997
were less than capital expenditures and dividends paid, resulting in a net
decrease of cash and cash equivalents of $14.8 million. Working capital
decreased during the nine months ended April 30, 1997 by $9.8 million to $56.8
million. The Company's long-term debt now represents 48.6% of total
capitalization as compared to 50.2% at July 31, 1996. At April 30, 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.
Net cash provided by operating activities amounted to $13.6 million in
the first nine months of fiscal 1997, as compared to $31.2 million in the same
period of the prior year. The primary reason for the decrease in net cash
flows from operating activities was changes in working capital accounts.
Cash flows used for financing activities amounted to $3.0 million in the
first nine months of fiscal 1997, as compared to cash flows provided by
financing activities of $36.1 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. The maturity date of the Company's
Credit Agreement has been extended to November 1, 1997. The Company is in the
process of renewing, and expects to renew, the Credit Agreement beyond that
date on terms similar to those presently in effect.
8
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Cash flows used for investing activities were $25.3 million in the first
nine months of fiscal 1997, as compared to $10.9 million in the same period of
the prior year. The Company has a capital budget 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 has been 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 is in the process of completing the major items approved in the 1996
capital budget, including a joint venture to ship liquid petroleum gases (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 is preparing 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 expected 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,
which deliveries began in April 1997. The Company has a 25% interest in the
joint venture. For the Company, the project involved the construction of a 12"
pipeline from Orla to El Paso, Texas, which replaced a portion of 8" pipeline
previously used by Navajo that was transferred to the joint venture. The 12"
pipeline was completed in 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) was $8 million, of which $7 million
was spent in fiscal 1997, including contributions to the joint venture.
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.
9
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 FINA 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 pipeline recently leased 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 and 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 that, 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.
10
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Phillips Petroleum Company recently announced that it plans to construct
a new pipeline and modify an existing pipeline to carry petroleum products from
its Borger, Texas refinery to markets in El Paso, Texas and Arizona. The
project involves reversing and converting an existing eight-inch natural gas
liquids pipeline that extends from Borger to Gaines, Texas, constructing a new
220-mile, ten-inch pipeline from Gaines to El Paso and building a new terminal
at El Paso. Phillips announced that it expects to complete the project in late
1998. This project could also 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. Tosco Corporation has recently purchased from Unocal
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 now 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, Arizona
will require RFG by late June 1997, with more stringent fuel specifications to
be mandated in 1999. The Company believes it is in position, with the recent
completion of its isomerization unit, to be able to meet these specifications,
as they are presently formulated. 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 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: June 6, 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)
Exhibit
Number Description
-------- -----------
27 - Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 49,207
<SECURITIES> 0
<RECEIVABLES> 94,091
<ALLOWANCES> 0
<INVENTORY> 51,617
<CURRENT-ASSETS> 203,179
<PP&E> 271,363
<DEPRECIATION> 131,244
<TOTAL-ASSETS> 355,025
<CURRENT-LIABILITIES> 146,337
<BONDS> 86,282
0
0
<COMMON> 87
<OTHER-SE> 102,734
<TOTAL-LIABILITY-AND-EQUITY> 355,025
<SALES> 550,292
<TOTAL-REVENUES> 550,928
<CGS> 503,962
<TOTAL-COSTS> 530,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,103
<INCOME-PRETAX> 15,950
<INCOME-TAX> 6,401
<INCOME-CONTINUING> 9,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,549
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
