<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, 1999
--------------------------
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
December 6, 1999.
<PAGE> 2
HOLLY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
October 31, 1999 (Unaudited) and July 31, 1999 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended October 31, 1999 and 1998 4
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended October 31, 1999 and 1998 5
Consolidated Statement of Comprehensive Income (Unaudited) -
Three Months Ended October 31, 1999 and 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
This Quarterly Report on Form 10-Q (including documents incorporated by
reference herein) contains statements with respect to the Company's expectations
or beliefs as to future events. These types of statements are "forward-looking"
and are subject to uncertainties. See "Factors Affecting Forward-Looking
Statements" on page 10.
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,
1999 1999
----------- ---------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 10,756 $ 4,194
Accounts receivable: Product and transportation 49,582 47,832
Crude oil resales 94,743 75,670
--------- ---------
144,325 123,502
Inventories: Crude oil and refined products 42,419 47,364
Materials and supplies 10,553 10,553
Reserve for lower of cost or market (2,993) (2,993)
--------- ---------
49,979 54,924
Prepayments and other 12,489 12,158
--------- ---------
Total current assets 217,549 194,778
Properties, plants and equipment, at cost 358,101 352,179
Less accumulated depreciation, depletion and amortization (175,735) (171,285)
--------- ---------
182,366 180,894
Investments in and advances to joint ventures 3,916 4,035
Other assets 10,224 11,275
--------- ---------
Total assets $ 414,055 $ 390,982
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 168,074 $ 144,287
Accrued liabilities 16,433 14,688
Income taxes payable 3,309 8,206
Current maturities of long-term debt 13,746 13,746
--------- ---------
Total current liabilities 201,562 180,927
Deferred income taxes 24,887 24,580
Long-term debt, less current maturities 56,595 56,595
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 126,164 124,341
--------- ---------
132,383 130,560
Common stock held in treasury, at cost - 396,768 shares (569) (569)
Accumulated other comprehensive income - net unrealized loss on
securities available for sale (803) (1,111)
--------- ---------
Total stockholders' equity 131,011 128,880
--------- ---------
Total liabilities and stockholders' equity $ 414,055 $ 390,982
========= =========
</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,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales and other revenues $ 200,631 $ 142,995
Operating costs and expenses
Cost of products sold 159,830 105,657
Inventory market writedowns -- 1,391
Operating expenses 23,239 19,549
Selling, general and administrative expenses 4,868 4,328
Depreciation, depletion and amortization 6,416 5,987
Exploration expenses, including dry holes 303 305
--------- ---------
194,656 137,217
--------- ---------
Income from operations 5,975 5,778
Other
Equity in earnings of joint ventures 631 394
Interest income 264 50
Interest expense (1,561) (1,931)
--------- ---------
(666) (1,487)
--------- ---------
Income before income taxes 5,309 4,291
Income tax provision (benefit)
Current 2,332 1,851
Deferred (249) (178)
--------- ---------
2,083 1,673
--------- ---------
Net income $ 3,226 $ 2,618
========= =========
Income per common share (basic
and diluted) $ .39 $ .32
Cash dividends paid per share $ .17 $ .16
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,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,226 $ 2,618
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, depletion and amortization 6,416 5,987
Deferred income taxes (249) (178)
Equity in earnings of joint venture (631) (394)
Dry hole costs and leasehold impairment -- 2
Inventory market writedowns -- 1,391
(Increase) decrease in operating assets
Accounts receivable (20,823) (9,255)
Inventories 4,945 3,186
Income taxes receivable -- 653
Prepayments and other (129) (605)
Increase (decrease) in operating liabilities
Accounts payable 23,787 (2,965)
Accrued liabilities 1,745 1,282
Income taxes payable (4,897) 1,100
Other, net (181) (1,526)
-------- --------
Net cash provided by operating activities 13,209 1,296
Cash flows from financing activities
Increase in borrowings under credit agreement -- 4,500
Cash dividends (1,403) (1,321)
-------- --------
Net cash provided by (used for)
financing activities (1,403) 3,179
Cash flows from investing activities
Additions to properties, plants and equipment (5,994) (4,794)
Distributions from joint venture 750 550
-------- --------
Net cash used for investing activities (5,244) (4,244)
-------- --------
Cash and cash equivalents
Increase (decrease) for the period 6,562 231
Beginning of year 4,194 2,602
-------- --------
End of period $ 10,756 $ 2,833
======== ========
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 267 $ 220
Income taxes $ 7,205 $ 50
</TABLE>
See accompanying notes.
5
<PAGE> 6
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
October 31,
--------------------
1999 1998
------- -------
<S> <C> <C>
Net income $ 3,226 $ 2,618
Other comprehensive income
Unrealized gain (loss) on securities available
for sale 525 (275)
Income tax provision (benefit) 217 (110)
------- -------
308 (165)
------- -------
Total comprehensive income $ 3,534 $ 2,453
======= =======
</TABLE>
See accompanying notes.
6
<PAGE> 7
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, 1999), reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position as of October 31, 1999, the
consolidated results of operations and comprehensive income for the three months
ended October 31, 1999 and 1998, and consolidated cash flows for the three
months ended October 31, 1999 and 1998. Certain reclassifications have been made
to the prior years' financial statements to conform to the current presentation.
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, 1999.
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 2000 are not necessarily indicative of the results to be
expected for the full year.
Note B - Earnings Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for net income.
<TABLE>
<CAPTION>
Three Months Ended October 31,
------------------------------
(in thousands, except per share amounts) 1999 1998
------ ------
<S> <C> <C>
Net income $3,226 $2,618
====== ======
Average number of shares of common
stock outstanding 8,254 8,254
Effect of dilutive stock options 4 --
------ ------
Average number of shares of common
stock outstanding assuming dilution 8,258 8,254
====== ======
Income per share - basic $ .39 $ .32
====== ======
Income per share - diluted $ .39 $ .32
====== ======
</TABLE>
Options were awarded during the first quarter of fiscal 2000 for 385,000 shares
at an exercise price of $14.00.
7
<PAGE> 8
HOLLY CORPORATION
Note C - Segment Information
The Company has two major business segments: Refining and Pipeline
Transportation. The Refining segment is engaged in the refining of crude oil and
wholesale marketing of refined products, such as gasoline, diesel fuel and jet
fuel, and includes the Company's Navajo Refinery and Montana Refinery. The
petroleum products produced by the Refining segment are marketed in the
southwestern United States, Montana and northern Mexico. Certain pipelines and
terminals operate in conjunction with the Refining segment as part of the supply
and distribution networks of the refineries. The Pipeline Transportation segment
includes approximately 900 miles of the Company's pipeline assets in Texas and
New Mexico. Revenues from the Pipeline Transportation segment are earned through
transactions with unaffiliated parties for pipeline transportation, rental and
terminalling operations. The Pipeline Transportation segment also includes the
equity earnings from the Company's 25% investment in Rio Grande Pipeline
Company, which provides petroleum products transportation. Operations of the
Company that are not included in the two reportable segments are included in
Corporate and other, which includes costs of Holly Corporation, the parent
company, consisting primarily of general and administrative expenses and
interest charges, as well as a small-scale oil and gas exploration and
production program and a small equity investment in retail gasoline stations and
convenience stores.
The accounting policies for the segments are the same as those described
in the summary of significant accounting policies. The Company's reportable
segments are strategic business units that offer different products and
services.
<TABLE>
<CAPTION>
Total for
Pipeline Reportable Corporate Consolidated
Refining Transportation Segments & Other Total
-------- -------------- ---------- --------- ------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended October 31, 1999
Sales and other operating revenues ... $195,849 $ 3,651 $199,500 $ 1,131 $200,631
EBITDA (1) ........................... $ 10,700 $ 2,947 $ 13,647 $ (625) $ 13,022
Income (loss) from operations ........ $ 5,122 $ 1,986 $ 7,108 $ (1,133) $ 5,975
Income (loss) before income taxes .... $ 5,056 $ 2,654 $ 7,710 $ (2,401) $ 5,309
Total assets ......................... $382,681 $ 21,502 $404,183 $ 9,872 $414,055
Three Months Ended October 31, 1998
Sales and other operating revenues ... $139,127 $ 3,006 $142,133 $ 862 $142,995
EBITDA(1) ............................ $ 10,476 $ 2,379 $ 12,855 $ (696) $ 12,159
Income (loss) from operations ........ $ 5,376 $ 1,702 $ 7,078 $ (1,300) $ 5,778
Income (loss) before income taxes .... $ 5,295 $ 2,131 $ 7,426 $ (3,135) $ 4,291
Total assets ......................... $322,854 $ 18,590 $341,444 $ 13,175 $354,619
</TABLE>
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
8
<PAGE> 9
HOLLY CORPORATION
Note D - Contingencies
In August 1998, a lawsuit (the "Longhorn Suit") was filed in state
district court in El Paso, Texas against the Company and two of its subsidiaries
(along with an Austin, Texas law firm which was subsequently dropped from the
case). The suit was filed by Longhorn Partners Pipeline, L.P. ("Longhorn
Partners"), a Delaware limited partnership composed of Longhorn Partners GP,
L.L.C. as general partner and affiliates of Exxon Pipeline Company, Amoco
Pipeline Company, Williams Pipeline Company, and the Beacon Group Energy
Investment Fund, L.P. as well as Chisholm Holdings as limited partners. The
suit, as amended by Longhorn Partners in March and November 1999, seeks damages
alleged to total up to $1,050,000,000 (after trebling) based on claims of
violations of the Texas Free Enterprise and Antitrust Act, unlawful interference
with existing and prospective contractual relations, and conspiracy to abuse
process. The specific action of the Company complained of in the Longhorn
Lawsuit is the support of lawsuits brought by ranchers in West Texas to
challenge the proposed refined products pipeline's use of easements and
rights-of-way that were granted over 50 years ago for a crude oil pipeline. The
November 1999 amendment to the Longhorn Partners' petition adds allegations that
the Company has induced and financed third party litigation and related false
and misleading public relations activities against Longhorn Partners for
anti-competitive purposes when the litigation could not have been brought by the
Company itself and that the Company has improperly interfered with the federal
court settlement agreement that provided for an environmental assessment of the
Longhorn Pipeline. The Company believes that the Longhorn Suit is wholly without
merit and plans to defend itself vigorously. The Company also plans to pursue at
the appropriate time any affirmative remedies that may be available to it
relating to the Longhorn Suit.
9
<PAGE> 10
HOLLY CORPORATION
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 the U.S. Private Securities Litigation Reform
Act of 1995. All statements, other than statements of historical facts included
in this Form 10-Q, including without limitation those under "Results of
Operations," "Liquidity and Capital Resources" and "Additional Factors that May
Affect Future Results" (including "Risk Management" and "The Year 2000 Problem")
under this Item 2 regarding the Company's financial position and results of
operations, are forward-looking statements. Such statements are subject to risks
and uncertainties, including but not limited to risks and uncertainties with
respect to the actions of actual or potential competitive suppliers of refined
petroleum products in the Company's markets, the demand for and supply of crude
oil and 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
or pipelines, governmental regulations and policies, the availability and cost
of financing to the Company, the effectiveness of capital investments and
marketing strategies by the Company, the costs of defense and the risk of an
adverse decision in the Longhorn Pipeline litigation, the accuracy of technical
analysis and evaluations relating to the Year 2000 Problem, and the abilities of
third-party suppliers to the Company to avoid adverse effects of the Year 2000
Problem on their capacities to supply the Company. 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
Quarterly 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, 1999 and in
conjunction with the discussion below under the headings "Liquidity and Capital
Resources" and "Additional Factors 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.
10
<PAGE> 11
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(in thousands, except per share data)(1) October 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales and other revenues $ 200,631 $ 142,995
Costs and expenses
Cost of products sold 159,830 105,657
Inventory market writedowns -- 1,391
Operating expenses 23,239 19,549
Selling, general and administrative expenses 4,868 4,328
Depreciation, depletion and amortization 6,416 5,987
Exploration expenses, including dry holes 303 305
--------- ---------
194,656 137,217
--------- ---------
Income from operations 5,975 5,778
Other
Equity in earnings of joint ventures 631 394
Interest expense, net (1,297) (1,881)
--------- ---------
(666) (1,487)
--------- ---------
Income before income taxes 5,309 4,291
Income tax provision 2,083 1,673
--------- ---------
Net income $ 3,226 $ 2,618
========= =========
Income per common share (basic and diluted) $ .39 $ .32
Sales and other revenues (2)
Refining $ 195,849 $ 139,127
Pipeline Transportation 3,651 3,006
Corporate and other 1,131 862
--------- ---------
Consolidated $ 200,631 $ 142,995
========= =========
Income (loss) from operations (2)
Refining $ 5,122 $ 5,376
Pipeline Transportation 1,986 1,702
Corporate and other (1,133) (1,300)
--------- ---------
Consolidated $ 5,975 $ 5,778
========= =========
</TABLE>
11
<PAGE> 12
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
1) Certain reclassifications have been made to prior reported amounts to
conform to current classifications.
2) The Refining segment includes the Company's principal refinery in Artesia,
New Mexico, which is operated in conjunction with refining facilities in
Lovington, New Mexico (collectively, the Navajo Refinery) and the Company's
refinery near Great Falls, Montana. Certain pipelines and terminals operate
in conjunction with the Refining segment as part of the supply and
distribution networks of the refineries, which costs are included in the
Refining segment. The Pipeline Transportation segment includes
approximately 900 miles of the Company's pipeline assets in Texas and New
Mexico. Revenues from the Pipeline Transportation segment are earned
through transactions with unaffiliated parties for pipeline transportation,
rental and terminalling operations.
<TABLE>
<CAPTION>
REFINING SEGMENT OPERATING DATA (Unaudited)
Three Months Ended
October 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Crude charge (BPD)(1) 61,400 66,000
Refinery production (BPD)(2) 67,500 71,200
Sales of produced refined products (BPD) 67,900 71,800
Sales of refined products (BPD) (3) 74,600 77,200
Refinery utilization (4) 91.6% 98.6%
Average per barrel (5)
Net sales $ 28.85 $ 19.67
Raw material costs 23.14 14.63
---------- ----------
Refinery margin 5.71 5.04
Cash operating costs (6) 4.03 3.25
---------- ----------
Net cash operating margin $ 1.68 $ 1.79
========== ==========
Sales of produced refined products
Gasolines 56.5% 55.7%
Diesel fuels 20.3 20.0
Jet fuels 9.8 9.8
Asphalt 9.5 10.5
LPG and other 3.9 4.0
---------- ----------
Total 100.0% 100.0%
========== ==========
</TABLE>
- -------------
(1) Barrels per day of crude oil processed.
(2) Barrels per day of refined products produced from crude oil and other feed
and blending stocks.
(3) Includes refined products purchased for resale representing 6,700 BPD and
5,400 BPD respectively.
(4) Crude charge divided by total crude capacity of 67,000 BPD.
(5) Represents average per barrel amounts for produced refined products sold.
(6) Includes operating costs and selling, general and administrative expenses
of refineries, as well as pipeline expenses that are part of refinery
operations.
FIRST QUARTER OF FISCAL 2000 COMPARED TO FIRST QUARTER OF FISCAL 1999
Net income for the first quarter ended October 31, 1999 was $3.2 million
($.39 per share) as compared to $2.6 million ($.32 per share) for the first
quarter of the prior year. The increase in income for the first quarter of
fiscal 2000 was primarily attributable to an increase in operating income caused
by increased refinery margins and a charge in fiscal 1999 relating to the
decrease in value of crude oil and refined product inventory at the time,
partially offset by increased operating expenses and decreased refined product
sales volumes.
12
<PAGE> 13
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Refinery margins increased 13.3% during the first quarter of fiscal 2000
compared to the prior year's first quarter as average product prices increased
by more than average crude costs when compared to levels in the first quarter of
the prior year. The Company experienced strong refinery margins in the early
portion of the first quarter, but such margins declined throughout the quarter
and were at lower levels for the latter portion of the quarter and have yet to
recover. Operating expenses increased in the three months ended October 31, 1999
principally due to planned maintenance activities performed during the first
quarter on certain units at the Navajo Refinery. As a result of this
maintenance, refinery production volumes were reduced 5.2% during the quarter.
Operating expenses also increased due to engineering consulting services
incurred at the Navajo Refinery in connection with the implementation of process
improvement techniques.
The increase in sales and other revenues was due principally to an
increase in product prices, offset to a minor degree by the reduced sales
volumes resulting from lower production levels. Pipeline transportation
revenues, net of related operating expenses, increased modestly due to the
initiation of LPG deliveries on a new Company pipeline in June 1999.
The decrease in interest expense, net of interest income, reflects lower
borrowings and higher levels of excess cash. The increase in equity in earnings
of joint ventures relates to increased net revenues at the Rio Grande Pipeline
Company, where the Company has a 25% interest.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased during the three months ended
October 31, 1999 by $6.6 million, as cash flows required for capital
expenditures and dividends paid were less than cash flows generated from
operations and working capital changes. Working capital (excluding cash and cash
equivalents) decreased during the three months ended October 31, 1999 by $4.4
million to $5.2 million. Additionally, the Company had $50 million of unused
borrowing capacity available at October 31, 1999 under its $100 million Credit
Agreement, which expires on October 14, 2000. The Company believes that this
source of funds, together with future cash flows from operations, should provide
sufficient resources through October 2000, to enable the Company to satisfy its
liquidity needs, capital requirements, and debt service obligations while
continuing the payment of dividends if authorized by the Board of Directors.
The Company has recently initiated discussions with its banks on a
one-year extension of its Credit Agreement beyond October 14, 2000. While the
Company expects such negotiations to result in such an extension, there can be
no assurance that such negotiations will be successful.
13
<PAGE> 14
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 $13.2 million in
the first three months of fiscal 2000, as compared to $1.3 million in the same
period of the prior year. Cash flows from operating activities were higher
during the first quarter of the current year as compared to the first quarter of
the prior year due to working capital changes related to increased crude prices,
as the Company receives payment on its receivables more quickly than it pays for
its crude oil, and improved collection of receivables; such favorable effects on
cash flow was partially offset by higher level of federal income taxes payments
in the first quarter of fiscal year 2000.
Cash flows used for financing activities amounted to $1.4 million in the
first three months of fiscal 2000, as compared to cash flows provided by
financing activities of $3.2 million in the same period of the prior year. Cash
flows used for financing activities in fiscal year 2000 consisted solely of
dividends paid to shareholders. During the same period of last year, such cash
flows consisted of a similar amount of dividend payments as well as a $4.5
million increase in borrowings under the Company's Credit Agreement. Currently,
the Company has no outstanding bank borrowings. During fiscal year 2000, the
Company's Senior Notes require principal payments of $8.6 million in December
1999 and $5.2 million in June 2000, respectively.
Cash flows used for investing activities were $5.2 million in the first
three months of fiscal 2000, as compared to $4.2 million in the same period of
the prior year. All amounts expended were on capital projects. The net negative
cash flow for investing activities was reduced in the first quarter of fiscal
2000 by a $0.8 million distribution to the Company from the Rio Grande Pipeline
Company joint venture as compared to a $0.6 million distribution during the same
period of fiscal 1999.
The Company has adopted a capital budget of $23 million for fiscal 2000.
The components of this budget are $9 million for various refinery improvements,
$9 million for costs relating to the purchase of a gasoil hydrotreater, as
described below, $4 million for various pipeline and transportation projects and
under $1 million for oil and gas exploration and production activities. In
addition to these projects, the Company plans to expend during 2000 a total of
$8 million on items that were approved in previous capital budgets primarily
relating to pipeline and terminalling activities.
The Company purchased a hydrotreater unit for $5 million from a closed
refinery in November 1997. This purchase should give the Company the ability to
reconstruct the unit at the Navajo Refinery at a substantial savings relative to
the purchase cost of a new unit. The hydrotreater will enhance higher value,
light product yields and facilitate the Company's ability to meet the present
California Air Resources Board ("CARB") standards, which have been adopted in
the Company's Phoenix market for winter months beginning in the latter part of
2000. Included in the fiscal 2000 capital budget are commitments related to the
hydrotreater of $9 million, which include costs to relocate the unit to the
Navajo Refinery and construct a sulfur recovery unit, which will be immediately
utilized and work in conjunction with the hydrotreater when completed,
14
<PAGE> 15
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
and certain long-lead-time pieces of equipment. The Company, subject to
obtaining necessary permitting in a timely manner, expects to complete the
hydrotreater in the latter part of 2001. Remaining costs to complete the
hydrotreater are estimated to be approximately $20 million, in addition to the
current $9 million budgeted amount. Based on the current configuration at the
Navajo Refinery, the Company believes it can supply current sales volumes into
the Phoenix market under the CARB standards prior to completion of the
hydrotreater.
The Company has leased from Mid-America Pipeline Company more than 300
miles of 8" pipeline running from Chavez County to San Juan County, New Mexico
(the "Leased Pipeline"). The Company has completed a 12" pipeline from the
Navajo Refinery to the Leased Pipeline as well as terminalling facilities in
Bloomfield. The Company has completed the construction of a diesel fuel terminal
40 miles east of Albuquerque in Moriarty and is considering different
alternatives regarding its terminalling needs in Albuquerque. When the project,
including the Albuquerque portion, is completed, these facilities will allow the
Company to use the Leased Pipeline to transport petroleum products from the
Navajo Refinery to Albuquerque and markets in northwest New Mexico.
Transportation of petroleum products to markets in northwest New Mexico and
diesel fuels to Moriarty, New Mexico, near Albuquerque, began in late calendar
year 1999.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
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,
1999.
The Longhorn Pipeline is a potential source of additional supplies of
refined products to El Paso and markets served from El Paso that are also served
by the Company's Navajo Refinery. This pipeline is proposed to run approximately
700 miles from the Houston area of the Gulf Coast to El Paso, utilizing a direct
route. The owner of the Longhorn Pipeline, Longhorn Partners Pipeline, L.P., a
Delaware limited partnership that includes affiliates of Exxon Pipeline Company,
BP/Amoco Pipeline Company, Williams Pipeline Company, and the Beacon Group
Energy Investment Fund, L.P. and Chisholm Holdings as limited partners
("Longhorn Partners"), has proposed to use the pipeline initially to transport
approximately 72,000 barrels per day ("BPD") of refined products from the Gulf
Coast to El Paso and markets served from El Paso, with an ultimate maximum
capacity of 225,000 BPD. A critical feature of this proposed petroleum products
pipeline is that it would utilize, for approximately 450 miles (including areas
overlying the environmentally sensitive Edwards Aquifer and Edwards-Trinity
Aquifer and densely populated areas in the southern part of Austin, Texas) an
existing pipeline (previously owned by Exxon Pipeline Company) that was
constructed in about 1950 for the shipment of crude oil from West Texas to the
Houston area.
15
<PAGE> 16
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The Longhorn Pipeline is not currently operating because of a federal
court injunction in August 1998 and a settlement agreement in March 1999 entered
into by Longhorn Partners, the United States Environmental Protection Agency
("EPA") and Department of Transportation ("DOT"), and the other parties to the
federal lawsuit that had resulted in the injunction and settlement. The March
1999 settlement agreement required the preparation of an Environmental
Assessment under the authority of the EPA and the DOT while the federal court
retained jurisdiction. A draft Environmental Assessment (the "Draft EA") on the
Longhorn Pipeline was released on October 22, 1999. The Draft EA proposes a
preliminary Finding of No Significant Impact with respect to the Longhorn
Pipeline provided that Longhorn Partners carries out a proposed mitigation plan
developed by Longhorn Partners which contains 34 elements. Some elements of the
proposed mitigation plan are required to be completed before the Longhorn
Pipeline is allowed to operate, with the remainder required to be completed
later or to be implemented for as long as operations continue. The EPA and DOT
are conducting a series of public meetings and taking public comments to
determine whether their preliminary determination should be made final, revised
or reversed. Four public meetings on the Draft EA were held in November 1999 at
locations in Texas but the public meeting originally scheduled for November 1999
in Austin had to be rescheduled to January 2000 after the number of persons
seeking to attend the November 1999 meeting in Austin could not be accommodated
in the auditorium that had been chosen for the meeting. The time for submission
to the EPA and DOT of public comments on the Draft EA Report has been extended
until the middle of January 2000. Public expressions in opposition to and in
support of the conclusions reached in the Draft EA were submitted to the EPA and
DOT in November 1999. The Company is providing support for the preparation of
expert analyses of the Draft EA and for certain groups and individuals who have
wished to express their concerns about the Longhorn Pipeline. It is expected
that additional public comments and analysis questioning the conclusions and the
methodology of the Draft EA will be submitted before the end of the public
comment period. A final determination by the EPA and DOT with respect to the
matters considered in the Draft EA could be issued as early as 30 days following
the end of the public comment period.
In August 1998, a lawsuit (the "Longhorn Suit") was filed by Longhorn
Partners in state district court in El Paso, Texas against the Company and two
of its subsidiaries (along with an Austin, Texas law firm which was subsequently
dropped from the case). The suit, as amended by Longhorn Partners in March and
November 1999, seeks damages alleged to total up to $1,050,000,000 (after
trebling) based on claims of violations of the Texas Free Enterprise and
Antitrust Act, unlawful interference with existing and prospective contractual
relations, and conspiracy to abuse process. The specific action of the Company
complained of in the Longhorn Lawsuit is the support of lawsuits brought by
ranchers in West Texas to challenge the proposed refined products pipeline's use
of easements and rights-of-way that were granted over 50 years ago for a crude
oil pipeline. The November 1999 amendment to the Longhorn Partners' petition
adds
16
<PAGE> 17
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
allegations that the Company has induced and financed third party litigation and
related false and misleading public relations activities against Longhorn
Partners for anti-competitive purposes when the litigation could not have been
brought by the Company itself and that the Company has improperly interfered
with the federal court settlement agreement that provided for an environmental
assessment of the Longhorn Pipeline. The Company believes that the Longhorn Suit
is wholly without merit and plans to defend itself vigorously. The Company also
plans to pursue at the appropriate time any affirmative remedies that may be
available to it relating to the Longhorn Suit.
RISK MANAGEMENT
The Company uses certain strategies to reduce some commodity price and
operational risks. The Company does not attempt to eliminate all market risk
exposures when the Company believes the exposure relating to such risk would not
be significant to the Company's future earnings, financial position, capital
resources or liquidity or that the cost of eliminating the exposure would
outweigh the benefit.
The Company's profitability depends largely on the spread between market
prices for refined products and crude oil. A substantial or prolonged decrease
in this spread could have a significant negative effect on the Company's
earnings, financial condition and cash flows. At times, the Company utilizes
petroleum commodity futures contracts to minimize a portion of its exposure to
price fluctuations associated with crude oil and refined products. Such
contracts are used solely to help manage the price risk inherent in purchasing
crude oil in advance of the delivery date and as a hedge for fixed-price sales
contracts of refined products and do not increase the market risks to which the
Company is exposed. Gains and losses on contracts are deferred and recognized in
cost of refined products when the related inventory is sold or the hedged
transaction is consummated. No such contracts were outstanding at October 31,
1999.
At October 31, 1999, the Company had outstanding unsecured debt of $70.3
million and had no borrowings outstanding under its Credit Agreement. The
Company does not have significant exposure to changing interest rates on its
unsecured debt because the interest rates are fixed, the average maturity is
less than three years and such debt represents less than 40% of the Company's
total capitalization. The Company did not have any outstanding borrowings under
its Credit Agreement during the three months ended October 31, 1999, however,
during much of fiscal 1999, the Company had outstanding borrowings. Since
interest rates on bank borrowings are reset frequently based on either the
bank's daily effective prime rate, or the LIBOR rate, interest rate market risk
is very low. Additionally, the Company invests any available cash only in
investment grade, highly liquid investments with maturities of three months or
less. As a result, the interest rate market risk implicit in these cash
investments is low, as the investments mature within three months. A ten percent
change in the market interest rate over the next year would not materially
impact the Company's earnings or cash flow, as the interest rates on the
Company's
17
<PAGE> 18
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
long-term debt are fixed, and the Company's borrowings under the Credit
Agreement and cash investments are at short-term market rates and such interest
has historically not been significant as compared to the total operations of the
Company. A ten percent change in the market interest rate over the next year
would not materially impact the Company's financial condition, as the average
maturity of the Company's long-term debt is less than three years and such debt
represents less than 40% of the Company's total capitalization, and the
Company's borrowings under the Credit Agreement and cash investments are at
short-term market rates.
The Company's operations are subject to normal hazards of operations,
including fire, explosion and weather-related perils. The Company maintains
various insurance coverages, including business interruption insurance, subject
to certain deductibles. The Company is not fully insured against certain risks
because such risks are not fully insurable, coverage is unavailable or premium
costs, in the judgement of the Company, do not justify such expenditures.
THE YEAR 2000 PROBLEM
The Year 2000 Problem is the result of older computer systems using a
two-digit format rather than a four-digit format to define the applicable year
with the result that such computer systems may be unable to interpret properly
dates beyond the year 1999. This inability could lead to a failure of
information systems and disruptions of business and financial operations. Year
2000 risks exist both in information technology ("IT") systems that employ
computer hardware and software and in non-IT systems such as embedded computer
chips or microcontrollers that control the operation of the equipment in which
they are installed. Computer failures because of the Year 2000 Problem could
affect the Company either because of failures of computers used in the Company's
operations and record-keeping or because of computer failures that adversely
affect third parties that are suppliers to or customers of the Company.
Partly with the assistance of outside consultants, the Company has taken
steps to identify key financial, informational and operational systems that may
be affected by the Year 2000 Problem. Based on certifications by third-party
suppliers of the Company's principal IT systems, the Company believes that its
principal IT systems either are now unaffected by the Year 2000 Problem or have
been upgraded to make these systems free of Year 2000 issues.
The Company has made an inventory of non-IT systems embedded in
equipment used in the Company's operations and has assessed the extent to which
these non-IT systems could fail because of the Year 2000 Problem and thereby
cause significant problems for the Company's operations, financial condition or
liquidity. The Company has identified, based on information and/or
certifications from suppliers or other third parties, the types of non-IT
systems that appear to be significantly at risk of failure due to the Year 2000
Problem; the Company believes that it has remediated all items of equipment
containing at-risk chips. Because of the nature of the non-
18
<PAGE> 19
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
IT systems, there can be no assurance that the Company has correctly identified
all non-IT systems that are subject to failure because of the Year 2000 Problem.
Any failure of non-IT systems because of the Year 2000 Problem could reduce
production levels or potentially shut down the refinery operations of the
Company.
To the extent possible, the Company has either tested or received
certifications with respect to all significant IT and non-IT systems.
The Company has also initiated contingency planning to respond to the
possible effects of the Year 2000 Problem on third parties that are important to
the Company's operations. The Company has been and continues to communicate
regularly on this issue with critical third parties, such as suppliers of power
or telecommunications services to the Company's operational facilities,
third-party carriers of raw materials and refined products, and major customers.
As problems of third parties have been identified during the preparation of the
contingency plan, the Company has taken steps available to mitigate the impact
on the Company of a failure in a third party caused by the Year 2000 Problem.
While the Company believes that it has made adequate arrangements to deal with
these contingencies, it continues to update such plans as additional information
becomes available.
The cost to the Company of dealing with the Year 2000 Problem is not
expected to be material. Although a portion of the time of IT personnel and
related management has been spent in evaluating the problem, taking corrective
actions and preparing contingency plans, the Company does not believe that other
IT projects or operations have been or will be adversely affected. Monetary
costs expected to be involved in dealing with the Year 2000 Problem have not
been significant: all costs to the Company of review, analysis and corrective
action (excluding IT system upgrades that were scheduled to be implemented
without regard to the Year 2000 Problem) are expected to total slightly less
than $1 million, virtually all which has already been incurred.
Based on the analysis performed to this point, the Company believes that
the most important Year 2000 risk to the Company's results of operations and
financial condition is that third-party suppliers important to the operations of
the Company's principal operating assets, the Navajo Refinery at Artesia and
Lovington, New Mexico and the Montana Refinery near Great Falls, Montana, could
for a period of time be unable to perform their normal roles because of
difficulties created by the Year 2000 Problem for the third parties and/or for
persons supplying the third parties. The Company believes that its most
significant risk would be in the case of the Company's principal or sole sources
for essential inputs -- for example power to operate a refinery. If such a
provider were to be unable to continue supplying the refinery because of the
Year 2000 Problem, the Company could be forced to suspend the affected
operations until the provider could solve the problem or in some cases until an
alternative supply could be arranged. The Company intends to continue during
December 1999 regular contacts to critical suppliers to update their evaluations
of vulnerability to the Year 2000 Problem. In the event that a
19
<PAGE> 20
HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
particular supplier appears to be vulnerable, the Company has sought to obtain
alternative supplies to the extent they are available. However, in the case of
some inputs, alternative supplies may not realistically be available even if the
supply problem is identified months in advance. In other cases, an unexpected
third-party failure could occur despite extensive prior communications with key
suppliers and the only feasible remedy to the Company for a substantial period
might be emergency corrective action by the affected third party if the third
party were capable of taking such action.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Risk Management" under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
20
<PAGE> 21
HOLLY CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In August 1998, a lawsuit was filed by Longhorn Partners Pipeline, L.P.
in state district court in El Paso, Texas against the Company and two of its
subsidiaries. The suit seeks damages against the Company alleged to total up to
$1,050,000,000 (after trebling) based on claims of violations of the Texas Free
Enterprise and Antitrust Act, unlawful interference with existing and
prospective contractual relations, and conspiracy to abuse process. See Note D
to the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a further
discussion of this lawsuit.
Item 4. Submission of Matters to a Vote of Securities Holders
At the annual meeting of stockholders on December 9, 1999, all nine 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 7,627,224 29,751
W. John Glancy 7,624,129 32,846
William J. Gray 7,597,074 59,901
Marcus R. Hickerson 7,624,101 32,874
A.J. Losee 7,622,911 34,064
Thomas K. Matthews, II 7,623,208 33,767
Robert G. McKenzie 7,627,310 29,665
Lamar Norsworthy 7,628,022 28,953
Jack P. Reid 7,597,074 59,901
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits on page 23.
(b) Reports on Form 8-K: None.
21
<PAGE> 22
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, 1999 By /s/ David F. Chavenson
----------------- ------------------------------------
David F. Chavenson
Vice President and
Chief Financial Officer
(Duly Authorized Principal
Financial and Accounting
Officer)
22
<PAGE> 23
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>
10.1 - Consulting Agreement and Release, effective as of
August 1, 1999 between Jack P. Reid and Holly Corporation.
27 - Financial Data Schedule
</TABLE>
23
<PAGE> 1
EXHIBIT 10.1
CONSULTING AGREEMENT AND RELEASE
THIS CONSULTING AGREEMENT AND RELEASE (the "Agreement") is entered into
on the 29th day of October, 1999, to be effective on and from August 1, 1999, by
and between Jack P. Reid (the "Consultant"), and the Holly Corporation, its
subsidiaries, affiliates and related entities (the "Company").
RECITALS
A. The Consultant has been employed by the Company in the position of
Executive Vice President of the Company. Consultant is transitioning to
retirement status.
B. The Company seeks to assist this transition while maintaining the
ability to utilize the Consultant's expertise.
C. The parties seek to provide for an orderly transition and establish
the duties and relationship between them.
IT IS THEREFORE AGREED:
1. CONSIDERATION. The parties acknowledge the adequacy of consideration
as expressed by the recitations and mutual covenants in this Agreement.
2. PAYMENTS TO AND/OR ON BEHALF OF CONSULTANT. In consideration for the
covenants and promises contained in this Agreement, the Company agrees to
provide the Consultant the following consideration:
(a) SALARY. Beginning effective August 1, 1999, the Company
will pay to the Consultant a Monthly Consulting Fee of Twenty-Seven Thousand
Five Hundred Dollars ($27,500.00) on the first business day of each month during
the term of this Agreement.
(b) EXPENSES. The Company will reimburse the Consultant for
all necessary and normal expenses incurred by the Consultant in the course of
his provision of services, provided such expenses are pre-approved by the
Company or part of a standardized expense list to be provided to the Consultant.
(c) MEDICAL COVERAGE. Consultant will have the right to
continue coverage under the Company's medical benefit plan under the terms
applicable for eligible retired employees of the Company.
(d) INDEMNITY: Consultant will continue to be indemnified by
Holly in the same manner under Holly's by-laws as a Consultant as if he were
still an employee. Nothing in this Agreement terminates, expands or alters
Holly's obligations to indemnify the Consultant
Consulting Agreement and Release Page 1
<PAGE> 2
with respect to any litigation or other consequences related to his prior
actions as an employee, to the extent such conduct is covered by Holly's
corporate indemnification policy and/or by-laws.
3. COVENANTS OF CONSULTANT. In consideration for the covenants and
promises of the Company contained in this Agreement, the Consultant agrees to
perform consulting services. In regard to these services, the Consultant makes
the following promises and covenants:
(a) TALENT. The Consultant will perform consulting services
related to his areas of expertise and regarding the areas of service he has
provided to the Company over the past 30 years.
(b) TIME. The Consultant further agrees he will make himself
available to the Company for the provision of consulting services as reasonably
requested by the Company (1) to timely respond to and use sufficient research
and analysis to fully address specific Company questions, research and business
needs on specific issues, concerns and/or matters as to which the Consultant has
knowledge or expertise and (2) to assist the Company's directors, officers,
executives or attorneys in the furtherance of these consulting duties.
(c) CONFIDENCES. The Consultant acknowledges that he has had
access and may continue to have access to certain Confidential Information and
that Confidential Information has come into the Consultant's possession as an
employee of the Company and may come into the Consultant's possession as a
result of the services provided pursuant to this Agreement. The Consultant
agrees to treat all such information as confidential, take all necessary
precautions to protect the confidentiality of such information, and not disclose
the information to any person without the written consent of the Company.
"Confidential Information" is defined in Section 6 of this Agreement. The
Consultant acknowledges that this Confidential Information is confidential, and
that it is a special, unique, and valuable asset of the Company.
4. DURATION OF AGREEMENT. The term of this Agreement begins effective
August 1, 1999 and continues until July 31, 2002, except as further detailed in
Section 9(g). In the case of the Consultant's death or disability, payments
under this Agreement will continue to the consultant, or his estate, heirs or
assigns for the duration of the Agreement. Disability, for the purpose of this
Agreement, means the inability to perform the essential functions of the
Consultant's duties under this Agreement, with or without accommodation, because
of a physical or mental impairment.
5. PROPERTY RIGHTS. All documents or other tangible property relating
in any way to the business of the Company which are or have been conceived or
generated by the Consultant or which have come into the Consultant's possession
during his employment or the term of this Agreement shall be and remain the
property of the Company. The Consultant will return all such documents and
tangible property to the Company on the expiration of this Agreement or at such
earlier time as the Company may request. The Consultant further agrees that all
non-confidential property or equipment provided by the Company to the Consultant
during the
Consulting Agreement and Release Page 2
<PAGE> 3
term of his prior employment or this Agreement will remain the property of the
Company and the Consultant agrees to return such property upon the expiration of
this Agreement.
6. CONFIDENTIAL INFORMATION. The term "Confidential Information" as
used in this Agreement includes all business files, ideas, materials,
information, data, methods, business programs, development strategies, technical
improvements, software, inventions, patents, copyrights, customer lists,
marketing strategies, or plans developed, used or employed by the Company that
are disclosed to or developed by the Company as a consequence of or through the
disclosures made by the Company and not generally known to or by competing
businesses about the Company or its customers. "Confidential Information" also
includes all information regarding the Company's financial affairs, marketing,
business strategies, pricing, products, properties, processes, services,
customer lists, employees' names, addresses, employment histories, compensation,
placements, or any other customer or employee information contained in the
Company's records; "Confidential Information" also includes all items protected
by the attorney-client privilege or other legal privileges; provided, however,
that Confidential Information shall not include any data or information which
has been disclosed to or has become generally known by the public.
7. NONCOMPETITION AGREEMENT. The Consultant agrees that during the term
of this Agreement, the Consultant, on his own behalf or on behalf of any other
person or entity, will not directly or indirectly compete against the Company.
This noncompetition agreement includes any action of the Consultant whether
acting for himself, or as a partner, officer, principal, director, stockholder,
holder of any equity security, consultant, employer, agent, or in any other
individual or representative capacity. This noncompetition agreement includes
direct competition or competing indirectly by giving or performing professional
services in any field related to the business of the Company, including
petroleum drilling, refining, distribution, marketing, or other petroleum
related industries. This noncompetition agreement includes engaging in, or
giving any business advice, consulting or professional services to any person,
firm, partnership, association, corporation or other entity that directly or
indirectly competes with the Company in the provision of petroleum and petroleum
related products and services developed or in development during the
Consultant's employment with, or the period of providing consulting services to,
the Company. Conduct contrary to the terms of this noncompetition agreement,
remaining uncured after 30 days notice, will constitute a voluntary waiver of
all remaining consideration under Sections 2 (a) and (b) of this Agreement.
8. MUTUAL RELEASES AND WAIVERS OF CLAIMS.
(a) CONSULTANT'S RELEASE OF HOLLY: The Consultant, for himself
and on behalf of his attorneys, heirs, assigns, successors, executors and
administrators, irrevocably and unconditionally releases, acquits, waives, and
forever discharges the Company and its current and former parent, subsidiaries,
affiliated and related corporations, firms, associations, partnerships and
entities, their successors, assigns, current and former owners, shareholders,
partners, directors, officers, employees, agents, attorneys, representatives and
insurers (hereinafter collectively referred to as "releasees") from or regarding
any and all claims, complaints,
Consulting Agreement and Release Page 3
<PAGE> 4
liabilities, obligations, damages, and causes of action. This release applies to
all claims, including, but not limited to claims of negligence, gross
negligence, tort, contract, or statute, including claims under the Age
Discrimination in Employment Act, 29 U.S.C. Section 621, et seq., the Texas
Commission on Human Rights Act, the Texas Payday Act, and any other municipal,
local, state or federal statutory law, regulatory law or common law for any
actions or omissions, whether known or unknown, and whether connected with the
employment of the Consultant by the Company or not, which exist or may have
existed prior to, or contemporaneously with, the execution of this Agreement.
The release does not cover future conduct or waive any rights arising under this
Agreement.
(b) HOLLY'S RELEASE OF CONSULTANT: In further consideration of
the promises made in this Agreement, Holly releases, acquits, and forever
discharges Consultant from any and all causes of actions, claims, damages,
including attorney's fees Holly may have against Consultant which could have
arisen out of Consultant's employment or separation from employment, whether
known or unknown, presently asserted or otherwise. The release does not cover
future conduct or waive any rights arising under this Agreement.
(c) WARRANTIES REGARDING RELEASE: Both parties warrant and
represent that neither currently is actually aware of any claim that the other
may have against it.
9. MISCELLANEOUS.
(a) SEVERABILITY. In the event that any provision of this
Agreement shall be held invalid or illegal for any reason, any illegality or
invalidity shall not affect the remaining parts of this Agreement, but this
Agreement shall be construed and enforced as if the illegal or invalid provision
had never been inserted. Furthermore, in lieu of each illegal, invalid, or
unenforceable provision, there shall be added automatically as part of this
Agreement another provision or term as similar to the illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid, and
enforceable.
(b) CHOICE OF LAWS AND VENUE. This Agreement shall be governed
and construed in accordance with the laws of the State of Texas. In the event
that any judicial proceedings are instituted concerning the interpretation or
enforcement of this Agreement, exclusive venue over such proceedings shall be
vested in the courts sitting in Dallas County, Texas.
(c) MERGER - NO OTHER AGREEMENTS. This Agreement constitutes
the entire Agreement between the parties with respect to the transactions
contemplated in this Agreement and there are no understandings or agreements
relating to this Agreement that are not fully expressed in this Agreement. Save
and except retirement and medical benefit plans, this Agreement supersedes all
prior agreements, written or oral, with respect to the subject matter of this
Agreement, provided however, that nothing contained in this agreement (save and
except the actual transition to retirement/consulting status) shall be held to
limit or otherwise prevent or interfere with the Consultant's retirement or
health benefits which he may or may not have
Consulting Agreement and Release Page 4
<PAGE> 5
otherwise been eligible for under the Company's retirement or benefit plans. No
representations, oral or written, are being relied upon by either party in
executing this Agreement, other than the express representations in this
Agreement.
(d) WRITTEN MODIFICATION ONLY. This Agreement may be amended,
superseded, canceled, renewed, or modified, and the terms hereof may be waived,
only by a written instrument signed by the parties, or in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
the right, power or privilege under this Agreement shall constitute a waiver
thereof.
(e) PERSONAL SERVICES NOT ASSIGNABLE. This is an Agreement for
personal services and obligations, and neither this Agreement nor any other
rights, interests, or obligations under this Agreement shall be assigned by any
of the parties hereto without the prior written consent of the other parties;
provided however that the Consultant shall have the right to assign any or all
of his rights and interests, but not his obligations, under this Agreement to
any entity in which the Consultant and/or persons related by blood or marriage
to the Consultant own a controlling interest. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns and legal representatives.
(f) MULTIPLE ORIGINALS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
(g) SURVIVAL. Paragraphs 2(c) and 2(d) shall survive and be
unaffected by the expiration or termination of this Agreement. Paragraphs 5, 6,
and 8 of this Agreement shall survive the expiration or termination of this
Agreement and shall remain in full force and effect until the year 2025.
(h) PARAGRAPH HEADINGS. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
(i) VERB TENSE USAGE. Except where the context otherwise
clearly limits the tense of the verbs used in this Agreement, whenever the use
of the future tense of a verb or sentence is used, it includes both the present
tense and the past tense.
(j) INSURANCE COVERAGE. Nothing in this Agreement alters,
expands, retracts or affects any coverage which the Consultant may or may not be
afforded or of which Consultant may or may not be a beneficiary under the
Company's general liability or errors and omissions insurance policies, as is
provided by the terms of any such policies, as the case may or may not be.
(k) RIGHTS OF THE CONSULTANT. It is generally agreed and
understood by the Company and the Consultant that this Agreement contains a
general release. The Consultant has knowingly and voluntarily waived any
existing rights he may have pursuant to the Age
Consulting Agreement and Release Page 5
<PAGE> 6
Discrimination in Employment Act of 1967 and the Older Workers Benefit
Protection Act. Further, the Consultant acknowledges the receipt of good and
valuable consideration set forth in this Agreement in exchange for this waiver
of actual or potential claims. It is expressly understood by the Consultant that
this waiver does not impact any claims under the Age Discrimination in
Employment Act or the Older Workers Benefit Protection Act which may arise for
acts or omissions of the Company occurring after the execution of this release
and waiver. The Company has advised the Consultant he has the right to seek the
advise of legal counsel prior to signing this Agreement, and the Consultant
represents that he has had the opportunity to seek such advise prior to signing
this Agreement. The parties acknowledge, warrant and represent that (1) they
have relied solely on their own judgment and that of their own attorneys and
representatives regarding the consideration for, and the terms of this Agreement
(2) they have been given a reasonable period to consider this Agreement, (3)
they have read and understood the Agreement, (4) they understand that it
includes a general release of all claims, known or unknown, and (5) no
statements made by the other have in any way coerced or unduly influenced the
execution of this Agreement.
Furthermore, the Consultant acknowledges that in accordance with the
Age Discrimination in Employment Act and the Older Workers Benefit Protection
Act, he has been given at least 21 days to review this Agreement. The company
further advises the Consultant that in accordance with the Age Discrimination in
Employment Act and the Older Workers Benefit Protection Act, he has seven days
after the signing of this Agreement to revoke the Agreement.
10/29/99 /s/ JACK P. REID
- ----------------------- ---------------------------------
DATE Consultant
10/29/99 /s/ MATTHEW P. CLIFTON
- ----------------------- ---------------------------------
DATE Holly Corporation
By: Matthew P. Clifton
------------------------------
Its: President
-----------------------------
Consulting Agreement and Release Page 6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 10,756
<SECURITIES> 0
<RECEIVABLES> 144,325
<ALLOWANCES> 0
<INVENTORY> 49,979
<CURRENT-ASSETS> 217,549
<PP&E> 358,101
<DEPRECIATION> 175,735
<TOTAL-ASSETS> 414,055
<CURRENT-LIABILITIES> 201,562
<BONDS> 56,595
87
0
<COMMON> 0
<OTHER-SE> 130,924
<TOTAL-LIABILITY-AND-EQUITY> 414,055
<SALES> 200,631
<TOTAL-REVENUES> 200,631
<CGS> 159,830
<TOTAL-COSTS> 189,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,561
<INCOME-PRETAX> 5,309
<INCOME-TAX> 2,083
<INCOME-CONTINUING> 3,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,226
<EPS-BASIC> .39
<EPS-DILUTED> .39
</TABLE>
